In this episode, Preston and Stig discusses the best-selling biography, by Roger Lowenstein. The episode is packed with funny anecdotes from Warren Buffett’s early career as a paper boy to his most successful investments and achievements. If you want to read our five page executive summary of, this book, Buffett: The Making of an American Capitalist, view this page instead. If you would like to download all of our book summaries, click here.
- In this episode, you’ll learn:
- How Warren Buffett already read financial statements when he was kid
- Why Warren Buffett was sitting behind the counter at the local steakhouse collecting receipts, and how that lead to one of his best investments
- How a gentleman that counted sheets of toilet paper convinced Warren Buffett to work with him
- Why Warren Buffett never replaces management in the companies he acquirers
- How Warren Buffett picked the CEO of Salomon Brothers in a simple, yet very orthodox way
- Ask the Investors: How do you generate ideas for new stock investments?
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OUR SUMMARY OF BUFFETT: THE MAKING OF AN AMERICAN CAPITALIST
If you would like to download the below summary of Buffett: The Making of an American Capitalist in .pdf format, follow the link.
Chapter 1: Omaha
In this chapter, Lowenstein talks about Buffett’s early age where he possessed an impeccable memory. His love for numbers was obvious to his friend, Bob Russel, who grew up with him Omaha. At a very tender age, Buffett believed in working hard and embraced every business opportunity that came his way. Interestingly, he’d get ticker tapes from his father – who was a stock broker – and try to understand the symbols using Standard & Poor’s manual. Understandably, Buffett found it extremely fascinating to make money and then watch it grow and proclaimed that he would be a millionaire by the age of 30. After his father was elected as the Congressman, Buffet began working at the Family’s grocery store.
Chapter 2: Runaway
Once the Buffett family moved to Washington, Warren Buffett worked as a newspaper carrier, and although he was only 13, he had the unusual habit (for kids his age) of maintaining a record of what he earned. Not only did he immerse himself in business books, but he also made a bit of money by selling magazine subscriptions. Needless to say, he also filed a tax return and refused his dad’s help. However, Buffett was unhappy and ran away from his home. His parents were quite shocked, but didn’t rebuke him after he returned home. Buffett enrolled at the Wharton, and later, he graduated from the prestigious University of Nebraska. He also enrolled at the Columbia Business School.
Chapter 3: Graham
As Buffett was already smitten with the stock market, Benjamin Graham just gave him the push he needed and opened a wide new world to the stock market. Although he was already trading and studying the stocks, he hadn’t made a lot of progress, but Graham changed it all. He offered several tools that helped Buffett explore several opportunities in the market and also helped him adapt to an approach that suited his demeanor. After honing his natural talent under Graham’s tutelage, Buffett went back to Omaha and married a woman named Susie in 1952. At this point, Buffett had also begun investing in companies. Later, he began working for Graham-Newman that was located on Wall Street.
Chapter 4: Beginnings
By 1957, Buffett was already managing about $300,000 for his friends and family. He had no track record but even when he got a call from Edwin Davis, a reputed neurologist in Omaha, he stuck to his own terms. He made his message clear that he would be open to conduct business only one day in the year and that they wouldn’t even know where he would invest their money. Of course, getting a deal with Davis would assure that he could make an entry as a professional, but Buffett stuck to his terms. He also followed the same principles with other clients, and although they couldn’t question him about the whereabouts of the money, they still made profits.
Chapter 5: Partners
Slowly, Buffet began investing by buying small stakes. By 1962, Buffett partnership bought a small stake at Newford that was priced at $7.60 per share. As a manufacturer of suit liners, it seemed like Berkshire was a great bargain since it had $16.50 per share with a working capital that was at least two times the share price. Warren Buffett followed Graham’s principles, but he also developed some of his own. He didn’t look at stocks like mere assets, but they were live businesses with amazing potential for him. Although American Express was involved in the fraud regarding Salad Oil, he bought stocks in the company and also invested in Disney. By now, Buffett was a multi-millionaire, but he didn’t change his lifestyle.
