Chapter 5

PARTNERS

I cannot promise results to partners.

WARREN BUFFETT,
LETTER TO PARTNERS, JANUARY 1963

Sol Parsow, who owned a men’s shop in Kiewit Plaza, knew Warren Buffett as other than a fashion plate. Typically, Buffett would come in and order five suits—all, despite Parsow’s pleading, in a dull gray—and leave on a dime.

One morning, though, Buffett came into the store seeking a bit of fashion advice—sort of. He wanted Parsow’s opinion of Byer-Rolnick, a hat manufacturer.

Parsow explained that President Kennedy’s bareheaded look was all the rage. “Warren,” he said, “I wouldn’t touch it with a ten-foot pole. Nobody is wearing hats anymore.”

A bit later, Buffett returned. “Sol, what’s going on with the suit industry?” Buffett asked.

“Warren, it stinks. Men aren’t buying suits.”

This time, he couldn’t talk him out of it. Buffett Partnership bought a small stake in a New Bedford, Massachusetts, maker of suit liners-Berkshire Hathaway, Inc.—at precisely $7.60 a share.¹ In 1962, Berkshire was one more cheap stock of the sort that appealed to Ben Graham disciples. The venerable Yankee manufacturer had long been struggling against lower-cost Southern and Far Eastern competitors. But on its books, at least, Berkshire was a bargain. It had $16.50 a share of working capital—two times its share price. As a Graham-and-Dodder, Buffett liked the stock and gradually added to his position.

Despite this investment, it was clear that Buffett was becoming more than just a carbon copy of his teacher. He was bolder than Graham: more willing to load up on a stock or to ride a winner. And, of course, his results had been better.

What was not so apparent was that Buffett was also beginning to think differently—that is, to think in qualitative terms, as well as in the merely numerical terms that had appealed to Graham. When Buffett looked at a stock, he was beginning to see not just a frozen snapshot of assets, but a live, ongoing business with a unique set of dynamics and potential. And in 1963, the year after he invested in Berkshire, Buffett began to study a stock that was unlike any he had bought before. It had no factories and virtually no hard assets at all. Indeed, its most valuable commodity was its name.

American Express was a company divinely suited to the time. America had entered the space age, and its citizens were in a futuristic frame of mind. Few products symbolized the attainment of the modern life as aptly as those of American Express. Air travel having become affordable, the middle class was embarking on the Grand Tour, and the traveler’s check had become its passport. (“Checks That Never Bounce,” Reader’s Digest gushed.)² Half a billion dollars of the company’s scrip was in circulation, accepted as readily as money itself. Of equal import, by 1963 one million people carried the American Express card, introduced, merely five years earlier, in the innocent era in which citizens thought it necessary to travel about with hard coin. Time heralded the advent of the “cashless society.”³ A revolution was at hand, and American Express was its beacon.

And then the bottom fell out. The trouble began, as it often will, in a remote and seemingly minor colony of the corporate empire—in this case, a warehouse in Bayonne, New Jersey, that was owned by an American Express subsidiary.

The warehouse, in the normal course of its less than glamorous trade, accepted tank loads, supposedly of vegetable oil, from an outfit known by the unwieldy moniker Allied Crude Vegetable Oil Refining. In return for the supposed salad oil, the warehouse issued receipts to Allied, which used the receipts as collateral to obtain loans. Subsequently, Allied filed for bankruptcy. Creditors seized Allied’s collateral—or rather, tried to. At this point—November 1963—American Express discovered that it had a problem: “Subsequent investigation disclosed that the tanks contained very little vegetable oil.”⁴ What they contained, in part, was seawater, and seawater of very high quality, though not worth its weight in salad oil. In short, the warehouse had suffered a massive fraud, by some estimates totaling $150 million.

Who would make good the losses? The responsible party was, in the first instance, Allied. But Allied was broke. The American Express subsidiary also filed for bankruptcy. Whether American Express itself had any liability was uncertain. But Howard Clark, the chief executive, grasped that for a company with its name on traveler’s checks, the public trust was all. Clark, to his credit, issued a manifesto the very thought of which would have caused lesser CEOs to shudder.

American Express Company feels morally bound to do everything it can, consistent with its overall responsibilities, to see that such excess liabilities are satisfied.

