| The Snowball: Warren Buffett and the Business of Life |
| Alice Schroeder, Bloomsbury, 2008, 960 pages, £25. |
| If investment is about timing, then the release of this book is spot on. Warren Buffett’s personal stock is riding high after a year in which his warnings about the dangers of debt and derivatives have been realised with the near collapse of the banking system. Buffett first described derivatives as ‘weapons of mass financial destruction’ back in 2003, a little early, but that has never been a concern to the man who went through the late 1990s saying technology stocks were overvalued. |
| Being vindicated is important, however, and today Buffett surveys the wreckage in the financial markets from a cash pile of more than $100bn. Not surprising then that some 30,000 people came to the 2008 shareholders’ meeting of his holding company Berkshire Hathaway to hear the latest thoughts from the man known as the Sage of Omaha. |
| The Snowball is the first and is likely to be the only authorised biography of Warren Buffett, also known as the world’s greatest investor. Whilst there are times when the tale could be lighter on detail, the narrative flows along and the result is a definitive account with a glittering array of characters from John Gutfreund of Salomon Brothers to Bono of U2. |
| The aim is to get inside the person as well as the businessman. This is a vast task as Buffett’s career has spanned more than seventy years: he started his first business at age six and the book goes right through to the collapse of Bear Stearns in 2008. More than that, Buffett is an enigma – one of the world’s most successful businessman who likes to present himself as a simple folksy guy whose greatest pleasure in life is a burger and cherry Coke. |
| In attempting to get to the heart of Buffett, Alice Schroeder delves into his complex relationships with a number of significant women and his father’s career as a Republican Congressman. As a consequence she has produced a door-stopper of a book, the product of five years work. |
| The secret of Buffett’s success? According to Schroeder, “The method was the same: estimate an investment’s intrinsic value, handicap its risk, buy using margin of safety, concentrate, stay in the circle of competence, let it roll as compounding did the work.” Of course as Schroeder notes, “Anyone could understand these ideas, but few could execute them.” |
| One consistent theme is Buffett’s deep focus, “intensity is the price of excellence” is how he puts it, a quality he shares with his good friend Bill Gates. Self-belief is another factor: the ability to stand back and resist the pressure of the herd. |
| However, personal qualities aside, Buffett is able to go against the market for significant periods because he has set up his investment vehicle in a way which removes much of the short-term pressure to perform. Unlike most fund managers he does not have to report every trade to his clients on a quarterly basis. Consequently his tolerance of volatility is very different, particularly from those who have leveraged. Buffet learnt this early on and as his funds grew he also had the advantage of being able to force change in a company, ultimately by taking it over if necessary. |
| The book traces Buffett’s investing style back to his exposure to Ben Graham the great value investor who taught him as a student at Colombia University. Back then companies were valued on how much they would be worth dead rather than alive, a hangover from the Great Depression. Buffett could still be described as a value investor, but as the economy grew after the war his style changed and under the influence of Charlie Munger, his partner in Berkshire Hathaway, he began to look at companies in terms of their brand and the people who ran them. |
| What of the outlook today? The book quotes Buffett as saying, “The economy is definitely tanking. It is not my game, but if I had to bet one way or another – everybody else says a recession will be short and shallow, but I would say long and deep.” |
| Troubling words, but that does not mean he is calling for a prolonged bear market. On many occasions Buffett is quoted as saying, “Be fearful when others are greedy and greedy when others are fearful.” He has recently made well-publicised forays into the market to buy a stake in GE and Goldman Sachs. However, he still holds his cash. The book suggests one reason why. In 2006 Buffett announced he would be giving away much of his wealth to philanthropic causes, primarily the Gates foundation. Having grown to such a size perhaps the great snowball of wealth is not rolling so fast. |
| Keith Wade |
| Chief Economist, Schroeders plc |