Warren and Susie seemed like ordinary people. They kept a low profile. Their house was large but not ostentatious. It had a log cabin in the backyard for the kids. The back door was never locked; neighborhood children wandered in and out. Inside the house, the Buffetts clickety-clacked on their different tracks at gathering speed. As Susie added stop after stop to her local schedule, Warren headed out on a nonstop trip to Dollar Mountain.
Until 1958, his straightforward route was to buy a stock and wait for the cigar butt to light. Then he usually sold the stock, sometimes with regret, to buy another he wanted more, his ambitions limited by his partnerships’ capital.
Now, however, he was managing more than $1 million in seven partnerships plus Buffett & Buffett and his personal money,1 which let him operate on a different scale. His network of business pals like Stanback, Knapp, Brandt, Cowin, Munger, Schloss, and Ruane had grown by the addition of Roy Tolles, a lanky former Marine fighter pilot who wore a constant placid smile and kept the thoughts inside his quick mind to himself—except for the occasional barbed zingers he had a way of throwing out, which made people “want to keep a few Band-Aids around,” as one friend put it. Buffett could parry and riposte with the best, and added Tolles to his collection. This knack for signing up volunteers to his cause had created a large, if loosely organized, support structure. Warren more or less automatically Tom-Sawyered these supporters, hived off into several cells, into helping his interests, which had grown so fast that he could no longer carry out every detail of them by himself.
The days when Warren simply sat in his study at home, picking stocks out of Security Analysis or the Moody’s Manuals, were gone. Increasingly, he began to work on large-scale, lucrative projects that required time and planning to execute—even more so than buying up the shares of National American insurance. These projects would sometimes evolve into complicated, even dramatic episodes that would absorb his attention for months, or occasionally years, at a stretch. Sometimes several of these investing projects operated simultaneously. Already preoccupied to the point that he was barely present to his family much of the time, this expansion of scale would exacerbate that tendency, while binding him more tightly to his friends.
The first of these complicated episodes involved a company called Sanborn Map. It published minutely detailed maps of power lines, water mains, building engineering, and emergency stairwells for all the cities of the United States, maps that were mainly bought by insurance companies.2 Its customer base was slowly shrinking as insurers merged. But its stock was cheap at $45 per share, since Sanborn’s investment portfolio alone was worth $65 per share. To get hold of that investment portfolio, however, Warren needed not just money from his partnerships but also help from other people.
Beginning in November 1958, he put more than one-third of the partnerships’ assets into Sanborn. He bought the stock for himself and for Susie. He had his aunt Alice, his father, his mother, his sisters, all buy it. He passed the Sanborn idea along to Cowin, to Stanback, to Knapp, and to Schloss. Some people got in on it as a favor from him. He took an override—a percentage of the profits—from others as a way of leveraging his capital. Eventually he controlled enough of Sanborn’s shares to be elected to the board.
In March 1959, Warren took one of his regular trips to New York, staying out on Long Island at Anne Gottschaldt’s little white colonial house. By now she and her sister had adopted him as a sort of surrogate son, as if to replace the long-dead Fred. Warren kept spare sets of underwear and pajamas at her house, and Gottschaldt made him hamburgers for breakfast. On these journeys, he always set out with a list of between ten and thirty things he wanted to accomplish. He would go to the Standard & Poor’s library to look up some information. He would visit some companies, visit some brokers, and always spend time with Brandt, Cowin, Schloss, Knapp, and Ruane, his New York City network.
This particular trip was lengthy, about ten days. He had sit-downs with prospects for the partnership and another important appointment: his first meeting as a board member at Sanborn Map.
Sanborn’s board consisted almost entirely of insurance-company representatives—its biggest customers—so it operated more like a club than a business. None of the board members owned more than token amounts of stock.3 At the meeting, Warren proposed that the company distribute the investments to the shareholders. But since the Depression and World War II, American businesses treated money as a scarce commodity to be hoarded and husbanded. This way of thinking had become automatic even though the economic justification for it had long disappeared. The board responded to the idea of separating the investment portfolio from the map business as preposterous. Then, toward the end of the meeting, the board broke out the humidor and passed around cigars. Warren sat fuming. “That’s my money paying for those cigars,” he thought. On the way back to the airport, he took pictures of his children out of his wallet and looked at them to bring his blood pressure down.