In other words, the parent company would stand behind the claims whether legally bound to or not. The potential loss was “enormous.” Indeed, he said, it was “more than we had.”⁵

The company’s stock fell from 60 before the news to 56½ on November 22. When markets reopened after the Kennedy assassination, American Express tumbled to 49½.

It developed that Allied had been run by one Anthony De Angelis, a.k.a. “the Salad Oil King.” De Angelis was a familiar type in American finance, possessed of the combination of brilliance and moral flexibility that produces a first-rate white-collar crook. In a previous incarnation, he had controlled a New Jersey meatpacker that had run afoul of the government and gone belly-up.⁶ When he resurfaced with Allied, a supplier of vegetable oils for export, his record as a former bankrupt prevented him from getting credit. Thus his canny scheme to park “salad oil” in the American Express warehouse. Once he had receipts with that most hallowed of corporate names, De Angelis was bankable. He borrowed money, bet the house on vegetable oil futures, and lost.

In the scandal’s wake, the portly De Angelis was escorted from his two-story red-brick home in the Bronx to face indictment in federal court in Newark.^* And American Express, which had not missed a dividend payment in ninety-four years, suddenly was said to be at risk of insolvency.

As these events were unfolding, Buffett paid a visit to Ross’s Steak House in Omaha, in the same inquiring spirit as when he had earlier dropped in on the clothier Sol Parsow. On this evening, Buffett was interested not in the customers’ steaks, nor in their suits or hats. He positioned himself behind the cashier, chatted with the owner, and watched. What Buffett observed was that, scandal or no, Ross’s patrons were continuing to use the American Express card to pay for their dinners.⁷ From this, he deduced that the same would be true in steakhouses in St. Louis, Chicago, and Birmingham.

Then he went to banks and travel agencies in Omaha and found that they were doing their usual business in traveler’s checks. Similarly, he went to supermarkets and drugstores that sold American Express money orders. Finally, he talked to American Express’s competitors. His sleuthing led to two conclusions, both at odds with the prevailing wisdom:

1. American Express was not going down the tubes.

2. Its name was one of the great franchises in the world.⁸

American Express did not have a margin of safety in the Ben Graham sense of the word, and it is unthinkable that Graham would have invested in it. The Graham canon was quite clear: a stock ought to be purchased on the basis of “simple and definite arithmetical reasoning from statistical data.”⁹ In other words, on the basis of working capital, plant and equipment, and other tangible assets—stuff that one could measure.

But Buffett saw a type of asset that eluded Graham: the franchise value of American Express’s name. For franchise, think: a market lock. The Cardinals own the franchise for baseball in St. Louis; no other team need apply. American Express was nearly that good. Nationally, it had 80 percent of the traveler’s check market, and a dominant share in charge cards. In Buffett’s opinion, nothing had shaken it, and nothing could.¹⁰ The loyalty of its customers could not be deduced from Graham’s “simple statistical data”; it did not appear on the company’s balance sheet as would a tangible asset, such as the factories of a Berkshire Hathaway. Yet there was value in this franchise—in Buffett’s view, immense value. American Express had earned record profits in each of the past ten years. Salad oil or not, its customers were not going away. And the stock market was pricing the company as if they already had.

By early 1964, the shares had plunged to 35. Wall Street’s chorus, all reading the same lyrics, was chanting, “Sell.” Buffett decided to buy. He put close to one-quarter of his assets on that single stock—one with a liability of unknown and potentially huge proportions. If Buffett was wrong, his accumulated profits and reputation stood to go up in flames.

Clark, the American Express president, offered $60 million to the warehouse’s creditors in an effort to settle their claims. But he was sued by his own shareholders, who asserted that Clark was “wasting” their assets on a specious moral obligation.

Buffett did not agree. He dropped in on Clark and introduced himself as a friendly shareholder. “Buffett was buying our stock,” Clark recalled, “and anybody who bought it then was a pal indeed.”

When Buffett told Clark that he supported him, an American Express lawyer asked if he would testify. Buffett went to court and said shareholders shouldn’t be suing—they ought to be congratulating Clark for trying to put the matter behind them.¹¹ “As far as I was concerned,” Buffett would explain, “that $60 million was a dividend they’d mailed to the stockholders, and it got lost in the mail. I mean, if they’d declared a $60 million dividend, everybody wouldn’t have thought the world was going to hell.”¹²

Though the suits dragged on, the stock began to rise. Buffett, however, did not follow the Graham route of taking profits. He liked Clark, and he liked the company’s products. Gradually, Buffett added to his position.