Chapter 6: Go-Go
Gradually, new stocks including electronics were being traded. Although they needed people to be trustful and invest in it, people still did it and stocks went up. This didn’t bother Buffett much when his fund was still very small, but as the capital grew, he began to get antsy. Fewer bargains made him feel trapped and after a lot of forethought, he stopped accepting any new partners in the year 1966. Since he was unable to find stocks that agreed with his principles, he had to lower his own goals. He also met Graham and his other disciples and finally decided to dissolve the partnership.
Chapter 7: Berkshire Hathaway
In this chapter, Lowenstein discusses the history of the famous Berkshire Hathaway and how Buffett took charge of it. Berkshire and Hathaway merged together in 1955 and was named Berkshire Hathaway Inc. The company didn’t seem to do too well, and although Buffett had bought stocks in it, he didn’t have any intentions of taking over the company. However, he did take charge later with Ken Chace to manage the company. Through Berkshire, Buffett also bought the National Indemnity Company and several other properties. By 1970, he was made the chairman of Berkshire.
Chapter 8: Return of the Native
Since the partnership had dissolved, Buffett had a lot of time on his hands. Of course, he did oversee Ken Chace’s work and the Hathaway mill, but it still gave him time to do other things. He also declared that he was declining requests since he was no longer involved in the investment business. At this point, Buffett took his time and got busy with other projects. Among other things, one can’t ignore the philanthropist in him. As his wife Susie was already involved, she also encouraged him to take a step ahead. As a result, he helped provide scholarships to about 50 black students. However, he couldn’t keep away from the investment business and was back in action when he bought stocks in 1972 for the insurance company that belonged to Berkshire.
Chapter 9: Alter Ego
The friendship and camaraderie between Charlie Munger and Buffett is described in this chapter. There were known as two people who resembled each other to a great extent. Both of them invested and bought stocks separately. Within no time, Buffett was the largest shareholder and Munger was a close second in a company called Blue Chip Stamps. There was an opportunity to make loads of money, but somewhere along the way, the game became dangerous since Buffett was now investing and working on behalf of Blue Chip, Diversified and Berkshire. Lowenstein has also shown a chart for the reader to understand how Buffett managed it all. Later, the SEC kick-started an investigation that continued until 1976, but Buffett was just slapped on his wrist.
Chapter 10: Washington Redux
In this section, Lowenstein talks about how Buffett became an advisor to Katherine Graham who managed the Washington Post. When Buffett met her, Katherine, who was working as a reporter initially, had no expectations that she would be running the company. It was a rough phase for her, but Buffett changed that. By 1974, he became a board member. He was 57 years old and also became her friend and adviser. In his tutelage, the Washington Post made a few other investments. Incredibly, the return on the equity was doubled and as time passed by, it simply kept increasing.
Chapter 11: Press Lord
In this section, Lowenstein talks about Buffett’s experiences with the Evening News, a newspaper in Buffalo. Buffett was mainly interested in it because of the stable population. Despite its negatives, including the fact that the newspaper didn’t publish on Sunday, Buffett even wanted Graham to know that he was interested in acquiring it. Buffett’s wish was not to become an advisor to a newspaper company, but he wanted to own one. In 1974, Buffett and Munger bought the Evening News. Their plans to publish a Sunday edition was met with some protest and they also were embroiled in an anti-trust suit from the rival company. Due to an injunction, the paper began to suffer from losses, but it was reversed after two years.
Chapter 12: Partners, Redux
This chapter talks about how Buffett and his wife were living separate lives. Buffett was completely involved in his businesses, but Susie was beginning to get more interested in her career. She wanted to become a singer and was also auditioning at the time. The couple began to grow separate from each other as they had completely opposite interests. As Susie turned 45, she performed at the Orpheum, but separated from Buffett the same day. She also stated that she wasn’t doing it legally, but just wanted to live alone. For Buffett, it felt like the support he had received to continue with his work without worrying about emotional matters was suddenly gone. He was stunned. However, he had Astrid Menks move into his house after a year. Buffet began buying more stocks by the late 1970s again.
Chapter 13: The Carpet Woman
This section is about Mrs. B, aka Rose Blumkin, a woman who sold her business to Buffett for $60 M. When appraising a business, Buffett always thought about how he’d feel if he had to compete against it. When he watched Mrs. B, he felt that she was someone who was born out of the letters he wrote. She was tenacious, hardworking and strong. One by one, she made her competitors go out of business and that’s exactly what Buffett admired in her the most. She worked until the age of 103, and this simply proves that it’s not age, but it’s the will that matters when in business.
