Buffett

by Roger Lowenstein

  Mary Falk was horrified, and told him not to repeat it. Warren looked at her and laughed. Nonetheless, she couldn’t resist his charm, and always made him welcome in the Falk home. Mary Falk seems to have been the first to ask: “Warren, why this drive to make so much money?”

  “It’s not that I want money,” Warren replied. “It’s the fun of making money and watching it grow.”

  The final months of eighth grade, Warren enjoyed a reprieve. He was reunited with his chums, and he had the run of the city, from the Buffett store in the western suburbs to the cobblestone streets downtown, bustling with open-air markets and red-brick and cast-iron warehouses, where Sidney, the first Buffett in Omaha, had set up his store, three-quarters of a century earlier. Already the fourth generation of Buffetts in Omaha, Warren was immensely at home there. He had the city’s informal style, its plain prairie syntax, and also its opaque, unemotional cover. He was hardly “simple,” but in his essential features—his dawning self-reliance, his ambitious but prudent capitalist zeal, and his composed, calm exterior—he was unmistakably Midwestern. Alas, by the fall of 1943, Warren had run out of excuses for not joining the family in Washington. His reprieve had run out.

  * Nebraska spelled backward.

  † Asked years later whether Warren was in fact standing up, Doris said, “Goodness, no. He was sleeping.”

  Chapter 2

  RUNAWAY

  The Buffetts had moved to a four-bedroom house in Spring Valley, an outlying section of Washington, on Northwest 49th Street. The home was white-painted brick, with an open porch in front and a driveway that sloped to the rear. It was a typically modest young congressman’s home—the Richard Nixons would be their neighbors—a short walk from Massachusetts Avenue. Behind the house was nothing but woods.

  Warren’s new life revolved around his job as a carrier for the Washington Post. Now thirteen, he kept a record of his earnings and filed a tax return—and defiantly refused to let his dad pay the taxes.1

  But aside from his paper route, Warren was profoundly unhappy. At Alice Deal Junior High, he caused a bit of trouble for his teachers, and his grades were mediocre.2 Young for his class, having skipped a grade, he was bespectacled and out of the social stream. His appearance was so slovenly that the principal warned Leila that he had better shape up.3

  In June, at the end of that first, unhappy year, Warren ran away—the first real rebellion of his life. He and Roger Bell, the son of a Missouri congressman, and one other chum put out their thumbs for Hershey, Pennsylvania. Warren knew of a golf course there and thought they could stay a few days and caddie. But for once, economics were not his motivation. He was mad at his folks, mad at being in Washington-mad all around.4

  The boys arrived at nightfall, without so much as a toothbrush, and checked into a room at the Community Inn. In the morning, no sooner were they out the door than the police stopped them. Bell was short, while Warren and the other boy were close to six feet. From a distance, the police thought Bell much younger—perhaps a kidnap victim—and took the trio in for questioning. One may imagine Warren, just shy of fourteen, glibly persuading the authorities of their innocence without saying much about what they were doing. The police let them go, but their balloon was pricked. They thumbed their way home that day.

  It seems unlikely that Warren was of a mind to continue his rather halfhearted revolt. His spurts of acting out at school had been pretty tame; according to his sister Roberta, “rebellious” was “a pretty strong word” for him.

  But Howard and Leila were shocked. Though they were gentle with Warren when he returned to Washington, Howard resolved to nip his mutiny in the bud. He told Warren that he would have to improve his marks or give up his paper route.

  This worked on Warren’s grades like a tonic. Far from relinquishing the paper route, he expanded it. He promptly procured a route with the Times-Herald, the Post’s morning competitor, covering the same territory as he had with the Post. As Buffett would recall, if a subscriber canceled one paper and wanted the other, “there was my shining face the next day.”5 Soon Warren had five delivery routes, and close to five hundred papers to deliver each morning. Leila would arise early to make his breakfast; Warren was out the door by five-twenty to catch the bus down Massachusetts Avenue. On the rare occasion when he was ill, Leila did the route, but she didn’t go near the money. “Collections were everything to him,” she wrote. “You didn’t dare touch the drawer where he kept his money. Every penny had to be there.”

