SubscribeJan 022011
Read it if: You want to study every detail about how the world’s greatest investor lived his life.
Best insight for investors: Buffett had great success early on in his career focusing on Benjamin Graham’s undervalued “cigar butt” companies, businesses that had been written off by the market and were trading at less than the value that their assets would fetch in bankruptcy. These were dying companies, to be sure, but Buffett’s research showed him which ones were good for “one last puff.” Buffett’s real success, though, came from applying his investing skill to the quest for what his partner Charlie Munger called “great businesses” like Geico, Coca-Cola, and American Express.
Funniest Quote: “When [Buffett] finally got a car, he washed it only when it was raining, so the rain could do the manual labor of rinsing.”
Full Review: The product of years of personal access to Warren Buffett, his family, and his colleagues, Snowball is the definitive chronicle of the life of the world’s most successful investor. Thanks in part to Buffett’s obsession with record-keeping, readers are treated to a level of detail not usually found in biographies. For example, not only do we learn that Buffett’s first business transaction in life earned him exactly two cents selling gum to a woman named Virginia, but we also find out that six-year-old Buffett refused to negotiate with the woman by breaking up his pack of gum to sell her just one piece. Breaking up the 5 piece pack for a single sale didn’t compensate young Buffett enough for the risk he’d be left with in having to sell the four remaining single pieces one at a time.
It is well known that Buffett attributes his success to following the principles of his teacher and one-time boss Benjamin Graham. But what shines through in Snowball, is just how far Buffett was willing to deviate from his mentor’s rules. Nowhere is this more evident than in Buffett’s willingness to break the iron rule of investing preached by Graham: diversify.
Buffett was perfectly comfortable going “all-in” repeatedly in his investing career. In fact, this book chronicles example after example of Buffett’s amassing huge stakes in companies he believed in, beginning with GEICO insurance company. Once Buffett had identified a company he liked, he would do everything in his power to buy as many shares as possible in the business. One great example involved a company called Union Street Railway, a bus company that was trading for less than half the cash it had in the bank. Understandably, Buffett was buying stock in the company but, as often happened in his investing career, Buffett couldn’t find enough shares on the open market to satisfy his appetite. So Buffett personally tracked down the largest shareholders of the company and worked that angle to acquire even more stock.
Breaking the diversify rule as Buffett did led almost inevitably to Buffett’s next great deviation from Graham’s preachings: influence. Graham saw his role as an investor as an outsider and distained the idea of mingling with a company’s management. Buffett had no such qualms and often purchased stock with the intent to acquire enough to put him on the board of directors where he could direct the company’s actions. Buffett invested like a businessman and owning businesses outright was the natural result of that method.
While the book is long on personal detail and short on investing strategies, it does contain a few investing gems. My favorite portion of the book describes how Buffett evolved from a “treasure hunter” type of investor to a “great businesses” type. His partner Charlie Munger talked about intangible qualities of a business, points that would not be found on a financial statement. These were qualities like: strength of management, durability of the brand, enduring competitive advantage, etc.
Buffett ascribes his evolution from treasure hunts for small time profits into “great business” hunts to his friend Herb Wolf, who once told him: “Warren, if you’re looking for a gold needle in a haystack of gold, it’s not better to find the gold needle.”
Buffett, of course, went on to find dozens and dozens of haystacks of gold.
One Response to “Sunday Book Review: The Snowball: Warren Buffett and the Business of Life”
Comments (1)
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