Chapter 14: The Eighties
The 1980s was more like an era where there were too many mergers and acquisitions to be seen. The mergers were hostile and there were too many dramatic changes taking place. Everything was taking place at a furious pace, and Wall Street had made about $12 billion through a few deals. It shot up to $122 billion by 1984 and this made others resent the investment bankers. After a long time, Wall Street was seen to be taking initiatives. At this juncture, Buffett acquired many media companies and Cap Cities that later merged with ABC. However, he seldom participated in hostile mergers.
Chapter 15: Public and Private
This section describes Buffett’s public and private life in more detail. One would expect a billionaire to lead a lavish life, but Buffett didn’t believe in that. Although he was in the public spotlight, thanks to the millionaires he’d made in the USA, he rarely behaved like a billionaire. He had too many people asking him to help them make money. The media was understandably every interested in his private and public life and this raised a lot of speculation. Susie lived separately, but she always accompanied him in public, but his private life had Astrid Menks give him company. Long story short, Buffett wasn’t like the average CEO who has no time for other things in life. Warren Buffett, a billionaire, had only 11 people in the corporate headquarters.
Chapter 16: Crash
Buffett was also involved in businesses that revolved around the insurance market. At the time, every other company had their own strategy. In other words, while the other businesses cut back their prices to cling to the market shares, Buffett steadfastly refused to give in because he felt that he would be betting against odds. He perceived the insurance business as playing poker and his mathematical calculations helped him to make profit no matter what business he invested in. He also made it clear that he would wait for the prices to rise once the businesses pulled back. The market experienced heavy losses in 1985. However, Berkshire made profits. Later, Buffett sold all of his stocks, except GEICO, Washington Post and Cap Cities.
Chapter 17: A Brief Introduction to Darts
In this chapter, it’s obvious to understand Buffett’s dislike for the Efficient Market Theory. After the crash, Buffett had expressed his displeasure that people were bothered about efficient markets, rather than worrying about the value and price. Basically, the theory stated that the price of a stock reflected all the information of any company that was publicly available. Whenever stocks became public, traders sold or bought until the price was stable. This gave birth to the assumption that since the price displayed all the information required, it was futile to delve into security analysis.
Chapter 18: Secrets of the Temple
This chapter talks about how Buffett became the biggest shareholder for Coca-Cola in 1988. Lowenstein also shares the principles of Buffett, when it comes to determining the ‘value’ of stocks. Simply put, Buffett primarily tries to pick stocks when the value is significantly more than the price. The rules can be quickly summarized as follows:
- Don’t pay any attention to forecasts and trends, but pay close attention to the value of the business in the long term.
- It’s best to stick to stocks within your area of competence because if you can’t understand the business, there’s no point in investing in it.
- Pick managers that treat the shareholder or investor’s money as their own
Chapter 19: Howie Buffett’s Corn
This chapter describes Buffett’s relationship with his children and how his views about sharing his fortune with his children were beginning to change. As mentioned earlier, Buffett rarely threw his weight around as a billionaire. He also criticized wealthy people when they left behind their fortunes to the respective heirs. Buffett rarely coached his family and friends about their financial matters because he felt that their relationship would be cleaner if money wasn’t involved. Although his attitude stunned his friends, Buffett cut his children from financial support since he didn’t want to spoil them.
Chapter 20: Rhinophobia
After Black Monday, people witnessed the stocks soaring high. During late 1980s, greed had overshadowed fear and this also gave Munger and Buffett the opportunity to make more profits. Teamed with each other, both Munger and Buffett were known to question companies and tear presentations apart. In the meanwhile, Buffett also purchased RJR Nabisco and also arbitraged on different types of stocks. Interestingly, he bought companies to prevent them from being acquired and was also criticized for it. While some deals were good, others weren’t so profitable.
