The Snowball

The result of all this experience is a man who has spent a lifetime amassing a fortune larger than most of us can comprehend. He's humble, he wears frumpy suits, and he still lives in the same house he bought back in the nineteen fifties. His legendary office at Berkshire Hathaway is small, and furnished with cast-off, dowdy furniture that might have been in style back in the nineteen seventies. Maybe.

He's counted and pinched pennies all his life, but recently willed almost his entire fortune away to the Bill and Melinda Gates Foundation. So, is the story of a modest-living, billionaire investor worth your time? Absolutely. Buffett's memoir can be read and enjoyed by anyone.

Business people will learn about heart-centered leadership, and why honesty always pays off. Investors will learn about Buffett's 'cigar-butt' investing strategy, and how this simple wisdom made him a millionaire before he turned thirty. And money savers will see first hand how the world's richest man stayed frugal his entire life.

The author has known Warren Buffett for many years. She started out as a Wall Street analyst and director at Morgan Stanley, but moved to full-time writing on Buffett's suggestion. He left the book entirely in her hands, and it's obvious from the first page that she's done a masterful job. She paints such a detailed picture of his life that, by the end, you feel like his fortune is really the most insignificant part of him. It's the stumbles, the mistakes, the simplicity, and the triumphs that really turn Buffett into a legend.

So, keep listening and discover the difference between inner and outer scorecards; how rivalry led Buffett to acquire his legendary company, Berkshire Hathaway; and why his children work for a living.

Like most biographies, the book starts with Buffett's childhood. And, while it may be tempting to think you can skip this section, the truth is you won't want to. Why? Well, because it's here that Buffett discovers the joys of collecting. Anything, from stamps to coins to bottle caps caught his interest. But what he most loved collecting was cash. And, this was at the age of six.

It's also in this early section that the author uncovers one of Buffett's main, guiding philosophies, and it's one we can all learn from. He calls it The Inner Scorecard. According to Buffett, there are two types of people in the world: those who use an Inner Scorecard to make decisions, and those who use an Outer Scorecard.

The people who use an Outer Scorecard don't make a decision unless it's going to make them look good to others. They care about what their friends and neighbors think of them, and maintaining appearances is their top priority.

Those who use an Inner Scorecard – people like Buffett – follow their gut and intuition. If a decision is good, but it's going to make them look bad, they make it anyway. They care nothing about appearances – only about making the right call. This philosophy, of following his own heart above all other things, has helped him become the man he is today: honest, confident, and almost always right.

Another important philosophy we learn about early on in the book is Buffett's cigar-butt investing strategy. His mentor and first major employer, Ben Graham, coined the term. Basically, cigar-butt stocks come from companies that are cheap and unloved. These are companies that most of the world has given up on but, according to Buffett, are still good for one last puff.

This style of investing immediately appealed to Buffett. It was a natural fit for him, because he loved saving money almost as much as he loved making it. He was naturally gifted at researching and identifying cigar-butt companies, and quickly began to earn massive amounts of money trading under Ben Graham.

It's interesting to see how Buffett's character and investing style began at such an early age. Back then, he completely researched every company before making a decision to buy its stock, and never made a rash or risky move. Every step was deliberate. And, he's no different today.

The book goes on to cover almost every deal Buffet has made throughout his life – which we won't list for you now. Instead, we'll focus on one of the most surprising stories in The Snowball – how Buffett purchased the now-legendary textile company, Berkshire Hathaway, later on in his career.

It all began when Buffett starting to buy shares of Berkshire, which were selling far below what he considered them to be worth. A perfect cigar butt, if you will. Things began to escalate after Buffett made a tentative deal to sell his stock to the company president, Seabury Stanton. Stanton tried to chisel Buffet out of the deal at the last minute, and that was a fatal mistake.

Why? Well, because no one ever chiseled Warren Buffett. He got mad, and decided that instead of selling his stock, he'd buy the whole company instead.

It wasn't that he wanted Berkshire that badly. It was just a textile mill, after all. He simply wanted Stanton not to have it. It was a classic case of two boys fighting over one prize, and it's a tussle that would change Buffett's life forever. It took time, but eventually he was able to buy enough stock to gain control of the company, and oust Stanton out of his job. But, that's when the problems started.

Buffett began to discover that the cigar-butt company he'd just spent a fortune to acquire was essentially out of puffs. That was Berkshire Hathaway in nineteen sixty-five. In Buffett's own words, he'd have been better off if he'd never heard of the company to begin with. Berkshire Hathaway was a problem for Buffett from then on. It was essentially on life-support, and consuming a great deal of his time. It would be a long while before the company turned around, and started showing a profit.

The author does an excellent job with this particular story, because Berkshire Hathaway is so closely tied to Buffett's mystique today. He's fought and struggled over this company more than any other. He tried to sell out, and then whirled around to immerse himself in the smallest decisions of the mill. Today, the company is as much a part of him as his family and friends are.

