Buffett

by Roger Lowenstein

  Left to himself, Buffett was mystified about why she had left and miserably lonely. He burst into tears on the telephone with her. Susie, soothingly, explained her move as an evolutionary adjustment—not a total break. They still could talk on the phone, travel together, even share regular vacations in New York and Laguna Beach. She talked and talked to him. They were still husband and wife, she assured him. But the gist of it was, “We both have needs.”8

  Warren’s daughter came home to spend a couple of weeks with him. Young Susie had Warren’s sunny, matter-of-fact temperament, and she adored her dad. Coincidentally, she was in the process of ending her own, short-lived marriage. She filled out his suddenly empty house and helped him through domestic issues such as eating something other than popcorn and having clean clothes. Buffett, who was nuts about “little Susie,” expressed amazement that she could get the laundry done in a single afternoon. He didn’t say much about Susie’s mother. Young Susie recalled:

  He has a hard time verbalizing feelings. I only remember him sitting in his chair and reading, talking about the laundry. At some point, I said, “Really nothing has changed. If you had a tape playing of Mother opening and closing the door and yelling, ‘I’m home,’ you’d think she was here.”

  Among the Buffetts’ family and friends, who had tended to idealize the Buffett household, there was a sense of shock, and also sadness. But Warren and his wife were not, in the ordinary sense, broken. Though Susie was in California, they talked to each other virtually every day.9 At Christmas, they reunited with their kids at the beach house in Laguna. In the spring, Warren and Susie took their usual two-week trip to New York.

  Things got easier, his daughter said, as Buffett came to realize that his life was not so very different. Implicitly, it was the prospect of change that terrified him. He considered moving to Southern California, nearer to much of his family, but couldn’t bring himself to do it, partly because it would mean working without his bland but faithful longtime secretary, Gladys Kaiser.10 In a larger sense, he was loathe to change his routine, leave the familiar, or reinvent himself in any way.

  Susie, on the other hand, was living in a modest, almost student-like apartment, outfitted with girlish accouterments such as a Mickey Mouse telephone. She had the exultant sense of freedom that comes with living alone, especially to someone who has had to delay it until middle age. There were aspects of Susie’s personal life that she did not share with Warren, and that Warren preferred not to confront. People in the family knew, and understood that Susie, too, had needs. They formed a kind of protective conspiracy around him—the better for him to do his life’s work—as, indeed, they always had. As Roberta, his younger sister, noted, “We are very protective to Warren. I don’t know how it started, but it was that way even growing up.”

  Susie sheltered Warren more than anyone. She still cared for him, and in her own way, she was as good at weaving a web around people as her husband. Susie even suggested to several women in Omaha that they call Warren for a movie, or maybe fix him dinner.11 One of those women was Astrid Menks, a blond, soft-spoken thirty-one-year-old waitress at the French Café. Astrid fixed Buffett a couple of homemade soups and began to look in on him. Susie gave them a push.12

  If anyone in Omaha moved in different circles than Buffett did, it was Astrid Menks. She lived in a loft in the market district, an arty neighborhood perpetually in transition from head shops to cappuccino bars. Born in Latvia, she had come to Omaha as a girl. She had lost her mother when she was young, and her father, a waiter, had entrusted his children to an orphanage.13 The most common description of Astrid was “survivor.” Witty and street-smart, she was an habitué of antique stores and thrift shops and inevitably managed to look striking even in secondhand threads. She had a small frame and a sharply lined face that hinted at her origins. In the winter, she would pick her way through the mounds of snow and swirling Omaha winds, bundled up in an afghan and a fur coat and leading a reddish dog and looking like a character from Doctor Zhivago.14

  Astrid seemed to know everyone in what passed for bohemian society in Omaha. Tom Rogers, a nephew of Buffett’s who lived above the French Café, recalled, “When there was a blizzard and people were snowed in—Omahans are sort of spiritual about snow—Astrid would get together with the chef at V Mertz and organize a big dinner for everyone.” She liked to make herself useful, but behind the scenes. When Susie sang at the French Café, Astrid had brought her tea between the sets. She had a cool artentiveness, and modesty was second nature to her.