Chapter 21: The King
This chapter describes the history between John Gutfreund and Salomon. Buffett admired Gutfreund since he played a major role in helping GEICO becoming stable, but even Buffett was appalled at the problems that went on in Salomon’s firm. He rarely interfered in the company’s problems but he stepped in and asked them to cut back. However, it seemed to be too late as the Justice Department and SEC had already begun an investigation. Gutfreund had to resign and Buffett was made the CEO.
Chapter 22: Salomon’s Court
This chapter is a continuation of the previous chapter where the problems encountered in Salomon’s firm are briefly described. As the investigation continued, Buffett met the top officials in the firm to assess and salvage what was left of the situation. He also selected Deryck Maughan to manage the firm. Needless to say, Buffett cooperated with the Justice Department during the investigation and made several changes in the management. Eventually, the cases were settled, and with time, the firm that was struggling, made record profits.
Chapter 23: Buffett’s Trolley
This chapter takes a look at Buffett’s holdings in early 1990s. Lowenstein talks about how Buffett increased the stakes in Wells Fargo. While the banks recovered after a bad recession, Buffett’s earnings increased considerably. By 1994, Buffett had amassed about $9.7 billion and continued to dazzle people with his personality and intuitive nature. Even today, Buffett searches for stocks that hold intrinsic value and doesn’t intend to change his methods.
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PODCAST TRANSCRIPT AND SUMMARY
Preston: [00:00:00] We study billionaires and this is Episode 64 of The Investor’s Podcast. We’re broadcasting from Bel Air, Maryland.
This is The Investor’s Podcast. We read the books and summarize the lessons. We test the waters and tell you the best actionable investing strategies.
Hey! How’s everybody doing out there? This is Preston Pysh. I’m your host for The Investor’s Podcast and as usual, I’m accompanied by my co-host, Stig Brodersen, out in Denmark.
We’ve got a really good book as usual that we’re going to be talking about today and the name of that book is Buffett the making of an American capitalist. And this is really one of two major biographies that I would recommend. I’m sure there’s a bunch of biographies out there that we haven’t even touched. But really, the two main ones that are out there are this book here and this one is written by Roger Lowenstein. The name of it again is “Buffett: The Making of an American Capitalist.” And then the other book is called “The Snowball” which I’ve also read instead. You’ve also read The Snowball as well. Correct. Yeah. I love that book. Yeah. So that’s another good one of the two. I would say I might be biased because I just read this one but I think I like this one maybe a little bit more. What’re your thoughts? Which one did you enjoy more of the two?
Stig: [00:01:26] I think they’re very similar. Like you don’t necessarily need to read both of them. So like it’s about your writing there’s only so much you can say about Warren Buffett and his ventures and where these are today. But yeah. I might be slightly biased as well because I just read this one.
Preston: [00:01:42] Yeah. So both of them are pretty good and both of them cover a lot of the same areas to be quite honest with you. I think that there was a lot of rehashing of kind of the same stories. There were a few newer things in this one that I hadn’t heard before, which I really enjoyed. And it’s funny because people on the forum on our Warren Buffett form dotcom have brought up some of these points that I had never heard. And it really kind of came out of this book because I hadn’t read this book yet. Really interesting read. Really fun read. What we’re going to do today is not really go chapter by chapter through the book but just kind of highlight some of the things that we felt were really good stories that we could tell the audience and also things that we felt were kind of important to highlight in order for you to capture a better idea of what the essence of Warren Buffett is. So I’m going to start off with the first story they’re going to throw it over to a stick and then he can tell one of the stories or one of the highlights from the book so the first thing that I wanted to talk about was Warren Buffett as a kid and I think anybody out there whenever you’re talking about when a person becomes something it’s often so heavily influenced their childhood has such a huge influence on that. And so when you look at Warren Buffett from a very very young age I want to say he was like 12 or 13 or something like that whenever he started doing his paper route. That’s how he started making money as a kid he had his own paper route and it wasn’t just like a normal kid who was delivering just a couple of papers in the book. I believe it the number and correct me if I’m wrong but I think the number was 500,000 newspapers is what Buffett had delivered as a kid that correcter somewhere around in that ballpark.
Stig: [00:03:18] Yeah I think you’re right. I was really impressed because I delivered papers too when I was that age. Well, this is where I am today.
