Summary: ‘The Snowball’ by Alice Schroeder

The book is a biog­ra­phy of War­ren Buf­fett, one of the most suc­cess­ful investors in the world. It chron­i­cles his life from his ear­ly days as a child obsessed with mak­ing mon­ey to his cur­rent sta­tus as the world’s rich­est person.

Buf­fett is known for his val­ue invest­ing phi­los­o­phy, which involves buy­ing stocks of com­pa­nies that are under­val­ued and hold­ing them for the long term. He has been remark­ably suc­cess­ful with this approach, and his Berk­shire Hath­away com­pa­ny has grown to be one of the most valu­able in the world.

Over­all, The Snow­ball is a fas­ci­nat­ing look at the life and career of one of the most suc­cess­ful busi­ness­men in his­to­ry. It is a must-read for any­one inter­est­ed in invest­ing, busi­ness, or per­son­al finance.

Here are some key take­aways from the book:

• War­ren Buf­fett is a bril­liant investor who has achieved remark­able suc­cess through his val­ue invest­ing philosophy.
• He is also a com­plex and inter­est­ing per­son who has led a fas­ci­nat­ing life.
• The book is well-writ­ten and engag­ing, and it pro­vides valu­able insights into the world of invest­ing and business.

Summary: ‘The Snowball: Warren Buffett and the Business of Life’

War­ren Buf­fett inde­pen­dent­ly accrued his immense for­tune. Rather than immers­ing him­self in Wall Street’s hus­tle and bus­tle, Buf­fett oper­ates from Oma­ha, Nebras­ka, a quaint city in the heart­land of the U.S. Through­out his career, Oma­ha has served as Buf­fet­t’s base, in stark con­trast to how the wider busi­ness com­mu­ni­ty regards it. Buf­fet­t’s ardu­ous scruti­ny of the stock mar­ket and the realm of com­merce, metic­u­lous­ly study­ing indi­vid­ual com­pa­nies and their poten­tial for growth and earn­ings, has been instru­men­tal in his unpar­al­leled wealth acquisition.

“War­ren Buf­fett was a man who loved mon­ey, a man for whom the game of accu­mu­lat­ing it coursed through his veins like his lifeblood.”

Buf­fet­t’s invest­ment phi­los­o­phy, derived from his men­tor Ben­jamin Gra­ham, is remark­ably uncom­pli­cat­ed: Iden­ti­fy com­pa­nies with stock val­ues priced below the orga­ni­za­tion’s “intrin­sic” val­ue and invest accord­ing­ly. Buf­fett dis­re­gards the mar­ket’s tran­sient fluc­tu­a­tions and pri­or­i­tizes long-term invest­ments, focus­ing on com­pa­nies with robust busi­ness fun­da­men­tals and the poten­tial to yield supe­ri­or earn­ings year after year. Through this straight­for­ward approach, he forged his for­tune. Nev­er­the­less, Buf­fet­t’s leg­endary prowess in dis­cern­ing suc­cess­ful busi­ness­es from fail­ures is far more eas­i­ly described than accom­plished. How did Buf­fett attain the sta­tus of the world’s pre­mier com­pa­ny eval­u­a­tor and stock-picker?

“When­ev­er Buf­fett entered a room, a pal­pa­ble aura of influ­ence sur­round him. Peo­ple were cap­ti­vat­ed by his pres­ence, yearn­ing to be in his prox­im­i­ty and often left awestruck or speak­ing inane remarks.”

The answer lies in his relent­less pur­suit, from an ear­ly age, of becom­ing a mil­lion­aire. A pho­to from Buf­fet­t’s child­hood cap­tures him proud­ly dis­play­ing his beloved toy, a nick­el-plat­ed change-mak­er. As he matured, Buf­fett fer­vent­ly assim­i­lat­ed every ounce of knowl­edge about busi­ness and invest­ing, pour­ing over decades-old pub­li­ca­tions and news­pa­pers. His sur­pass­ing of his ini­tial finan­cial goal bears tes­ta­ment to his fore­sight, unwa­ver­ing focus, and idio­syn­crat­ic approach to finan­cial suc­cess. His tale encap­su­lates the clas­sic Amer­i­can nar­ra­tive of dili­gence lead­ing to unprece­dent­ed suc­cess. His trans­for­ma­tion from a child aspir­ing to amass a mil­lion to doing so — and more — is tru­ly extraordinary.