Berkshire Hathaway, meanwhile, was indeed going to hell. With the market for textiles mostly poor, Berkshire was losing money and gradually closing mills. But Buffett continued buying its stock, too, and the partnership won a controlling interest. As in the case of Dempster Mill, Buffett went on the board, hoping to set it straight. He also was charmed by its rugged New England plant. Despite its difficulties, he reported to his partners, “Berkshire is a delight to own.”¹³

Half of his portfolio now was rooted in two very different stocks, which glared at each other like opposing bookends. In Buffett’s terminology, Berkshire’s appeal was “quantitative”—based on price. American Express was based on a subjective view of “qualitative” factors such as the strength of its products and management. Though he regarded the softer methodology as the less conclusive, Buffett was uncertain where the balance lay. The “main qualification is a bargain price,” he wrote; but he also would pay “considerable attention” to qualitative factors.¹⁴

Buffett didn’t disclose the American Express holding to his partners. But concurrent with his experimentation away from Graham, he began to communicate more expansively to his partners in his letters. He used the letters not just to report results, but to talk about his approach and to educate his readers in a general sense about investing. School was in.

Increasingly, the voice that emerged was not Ben Graham’s—not phrases from The Intelligent Investor—but Buffett’s own. It was, by turns, articulate, droll, self-deprecating, and rather more literate than one would expect from an investment manager in his thirties. For a young man, he was astonishingly comfortable with himself. Here is Buffett at thirty-two, on “The Joys of Compounding”:

I have it from unreliable sources that the cost of the voyage Isabella originally underwrote for Columbus was approximately $30,000. This has been considered at least a moderately successful utilization of venture capital. Without attempting to evaluate the psychic income derived from finding a new hemisphere, it must be pointed out that … the whole deal was not exactly another IBM. Figured very roughly, the $30,000 invested at 4% compounded annually would have amounted to something like $2,000,000,000,000 [two trillion] …¹⁵

His serious point was that even trifling sums should be invested with the utmost care. To Buffett, blowing $30,000 represented the loss not of $30,000 but of the potential for $2 trillion.

In another letter, he chided partners for being overly influenced in their financial planning by the desire to avoid taxes. Indeed, many of life’s errors were the result of people forgetting what they were really trying to do.

What is one really trying to do in the investment world? Not pay the least taxes, although that may be a factor to be considered in achieving the end. Means and end should not be confused, however, and the end is to come away with the largest after-tax rate of compound.

It must be, he added, that people’s emotional distaste for paying taxes blinded them to acting rationally—a misstep that Buffett was careful to avoid. “Ultimately,” he reasoned, there were only three ways to avoid a tax: (1) to give the asset away, (2) to lose back the gain, and (3) to die with the asset—“and that’s a little too ultimate for me—even the zealots would have to view this ‘cure’ with mixed emotions.”¹⁶

Buffett returned to such thematic grace notes again and again. Indeed, reading the letters front to back, they are full of early sightings of later Buffett melodies. But reading them singly, one is more aware of the tone, and specifically of Buffett’s intense focus on his own development. Written at night, when the rest of the house was asleep, the letters have about them a quality of self-discovery—a pimply, self-conscious honesty. The writer of these letters has the same engaging informality that Buffett did in person.

Of course, Buffett knew many of his readers on a personal basis, as family or friends. But the collective relationship that he had with them as his partners—even though, in a sense, an abstract one—had a special significance to him.

In person, he kept a distance, but as a general partner, Buffett was revealing about what was, in effect, his most intimate concern. If his work in the partnership amounted to a sort of self-portrait, the background motif of the letters was Buffett’s own character. He used these semiannual missives to prepare his partners, and to align their expectations and thinking with his own. He talked to them.

I am not in the business of predicting general stock market or business fluctuations. If you think I can do this, or think it is essential to an investment program, you should not be in the partnership.¹⁷

It was enormously important to Buffett that his partners see him as trustworthy. He and Susie put more than 90 percent of their personal money in with the partners’, as did Bill Scott, Buffett’s assistant. “So we are all eating our own cooking,” Buffett assured them.¹⁸

He took pains to explain his approach in advance, and in concrete terms—precisely because he knew that a misunderstanding could sunder the union. One time, a partner barged into the reception area at Kiewit Plaza intent on finding out where the money was invested. Buffett, who was meeting with a banker named Bill Brown—later chairman of the Bank of Boston—told his secretary he was busy. She returned in a moment and said the man insisted on seeing him. Buffett disappeared for a minute and then told his secretary, “Price that guy out” [of the partnership]. Turning to Brown, Buffett added, “They know my rules. I’ll report to them once a year.”¹⁹

Buffett made no attempt to predict his results, but he was obsessed with the notion that his partners should judge him fairly—meaning unemotionally and according to a neutral, arithmetic scale. (That is how Buffett judged himself.)