  Within a year of Susie’s moving out of Buffett’s home, Astrid moved into it. Warren’s new arrangement baffled his son Howie. It baffled everyone. Kent Bellows, the artist, who knew Astrid as a thrift-shop fiend, was astonished that she had hooked up with the richest guy in town. Bellows very brassily asked her, “So what is this with you and Warren? Do you?”

  There was talk that Buffett had hired her as a “cook,” but in fact, they were a couple from the start.15 Temperamentally, Astrid and Buffett suited each other. They had a kidding, easy way together. While Buffett was looking for bargain stocks, Astrid would stalk the junk stores, or scavenge the supermarkets looking for bargains on the millionaire’s Pepsi-Cola. When Buffett was in his study, Astrid would be in the garden. She liked being at home, and she freed him from having to think about the practical details of living. If Peter came in on a late-night train, Astrid would meet him.

  Perhaps because she had lived alone so much, Astrid had a way of catering to Buffett without seeming subservient or losing her grace. She stood up to him, but in a light, understated way. Of course, the trade-off was rather strange. Astrid had security and companionship. Buffett had a partner to come home to, or to share a steak with. Yet from the day she moved in, Astrid knew that Buffett did not envision remarrying, and that he was still attached to his wife. She made a home for him, yet she would see him off with neatly laundered shirts when he left town to be with Susie.16

  At first, Astrid would leave Omaha rather than stay in the empty house.17 After a while, she got comfortable with his comings and goings, and with people in Buffett’s family. Remarkably, she also got to be chummy with Warren’s wife. When Susie came to Omaha, she and Astrid did lunch, though Susie did not stay at Farnam Street. At an annual meeting of Berkshire Hathaway, the two women sat side by side, making small talk while their common friend presided onstage.

  This mostly unlikely trio developed a rhythm. Astrid took care of Buffett day to day; Susie was with him if Buffett was accompanied outside of Omaha. In New York and California, Warren and Susie saw their usual friends. Also, at any formal occasion, such as the biannual meetings of Buffett’s Ben Graham investors group, Buffett brought his wife.

  To outward appearances, Warren and Susie’s personal chemistry was unchanged. Joe Rosenfield, the Iowa retailer who often joined them in California, said they “acted like a regular married couple.” The younger Susie said her parents’ “basic relationship” was the same. Peter thought it “surreal”—the fact that they lived fifteen hundred miles apart seemed to have changed nothing.

  Buffett even got a kidding tribute from Howard Newman (the son of Ben Graham’s partner) for having two women. “Ben wanted to do that, but you pulled it off,” Newman joshed. Yet Buffett was hardly the romantic Casanova that such a comment suggests. He alternated between his female leads in a methodical, compartmentalized fashion, almost as though it were scripted. In fact, Astrid and Susie were different people, not actresses and not really interchangeable. It was all very jarring to Buffett’s friends, and though they became accustomed to his domestic triangle, they still found it inexplicable.

  One wonders to what extent Buffett himself was willing to explore his marriage (Peter, for instance, questioned whether his mother had been talked into marrying his father from the start, a notion Buffett disputed), or whether he simply rearranged his supporting cast so as to best continue working. But however much it perplexed his friends, the fact is that Buffett found, or
contrived, a solution that worked for him. Hanging on to Susie, even at a distance, gave him the continuity he had always craved, even as a boy when he had run back to Omaha. It spared him the trauma of divorce, or of a hateful search for new frontiers.

  This deliberateness was characteristic of him. “I really like my life. I’ve arranged my life so that I can do what I want,” he once observed to a reporter. Typically, he was not concerned with appearances, even now, when flouting the deepest of social conventions. He did not try to explain his ballet à trois; in his one published comment, he merely noted that it suited the three people directly involved: “If you knew everybody well, you’d understand it quite well.”18

  Buffett did make a point of telling friends that Astrid had Susie’s blessing. Don Danly, Buffett’s old pinball partner, visited him in Omaha after Astrid had moved in, and naturally wondered about her. Danly could hardly help but notice that she and Buffett went off at night. Buffett told him that the two women were friends. Danly said, “I think it was important to him. He was telling me he wasn’t doing anything underhanded.”