The Early Years

The Buf­fett fam­i­ly mem­bers were hon­est, mat­ter-of-fact Nebras­ka trades­peo­ple. War­ren’s father, Howard, worked in his father’s Oma­ha gro­cery store before ven­tur­ing into the world of insur­ance. War­ren Edward, his sec­ond son, was born at the com­mence­ment of the Great Depres­sion in 1930. While the coun­try was grap­pling with eco­nom­ic tur­moil, Howard estab­lished a win­ning stock bro­ker­age, Buf­fett, Sklenic­ka & Co. Launch­ing such a ven­ture when stocks were being shunned required sig­nif­i­cant for­ti­tude, but Howard’s busi­ness flour­ished from the outset.

“Howard Buf­fett swift­ly estab­lished him­self as pos­si­bly the most under­stat­ed con­gress­man to rep­re­sent his state.”

An excep­tion­al­ly pre­co­cious child, War­ren har­bored a fond­ness for num­bers and col­lec­tions, hob­bies that would serve him immense­ly in the future. From a young age, War­ren engaged in busi­ness ven­tures, ini­tial­ly sell­ing packs of gum to his neigh­bors and lat­er ven­tur­ing into the sales of golf balls he retrieved from the lake at Oma­ha’s Elm­wood Park golf course. He also sold pop­corn and peanuts at local foot­ball games, con­sci­en­tious­ly sav­ing every pen­ny he earned. Even in his youth, War­ren poured over all the invest­ment resources at his father’s office and earnest­ly absorbed the con­tents of his favorite library book, One Thou­sand Ways to Make $1,000. He made a per­son­al vow to achieve mil­lion­aire sta­tus by the age of 35.

“For War­ren, every dol­lar rep­re­sent­ed as ten dol­lars in the future, com­pelling him to spend prudently.”

In the 1940s, Howard, a fer­vent Repub­li­can, secured a seat in Con­gress. The fam­i­ly relo­cat­ed to Wash­ing­ton, D.C., where War­ren com­menced junior high school and under­took a job as a news­pa­per deliv­ery boy. By the age of 14, he had amassed $1,000. Through dili­gence, he dou­bled his sav­ings and pur­chased a 40-acre ten­ant farm in Nebras­ka. As a teenag­er, War­ren ven­tured into the pin­ball busi­ness, procur­ing and installing machines in local bar­ber­shops. He also pur­sued hand­i­cap­ping horse races and authored a tip sheet titled Sta­ble-Boy Selec­tions.

“He nev­er indulged in leisure­ly pur­suits such as back­yard bar­be­cues or stargaz­ing. For War­ren, a stargaz­ing ses­sion would entail behold­ing a dol­lar sign in the Big Dipper.”

Sub­se­quent­ly, War­ren had a brief stint at the Uni­ver­si­ty of Penn­syl­va­nia, which he found unsat­is­fac­to­ry. His dis­ap­point­ment cul­mi­nat­ed when his appli­ca­tion to Har­vard was reject­ed. Even­tu­al­ly, he gained admis­sion to Colum­bia. Uni­ver­si­ty, where he enrolled in cours­es taught by Ben­jamin Gra­ham, the renowned author of The Intel­li­gent Investor. He swift­ly estab­lished him­self as Graham’s stand­out pupil. War­ren absorbed and com­mit­ted to Mem­o­ry Secu­ri­ty Analy­sis, the influ­en­tial book co-authored by Gra­ham and Colum­bia pro­fes­sor David Dodd.

“Buf­fett pos­sessed an upbeat out­look regard­ing the long-term eco­nom­ic prospects of Amer­i­can business.”