I believe in establishing yardsticks prior to the act; retrospectively, almost anything can be made to look good in relation to something or other.²⁰

His own goal, stated at the outset, was to beat the Dow by an average of 10 points a year. On this topic, he took his readers deeper. The Dow, he noted, was an unmanaged group of thirty stocks. Yet most of the pros couldn’t match it. Why was it, he wondered, that “the high priests of Wall Street,” with their brains, training, and high pay, couldn’t top a portfolio managed by no brains at all? He found a culprit in the tendency of managers to confuse a conservative (i.e., reasonably priced) portfolio with one that was merely conventional.²¹ It was a subtle distinction, and bears reflection. The common approach of owning a bag full of popular stocks—AT&T, General Electric, IBM, and so forth—regardless of price, qualified as the latter, but surely not as the former. Buffett blamed the committee process and group-think that was prevalent on Wall Street:

My perhaps jaundiced view is that it is close to impossible for outstanding investment management to come from a group of any size.…²²

Such decision-via-consensus—then and now the rule on Wall Street—tended to produce a sameness from one fund to the next. It nourished the seductive syllogism “whereby average is ‘safe’ ” and unorthodox is risky. In truth, Buffett countered, sound reasoning might lead to conventional acts, but often it would lead to unorthodoxy.

In some corner of the world they are probably still holding regular meetings of the Flat Earth Society. We derive no comfort because important people, vocal people, or great numbers of people agree with us. Nor do we derive comfort if they don’t.²³

Buffett’s portfolio was decidedly unconventional. With his big bets on American Express, Berkshire Hathaway, and two or three others, the lion’s share of the pool was in just five stocks.²⁴ Ideally, Buffett would have preferred to spread his assets, provided that he could have found, say, fifty stocks that were equally “superior.” But in the real world, he found that he had to work extremely hard to find just a few.²⁵

He ridiculed the fund managers who took the opposite tack—which is to say, most of those working on Wall Street. Diversification had become an article of faith; fund managers were commonly stuffing their portfolios with hundreds of different stocks. Paraphrasing Billy Rose, Buffett doubted that they could intelligently select so many securities any more than a sheik could get to “know” a harem of one hundred girls.

Anyone owning such numbers of securities … is following what I call the Noah School of Investing—two of everything. Such investors should be piloting arks.²⁶

A portfolio with scores of securities would be relatively unaffected if any one stock fell, but similarly unaffected should an issue rise. Indeed, as the number of stocks grew, the portfolio would come to mimic the market averages. That would be a safe and perhaps a reasonable goal for the novice, but in Buffett’s view, it undermined the very purpose of the professional investor, who presumably was being paid to beat the average. Owning so many stocks was an admission that one could not pick the winners.

None of this is to suggest that Buffett was a gambler. He was just as determined as Ben Graham had been to avoid taking a loss. But where Graham had insisted on substantial (if not extreme) diversification,²⁷ Buffett thought he could safeguard his eggs without spreading them around.^† Beneath his surface modesty he was, in effect, making a very brassy claim. And he continued to live up to it. The partnership portfolio jumped an astonishing 39 percent in 1963 and 28 percent in 1964. By then, Buffett was managing $22 million. His personal net worth was close to $4 million—at that time, quite a fortune.²⁸

This spiraling accumulation had no noticeable effect on Buffett’s lifestyle. He remained partial to Parsow’s gray suits, Ross’s steaks, and University of Nebraska football games. During the week, aside from an occasional business trip, his X coordinate merely traversed an alley between his home and office; the Y coordinate barely moved at all. Nor was there anything in Buffett’s manner that suggested money. He did add some rooms and a racquetball court to his house, the variously sloping roofs of which now seemed to ramble disjointedly over the lot. But for a multimillionaire, it was remarkably ordinary, and of course remained close to a busy suburban thoroughfare. Outside, a blinking yellow traffic light stood watch like a sentry.

