The first few cents Warren Buffett ever earned came from selling packs of chewing gum. And from the day he started selling—at six years of age—he showed an unyielding attitude toward his customers that revealed much about his later style.
“I had this little green tray, which had five different areas in it. I’m pretty sure my aunt Edie gave me that. It had containers for five different brands of gum, Juicy Fruit, Spearmint, Doublemint, and so on. I would buy packs of gum from my grandfather and go around door to door in the neighborhood selling this stuff. I used to do that in the evening, largely.1
“I remember a woman named Virginia Macoubrie saying, ‘I’ll take one stick of Juicy Fruit.’ I said, ‘We don’t break up packs of gum’—I mean, I’ve got my principles. I still, to this day, remember Mrs. Macoubrie saying she wanted one stick. No, they were sold only in five-stick packs. They were a nickel, and she wanted to spend a penny with me.”
Making a sale was tempting, but not tempting enough to change his mind. If he sold one stick to Virginia Macoubrie, he would have four sticks left to sell to somebody else, not worth the work or the risk. From each whole pack, he made two cents profit. He could hold those pennies, weighty and solid, in his palm. They became the first few snowflakes in a snowball of money to come.
What Warren was willing to break up were red cartons of Coca-Cola, which he sold door to door on summer nights. He carried on selling them during family vacations, approaching sunbathers around the shores of Lake Okoboji in Iowa. Soda pop was more profitable than chewing gum: He netted a nickel for every six bottles, and stuffed these coins proudly into the ball-park-style nickel-plated money changer on his belt. He also wore it when he went door to door selling copies of the Saturday Evening Post and Liberty magazines.
The money changer made him feel professional. It emblemized the part of selling that Warren most enjoyed: collecting. Although he now collected bottle caps, coins, and stamps, mainly he collected cash. He kept his coins at home in a drawer, sometimes adding to the $20 his father had given him when he turned six, all recorded in a little maroon passbook—his first bank account.
By the time he was nine or ten, he and Stu Erickson were selling used golf balls at Elmwood Park golf course—until somebody reported them and they got kicked out by the cops. When the police talked to Warren’s parents, however, Howard and Leila weren’t concerned. They just considered their son ambitious. As the Buffetts’ only—and precocious—son, Warren had a sort of “halo,” according to his sisters, and got away with a hell of a lot.2
At age ten, he got a job selling peanuts and popcorn at the University of Omaha football games. He walked through the stands yelling, “Peanuts, popcorn, five cents, a nickel, half dime, fifth of a quarter, get your peanuts and popcorn here!” The 1940 presidential election campaign was under way, and he had collected dozens of different Willkie–McNary buttons, which he wore on his shirt. His favorite read: “Washington Wouldn’t, Grant Couldn’t, Roosevelt Shouldn’t,” which referred to FDR’s outrageous—to the Buffetts—decision to run for a third term. While the U.S. had no constitutional term limit, the country had—so far—rebuffed the idea of an “imperial President.”3
Though he found Wendell Willkie too liberal for his personal tastes, Howard felt, Anyone to get rid of Roosevelt. Warren, who followed along with his father’s political views, enjoyed showing off his Willkie–McNary buttons at the stadium. Then his manager called him into the office and said, “Take those off. You’ll get a reaction from the Roosevelt people.”
Warren put the buttons in his apron, where some of the dimes and nickels got wedged inside the backs of the pins. When he reported in after the game, his manager told him to dump out the contents of the pocket, pins and all. Then he swept them off the counter and took them away. “That was my introduction to Business 101,” Buffett says. “I was pretty sad.” And when Roosevelt won an unprecedented third term, the Buffetts were sadder still.
But while politics was Howard’s main interest and money a sideline, for his son, those interests were reversed. Warren hung around his father’s office at the grand old Omaha National Bank building every chance he got, reading “The Trader” column in Barron’s and the books on his father’s bookshelf. He planted himself in the customers’ room of Harris Upham & Co. At this regional stockbroking firm, down two flights of stairs from Howard’s office, he found it the height of glamour to be allowed to “mark the board,” chalking stock prices on a slow Depression-era Saturday morning. The market still traded for a two-hour session on weekends. Root-bound men with nothing better to do filled the semicircle of chairs in the customers’ room, listlessly watching numbers crawl by on the Trans-Lux, an electronic display of prices of major stocks.4 Occasionally somebody would jump up and rip a handful of tape off the lazily clicking ticker machine. Warren arrived with his paternal great-uncle Frank Buffett—the family misanthrope who had been brokenhearted over losing Henrietta, now long dead, to his brother Ernest—and his maternal great-uncle John Barber.5 Each man was enslaved by his long-standing habit of thinking in only one direction.
“Uncle Frank was a total bear on the world, and Uncle John was a total bull. I would sit between the two of them, and they’d sort of vie for my attention and try to sell me that they were right. They didn’t like each other, so they wouldn’t talk to each other, but they would talk to me in between. My great-uncle Frank thought everything in the world was going to go broke.