  In Peter’s view, Buffett’s first years without Susie were a gray time. “For a while he was empty and sad,” Peter said. An intimate woman friend thought Buffett “achingly lonely.” But to her, the interesting thing was how he coped with it. No one outside a small circle had any glimpse of that grayness. According to his son, Buffett himself did not always see it. He focused on his work, and he “tap-danced” through his new, carefully plotted life as though he had “blinders.”

  In a previous crisis, when as a boy he had been marooned in Washington, Buffett had thrown himself into delivering newspapers. Though he was an owner of some of those papers now, not much else about his work had changed. He couldn’t rise early enough, as though a bundle of papers still awaited him at the office. Nourished, now, by two supportive women, he would unfailingly answer the telephone with a verbal high-five, as if he had never known an unhappy moment. Joe Rosenfield, an old and dear friend, never saw Buffett despondent—not once. “He’s so wrapped up in Berkshire,” Rosenfield noted.

  Far from slacking off amid his personal troubles, Buffett experienced a creative resurgence. In the late seventies, and with his usual unpredictable timing, Buffett (on behalf of Berkshire) made a staccato burst of investments. Energized, as always, by a depressed stock market, he began to shovel the float from Berkshire’s insurance company into stocks, including Amerada Hess, American Broadcasting Cos., more GEICO and then still more, General Foods, Knight-Ridder Newspapers, Media General, SAFECO, F. W. Woolworth, and then again still more.

  It was said that the rumor that Buffett was buying was enough to boost a stock by 10 percent. General Foods “went winging up,” according to the broker Art Rowsell. “Warren wouldn’t acknowledge that he was buying it. He kind of waited everybody out, and it came back down, and he started buying it again. Charlie [Munger]—he was ranting: ‘The sonuvabitches are following us again.’ ”*

  As Buffett was investing, he also began to write, occasionally for business magazines, but primarily in the Berkshire Hathaway annual reports. He had always had an urge to chronicle his progress, but his pen had been strangely silent since the days of Buffett Partnership. Now, increasingly, he used the letters to sketch lucid business primers that ranged over investing, management, and finance.

  There was no single beginning, though when Buffett later bound a collection for reprint, he began with the 1977 letter, written early in 1978, which coincided with Susie’s leaving home. This letter was a primer of the most basic sort, and it is doubtful that too many people read it. Buffett explained that he evaluated stocks exactly as he would an entire business: he looked for companies he understood, run by honest and competent managers, with favorable long-term prospects, and available at a decent price. He made no attempt to anticipate the short-term price action.

  The inspiration for this missive—and for Buffett’s buying spree—was the strange world of Wall Street of the late 1970s. Stocks of the type that Buffett described were there for the picking, yet once again, nobody wanted them. By the summer of 1979, the Dow had crashed to the mid-800s—remarkably, below its level of 1969. As in the mid-seventies, the country was in a funk in matters economic, and the headlines spoke of despair. The dollar had been routed by the mark and the yen; there were fundamentalists in Iran, Reds in Nicaragua, a revivified OPEC, energy shortages at home, and a pervasive sense of the country in decline. Instead of the duplicitous Nixon as President, America now had the virtuous but sorely ineffective Jimmy Carter. His eye on the White House, George Bush expressed shock at the level of federal debt. He promised, if elected, to balance the budget in his first term.19

  It comforted no one that Wall Street had survived a similar brush with Armageddon only five years before—or that the earlier slump had been followed by one of the greatest rallies ever. Financial cycles are apparent only in retrospect. As it unfolds, each swing of the market, cloaked in the vestments of the moment, appears unique. The peculiar curse of the late seventies was inflation, which hit an all-time high of 13 percent. On Wall Street, the prime rate was in double digits. In the hinterlands, there was a new species of snake-oil salesman—the doomsday profiteer. He peddled gold, diamonds, art, real estate, rare metals, freeze-dried foods, jojoba beans, and advice on surviving the next depression. His message was: “Get out of paper.”