Buffett scarcely thought about spending his wealth on material comforts. That wasn’t why he wanted it. The money was a proof: a score-card for his favorite game.

He did ask Susie to upgrade his VW, explaining that it looked bad when he picked up visitors at the airport. But he didn’t have the slightest interest in it.

“What kind of car?” Susie asked.

“Any car. I don’t care what kind.”²⁹ (She got him a wide-finned Cadillac.)

Scott Hord, a vice president of Data Documents, the Omaha computer-card company, got to the heart of the matter when Buffett and he flew to Houston on a business trip.

“Warren, what’s it feel like to be a millionaire?” Hord asked innocently. “I’ve never known a millionaire.”

“I can have anything I want that money will buy. But I always could.”

Whatever was the object of Scotty Hord’s fantasies—toys, trucks, cars, paintings, jewelry, silks—Buffett could have had. But they didn’t mean a thing to him. Buffett’s fantasy was to be in Kiewit Plaza, piling up more money day after day.

Paradoxically, Susie projected an air of disinterest in having money but was a virtuoso shopper. She dropped $15,000 on a home refurnishing, which “just about killed Warren,” according to Bob Billig, one of his golfing pals. Buffett griped to Billig, “Do you know how much that is if you compound it over twenty years?”

Beneath his becoming lack of acquisitiveness, Buffett had a certain obsession. In his mind, every dime had the potential of Queen Isabella’s lost fortune. When a nickel today could become so much more tomorrow, spending it drove him nuts. He didn’t even buy life insurance, figuring that he could compound the premiums faster than an insurance company.^‡ Buffett said of himself that he was “working [his] way up to cheap.”³⁰ (He was not stingy, though, about picking up the check.)

When it came to money, Buffett seemed to have twin personalities—it was nothing to him and it was everything. He had an overly reverent view of money’s proper role, as if spending were a sort of sinfulness. Even when he dieted, he inserted money into the equation. He would write a $10,000 check to his daughter, payable on such-and-such a date unless his weight had dropped. Little Susie would try to ply him with ice cream or drag him to McDonald’s—but it was useless. Her daddy didn’t want the ice cream as much as he wanted to keep the money.

Buffett acknowledged his contrasting sentiments, quite comically, one summer when the family was touring San Simeon, the William Randolph Hearst mansion in California. The guide was giving a blow-by-blow account of how much Hearst had paid for every item—the drapes, carpets, antiques, and so on. Bored to tears, Buffett protested, “Don’t tell us how he spent it. Tell us how he made it!”³¹

Buffett’s money seems to have affected him politically—but not in the manner one would expect. As he became independently wealthy—roughly during the early and middle sixties—he finally asserted his political autonomy from his father. Warren based his evolving politics not on his personal economic interests, as most millionaires—and most people—do, but on his fears for society writ large. In the turbulent 1960s, several issues awakened him. The Cuban missile crisis mortified him, just as Hiroshima had. According to his friend Dick Holland:

Warren was afraid. He was interested in studying the attitudes that led to extreme nationalism, and how wars could be prevented. He was always trying to calculate the odds of the world’s blowing up.

Buffett read Bertrand Russell, the pacifist philosopher and mathematician, extensively during this period, and adopted much of Russell’s internationalist outlook.³² An agnostic like Russell, and deeply aware of his mortality, Buffett thought it was up to society, collectively, to protect the planet from dangers such as nuclear war. Unlike his isolationist and antigovernment father, Warren recognized a need for government.

This was also true on the burning issue of civil rights. Omaha had a substantial black population, and strict segregation in housing and many jobs. Howard Buffett did not have a public record on civil rights, but as an avid member of the John Birch Society,³³ he presumably did not lose sleep over it.

Warren was emphatically on the other side. He quit the Omaha Rotary Club specifically because he objected to its racist and elitist policies.³⁴ Discrimination collided with his belief in merit and his faith in neutral yardsticks, which lay at the heart of his investing. In the same vein, he thought it was wrong that rich kids got a big head start over everyone else.

Buffett was also being exposed to the idealism of his wife. Susie was an organizer and an active member of the Panel of Americans, a group of Omaha women of various religions and races who would speak to churches, schools, and clubs about their experiences with ethnic prejudice. The panel included a refugee from Nazi camps, a Mississippi-born black, and so on. Susie would give the Wasp perspective. In the Omaha of the early and mid-sixties, the Panel of Americans was rather daring.³⁵ Women of Susie’s caste were expected to go to Junior League meetings. The Buffetts, though, were one of the few families in the lily-white Happy Hollow area—for a while, probably the only family—that regularly and routinely entertained blacks at home.