Frustrated, Warren decided that he would take the company away from Sanborn’s undeserving board on behalf of the other shareholders. They deserved it more. Therefore, Buffett’s group kept buying. Warren also used new money coming into the partnerships. He had Howard put a number of his brokerage clients into Sanborn. Warren was probably doing his father a financial favor, even as he tightened his grip on the company.
Before long, people friendly to Warren, including the famous money manager Phil Carret, had corralled about 24,000 shares. Once they had effective control, Warren decided it was time to act.4
Another board meeting took place at which nothing happened except for more of the investors’ money going up in cigar smoke. For a second time Buffett rode back to the airport looking at pictures of his kids to calm himself down. Three days later, he threatened to call a special meeting and take control of the company unless the directors took action by October 31.5 His patience had run out.
In the end, the board capitulated. Thus, through force of energy, organization, and will, early in 1960 Warren won the fight. Sanborn made a Rockwood-type offer to shareholders, exchanging a portion of the investment portfolio for stock.6
The Sanborn deal set a new high-water mark: Buffett could use his brains and his partnerships’ money to alter the course of even a stubborn and unwilling company.
During this episode, as Buffett traveled back and forth to New York and worked on the Sanborn project, figuring out where to get the stock he needed for control and how to make the board fall in line, all the while looking for other investment ideas, his mind whirled with the thousands of numbers that clicked and spun inside his head. At home, he would disappear upstairs to do his reading and thinking.
Susie understood his work as a sort of holy mission. Still, she tried to get him out of his study and into the family’s world: scheduled outings, vacations, dinners in restaurants. She had a saying: “Anyone can be a father, but you have to be a daddy too.”7 Yet she was talking to someone who’d never had the kind of daddy to which she was referring. “Let’s go to Bronco’s,” she would say, and stuff a gang of neighborhood kids into the car for a burger run. At the table, Warren would laugh when something funny happened and would appear engaged, but he rarely spoke. His mind could have been anywhere.8 On vacation once in California, he took a bunch of kids to Disneyland one night and sat on a bench reading while the kids ran wild and had a grand time.9
Peter was now almost two, Howie five, and Little Sooz—who occupied her own pink checked-gingham kingdom with a canopy bed up a separate flight of stairs—six and a half. Howie tested his parents with destruction to see how much it took to get a reaction from them. He picked on Peter, who was slow to start talking, prodding him as if he were a science experiment to see how he would respond.10 Little Susie policed them both to keep things under control. Warren simply turned to Susie to cope with their son’s explosive energy. And Howie remembers that his mother almost “never got angry, and was always supportive.”11
Susie juggled all this while playing the part of the standard-issue upper-middle-class wife circa 1960: appearing every day in her trademark look, a tailored dress or pantsuit, often in sunshine yellow, and a lacquered bouffant wig; taking perfect care of her husband and family; becoming a community leader; and gracefully entertaining her husband’s business associates as if this required no more effort than tossing a Swanson TV Dinner into the oven. Soon a series of au pairs took up residence in an airy, light-filled room with its own bath on the second floor. Letha Clark, the new housekeeper, assumed some of the burden. Susie would always describe herself as a simple person, but she steadily added layers of complexity to her life. She was setting up a group called the Volunteer Bureau12 to do office work and teach swimming at the University of Omaha. “You, too, can be a Paul Revere” was its motto, invoking an image of one individual saving an entire nation through his (or her) daring and self-sacrificing deeds.
Susie—like Paul Revere—was impatient to mount and ride;13 she dashed back and forth between family obligations and the growing number of people who wanted her attention. Many of these were disadvantaged or traumatized in some way.