Dur­ing this peri­od, Buf­fett was an active investor on Wall Street, con­cen­trat­ing on busi­ness­es that main­tained low expens­es and con­sis­tent­ly gen­er­at­ed prof­its, such as GEICO, an insur­ance com­pa­ny spe­cial­iz­ing in sell­ing poli­cies over the phone. Ini­tial­ly acquir­ing 350 shares, he lat­er expand­ed his hold­ings exten­sive­ly. Fol­low­ing his grad­u­a­tion, he returned to Oma­ha, where he trad­ed stocks for his father’s com­pa­ny and lec­tured on invest­ment prin­ci­ples at the Uni­ver­si­ty of Oma­ha. He mar­ried a com­pas­sion­ate and empa­thet­ic woman named Susan (“Susie”) Thomp­son. By 1951, Buf­fet­t’s cap­i­tal amount­ed to $19,738, which he pro­ceed­ed to invest and reinvest.

“The mere men­tion of Buf­fet­t’s stock acqui­si­tion alone could sig­nif­i­cant­ly impact its price and reval­u­ate a com­pa­ny by hun­dreds of mil­lions of dollars.”

Liv­ing fru­gal­ly off his earn­ings as a stock­bro­ker and part-time edu­ca­tor, War­ren demon­strat­ed a thrifty nature. He would only wash his car when it rained to save on water. In 1953, War­ren and Susie wel­comed their first child, Susan Alice, affec­tion­ate­ly known as “Lit­tle Susie”. They lat­er had two sons, Howard and Peter.

“Buf­fet­t’s tes­ti­mo­ny in Con­gress as the reformer and sav­ior of Salomon had trans­formed him from a wealthy investor into a hero.”

In 1954, Buf­fett and his young wife relo­cat­ed to New York, where he com­menced work at Graham’s invest­ment firm, the Gra­ham-New­man Cor­po­ra­tion. He ful­ly embraced Graham’s invest­ment approach, focus­ing on com­pa­nies’ net worth and pur­chas­ing stock in under­val­ued firms. Gra­ham referred to such enti­ties as “cig­ar butts.” Buf­fett exten­sive­ly stud­ied Moody’s and Stan­dard & Poor’s and quick­ly gained fame at Graham’s firm for con­sis­tent­ly rec­om­mend­ing excel­lent buys. Buf­fett acquired a valu­able les­son about “cap­i­tal allo­ca­tion” – the strate­gic place­ment of funds to yield the high­est return. This prin­ci­ple became a cor­ner­stone of his invest­ment strat­e­gy. When Gra­ham retired, he offered Buf­fett a part­ner­ship to retain him at the firm. How­ev­er, with Gra­ham’s depar­ture from the scene, Buf­fett saw no rea­son to stay and relo­cat­ed his fam­i­ly back to Omaha.

“Buf­fett would under­take near­ly any­thing from his short ros­ter of most-dis­liked tasks – engag­ing in a con­fronta­tion­al, crit­i­cal dis­pute; ter­mi­nat­ing some­one; sev­er­ing a care­ful­ly cul­ti­vat­ed long friend­ship; con­sum­ing Japan­ese cuisine…nearly any­thing – [rather] than tar­nish his reputation.”

Buf­fett Asso­ciates Ltd. By 1956, Buf­fet­t’s wealth totaled $174,000. Despite being just 26 years old, he aimed to retire and sub­sist on the invest­ment income from his nest egg. He invit­ed friends and rel­a­tives to ben­e­fit from his invest­ment acu­men. Six ini­tial part­ners, includ­ing his father-in-law, Doc Thomp­son ($25,000), his Aunt Alice ($35,000), and his sis­ter Doris and her hus­band ($10,000), became part of the new Buf­fett Asso­ciates Ltd. With War­ren as the sev­enth part­ner, he levied his new part­ners a man­age­ment fee of “half the upside above a 4% thresh­old” and “took a quar­ter of the down­side.” The part­ner­ship quick­ly attract­ed addi­tion­al mem­bers and gen­er­at­ed sub­stan­tial prof­its. Buf­fett sub­se­quent­ly estab­lished numer­ous part­ner­ships with oth­er investors, includ­ing lawyer Char­lie Munger, who also oper­at­ed his own invest­ment com­pa­ny, and even­tu­al­ly became Buf­fet­t’s pri­ma­ry part­ner. With sub­stan­tial returns from each part­ner­ship, Buf­fett con­sis­tent­ly rein­vest­ed his earn­ings, steadi­ly expand­ing his wealth. His “snow­ball” of wealth was begin­ning to grow significantly.