Repelled by the Republicans’ indifference to civil rights, Warren decided to break from his father’s party and become a Democrat. This was a major step for him. His father, his best friend, was fighting a protracted battle with cancer, and the GOP had been a huge part of his life.

In the winter of 1964, Howard was suffering greatly and stoically. Warren would go to the hospital every night. One evening, he had “a difficult conversation with him about changing parties.”³⁶ As he explained to Charlie Munger, he wasn’t sure that his father was wrong on a lot of issues, but he didn’t want to be “consumed by ideology” as Howard had been. (Perhaps to spare his father anguish, Warren didn’t change parties or publicly acknowledge the switch until Howard’s death.)

In the spring, his father took a turn for the worse. After learning of his condition, Buffett showed up for a table tennis game at Dick Holland’s looking clearly out of sorts. But he kept the awful news to himself. Not many days later, Buffett arrived home looking glummer than his daughter had ever seen him. “He was very withdrawn and sad,” she recalled. “I think I asked him why he wasn’t going to the hospital. He said, ‘Grandpa died today.’ Then he went upstairs.”

Five hundred mourners attended Howard’s funeral. Colleagues from both parties saluted his integrity and warmth. Warren sat through it silently. Then, he left town, without telling friends of his where-abouts.³⁷ When Buffett returned to Kiewit Plaza, he hung a large-size likeness of his father on the wall facing his desk. But his best friend was gone.

As his father had been with him, Warren was a moral exemplar to his own children. But Warren was the same unsentimental analyst with his kids as he was with his partners. He was a concerned parent, and a supportive one—but not demonstrative. He took Susie to the office on Saturdays, as his father had taken him; he threw a football with Howie and helped Pete with his math. But he rarely if ever talked to them about subjects—such as his own parents—that might have exposed his feelings.

He and little Susie shared a certain tenderness. But Warren’s sons felt emotionally neglected by him. Howie, the second child, was a bit of a troublemaker, and was repeatedly frustrated by his dad’s lack of outward feeling.³⁸ “I used to misinterpret his tone to mean that he didn’t care about me,” he said. “It’s the exact same quality that makes him so good as an investor. There was no emotion in it.”

Most people—high-powered executives perhaps especially—tend to compartmentalize their lives. They may be tigers at the office and kittens at home. But Buffett was all of a remarkably consistent piece. To young Peter, his father ran on an inner clock whose springs and gears never ceased to turn. Day to day, Buffett was in his own solar system.³⁹ “I remember I gave him a birthday card once,” Peter said. “He just sort of opened it and closed it—he read it that fast. I guess I was waiting for some response.” Warren was expressive in his letters, but mute with his son.

A bit later, when Peter was in a drugstore with his mother, he saw a book called The Father’s Handbook. He said rather flippantly, “You should get that for Dad.” So she did. When Warren got the book, he called Peter up to his study and said, “Hey, what’s going on? What do you mean?” Peter meant there was nothing that he could tell his dad that his father wanted to know—or such was Peter’s impression then. Buffett, obviously, was concerned. But he couldn’t show it. He made efforts to reach out, but they struck Peter as halfhearted.

The Buffett house was like a storm center with Warren at its eye. As little Susie said, her father was always reading. The house was a hub of comings and goings: friends, relatives, lonely-hearts talking to Susie. Susie herself went around the house singing. The kids would climb from the attic onto the Dutch gambrel roof, or go trooping into the family room. And Warren was just up there, buried in his work. He would dart out of his study just long enough to grab a Pepsi with syrupy cherry flavoring or to entreat his wife to calm the kids. “Susan-O—tell them to quiet down.”

His abstractedness was a running joke. One time he came downstairs and asked what had happened to the greenback wallpaper in the study. Susie had changed it a couple of years before.