  Warren’s crown jewel was the Westchester Apartments, a cluster of red-brick, eight-story high-rises on Cathedral Avenue. He quickly developed an assembly-line approach that was worthy of the young Henry Ford. He would drop off half of the papers for each building on the eighth-floor elevator landing and half on the fourth floor. Then he would run through the building on foot, floor by floor, sliding the papers in front of each apartment. On collection day, he left an envelope at the front desk, sparing him from having to go door-to-door. When the Buffetts returned to Omaha for the summer, Warren entrusted the route to a friend, Walter Diehl, and lectured him on how to handle it. Diehl remembered, “There was this pile of papers sitting in front of you—a mountain. But it only took an hour and a quarter or so. It was a beautiful route. All the buildings were connected underground. You never had to go outside.”

  Figuring that he could increase his profits by adding to his product line, Warren peddled magazines at the apartments, too. The trick was to offer subscriptions at just the right time. Some of his customers, Buffett would recall, “left their magazines out on the stairwell. You could tell by tearing off the address label when the expirations were. So I would keep track of when everybody’s subscriptions expired.”6

  Though the apartments were considered classy—Warren saw Jacqueline Bouvier in the elevator—he had a problem with deadbeats. In wartime Washington, people were frequently moving in and out, sometimes neglecting to pay him. So Warren made a deal with the elevator girls. They got free papers; Warren got tipped off when anyone was planning to move!7

  In short, Warren had turned his paper routes into a business. He was earning $175 a month—what many a young man was earning as a full-time wage—and saving every dime.8 In 1945, when he was still only fourteen, he took $1,200 of his profits and invested it in forty acres of Nebraska farmland.

  World War II, of course, was the omnipresent backdrop to Warren’s Washington years. There were bond drives at school and blackout curtains at home. Nevertheless, the war had little direct impact on him. The single exception was in August 1945, when the Buffetts were spending the summer in Omaha. Warren heard the news about Hiroshima and had a lively discussion about the atom bomb with Jerry Moore, his Omaha neighbor. Warren, Moore recalled, was quite concerned. He viewed relativity as he did religion—with unshaking, terrifying logic. “We were talking—I remember it vividly—on my front lawn. He was afraid of the implications of the chain reaction … of the possible devastation of the world.”

  Back in Washington, at Woodrow Wilson High, Warren was fitting in a bit better. His paper routes had given him an escape from homesickness, and he began to develop a set of friends. As in Omaha, he got a crew to hunt for golf balls. He also was a pretty good golfer and joined the school team.

  Robert Dwyer, the golf coach, was another teacher-figure that Warren cultivated. Dwyer thought him funny—eager without being pushy. He took Warren to the track and taught him how to read the Daily Racing Form. In the summer after Warren’s junior year, Dwyer and Warren happened to be playing golf on the day of the All-Star game. It started to rain, so they went to Dwyer’s car and turned on the game. Charlie Keller, the New York Yankee slugger, was up. Dwyer said, “If you give me twenty-to-one odds, I’ll bet you he hits a home run.” Warren said, “I’ll take a dollar’s worth.” Keller, of course, hit one. Dwyer was kind enough to lose the $20 on another bet.

  But as both of them knew, Warren was making more money than his coach.9 Marooned in a strange city, he was t
rying to jump-start his career at a time when he was barely capable of shaving. He was reading every business book he could get his hands on, poring over actuarial tables, running his paper route. Donald Danly, a Wilson student who became a good friend, thought Warren “was charting his way toward a [financial] target.”

  Danly, the son of a Justice Department attorney, was a serious and brilliant student. At first glance, he and Warren had little in common. Danly had a good-looking girlfriend, whereas Warren didn’t date. And Danly was chiefly interested in science. But Danly, who had lost his mother, began to spend a lot of time at the Buffetts’ after the war, when Danly’s father went to Japan to prosecute war criminals. The two played music together, Warren strumming on the ukulele while Danly played the piano. Then they discovered that Danly’s love of science and Warren’s obsession with business had a shared language—numbers. They would calculate the odds of poker hands, or the chances, in a room with a dozen people, that two would have the same birthday. Or Danly would rattle off a series of two-digit numbers, waiting for Warren to spit out the sum.

