Book Review: The Snowball
The Snowball: Warren Buffett and the Business of Life
by Alice Schroeder
Alice Schroeder's comprehensive biography of legendary investor Warren Buffett tracks practically every one of Buffett's business ventures since childhood. His paper route, his business recovering and selling used golf balls, his jalopy rental-car – all presented to the reader, presumably so that we can trace his later success back to the business acumen that he showed early in life. Schroeder is a chronicler rather than a storyteller – she writes down nearly every detail that she can pry out of her interview subject, rather than making a judicious selection. That's why the book unfolds over 838 pages of text (plus endnotes).
But at the same time, Warren Buffett is a fascinating person. The advantage of a chronicle is that it allows the reader to draw his own conclusions. Even when Schroeder is clearly being sympathetic to Buffett, such as when she describes some of the negative press coverage that he once received, she does not inject much color or bias. You can really read the book in peace and then think about how the various pieces fit together? Schroeder's prose is more businesslike than eloquent, as befitting a former Wall Street analyst, but it succeeds in telling the story of Buffett's life without turning it into the author's opinion. Alice Schroeder came into Warren Buffett's confidence, and the result is a book with many details that are hard to find in the many other accounts of the Buffett legend.
Myths and misconceptions
For example, we always hear that his father was a stockbroker, since this sets up his later success in the stock market. But we seldom learn that he was a Congressman, or that he was a maverick, an isolationist, and a member of the John Birch Society. Warren Buffett thus had a chance to interact with movers and shakers from an early age (just like his friend Bill Gates did). Yet Buffett derived little direct advantage from his connections, since his father was not good at pulling strings or going along to get along. And while Warren Buffett shares Bill Gates' sense of noblesse oblige towards those less fortunate than himself, Buffett had to break with his far-right father to arrive at that point. And who remembers that Buffett testified at the IBM antitrust trial? He may be renowned for completely avoiding tech companies and thus avoiding the dot-com bubble, but he is often portrayed inaccurately as someone who has absolutely no clue about technology. He has a clue – just enough to play online bridge games with Bill Gates on MSN Gamezone.
Likewise, the popular press tends to describe Warren Buffett as a folksy Midwesterner who still lives in his hometown of Omaha, in the same modest suburban house he bought four decades ago. All of this is true, but he also visits DC regularly and easily rubs shoulders with the upper echelons of the business world. He sat on the Board of Trustees of Grinnell College, along with a certain Steve Jobs, who is remembered as having come up with all sorts of dubious investment ideas. Buffett has made no secret of his preference that everybody make his own way in the world – and he has given his children only modest inheritances. Yet, his children ultimately did end up bootstrapping on his success to some extent, most notably his son Howie, who served as a member of the ADM board just around the time of the price collusion scandal. Warren Buffett is certainly more folksy than the ordinary C-level executive, but he's not living in a log cabin either.
At one point in the early 1990s, when the press still had a less deferential and somewhat more confrontational attitude towards business leaders, there were a number of articles that portrayed Buffett in a less-than-saintly light. One article in the Wall Street Journal even went so far as to ask whether social gatherings of high-level business executives might raise some anti-trust issues. In that article, Bill Gates was quoted as complaining to Warren Buffett about ad rates, which the reporter interpreted as a type of price-fixing. This seems bizarre to us today and is also wrong factually: price-fixing is done by a cartel of sellers, while a buyer always has the right to complain about high prices. Interestingly, this was the start of their friendship, for BillG then wrote Warren a letter of apology. (Another little-known fact that Schroeder illuminates: Bill is called "Trey" by his family, because he's the third generation to be named William Henry Gates.)
Insight from Chronology
While it may seem like a distraction from his better-known business dealings, Schroeder's choice to dig deeper into Buffett's personal life actually gives us more insight into the person. After all, life is lived chronologically, not thematically. Personal troubles can often derail professional ambitions. Yet Buffett manages to keep his business acumen sharp at all times, rechanneling his personal frustrations into more productive pursuits. Schroeder sees Buffett's increasingly-insightful letters to stockholders of Berkshire Hathaway to his desire to connect with people after his wife Susie separated from him and moved to San Francisco. After Susie died, Buffett became more talkative in the news media, more willing to give interviews.
Some additional insights into his investing activities also come out of the miscellany of life. Warren Buffett tends to get captivated by a company, wanting to learn all about its operations. After a while, and especially after he has purchased the company, his interest dies down and he lets the manager run the company in peace. He recalls his investment in Korean stocks as "like finding a new girl." He learned about Korean accounting conventions, and delighted in reliving his early deep-value investments in the depressed environment after the 1997 Asian financial crisis. And Buffett has lived quite a varied life – as a rambunctious teenager who ignored his studies, a National Guardsman who got married just as his unit was called up for a flood (his CO told him to go away on his honeymoon). To some extent, such a life captures the wild-open nature of American society in a simpler time, when class boundaries were more fluid and everything seemed possible.
The book ends quite abruptly, as Schroeder clams up and blames her inability to talk further on her subpoena in some General Re litigation. What, the author doesn't even try to tie up some loose threads in a conclusion? But that's another point that is often forgotten: Berkshire Hathaway has actually been through a fair amount of litigation, and it was even the subject of an SEC investigation way back. Charlie Munger had to be dispatched to plead with the investigators and show humbleness. Warren Buffett was not always so well-loved as a white knight who leaves companies alone after he acquires them; some of his earliest investments involved lots of layoffs.
After helping his then-paramour Katharine Graham outlast a strike at the Washington Post, Warren Buffett beat the morning newspaper into submission in Buffalo, paving the way for his evening newspaper to earn two decades of monopoly profits. In fact, there was a lawsuit, in which Buffett was portrayed as an aggressor and a monopolist. But of course, seeking to obtain a monopoly is perfectly legal -- the restrictions largely come in after you've succeeded. Buffett is also an aggressive negotiator, taking advantage of other businesspeople's weak points. He obtained Nebraska Furniture Mart at 30% off the other offer, capitalizing on Rose Blumkin's Jewish feelings to defeat the Germans. Rose later felt gipped and had to be sweet-talked back into the fold.
In other words, Warren Buffett is a more complicated man than his media image usually suggests. He has a knack for distilling his experiences into nuggets of wisdom, but you need to see more than that to truly understand his success. Schroeder titled the biography Snowball to explain Buffett's success as a slow-but-steady accumulation, rolling a snowball down a steep hill as it grows ever-larger. But Buffett has actually had more than one career. He parlayed his success at stock-picking into an acquirer of whole businesses at very attractive prices, using his reputation as a hands-off owner to convince the owners to hand him a nice premium in return for letting them keep managerial control. Later, he took advantage of his business connections to rescue several companies, pocketing a nice dividend on the preferred stock for his troubles. All along, he never stopped examining and adapting to circumstances. Successful stock-picking cannot be done through a set of formulas. Buffett did it by remaining adaptable, knowing where his strengths and weaknesses are, and swinging very hard when he was pitched a great ball.