“In the short term, the mar­ket is a vot­ing machine. In the long term, it’s a weigh­ing machine.”

By 1958, Buf­fett was man­ag­ing over a mil­lion dol­lars annu­al­ly and striv­ing to out­per­form the Dow by 10% each year. His excep­tion­al per­for­mance led to a shift where he no longer active­ly recruit­ed new part­ners. Any­one seek­ing his invest­ment coun­sel had to seek him out. In 1962, Buf­fett con­sol­i­dat­ed his part­ner­ships into Buf­fett Part­ner­ship Ltd. (BPL), with assets total­ing $7.2 mil­lion. War­ren was now a mil­lion­aire. His ini­tial $3 mil­lion invest­ment in Amer­i­can Express yield­ed sub­stan­tial returns, while his invest­ment in Berk­shire Hath­away, a New Eng­land tex­tile com­pa­ny, ini­tial­ly under­per­formed. Pur­chas­ing 2,000 shares of Berk­shire at $7.50 per share in 1962, he pro­ceed­ed to acquire more. Over time, War­ren acquired the com­pa­ny, as well as the Blue Chip Stamps Com­pa­ny, Illi­nois Nation­al Bank and Trust Com­pa­ny of Rock­ford, Sun News­pa­pers in Oma­ha, See’s Can­dy Com­pa­ny, and numer­ous oth­er entities.

San Francisco Susie

As Buf­fett amassed con­sid­er­able wealth for him­self and his part­ners, Susie became active­ly involved in social caus­es, par­tic­u­lar­ly advo­cat­ing for Omaha’s dis­ad­van­taged black com­mu­ni­ty. She also pur­sued a bud­ding career as a part-time singer, carv­ing out a life of her own while remain­ing a staunch sup­port­er of her hus­band. By 1966, War­ren’s wealth stood at near­ly $10 mil­lion, but Berk­shire Hath­away was strug­gling. Buf­fett attempt­ed to sell it to Char­lie Munger, who, despite respect­ing Buf­fet­t’s invest­ment exper­tise, was not inclined to take own­er­ship of a busi­ness Buf­fett did not desire. Ulti­mate­ly, War­ren shut down the Berk­shire Hath­away plant and laid off its work­ers, trans­form­ing Berk­shire Hath­away into his main hold­ing com­pa­ny and pri­ma­ry cor­po­rate enti­ty. By 1974, Buf­fett, with his diverse port­fo­lio of com­pa­nies, had emerged as a busi­ness tycoon, albeit a rel­a­tive­ly small one. By 1977, his wealth exceed­ed $70 mil­lion at the age of just 47. How­ev­er, Susie desired more oppor­tu­ni­ties and relo­cat­ed to San Fran­cis­co, where she resided alone. Although she har­bored deep affec­tion for her hus­band, she yearned for a life beyond Oma­ha. Despite the phys­i­cal sep­a­ra­tion, War­ren and Susie remained devot­ed to each oth­er, main­tain­ing dai­ly com­mu­ni­ca­tion. In 1978, at Susie’s urg­ing, Astrid Menks, aged 32, com­menced car­ing for Buf­fett and even­tu­al­ly moved in with him. While their arrange­ment was uncon­ven­tion­al, Buf­fett saw no need to offer expla­na­tions. It proved to be a har­mo­nious arrange­ment for all involved.

