Saturday, January 10, 2009

Buffett's Snowball

I have just read the massive 900 page biography of Warren Buffett, by Alice Schroeder, The Snowball, Warren Buffett and the Business of Life. I was thinking of reviewing it but after as couple of drafts I gave up because my review seemed so narky and negative in what I gleaned as the character of Buffett*. Yet I didn’t quit reading the book and, indeed, enjoyed it thoroughly. This review says what I wanted to say much better than I could. Quote:
Over 900 pages about a man who loves money so much that he has no interest in religion, the arts, literature, science, travel, partisan politics, his surroundings or fine living. Before the global recession (which reduced his fortune by around $16.5 billion), Warren Buffett was said to be the richest man on earth, with an estimated net worth of $62.3 billion in March 2008. But he lives in a house in Omaha, Nebraska, which he bought in 1958 for $31,500, subsists on a diet of hamburgers, cherry Cola and potato chips and spends his days in a repetitive routine which most people would find mortifyingly banal.
Of course we all want Buffett’s wealth but I doubt many would enjoy the miserable existence that he calls a life. On cost benefit grounds even if I could mimic his financial genius I couldn’t bring myself to live what to me would be an extremely tedious and narrow obsession with the almighty buck.

Essentially the flaw in the Buffett view of the world is mercantilist. His object in life is to accumulate piles of silver not to spend it or even to leave it to his kids. The world’s richest man provides a living contradiction to the basic idea of economics that it is consumption not income that should matter.

Did I learn anything about investing from this book? I think so. Common sense ideas about trying to understand a business and taking advantage of the ‘madness of crowds’ were appealing. Buffett’s idea of a ‘safety margin’ and his obvious disdain for tricky financial engineering were refreshing.

Buffett is interested in accumulating wealth not in spending it. His recent stated intended philanthropy via the Gates Foundation is partly just a manifestation of this – Buffett just wants to control the distribution of his wealth beyond the grave. I guess too that GF’s ethical view that all human lives have equal worth would be supported by Buffett – he strongly believes that kids should not receive a meal ticket for life because they win a genetic lottery. That’s sensible.

*On a positive note he is honest and values hard work.

29 comments:

Jasper said...

Sounds like a real life Scrooge McDuck or Uncle Scrooge, although I doubt he enjoys diving into great big piles of money.

davidp said...

Hi Harry,

I haven't read the biography - is it that Buffett loves money or is it just that he loves work? (and that he picks finance rather than maths or the arts or research to focus on, excluding other stuff?) In all of these fields there are people who focus on their field and in other ways their lives seem relatively arid (but I wouldn't want to put them down).

Sinclair Davidson said...

He lives the life he chooses. Maybe it was a bad biography. try The making of an American Capitalist by Roger Lowenstein

hc said...

Sinclair, I didn't say the life was bad for him but it would be so for me.

Its the money David - an absolute obsession with earning and not spending it.

jc said...

harry

he does spend it. he has the decent jet, his house is actually quite nice looking and he wears Zegna suits.

He's just a bullshitter.

Buffet only wants Warren to be rich and no one else which is why he wants to see higher taxes. Higher taxes on other people, not himself because if he did support higher tax rates for the rich he would be pushing for a wealth tax.

Buffet's tax rate is less that yours.

His dad was a decent GOP senator and if he knew what Warren was up to in terms of his poltics he would be rolling around in his grave.


Anway, what's wrong with a burger, harry? Haven't you ever had a decent Aussie burger with the lot?

The Stock Scribe said...

I have read the book "Snowball" recently and I too came away with the impression that Buffett came out of it looking like a very one dimensional character.

Many books on Buffett portray his life as idyllic, however Alice Schroeder has exposed some of the flaws in this perception.

I would strongly recommend the book to anyone wanting to gain an insight into Buffett's life.

Sinclair Davidson said...

LoL. Yes, indeed. If I had $6billion I wouldn't be living in Omaha - but I might eat more hamburgers.

JC I think he sold the jet.

Anonymous said...

did he sell the jet? the firm also also the largest operator of private jets in the world.

Murray Rothbard was a good friend of his dad's.

Murray was so disgusted with Warren that he used to refer to him as Mr. Integrity.

hc said...

jc, I love a good burger - particularly the Aussi type with lots of beetroot & tomato on them. But not every day.

Buffett's dress sense if you believe Schroeder was appalling. I think he had a fetish about being the rich slob.

He spends a bit more in recent years but still targets the giveaway teashirts at golf tournaments and idolises those rich associates who walk in the snow rather than pay $1 for a bus fare.

If comnsumption has so little value to you why spend your life solely with the intention of accumulating wealth. As I say, it is the fallacy of mercantilism that utility stems from wealth rather than consumption.

observa said...

He's a typical high achiever at the very pinnacle of his chosen profession be it business, sport, music or art. To get to the top of their game they have to be dreadfully focussed and make huge sacrifices in other areas of their lives. Most of us choose the melange of the broader spectrum of life's offerings rather than going overboard on one thing and are happy with that. We dips our lid to their singular, focussed achievement, but shake our heads at what they're missing out on.

hc said...

Observa's comment spot on.

Smart & incredibly focused.

jc said...

Harry

My mother is in her 80's and still works a full day at her business- gets up and 5.30 in the morn and gets home at 6.

the woman is unstoppable much to my total displeasure as I think she wearing herself out.

Her doctor told me to leave her alone, which is what i'm doing, as I think she she retire.

I think she still has the first dollar she ever earned.