Susie tolerated him perhaps because Warren, in his absentminded way, was unfailingly good-natured. As she said to her sister, “You can’t get mad at someone who is so funny.” Moreover, she, and even the children, understood that Warren was on a sort of spiritual mission that diverted him from the more routine aspects of family living. They referred to his office, only half-jokingly, as the “temple.” His work was a “canvas”—a work of art. Susie, referring to Buffett’s maestrolike self-absorption, once remarked to Marshall Weinberg, their Manhattan stockbroker chum, “Let’s face it—I’m married to Artur Rubinstein.”⁴⁰

Weinberg, a music lover, knew full well. Buffett could hum the chords, and the concertinos, and even the entire symphonies of Wall Street in his sleep. Once in a while, Weinberg would play a few bars for his friend, hoping—just once—to show him something new. One time, for instance, he told Buffett about a certain cement stock that was cheap relative to its book value. Buffett shot back, “Yeah, but the book isn’t worth anything. Look at the record of selling cement plants in the last seven years.”⁴¹

As Weinberg also knew, the explanation, or part of it, lay in Buffett’s relentless focusing on his craft. In 1965, after Weinberg had returned from a trip to Egypt, Warren and Susie visited him at his Manhattan apartment. Few Americans had been to Egypt, and Weinberg, who was so often impressed with Buffett, was eager to show his genius friend his slides of the pyramids.

Buffett said easily, “I have a better idea. Why don’t you show the slides to Susie and I’ll go into your bedroom and read an annual report.” The pyramids were out of his zone, like the wallpaper.

The report that Buffett had with him may well have been Walt Disney Productions’. At around the time of his visit to Weinberg, he went to see the company’s latest film, Mary Poppins, in Times Square. Needless to say, Buffett was not so interested in Julie Andrews, the show’s star, but in Disney’s stock.

Settling into a seat, with his tweeds, briefcase, and popcorn, he noticed that the other patrons were staring at him. He suddenly realized that he was the only adult unaccompanied by a child, and must have looked rather odd.⁴²

But when the theater went dark, the other moviegoers forgot him. Buffett saw that they were riveted to the picture, and he asked himself, in effect, what it would be worth to own a tiny bit of each of those people’s ticket revenues—for today and tomorrow and as many tomorrows as they kept coming back to Disney.

In the summer, when the Buffetts were in California, they went with the Mungers to Disneyland. While the kids did the park, Buffett and Munger dissected it financially, ride for ride, a kind of Fellini fantasy version of a corporate balance sheet.⁴³

Subsequently, Buffett visited Walt Disney himself on the Disney lot. The animator, meeting him in shirtsleeves, was as enthusiastic as ever. Buffett was struck by his childlike enchantment with his work—so similar to Buffett’s own.⁴⁴

Disney’s stock, meanwhile, was trading at only about ten times earnings. Buffett tried to analyze it not as a stock, but as a whole company, perhaps as a business down the street in Omaha that was willing to sell him a part ownership.⁴⁵ In Buffett’s view, its most valuable feature was its library of old cartoons and films, such as Snow White and Bambi. A Ben Graham would not have been interested in such an imprecise asset. However, Buffett estimated that, on a proportional basis, the library alone was worth the price of a share.⁴⁶ Plus, he would own a slice of Disneyland, and he would have the unpretentious Mr. Disney as his partner. With such thoughts in mind, Buffett bought 5 percent of Disney for $4 million.⁴⁷ Disney himself would be dead within the year.

Buffett, it should be understood, was not abandoning the Graham credo of hunting for securities that were well below “intrinsic value.” But his definition of value was changing, or rather, broadening. To Buffett, the value of Disney’s film library, even though imprecise and mostly off the books, was no less real than a tangible asset such as a factory.

He was no doubt encouraged by his similar bet on American Express, which had begun to see its way clear of the salad-oil scandal. By 1965, the stock had hit 73½, double its recent low. And Buffett Partnership beat the Dow that year by a phenomenal 33 percentage points.

Buffett warned his partners not to expect a repeat.⁴⁸ In the following year he would top the Dow by 36 percentage points. But then, his doleful forecasts had long been sounding like a broken record. Fearful that success would sow the seeds of disappointment, he had repeatedly prophesied his own fall.

[January 1962:] If my performance is poor, I expect partners to withdraw.… [January 1963:] It is a certainty that we will have years when … we deserve the tomatoes.… [January 1964:] I believe our margin over the Dow cannot be maintained.… [January 1965:] We do not consider it possible on an extended basis to maintain the 16.6 percentage point advantage over the Dow.… [January 1966:] Those who believe 1965 results can be achieved with any frequency are probably attending weekly meetings of the Halley’s Comet Observers Club. We are going to have loss years and are going to have years inferior to the Dow—no doubt about it.… [July 1966:] Such results should be regarded as decidedly abnormal.