Richer and Richer

Over the years, Buf­fett con­tin­ued to expand his for­tune, along with those of his part­ners and fel­low investors. By 1980, with Berk­shire Hath­away list­ed at $375 per share, Buf­fett cel­e­brat­ed a net worth of $680 mil­lion by 1983 and achieved bil­lion­aire sta­tus by 1985. In 1987, Berk­shire Hath­away’s trad­ing price reached $2,950 per share, pro­pelling Buf­fet­t’s net worth to $2.1 bil­lion and rank­ing him as the ninth-rich­est per­son in the Unit­ed States. By 1991, he had ascend­ed to the sec­ond-rich­est, with a net worth of $3.8 bil­lion. Buf­fet­t’s ini­tial part­ners had gen­er­at­ed $3 mil­lion in returns for every $1,000 they had orig­i­nal­ly invest­ed with him. Year after year, Buf­fet­t’s for­tune, akin to a “snow­ball”, expand­ed expo­nen­tial­ly. By 2008, he had risen to become the wealth­i­est indi­vid­ual in the world. Through­out his ascent, he exer­cised pru­dence in man­ag­ing his expens­es and invest­ing astute­ly, con­sis­tent­ly rein­vest­ing his prof­its and allow­ing his for­tune to grow through com­pound inter­est. Buf­fett con­sis­tent­ly nav­i­gat­ed the unpre­dictable stock mar­ket, par­tic­u­lar­ly steer­ing clear of the highs and lows of the high-tech sec­tor. Acknowl­edg­ing his lim­i­ta­tions, he open­ly admit­ted, “The soft­ware busi­ness is not with­in my cir­cle of com­pe­tence… We under­stand Dil­ly Bars and not soft­ware.” By adopt­ing this approach, he man­aged to avert the volatil­i­ty of the high-tech indus­try, guid­ing the mar­ket on his terms.

The Salomon Brothers Debacle

While Buf­fett cher­ished his wealth, he held an even greater regard for his hard-earned rep­u­ta­tion for hon­esty. In 1991, Salomon Broth­ers, a Wall Street invest­ment bank in which Buf­fett and Berk­shire Hath­away had a $700 mil­lion invest­ment, put his integri­ty to the test. A Salomon exec­u­tive, Paul Moz­er, engaged in a series of rule-break­ing bids when deal­ing with the U.S. Trea­sury. The rev­e­la­tion of his infrac­tions caused uproar on Wall Street and impli­cat­ed the firm in the scan­dal. Fol­low­ing Moz­er’s actions, which were known to oth­er Salomon exec­u­tives, includ­ing CEO John Gut­fre­und, the fir­m’s stock plummeted.

“Balzac said that behind every great for­tune lies a crime. That’s not true at Berk­shire.” (Buf­fett)

Dur­ing this chal­leng­ing peri­od, Buf­fett assumed the role of Salomon’s inter­im chair­man, effec­tive­ly stak­ing his rep­u­ta­tion to res­cue the firm. Glob­al­ly renowned for his integri­ty and trans­paren­cy, his deci­sion to aid the Salomon Broth­ers pre­vent­ed the firm from declar­ing bank­rupt­cy. Dur­ing his tes­ti­mo­ny before the U.S. Con­gress, Buf­fett expressed his uncom­pro­mis­ing stance to Salomon’s exec­u­tives, stat­ing, “Lose mon­ey for the firm, and I will be under­stand­ing. Lose a shred of rep­u­ta­tion for the firm, and I will be ruthless.”

Family Matters

In 2004, Buf­fet­t’s beloved wife Susie passed away from a cere­bral hem­or­rhage. Two years lat­er, he mar­ried Astrid Menks, his long-time live-in com­pan­ion. In 2006, Buf­fett announced his plan to donate his Berk­shire Hath­away stock, val­ued at $37 bil­lion, with some 83% ear­marked for the Bill and Melin­da Gates Foun­da­tion to “enhance the world”. Buf­fett chose not to seek any per­son­al recog­ni­tion from the Gates Foun­da­tion. He imposed just one con­di­tion: to swift­ly allo­cate the funds to assist peo­ple in distress.

About the Author

Alice Schroed­er, ini­tial­ly a CPA, tran­si­tioned to a well-regard­ed research ana­lyst. Impressed by her writ­ing skills, War­ren Buf­fett rec­om­mend­ed that she pur­sue a full-time writ­ing career instead.