  In their senior year, Danly bought a used pinball machine for $25, and Warren and he played it by the hour. The machine often broke, and as Danly tinkered with it, Warren took note of his friend’s mechanical skill. Warren had an idea: why not put the machine in the barber shop on Wisconsin Avenue and rent it out?10

  Warren approached the barber, who agreed to a fifty-fifty split. At the end of the first day, they found $14 in the machine. Within a month or so, Warren and Danly had machines in three barbershops. Prospering, they expanded to seven. Warren—living a real-life fantasy—thought of a name, the Wilson Coin Operated Machine Company. “Eventually we were making $50 a week,” he recalled. “I hadn’t dreamed life could be so good.”11

  Wilson Coin Op had a natural division of labor. Warren put up most of the capital for the machines, secondhand arcade games that cost from $25 to $75 apiece. Danly repaired them. Warren kept the books and typed a monthly financial statement. Barbers were instructed to call Danly if a machine broke—one was always breaking—and the two of them would show up pronto in Danly’s 1938 Buick, which had had the backseat removed.

  Fearing that the pinball business was controlled by the mob, Warren stuck to small, out-of-the-way locations. Also, he and Danly hinted that they were merely legmen for a going concern that was not to be taken lightly. Buffett recalled:

  The barbershop operators were always pushing us to put in new machines, and we’d always tell them we’d take it up with the boss. We pretended like we were these hired hands that were carrying machines around and counting money.12

  Once a week they made the rounds, sometimes with Danly’s girlfriend, Norma Jean Thurston. Warren would return to the car with a funny description of the barber, or of what he’d said to him, and the three of them would howl. Warren could see the twist—the irony of these kids acting out the role of being big-time businessmen.

  Norma Jean thought Warren was especially funny. She was pretty and slender, with arched eyebrows and striking blond hair. Her nickname was “Peroxide.” Danly was “Duck,” but Warren was simply “Buffett.” Their elders had fought a war, but Buffett, Duck, and Peroxide were still in a state of innocence. Though they were natural hams, they didn’t smoke or use swear words, and Warren didn’t drink anything but Pepsi-Cola. All the girls that Norma Jean knew were virgins; in her crowd there was hardly any sex. But Warren was a shade more innocent still. He didn’t go to the Friday-night dances; “he didn’t have the moves other guys had,” Norma Jean said. “He didn’t try.”

  He walked with his shoulders hunched forward and bent toward the ground, tramp, tramp, like a billy goat. At times, he carried a clunky-looking change purse strapped to his belt.13 To his Wilson classmates, Warren’s footwear marked him as a hayseed, and they remembered it after decades. “We used to get a kick out of Warren and his sneakers,” remembered Casper Heindl. “He used to wear ’em year-round. I don’t care if the snow was a foot deep, he had sneakers on.” And Robert Moore said, “I remember him very well. The one thing we used to joke about—he didn’t wear anything other than tennis shoes. Even in the dead of winter.”

  Warren seemed to take a perverse delight in those sneakers. “Most of us were trying to be like everyone else,” Norma Jean noted. “The girls all buttoned their sweaters in the back. I think he liked being different.” Though he was high-spirited and perpetually kidding, there was something of the odd man out about him. When his quirks were pointed out, he would stick to his guns, or kid himself, with self-deprecation. Norma Jean said, “He was what he was and he never tried to be anything else.”

  At the dinner table at home, Warren was getting a nightly seminar on sticking to one’s guns. Howard, who despite his pledge to serve one term was reelected in 1944 and again in 1946, was in the fabled do-nothing Congress, so named for fighting Truman at every turn. In the evenings, he would expose the family to a drumbeat of dire alarums. Once, when the family was discussing what to get one of Howard’s aides for Christmas, little Roberta piped up, “How about a savings bond—or does he know that they’re no good?”