Preston: [00:03:25] Not as good as we’re both because for so Stig probably delivered 500 total though so that’s I mean that’s totally crazy I don’t know. I could even imagine what a stack of 500,000 newspapers would look like. But they talk about it at such a young age for a kid to be that motivated to get up to deliver that quantity of newspapers. And it said in the book I want to say he was getting up at 4:00 3:30 something crazy in order to deliver all these newspapers so he was highly motivated. Just a ball of energy at a very young age and it wasn’t like he just did it for a year I think he did this for until he was maybe like 17 16 something like that. He did it for quite a few years where he was getting up every single morning. And what they talk about in the book is it wasn’t like he was just doing it just to do it. He was doing it with vigor and absolutely like there was nothing more important to him than his paper route. And so this was the part that I felt was really the key nugget from this story that they were talking about him as a young kid delivering these newspapers.
Preston: [00:04:25] And it was that he was like almost obsessed with the money that he was receiving from this paper route when he would receive the cash. He wouldn’t let anybody touch the cash. Sat in this drawer and in this jar. But more importantly what he would do is he had an accounting that he was doing on this money where he was keeping track of all of it and he was in effect doing his own financial statements as a young kid in order to annotate the money that was received on certain days and basically tracking it and he was a numbers whiz talks a lot about that where he was just memorizing dates and times and long numbers and then he could just spout these numbers off. He was almost like he was obsessed with just spouting off numbers. One of my own personal experiences with this. So Stig and I were out at the shareholders meeting and what was it 13 Stig I think it’s 2014 but I’m losing count. You know you might be right.
Stig: [00:05:20] So that shows you how good our memory is and with numbers.
Preston: [00:05:24] So we were at the shareholders meeting and Buffett he’s up there talking about one of these deals and I would say that the deal had happened months ago six seven nine months ago or something like that. And he’s talking about you know one of the people would ask him this question about the company and he just goes and that’s whenever we took nine hundred six hundred or nine million six hundred thousand four hundred in it and he just spouted off this number down to the share. And I was sitting there like holy. He wasn’t booking anything and he was just he was just spouting off these numbers down to like the dollar or the share count the individual share it was totally mind blowing. I was just I was kind of floored and I stick and I were sitting next to each other we just looked at it like oh my gosh that is crazy. And so the reason I tell that story is really to kind of give you an idea of how intelligent this person is but also tie it back to the story of him delivering these newspapers where he was keeping track of every cent he made and he was developing these financial statements and I think that that’s really important because whenever I started my own business I started doing my own accounting that I truly feel like that was one of the most important things for me from a business standpoint to really start to understand how financial statements work because I was having to create an income statement.
Preston: [00:06:46] I was having to move stuff around on my balance sheet and let it sit there and then you know when I’d sell something I’d have to move it back off my balance sheet and listed on my income statement I was seeing the dynamics of how that worked. And that was such an important step for me and so Buffett’s doing this as a kid he’s doing this. These financial statements as a kid with his paper route it lays the groundwork for him now is this guy who can crack open the financial statements of any business and be like yeah that’s worth forty three dollars a share or whatever. And I think that’s so important for people to understand because most people that invest in the stock market a they don’t even look at the financial statements. B if they did look at the financial statements it would look like it came from an alien planet. And I really think that if you’re not looking at that stuff and you don’t understand how it works you’re way behind the power curve and really investing in individual stocks and that’s really Buffett’s forte and it really developed as a young kid.
Stig: [00:07:41] And one thing I think is really important to realize about Warren Buffett is that it’s not only his paper route that was not only his focus when he was a teenager or perhaps even before then he started to invest in stocks too. So he bought his first stock when he was only 11. I think he was 14 when you bought a farm which he rented out to someone like he was all over the place. He was also collecting golf balls and when he saw that it just took too much time. He was hiring his friends to pick up golf balls and he was facilitating all of that. So this is a funny story that I think we’ve got to tell and I don’t really think it has a lot of purpose as far as you know something that’s actionable for you as an investor but I think the story is so funny that it’s worth sharing. So he’s 18 years old at this point and he had just started getting into this business of pinball machines and so he comes up with the idea of putting these pinball machines into barber shops in order to collect money and basically work on an arrangement with the barbers. What’s really funny is literally I was in the mall probably last week with my son and my son’s really little He’s 3 years old. He likes to ride these you know like the little amusement park rides that you put the quarters into. And I’m sitting there looking at these things and I’m like This is the best business model ever you set these things up you step away and man you don’t have any issues so it was funny as we were there with my son lombe hold the people who own the machines came by and they were collecting the quarters out of them so you know me they’re talking to this guy about their business model.