That is what he said. But his wings refused to melt. Over the partnership’s second five years, Buffett’s record was off the charts:

	PARTNERSHIPS	DOW
1962:	+13.9%	–7.6%
1963:	+38.7	+20.6
1964:	+27.8	+18.7
1965:	+47.2	+14.2
1966:	+20.4	–15.6

And the cumulative record, over ten years:

PARTNERSHIP	DOW
+1,156%	+122 .9%49

After deducting for Buffett’s share of the profits, his limited partners’ investment had risen by 704.2%—six times the gain in the Dow. For an original investor, such as the Edwin Davis family, each $100,000 had grown to $804,000. (The Davises, like others, had continued to put in more money along the way.)

Buffett Partnership’s total assets, as of the start of 1966, had swelled to $44 million. Buffett, in other words, was running a fair-sized enterprise (though still far smaller than the big mutual funds). And at age thirty-five, he was a very rich man. He wrote to his partners in January 1966, “Susie and I have an investment of $6,849,936, which should keep me from slipping away to the movies in the afternoon.”⁵⁰

He also got a first taste of the limelight. In May, readers of the Omaha World-Herald awoke to Buffett’s toothy, chipmunkish grin at the top of the second section. Buffett was pictured with an ear to the phone, unstylishly short hair, and a look of unmistakable eagerness. According to the hometown World-Herald:

One of the most successful investment businesses in the United States is operated in Omaha by a young man who bought his first stock at age 11.⁵¹

A more probing interviewer, reporting on the changes at Berkshire Hathaway for a textile-industry trade paper, zeroed in on Buffett’s seeming contradictions:

While his approach is informal, he never gives the impression of being offhand. If his manner is casual, he is obviously a man with his facts well in hand.… Buffett doesn’t dodge questions … but sometimes he’s a trifle oblique.⁵²

The general financial press and the broader business public had not heard a word of him. But to investors such as the Davises, Buffett’s stature was rising to mythological proportions. This one man—this kid-was making them rich. Lee Seemann, Edwin Davis’s son-in-law, who was a salesman for International Harvester, who liked to hunt ducks and go to football games, who had big Lyndon Johnson ears and had no business dreaming of money, was getting rich. He felt he was living in a fairy tale.⁵³ The investors began to think of themselves as a privileged tribe—as blessed.

Buffett invited groups of them to the house once a year. The partners looked forward to these dinners with the oracle. Susie had the place spiffed up, and she would sidle up to each guest in turn and draw him or her out. And Buffett would recount his coups of the past year and spin little stories, stressing how he had gotten himself into a jam or a comical situation, such as how, when he had been trying to save Dempster, he had had to walk a very fine line because the yokels in Beatrice were convinced that he was out to destroy the company, or, going back to Wilson Coin Op, he had had to put on an act for the barbers to keep the pinball mafia from running him out of town. The hero of these cracker-barrel tales seemed to be a sort of middlingly talented but plucky Huck Finn, a modest sort who triumphed almost despite himself. And his guests hung on his words. Leland Olson, an investor, remembered the stories for years. “They would fascinate you. And he didn’t talk down to you,” Olson said.

The investors, in fact, were starting to worship Buffett. Roxanne Brandt, wife of the broker Henry, wrote in her daughter’s baby book under “Three greatest minds of the era”: Schweitzer, Einstein, and Warren Buffett. He was the unassuming genius who drank nothing but Pepsi-Cola and could beat the pants off Wall Street year after year.

Buffett encouraged it as only a confident and successful man may do, with modesty. The self-deprecating quips, like the humble prognostications of his own decline, merely confirmed his investors’ awe of him. The worship surely delighted him, but it also made him edgy. With each successful vault, the bar of expectations climbed. The brighter his star, the darker was the shadow of a looming burnout. Buffett had been saying all along that it could not go on forever. On Wall Street, nothing does.

* He was convicted and sentenced to ten years. In 1992, De Angelis resurfaced—charged with using a fraudulent letter of credit to obtain $1.1 million worth of meat. He was convicted again.

† Mark Twain, though a poor investor, had a similar strategy: “Put all your eggs in the one basket and—watch that basket.”

‡ There was one exception. According to Kay Koetter, an insurance agent, some of Buffett’s partners were so concerned about losing their investment if Buffett dropped dead that Buffett bought a policy and named them as the beneficiary.