  Another time, after having voted against a popular labor measure, Howard took Warren to a baseball game in Omaha. When the congressman was introduced to the crowd, he was roundly booed.14 But he showed Warren no sign that he minded.

  Unshakably ethical, Howard refused offers of junkets and even turned down a part of his pay. During his first term, when the congressional salary was raised from $10,000 to $12,500, Howard left the extra money in the Capitol disbursement office, insisting that he had been elected at the lower salary.

  Leila said her husband considered only one issue in voting on a measure: “Will this add to, or subtract from, human liberty?” But his view of liberty was decidedly cramped. His single interest was in rolling back the enlarged government that Roosevelt, and World War II, had made permanent.

  During the war, he coauthored a letter demanding that the United States “elaborate” on its policy of seeking an unconditional German surrender and posing the curious question “What are we fighting for?”15 Did uprooting Nazism not constitute “an addition to human liberty?”

  After the war, he voted against aiding bombed-out Britain, against school lunches, against European grain exports, and against the Bretton Woods monetary scheme.16 At his worst, his Americanism lapsed into xenophobia and Red-baiting. As the Buffetts drove past the still-lit British embassy in the evenings, Howard would growl, “They even stay up late to think of ways to get our money.”17 He opposed the Marshall Plan to rebuild Western Europe as “Operation Rathole,” and as possibly having Stalin’s secret backing.18

  On several issues, Howard was remarkably prescient. One of his few proposals was a measure to protect the owners of U.S. savings bonds against inflation. Yet the broad sense of his tenure is that of a moralist disfigured by parochial, and extremist, claims.

  Warren mouthed his father’s politics,19 and probably believed them superficially, but he didn’t commit himself to them. He absorbed his father’s patriotism, but not his bitter isolationism. A few years later, Warren wryly alluded to his father’s dogmatism in a letter to a college friend. “I had better knock this off,” Warren wrote, “and go out and help my dad conduct a crusade against something or other.”20

  He did inherit his father’s scruples and concern for society. (Indeed, Warren would later revile the corporate theft of other people’s money in much the same terms that Howard critiqued the government’s.) But for Warren, who had witnessed the Depression and the war as a child, government was society’s defender, not its enemy. Given his utter devotion to his father, his political awareness, though still undeveloped, suggested a stirring of independence.

  Warren had already decided that he would not follow his father into government. When Norma Jean asked whether he might make a life in Washington, Warren replied without hesitation, “No. I’m going to live in Omaha.”

  By his senior year,
he was planning on a career not just in business, but specifically in investing. Sitting in the breakfast nook at home, at an age when other boys didn’t get past the sports pages, he was already studying the stock tables. And word of his supposed expertise had followed him to school, where his teachers tried to pick his brain about the market.21

  In a wily effort to capitalize on his renown, Warren shorted—that is, bet against—shares of American Telephone & Telegraph Company, because he knew that his teachers owned it. “They thought I knew about stocks and I thought if I shorted AT&T, I would terrorize them about their retirement.”22

  Why this mild repute as an oracle? Warren hadn’t had any coups in the market. Yet people sensed that he knew. He had something innate: not merely a precocious store of knowledge, but an ability for casting it in logical terms. Faith didn’t move him, but facts he could assemble in a smooth and sensible train. Quoting Danly: “He just seemed to have tremendous insight. He would say things in a way that didn’t leave any doubt that he knew what he was talking about.”

  Warren graduated in June 1947, finishing sixteenth in a class of 374. (Danly was tied for first.) The Wilson yearbook captured him with bright, eager eyes, neatly parted hair, and a sheepish grin. The caption: “Likes math … a future stockbroker.”

  Howard suggested the nearby Wharton School of Finance and Commerce at the University of Pennsylvania. Warren replied that college would be a waste. He had delivered almost 600,000 papers and in the process earned over $5,000.23 Money was coming in from newspapers, from Wilson Coin Op, and from a Nebraska tenant farmer. What’s more, he had read at least one hundred books on business. What, in short, did he have to learn?