I think you're possibly missing a point here.

The accumulation of wealth is a signal to some people of their achiements which is enough to satisfy their desires.

They people think differently.

jc said...

oops

one of these days I'll think to spell check as it annoys harry to no end

rog said...

"I doubt many would enjoy the miserable existence that he calls a life. "

But he isnt miserable Harry, that is your view only.

PS he doesnt own a jet he owns the company that leases them!

hc said...

Rog, Read comment 4.

He both owned the plane company and one of its planes -'The Indefensible'.

rog said...

I think it was "The Indespensible" Harry.

A lot of people are irked by Buffett, he thinks traders and stockbrokers are a waste of space and his wealth, which everyone else envies, he has no real need for.

When Bill Gates was in Sydney they organised a real swanky lunch with 5-star chefs but he opted for a cheeseburger and diet coke.

I think if you want misery Jamie Packer might fit the bill.

rog said...

"It has always been a fantasy of mine that a boat load of 25 brokers would be ship wrecked and struggle to an island from which there would be no rescue. Faced with developing an economy that would maximize their consumption and pleasure, would they, I wonder, assign 20 of their number to produce food, clothing, shelter, etc., while setting five to endlessly trading option on the future of the 20?"

hc said...

"he jokingly named it "The Indefensible" because of his past criticisms of such purchases by other CEOs."

rog said...

Actually Harry they say that first one was called "The Indefensible" which he sold when he bought Netjets and the second "The Indispensable."

p 672 of Snowball refers to this interview

http://www.businessweek.com/1999/99_27/b3636001.htm

civitas said...

Buffett has never seemed to me to be obsessed with accumulating wealth, after all he doesn't seem to even spend his money. Now if he were flashing it around, maybe it could be said that he loves money. I think it's more a game to him to be able to pick good companies that he understands. I think he wants to be right, not be rich. Also, he seems to really get a bang out of watching excellent management teams in operation at the various BH companies. His BH annual reports are really interesting reading, if you've never read one I highly recommend it.

People who are as private as Buffett has always been are hard for most of us to understand. Would most of us live differently if we had as much money? Sure.

Not sure how Buffett could control money given to the Gates Foundation after his death. The GF has a board that decides how to spend the money. In any case, it's very commenadble of Buffett to direct his money to such a worthy cause.

civitas said...

Sam Walton, the founder of Walmart lived a very similar life to Buffett's by the way. He drove a red pickup and lived in a modest house even at the end of his life. He had coffee in the same crappy little Arkansas diner every morning for 50 years. Maybe people who have everything really just don't want as much as the rest of us do. Must be nice!

I know Cal Turner, the founder of Dollar General, and he's the same. You couldn't pick him out as the rich guy in a line-up if your life depended on it. But he's generous to a fault with what he has.

Yobbo said...

I've read Sam Walton: Made In America and to be honest I don't think how anyone can begrudge the way he lived.

He lived in a nice middle-class house with his wife and his kids who he gave all of his fortune to. You don't have to live like Vinnie Chase just because you're rich.

jc said...

yes, but vinnie chase picks all the nice gals, yobbo.

Turtle doesn't.

Anonymous said...

And Bobby Fischer cared about chess and little else. To Buffett, doing what he does is chess. he probably finds it intellectually stimulating. Why celebrate Fischer's monomania but not Buffett's? On the whole Buffett's probably has more social value insofar as it nudges stock prices in the 'right' direction to reflect fundamentals,

Jason

Anonymous said...

not to mention he'll end up giving all his money to charity anyway ...
Jason

derrida derider said...

Yeah, I must admit that I've never seen the point myself of becoming a billionaire - I'd quit and live a highly congenial life in some highly congenial part of the world after my first, say, $50m.

But whatever gets them through the night is alright. As Samuel Johnson said "a man is seldom so harmlessly employed as in making money". That's money, not power - there's lots wrong with powerseekers like Murdoch.

Anonymous said...

It also should be said that one of the main motiviations for BH was to provide for his sisters, family, friend and shareholders. When imposters were copying his portfolio to create cheaper shares, he was afraid for these investors being duped in his name... and offered the B Shares. No one mentions all of the classes that he taught in Omaha at local Colleges. He took education of his shareholders as a prime responsibility.. I beleive that Buffet was happy with the life that he chose, and beleived that he offered the skills that he had as part of the community, both local and National.

Anonymous said...

Appreciate the book review. However, it is utility that drives us, not consumption. True that most people derives utility from consumption, but you can't take out that middle part and just say consumption drives happiness. No, utility drive happiness. Buffett drives utility from accumulating money, just as some people derives utility from collecting stamps, or Michael Jordan derives utility from being a great athlete. We all want to be GREAT, not just good, at something. For Buffett, it just happened to be picking stocks. Good for him.

Straight Talk said...

"an absolute obsession with earning and not spending it"

That's one way of looking at it. But it is sort of like saying Mozart had an obsession with producing ("accumulating" if you like) music or Bradman had an obsession with accumulating runs or Tiger with tours etc etc. All these guys were in fact not accumulating anything, they just enjoyed playing the game and keeping score. Buffett regards money just as Bradman regarded his runs. Mercantilism is an old and weak (sorry!) term.

"why spend your life solely with the intention of accumulating wealth"
Lowenstein puts it quite well, "a scorecard for his favorite game".

As to reading, the arts etc... His perspectives on world affairs, politics and people are actually quite insightful. One doesn't need to quote Horace or sing Nessun Dorma to be balanced, well-read and articulate.

$T