“And when somebody’d go up there to the counter behind the chairs and say, ‘I want to buy a hundred shares of U.S. Steel at twenty-three,’ my uncle Frank would always boom out and say, ‘U.S. STEEL? IT’S GOING TO ZERO!’ ” That was not good for business. “They couldn’t throw him out, but they hated him around this place. It was not an office designed for short-sellers.”
Snug between his two great-uncles, Warren stared at the numbers, which were fuzzy. His trouble reading the Trans-Lux led to his family’s discovery that he was nearsighted. After being fitted for glasses, Warren noticed that the numbers seemed to change according to some immutable law of their own. Although his great-uncles were both eager to sway him to their respective—and extreme—points of view, Warren noticed that their opinions appeared to have no connection whatsoever to the numbers passing overhead on the Trans-Lux. He was determined to figure out the pattern, but as yet did not know how.
“My uncle Frank and my uncle John would vie for who would take me to lunch, because that was sort of beating the other guy. With my uncle Frank, we’d go down to the old Paxton Hotel, where we could buy day-old food for a quarter.”
Warren, who enjoyed spending time with adults, relished being vied over by his uncles. Actually, he enjoyed being vied over by anyone. He craved attention from his other relatives and his parents’ friends, but especially from his father.
Howard gave each of his children an East Coast trip at age ten, an important event in their lives. Warren knew exactly what he wanted to do: “I told my dad I wanted to see three things. I wanted to see the Scott Stamp and Coin Company. I wanted to see the Lionel Train Company. I wanted to see the New York Stock Exchange. Scott Stamp and Coin was at Forty-seventh Street, Lionel was down around Twenty-seventh, and the Stock Exchange was all the way downtown.”
Wall Street in 1940 had begun to revive from the crash, yet remained a chastened place. The men of Wall Street were like a band of hardy mercenaries fighting on after most of their comrades had been felled in war. The way they made a living seemed vaguely disreputable with memories of the 1929 Crash so fresh in people’s minds. Yet even though they did not brag about it outside the bunker walls, some of these mercenaries were doing very well indeed. Howard Buffett took his son down to lower Manhattan and dropped in on the top man at one of the largest brokerage firms. Little Warren Buffett was getting a peek inside the bunker’s gold-plated doors.
“That’s when I met Sidney Weinberg, who was the most famous man on Wall Street. My dad had never met him. He had this little tiny firm out here in Omaha. But Mr. Weinberg let us in, maybe because a little kid was along or something. We talked for about thirty minutes.”
As the senior partner of the investment bank Goldman Sachs, Weinberg had spent a decade painstakingly repairing the firm’s reputation after its disgrace for misleading investors with a notorious pyramid scheme in the market crash of 1929.6 Warren knew nothing about that, nor that Weinberg grew up an immigrant’s child and had started as a porter’s assistant at Goldman, emptying cuspidors and brushing the partners’ silk hats.7 But he certainly understood that he was in the presence of a big shot once he found himself in Sidney Weinberg’s walnut-paneled office, its walls hung with original letters, documents, and portraits of Abraham Lincoln. And what Weinberg did at the end of their visit made a huge impression on him. “As I went out, he put his arm around me and he said, ‘What stock do you like, Warren?’
“He’d forgotten it all the next day, but I remembered it forever.”
Buffett would never forget that Weinberg, a big shot on Wall Street, had paid such attention to him and seemed to care about his opinion.8
From Goldman Sachs, Howard took Warren over to Broad Street and through a set of enormous Corinthian columns into the New York Stock Exchange. Here, in the temple of money, men in brightly colored jackets shouted and scribbled standing around wrought-iron trading posts while clerks darted back and forth, strewing the floor with paper scraps. Yet it was a scene from the Stock Exchange dining room that captured Warren’s imagination.
“We had lunch at the Exchange with a fellow named At Mol, a Dutchman, a member of the Stock Exchange and a very impressive-looking man. After lunch, a guy came along with a tray that had all these different kinds of tobacco leaves on it. He made up a cigar for Mr. Mol, who picked out the leaves that he wanted. And I thought, This is it. It doesn’t get any better than this. A custom-made cigar.”
A custom-made cigar. The visions that cigar evoked in Warren’s mathematical mind! He had exactly zero interest in smoking a cigar. But working backward, he saw what hiring a man for such a frivolous purpose implied. To justify the expense must mean that, even while most of the country was still mired in the Depression, the cigar man’s employer was making a great deal of money. He grasped it right away. The Stock Exchange must pour forth streams of money: rivers, fountains, cascades, torrents of money, enough to hire a man for the pure frippery of rolling cigars—handmade, custom-made cigars—for the Stock Exchange members’ own particular pleasure.
That day, as he beheld the cigar man, a vision of his future was planted.