Stig: [00:09:10] I said this is the best business that you could possibly have and he says Well not necessarily. So he said this mall in particular is really good because we don’t have any people that come in here and damage the machines are putting Chucky Cheese coins into the machines which damages them and then they they can’t collect any money. He has basically told me all the problems and he said you know we had some machines at this other mall which was further away and there was kids there that were always damaging the machine so he said we got to the point where we had to pull them out. And so then it made me think about this book on Buffett because this just shows you how smart Buffett is. He takes his pinball machines and he drops them into these barbershops and then he gets the barber shop to have some skin in the game. He basically split the profits of the pinball machine because if the machine would break or there would be something that wasn’t working. The barber obviously wanted to get working so he would call Buffett. And Buffett did this with one of his friends and they’d come out and they’d fix the machine.
Stig: [00:10:06] So even at that young age his business model was set up for success where he knew I can’t take 100 percent of the profit give some of that up in order to put it in the store also ensure that it’s working. It was just you know as a business prodigy as a kid but this is the funny part of the story with the whole reason of me telling this so a lot of the times Buffett he was so young and I guess whenever he was a young kid he looked even younger than being 18 or whatever he was that he he had this baby face. So he had roll into these barbershops and the barbers would be like hey what’s the chances of us getting another machine in here you know. And Buffett said well you know I will have to take that up with management. And so Buffett would leave and he kept this mystique going on that he wasn’t the person who owned the machines he was just the kid who was maintaining them and he had nothing to do with like the person who owned the machines. And so he kept this go so that he could just expand his business and I don’t know how many pinball machines you had. You remember how many he had around town. It was a lot that was quite a few and that thing was like the mob or something like that. It was a hilarious story.
Preston: [00:11:16] Yeah they were at them like they were in the mob and all want to take that up with management and then they’d walk out. It’s just it was such a funny story it was really good. All right so that’s that’s all I had from his childhood. I’m going to throw it over to a stick so he can talk about one of his points.
Stig: [00:11:30] I think the thing that impressed me the most was the thermal analysis of the market research that Warren Buffett put into all of his adventures. And I think there was a different story you can tell. One of them is when he was a 5 and he figured out that he would like to drink soda he was going with a friend to his or to the local machine to collect soda caps. So he was counting the amount of soda caps and the brand. So at the age of five he figured out that most people liked coke. So that was actually his basis for going out buying a six Cokes for a quarter then selling each of them for a nickel each. And I think the interesting story to tell is that obviously this is a very silly example but he keeps doing the same through world market research. So whenever For instance he started his own partnership and basically this story is known as the American Express all sell its scandal. So this also tells you about the type of Bakassi source that he kept conducting. And I think there’s a lot of parallels to what he said in his early. So the story is this. Back in 1963 American Express owned a subsidiary that was committing a ton of fraud. So they should be owning a lot of the oil but basically they owned a lot of contaminated water.
Stig: [00:12:51] It was just a completely fraud from a to see here. And back then the stock price was just cut in half. I mean all the investors were running for the hills back then. And Warren Buffett as a shrewd value investor and as someone that conducts love and research. He is saying I basically don’t think that there’s anything wrong with this business model. So what he’s doing is not to collect sort of cash what he’s doing is that he’s sitting behind the desk at the local steakhouse. He is collecting the receipts that these customers are just leaving and he’s seeing that. Well people might not like American Express and he’s seeing that people still paced with the American Express card like they are unaffected about the scandal that might not like the scandal but they still paid with a credit card. So you go in and he was pouring in 40 percent of the partnerships money in that single stock today. Like Warren Buffett says keep company in American Express his cost price of his stocks he owns now close to 50 percent of the company is 1.3 billion dollars and the worth is more than 14 billion. He’s just been growing his share of American Express Company and it started back then when he saw a golden opportunity because the people all reacting and he was doing thorough market research.