Her closest friend, Bella Eisenberg, was an Auschwitz survivor who had made her way to America and Omaha after the camp was liberated. Another, Eunice Denenberg, was only a child when her father committed suicide. The Buffetts also had black friends, including the most intimidating pitcher in baseball, Bob Gibson, and his wife, Charlene. Being a star athlete meant little in 1960 if you were black. “Those were the days when white people wouldn’t be seen with black people in Omaha,” says Buffett’s childhood friend Byron Swanson.14
Susie reached out to everyone; in fact, the more troubled the person, the more willingly she helped. She took a deep interest in the personal lives of people she barely knew. Almost everyone she met glowed under her attention and felt touched by the encounter. But even with her closest friends, Susie nearly always took care not to share her own problems.
She played the same role of ministering angel with her own family, above all with her sister. Dottie remained the beauty of the family, but seemed vacant and, as one person put it, “valiantly unhappy.” She maintained a pleasant surface but told Susie that she never cried because if she ever started, she would never stop. Homer, her husband, appeared frustrated that he could not penetrate his wife’s cocoon. Still, the Rogerses kept up their vigorous social schedule, and at night, amid the drinks and merriment, their two young sons, Billy and Tommy, roamed underfoot. At times, Homer punished them harshly or Dottie teased Billy cruelly—so Susie mothered her nephews along with her own children.
She also helped the senior Buffetts, who were saddled with both Howard’s health issues and his ideology. Just as the rest of America had caught up to his level of paranoia about Communism, Howard leapfrogged ahead. He joined a newly formed group, the John Birch Society, which combined paranoia about Communism with what he described as concern for the “moral and spiritual problem of America, which would be with us even if Communism were stopped tomorrow.”15 He covered his office walls with maps showing the menacing red advance of Communism. Howard was respected as a philosophical purist among the libertarian-leaning wing of the Republican Party, but anyone associated with the Birchers attracted both alarm and ridicule. After he went to the local press to defend his Birch membership, people increasingly wrote him off as an eccentric. That Omaha snickered at his revered father was painful to Warren.
But anxiety about Howard had even more to do with eighteen months of mysterious symptoms that doctors could not seem to diagnose despite a trip to the Mayo Clinic in Rochester, Minnesota.16 Finally, in May of 1958, Howard had been told he had colon cancer that required immediate surgery.17 Warren had been upset by the diagnosis and angered by what he considered its inexcusable tardiness. Since then, Susie had shielded him from the details of his father’s illness.18 She gave him head rubs and kept up the household schedule. She also devoted herself to propping up Leila during Howard’s surgery and long recuperation. She did all of this cheerfully; she seemed to thrive as the calm, soothing presence on whom everyone could depend in this crisis. She helped her older children understand the illness and saw that all of them, including little Peter, visited their grandfather regularly. Howie watched college football in the afternoons with Howard, who would sit in his recliner and switch sides repeatedly during games, cheering for whichever team was losing. When Howie asked him why, he said, “They’re the underdogs now.”19
Throughout his father’s ordeal, Warren used business as a distraction. He kept his head buried in American Banker or the Oil & Gas Journal.
And he began to radiate a presence in public, no matter what was going on at home. He displayed an authority, an almost electric charge of energy, that radiated to an audience. “He just used to ooze that stuff wherever he went,” says Chuck Peterson.20 The man who had so impressed Charlie Munger talked constantly and convincingly about investing and the partnerships; he raised money as fast as he could talk—but not as fast as he could invest.
Munger listened to Buffett’s investing and money-raising exploits on their almost-daily phone calls, wondering at the natural salesmanship that enabled Buffett to promote himself so well. His trips to New York became more frequent now that Henry Brandt prospected for him. Cash poured into the partnerships’ coffers, making 1960 a watershed year.
Buffett made a presentation to a group of doctors headed by Carol and Bill Angle, Peterson’s neighbors from across the street, and wound up managing the Emdee partnership of $110,000 for eleven of the doctors. A twelfth doctor, who worried about losing all his money, did not join.