  The poor soul who dared protest that stocks represented the country’s earning power was greeted with a snicker. In a letter dated 1979, Buffett noted with astonishment that pension fund managers, “a group that logically should maintain the longest of investment perspectives,” had put only 9 percent of their available funds into stocks that year—a record for cowardice.20 He could hardly help but add, “We confess considerable optimism” regarding Berkshire’s portfolio.21

  Few disputed that stocks were cheap. But as in bear markets past, fund managers were waiting until the outlook was “clear.” Manufacturers Hanover had 60 percent of its funds out of the market. Victor Melone, a senior investment officer, explained, “There are further questions to be answered.”22 Heinz H. Biel, vice president of Janney Montgomery Scott, joined the chorus:

  Knowing that stocks are cheap does not impel one to go on a buying spree; the future is clouded by many ugly questions.23

  The pinnacle of worry-wart prognostication was claimed by Business Week, which in August 1979 ran a celebrated cover: “The Death of Equities.” It was a seminal piece—a carefully wrought obituary for the stock market. Henceforth, according to Business Week, people would invest in money markets, fast-food franchises, or rare stamps. Stocks, apparently, were history. That shares were cheap was a “disincentive”—proof that the market was not merely down but dead.

  For better or for worse, then, the U.S. economy probably has to regard the death of equities as a near-permanent condition—reversible some day, but not soon.24

  Buffett could not have disagreed more. The same week, he penned an essay for Forbes, attacking the herd instincts of pension-fund managers and their age-old rationalization.

  The future is never clear; you pay a very high price in the stock market for a cheery consensus. Uncertainty actually is the friend of the buyer of long-term values.25

  The Forbes essay reflected Buffett’s reawakened urge to decipher business in print, and on a deeper level than he had in the sixties. He noted that pension-fund managers had flocked to corporate bonds, then paying 9½ percent. Their reasoning was simple: stocks had no coupons at all, and were considered more risky, especially in light of the market’s recent performance.

  To Buffett, there was less to this distinction than met the eye. In fact, stocks, then, were less risky, not more so. The origin of this singular insight was that Buffett looked beneath the form of a security to its economic substance. A stock, like a bond, was a claim on a corporate asset. A stock also bore a “coupon,” at least implicitly—the underlying corporate earnings.

  The companies in th
e Dow Jones Industrial Average, for instance, earned 13 percent on book value, a figure that for the group had held pretty constant. And those stocks were trading at less than book. When he shut his eyes, Buffett could see the stocks in the Dow as a “Dow Bond” with a “coupon” of 13 percent—clearly superior to the return on bonds. And for the patient investor, stock prices would eventually reflect the buried 13 percent.

  Buffett’s own stock had risen despite the bear market. Berkshire was now at $290 a share, giving Buffett a paper fortune of $140 million. But the curious fact was that Buffett, whose salary was only $50,000, couldn’t live off his Berkshire. He refused to sell even a single share of his precious “canvas.” Nor would he permit the company to pay a dividend. To bleed it of capital would have been sacrilege—shaving off a corner of his work-in-progress to pay the rent.

  Feeling the pressure of having to support two households, he complained to Charles Heider, an Omaha broker, “Everything I got is tied up in Berkshire. I’d like a few nickels outside.”

  In the late seventies, he bought a few stocks for his own account. He was a bit more of a swinger with his personal money. For instance, in the case of Teledyne, Buffett invested in options—a strategy with a higher chance of either failing or making a killing.26 According to one associate, he also bought copper futures—an outright speculation.

  “It was almost frightening, how easy it was,” a Berkshire employee said. “He analyzed what he was looking for. All of a sudden he had money.” When a friend suggested that Buffett try his hand in real estate, Buffett grinned. “Why should I buy real estate when the stock market is so easy?”27 According to the broker Art Rowsell, “Warren made $3 million like bingo.”