Stig: [00:14:11] So I think it’s important for people to understand this aspect of Buffett when Stig’s talking about how much his American Express has ballooned to as far as value. And you hear these stories about how he was making money as a kid and I mean I don’t remember the exact amount of how much he had whenever he went off to college but I want to say it was around $10000 and you got to realize the timeframe of this $10000 back whenever he went off to college is like you know $100000 today with the inflation piece of it. And so he was able to accumulate all this money not just because he was very smart and business savvy and saved like a fiend it’s because he didn’t spend anything and that that’s the second part of the equation here. You know it’s really a two part variable. What’s coming in versus what’s going out and he had he didn’t have anything that was going out. He is like one of the ultimate misers of of all time. And I think a lot of people miss that piece of it and don’t realize how incredibly cheap he really is.
Preston: [00:15:10] And that’s one of the reasons he’s been able to grow as his worth as well. So that’s an important part to take with you. The other part of this that I wanted to highlight is that Buffett thinks like an owner if you’ve got anything from these stories that we’ve started telling from the start of this episode till now he is the ultimate business owner and I think that that’s what sets him apart from other people on Wall Street or some of these really famous investors that you hear about and all of a sudden ten years later they’re not really talked about too much. I’m not saying Bill Ackman is going to you know go by the wayside. But he’s one of those guys that I feel has really just kind of been an investor from day one and not necessarily a guy like Buffett who really got his foundation of hey I want to make this business work. Hey this is a business that I’ve been running for years in the stock investing thing is something that’s nested inside of his leadership as a business owner. I think that really sets him apart from other investors. I think he got that foundation as a kid and I think that’s one of the reasons he’s so effective is because he thinks like an owner and he thinks like a business manager first and I think he thinks more like an investor second and I know some people might kind of raise an eyebrow at that but I really think that’s why he’s so successful.
Stig: [00:16:22] I think one of the secrets to Warren Buffett’s success is that he’s always been able to surround himself with people that are better than self or if not better than yourself then at least people that are really really good at what they’re doing. And he’s been able to delegate something to them. And I think to people it comes to mind is browes Bluhm Ken and Ben Rosner. So let’s take the first one. Rose plum can perhaps better known as Mrs. B. She came to the States like what is now priced a hundred and twenty years ago or something like a long time ago. Right. Perhaps even longer and she had five hundred dollars to her name. And so with that five hundred dollars she started a shop selling furniture. And she was under a lot of pressure and that back then that she was struggling a lot but she always made sure to satisfy the needs of the customer. So there was actually a store is going well she is starting to sell her own furniture because she’s so adamant about always being a man like she is really a the type of work ethic that you can only admire. So just to give you in the context of this she worked 70 hours a week 52 weeks a year. She actually sold her store Nebraska Furniture Mata want to say yes. We actually went to visit that place when they were at the show House meeting and she sold that to a buffet when she was 89 and she kept working in the business after that. Then at the age 95 she had a falling out with a family. So you might be thinking well she is 95. She made plenty of money issue probably just lacks though. She started out a new furniture mart just across the street and Warren Buffett had to buy her out of that store to buy five million dollars. A few years later and then she returned to the Brusca French him up and worked every day again 70 hours a week until age 103. That is an amazing story.
Preston: [00:18:23] So the best part about this is when she opened up the competitors store on the other side of the street her kids were still working at the brassica furniture mart for Buffett. Buffett had some you know and the terms and conditions of the deal he obviously wanted them to continue running the business because he’s not going to step in and do it. So he’s sitting with you know tens of millions of dollars in her pocket. She’s you know like Stig said she’s what 70 80 years old and she moves up was 95 percent of that. That’s the most impressive thing. How is that possible. She’s hard core. And I’ll tell you seeing the when we went out there and visited this store this store is so big and and ridiculous in size it blow your mind. It does not fit in little Omaha let me tell you. You would think that there would be no mediocre size furniture store there in Omaha. This thing is massive absolutely massive. It was really neat to see in person. But the story on Rose bumpkin is one that Buffett really likes to tell to a lot of people if you have you’ve never heard this story let me tell you. Google it or read it in this book. Buffett the making of American caballus read it in there. Also there is a good piece of it in the snowball if you guys want to pick that up and read it in there.