There were other skeptics. Not everyone in Omaha liked what they heard about Warren Buffett. His secretiveness put people off. Some thought the young hotshot wouldn’t amount to anything, and believed the authority he radiated was unearned arrogance. One member of a prominent Omaha family was lunching with half a dozen people at the Blackstone Hotel when Buffett’s name came up. “He’ll be broke in a year,” the man said. “Just give him a year and he’s gone.”21 A partner at Kirkpatrick Pettis, which Howard’s firm had merged with in 1957, said time after time, “The jury’s still out on him.”22
That fall, the already frothy stock market took off on a tear. The economy had been slogging along in a mild recession, and the country’s mood was dark because the Soviets seemed to be winning the arms and space races. But when John F. Kennedy won the presidency in a squeaker of an election, the pending change in administrations to a man from a vigorous young generation uplifted the nation. The market shot up, and once again comparisons were made to 1929. Warren had never ridden out a speculative market, yet he remained unruffled. It was as if he had been waiting for this moment. Instead of pulling back, as Graham might have done, he did something remarkable. He went into overdrive raising money for the partnerships.
He put Bertie and her husband, his uncle George from Albuquerque, and his cousin Bill into Buffett Associates, the original partnership. Wayne Eves, his friend John Cleary’s partner, got on board too. And he finally put Fred Kulhken’s mother and aunt, Anne Gottschaldt and Catherine Elberfeld, into the partnership. Their presence suggested that he felt the timing was not just highly propitious but also safe.
Warren set up Ann Investments, his ninth partnership, for a member of another prominent Omaha family, Elizabeth Storz. He put Mattie Topp, who owned the fanciest dress shop in town, along with her two daughters and sons-in-law and $250,000, into the tenth, Buffett-TD. Meanwhile, many new partners joined Buffett Associates and Underwood.
Legally, he could take on only a hundred partners without having to register with the SEC as an investment adviser. As the partnerships burgeoned, he started encouraging people to team up informally and come in as a single partner. Eventually he would put people into pools, combining their money himself.23 He later described the tactic as questionable—but it worked. His compulsion to get more money, to make more money, drove him on. Warren was on fire, shuttling back and forth to New York at a frantic pace. He began to suffer from stress-related back pain. It often worsened when he was on an airplane, and he tried all sorts of things to alleviate it—everything but staying home.
By now his name was passed along like a secret. Invest with Warren Buffett to get rich. But the routine had changed. By 1960 it took at least $8,000 to get in the door. And he no longer asked people to invest with him. They had to bring it up. It had to be their idea. People not only would have no inkling what he was doing, they had to put themselves in this position.* It converted them into enthusiasts for Buffett, and reduced the odds of their complaining about anything he did. Instead of asking a favor, he was granting one; people felt indebted to him for taking their money. Making people ask put him psychologically in charge. He would come to use this technique often, in many contexts, for the rest of his life. Along with getting him what he wanted, it seemed to soothe his persisting fears of being responsible for other people’s fates.
Though his insecurity was rampant as ever, his success and Susie’s care and tutoring had given him a bit of polish and flair. He was starting to appear powerful, not vulnerable. Plenty of people were happy to ask him to invest for them. Buffett formed the eleventh and last of his partnerships, Buffett-Holland, on May 16, 1961, for his friends Dick and Mary Holland. When Dick Holland decided to invest in the partnership, members of his family pressured him not to do it. Buffett’s abilities were apparent to him, Holland says, even though in Omaha people were still “laughing up their sleeves” at Warren’s ambitions.24 Yet in 1959 the partnerships had outperformed the market by six percent. In 1960 they leaped to nearly $1.9 million in assets by beating the market by twenty-nine percent. Even more impressive than any single year’s profits was the compounding power of repeated growth. A thousand dollars invested in Buffett Fund, the second partnership, was now worth $2,407 four years later. Invested in the Dow Jones Industrial Average, it would have been worth just $1,426.25 And he accomplished this higher return while taking less risk than the market as a whole.
And Buffett’s fees, reinvested, had by the end of 1960 earned him $243,494. More than thirteen percent of the partnerships’ assets now belonged to him alone. Yet even as his share of the partnerships increased, he had made the partners so much money that they were no longer simply happy; many regarded him with awe.
Bill Angle, his partner in Emdee, was foremost among them. He Tom-Sawyered himself into becoming Warren’s “partner” in building a gigantic model train set with an HO gauge track on the third floor of the Buffetts’ house, which had been a ballroom in a former life and was now the family attic. Warreny, the boy who had lingered at the Brandeis store every Christmas, longing for the huge, magical model train that he couldn’t have, awoke inside the grown man. He “supervised” as Angle did all the work to create Warren’s childhood fantasy.