The tale of Berkshire is one that spans decades, and the author weaves it in and out of other stories from Buffett's life. This allows us to get a good look at how the company has evolved. We get to see just how much time and energy he's poured into turning around this particular cigar butt.

The success of the company, thanks to Buffett's dogged charisma, is now the stuff of legends, and here's why. He began buying the original stock for the paltry sum of seven dollars and fifty cents per share. Today, those same shares sell for around ninety thousand dollars each. As you can probably guess, Berkshire Hathaway has produced quite a few millionaires to date.

But some of the most illuminating insights we get into Buffett's life have nothing to do with his business success. They come from the countless stories the author has collected from his family and friends. A good example is his attitude towards wealth and his children. Almost as soon as they married, Warren and his wife Susie had far more money than other couples their age. That money began to amass at a rapid rate, and they were millionaires before they turned thirty. But they didn't allow their fortune to affect their home life. Their children still had to work for their allowances, and if they asked Buffett for money to buy something, most of the time he turned them down.

Even today, he doesn't believe in inherited wealth. His children have received help from him financially, sure, but far less than you might expect from a man worth billions. His family have all gone on to create their own lives and their own successes, and none of them are anywhere close to what you'd call 'spoiled.'

This kind of homespun frugality will be of interest to many people in the current economic climate. Readers get to see firsthand just how easy it can be to live frugally, and this is perhaps Buffett's most humanizing and endearing characteristic. He owns more money than anyone on the planet, and yet his money doesn't own him.

According to Buffett, having lots of financial obligations and no cash reserves is one of the biggest mistakes you can make. He's never used more than twenty-five percent of borrowed money in his life, even when he was just starting out and establishing his partnerships. He feels that debt, right along with liquor and drugs, is one of the main things that can lead people astray in life.

These flashes of insight will really hit home with some readers. As well they should, especially since so many people are relearning how to pinch pennies and live frugally themselves these days.

Perhaps one of the most poignant stories in the book is when the author recounts Buffett's decision to give away almost his entire fortune to the Bill and Melinda Gates Foundation. Buffett, his late wife, and many of his family members all had charities and foundations of their own. But, he began to realize that all his money sitting in the bank for his family's personal charities wasn't doing anyone in the world much good. So, he decided to give away his entire fortune early, to the Bill and Melinda Gates Foundation.

Giving away such a large sum of money intelligently is not easy to do. So Buffett came up with an entirely new plan to make sure the money would get spent in ways that would do the most good.

In short, the Gates foundation had to spend each installment incredibly fast. To Buffett, this was an unconventional way to teach by example. He was attempting to fight against the waste that so many charities create, while making sure his fortune was actually doing some good in the world.

It was an act that stunned the world. No one in history had ever given away so much money, and the surprising result was that it inspired other wealthy men and women across the globe to start donating their fortunes as well. Buffett's donation was also groundbreaking because it was the first time someone had given away so much money without aiming to leave a trace of their legacy behind.

Buffett had started the Buffett Foundation years before, but he only willed a small portion of his fortune to his own foundation, compared to what he gave to the Gates Foundation. There would be no Buffett university scholarship, no Buffett hospital wing, and no way for him to control the money once it was gone. And other than spending the money quickly, there were no strings attached to the donation.

In his own words, Buffett admits he won the Ovarian Lottery, as he calls it. He was born to the right parents, at the right time, with skills that paid off disproportionately in this society. He's always felt that the money he's made throughout his life is nothing more than I-O-Us. Most people in the world were dealt a much poorer hand than he was, so he believes it makes sense to give them a chance to benefit from his success.

This section of the book is really moving because the author allows Buffett to speak for himself here. It's obvious from his words that he's speaking from the heart, and he truly wants to do the most good for the most people.

It's a powerful way to wrap up the life of a man who defied convention at every turn, made the world's biggest fortune, and then parted with almost all of it a few years before his eightieth birthday.

To read about someone who's lived a lot and achieved a great deal in his life, you would expect a fairly lengthy book. Coming in at just under one thousand pages, The Snowball is certainly a tome. The author covers almost every deal Buffet has made throughout his life, which can be a bit wearing at times, especially if you're not that interested in capitalism.

But, if you like reading in-depth memoirs, you'll probably enjoy how complete an account this is of Buffett's life. This is the best chance you're going to get to find out how Buffett became the world's richest man.

And don't make the mistake of thinking that just because The Snowball is long it's a dull read. It's not. The author weaves details of Buffett's personal life into his business life, which keeps the story balanced and very accessible. It's a refreshing look at a man who should seem larger than life, but ends up seeming like the nice old guy next door.

The Snowball, by Alice Schroeder, is published by Bantam Books.

That's the end of this episode of Book Insights.