Preston: [00:19:35] It is an awesome awesome story and another great story is the story of Ben Rossner at this cocktail party. It was hearing this conversation between Ben Rosner and one of his competitors that was also running retail in the city and now talk about all kinds of things and what’s the cost of this. How much do you pay for that. And then one thing really surprised Ben Rosner apparently hit pay too much for his target paper. And in Boston he got really really mad because he thought that his supply might be cheating him. So he was actually leaving this cocktail party driving to his warehouse and he was counting whether or not there was 500 sheets on his top of the paper roll. And I know it sounds like a ridiculous story and define thing is actually he was cheated by his supply. There was not 500 sheets on paper. And whenever Buffett heard that or he was just saying Ben I need to do business with you. So as it happens there was actually about to retire at this point in time. And Warren Buffett bought him out. And also because Warren Buffett knew that Rusnak could not just leave his business. So actually Rosler returns to the business. And one of the things I really liked about the book was that he was saying to Warren Buffett when he finally retired 15 years later he said that I forgot I sold to you and you forgot you bought from me.
Preston: [00:21:06] And you know I think all the people that he buys the businesses from that stay in management positions say all the same thing. They’re like hey this was like we never even sold the business. You know we’ve got a we’ve got a big fat check from Moore and he pretty much let us keep doing our thing and never bothered us. Whatever numbers we handed him at the end of the year for the most part he didn’t ask any questions. And I think that that’s why he’s been. It’s it’s crazy when you let go of the reins. Sometimes the best way to exercise authority is to relinquish your authority and let people you know run with it and charge them with responsibility. But I think he’s been successful in that because he’s never bought a company from somebody that he knew he couldn’t do that with. And that’s where I think a lot of people make mistakes as they’ll go and they’ll buy a business or you know you see these large companies do these acquisitions. They never even look at the management or they never even look at the culture of the employees within that business. Next thing you know there’s this rebellion going on because they don’t want to be a subsidiary or whatever. And I think that’s one of the really big nuggets with Buffett when he’s doing these large acquisitions as he looks at that culture and more importantly he looks at that key leader who’s running the business because one of the things he says in the shareholder letters he says we’re not going to supply the management it’s got to come already installed on the acquisition.
Preston: [00:22:22] So it speaks to the people that he’s buying the companies and it also speaks to his ability to pick it. But really great story. All right so I want to transition gears here and I want to talk about his experience at Salomon Brothers a lot of people have heard this story or seen this piece of Buffett. Whenever he went out the Solomon Brothers because they had this experience with a gentleman named Moser who worked at Salomon Brothers and he was basically conducting fraud. This gentleman was one of the lead people with their treasuries Department buying treasuries and then selling them to customers on behalf of Salomon Brothers and then also keeping some of the treasuries for Solomon Brothers. And what this gentleman was doing was he was buying treasuries on behalf of the company for these other vendors and for these other customers. But there was no agreement between the other customers. In some cases. So he would go and maybe he would buy $10 billion worth of treasuries and he would say $3 billion of this is for customer X another $3 million is for customer Y and then 4 billion is for ourselves for Solomon Brothers and in all actuality what he was doing is he was conducting fraud and that all $10 billion worth of the treasuries were just for Salomon Brothers they weren’t for those other people that he had told the treasury they were for.
Preston: [00:23:38] And so this got out and this was disastrous and everyone was concerned of how the government was going to handle it. As far as you know what penalties would be invoked how much. I mean this was like you can’t get a bigger disaster from a bank’s standpoint that somebody would just be straight up lying on behalf of some of their customers on acquisitions in the billions. So this shakes out. Well Buffett’s shareholder of Solomon Brothers What was the percent that he owns. It was at around 10 percent I believe from the book. Yeah. Yeah something like that. It was around he and about 10 percent stake and so on and brothers and so Buffett’s the shareholder doesn’t really have too much of involvement for the most part in this company because it’s a non operational subsidiary. But now he’s going to get involved. And so the CEO of the company and he comes to Buffett and he says you’re pretty much the only guy that can step in and really bring calm to this sit