Warren also tried to Tom-Sawyer Chuck Peterson into investing in it. “Warren, you must be out of your mind,” Peterson said. “Why would I want to go fifty-fifty with you on a train that you possess?” But Warren didn’t get this, so carried away was he by enthusiasm for the train and its accoutrements. “You can come over and use it,” he said.26 Shining with the reflected glow of a delayed childhood, burnished with the patina of Omaha’s railroading history, the train was Warren’s totem. His children were forbidden to go near it.
By now, Warren’s relentless obsession with money and obliviousness to his family were a running joke among his friends. “Warren, those are your children—you recognize them, don’t you?” people said.27 When he was not traveling, he could be found wandering through the house, nose buried in an annual report. The family swirled around him and his holy pursuit—the disengaged, silent presence, feet up in his stringy bathrobe, eyes fixed on the Wall Street Journal at the breakfast table.
The bookkeeping and banking and safe-depositing and post-officing required for his complicated empire, which had grown to almost four million dollars, eleven partnerships, and well over a hundred investors, now became almost overwhelming. Amazingly, Warren was still handling all the money and doing all the clerical work himself: filing the tax returns, typing the letters, depositing the dividend and capital checks, stopping for a meal at the Spare Time Café along the way, stuffing the stock certificates in the safe-deposit box.
On January 1, 1962, Buffett dissolved all of the partnerships into a single entity, Buffett Partnership, Ltd.—or BPL. The partnerships had produced a stellar forty-six percent return in 1961, compared with the Dow’s twenty-two percent. After the partners invested more money that January 1, the new Buffett Partnership, Ltd., started the year with net assets of $7.2 million. In just six years, his partnerships had grown bigger than Graham-Newman. Yet when Peat, Marwick, Mitchell audited it, the auditor, Verne McKenzie, pored over the BPL files not in a conference room on Wall Street but in the alcove off Warren’s bedroom upstairs, where the two of them worked side by side.
Including his outside investments—which totaled well over half a million dollars by now—Warren had become a millionaire at age thirty.28 He rented office space in Kiewit Plaza, a new white granite building a straight shot down Farnam Street about twenty blocks from his house and less than two miles from downtown. He and his father now shared space, a longtime goal of Warren’s. But Howard was clearly very ill. He soldiered gamely into the office with a stiff gait, making the effort. Warren’s face would shadow when he learned some new piece of ominous news about his father’s health, but mostly he tried to avoid knowing the details.
Just before moving into Kiewit Plaza, he had hired Bill Scott, a trust officer from the U.S. National Bank who had read an article in the Commercial & Financial Chronicle that Warren had written about an obscure insurance company. Scott signed up for Buffett’s investing course, and then, he says, “I set out to suck up to him until I got a job.”29 Scott began to help Buffett as he herded money into the partnership as fast as the two of them could open the mail. Buffett had his mother join for the first time, along with Scott, Don Danly, and Marge Loring, the widow of Warren’s bridge partner Russ Loring, and even Fred Stanback, who had a family business and heretofore had worked with Warren only on specific ideas.30 And for the first time, Warren put his own money—all of it, almost $450,000—into the partnership.31 With that, his and Susie’s share of the partnership rose to more than a million dollars after his six years of work; together they owned fourteen percent of BPL.
The timing was stupendous. In mid-March 1962, the market finally broke. It continued its slide until the end of June. Stocks were suddenly cheaper than they had been in many years. Buffett was now sitting on a single partnership with a huge pile of cash to invest. Its portfolio was relatively unscathed in the downturn—“Compared to more conventional (often termed conservative, which is not synonymous) methods of common stock investing, it would appear that our method involved considerably less risk,” he wrote in a letter to his partners.32 He went racing through the stock tables. He often paraphrased Graham, saying: “Be fearful when others are greedy, and greedy when others are fearful.” This was the time to be greedy.33
* Although Dan Monen, or some other helpful proxy, would often clue the aspirant in to what was required.