He kept that vision when he went back to Omaha, old enough now to organize his quest and pursue it all the more systematically. Even as he followed the pastimes of an ordinary boy, playing basketball and Ping-Pong and collecting coins and stamps; even as his family mourned his small, sweet grandfather, John Stahl, who died that year at age seventy-three—the first loss in his life—he worked with a passion for the future he saw ahead of him, right there in sight. He wanted money.
“It could make me independent. Then I could do what I wanted to do with my life. And the biggest thing I wanted to do was work for myself. I didn’t want other people directing me. The idea of doing what I wanted to do every day was important to me.”
A tool that would help him soon fell into his hands. One day, down at the Benson Library, a book beckoned from the shelves. Its shiny silver cover gleamed like a heap of coins, hinting at the value of its contents. Captivated by the title, he opened it and was immediately hooked. One Thousand Ways to Make $1,000, it was called. A million dollars, in other words!
Inside the cover, in a photograph, a tiny man gazed up at an enormous pile of coins.
“Opportunity Knocks,” read the first page of the text. “Never in the history of the United States has the time been so favorable for a man with small capital to start his own business as it is today.”
What a message! “We have all heard a great deal about the opportunities of bygone years.… Why, the opportunities of yesterday are as nothing compared with the opportunities that await the courageous, resourceful man of today! There are fortunes to be made that will make those of Astor and Rockefeller seem picayune.” These words rose like sweet visions of heaven to Warren Buffett’s eyes. He turned the pages faster.
“But,” the book cautioned, “you cannot possibly succeed until you start. The way to begin making money is to begin.… Hundreds of thousands of people in this country who would like to make a lot of money are not making it because they are waiting for this, that, or the other to happen.” Begin it! the book admonished, and explained how. Crammed with practical business advice and ideas for making money, One Thousand Ways to Make $1,000 started with “the story of money” and was written in a straightforward, friendly style, like someone sitting on the front stoop talking to a friend. Some of its ideas were limited—goat-dairying and running doll hospitals—but many were more practical. The idea that captivated Warren was pennyweight scales. If he had a weighing machine, he would weigh himself fifty times a day. He was sure that other people would pay money to do that too.
“The weighing machine was easy to understand. I’d buy a weighing machine and use the profits to buy more weighing machines. Pretty soon I’d have twenty weighing machines, and everybody would weigh themselves fifty times a day. I thought—that’s where the money is.9 The compounding of it—what could be better than that?”
This concept—compounding—struck him as critically important. The book said he could make a thousand dollars. If he started with a thousand dollars and grew it ten percent a year:
In five years, $1,000 became more than $1,600.
In ten years, it became almost $2,600.
In twenty-five years, it became more than $10,800.
The way that numbers exploded as they grew at a constant rate over time was how a small sum could turn into a fortune. He could picture the numbers compounding as vividly as the way a snowball grew when he rolled it across the lawn. Warren began to think about time in a different way. Compounding married the present to the future. If a dollar today was going to be worth ten some years from now, then in his mind the two were the same.
Sitting on the stoop at his friend Stu Erickson’s, Warren announced that he would be a millionaire by the time he reached age thirty-five.10 That was an audacious, almost silly-sounding statement for a child to make in the depressed world of 1941. But his calculations—and the book—said it was possible. He had twenty-five years, and he needed more money. Still, he was sure he could do it. The more money he collected early on, the longer the money could compound, and the better his chances of achieving his goal.
A year later, he brought forth the kernel of his reality. To his family’s amusement and surprise, by the spring of 1942, his hoard totaled $120.
Enlisting his sister Doris as a partner, he bought three shares of a stock for each of them, costing him $114.75 for his three shares of Cities Service Preferred.11
“I didn’t understand that stock very well when I bought it,” he says; he knew only that it was a favorite stock that Howard had sold to his customers for years.12
The market hit a low that June, and Cities Service Preferred plunged from $38.25 to $27 a share. Doris, he says, “reminded” him every day on the way to school that her stock was going down. Warren says he felt terribly responsible. So when the stock finally recovered, he sold at $40, netting a $5 profit for the two of them. “That’s when I knew that he knew what he was doing,” Doris recalls. But Cities Service quickly soared to $202 a share. Warren learned three lessons and would call this episode one of the most important of his life. One lesson was not to overly fixate on what he had paid for a stock. The second was not to rush unthinkingly to grab a small profit. He learned these two lessons by brooding over the $492 he would have made had he been more patient. It had taken five years of work, since he was six years old, to save the $120 to buy this stock. Based on how much he currently made from selling golf balls or peddling popcorn and peanuts at the ballpark, he realized that it could take years to earn back the profit he had “lost.” He would never, never, never forget this mistake.
And there was a third lesson, which was about investing other people’s money. If he made a mistake, it might get somebody upset at him. So he didn’t want to have responsibility for anyone else’s money unless he was sure he could succeed.