Six weeks after Howard died, Warren did something unexpected. It was not just about money anymore. American Express had done wrong, and he thought that the company should make amends. The company had offered the banks $60 million to settle their demands, saying the company felt morally bound. A group of shareholders sued, arguing that American Express should defend itself rather than pay. Buffett offered to testify on behalf of the management’s plan to settle, at his own expense.
But American Express wasn’t offering the money to be an example; it just wanted to get rid of a lawsuit that was shadowing its stock. Nor did its customers care; the salad-oil scandal hadn’t registered with them in the first place.
Buffett wrote that an American Express that paid the $60 million to the banks would be “worth very substantially more than American Express disclaiming responsibility for its subsidiary’s acts.”1 He described the $60 million payment as inconsequential in the long run, like a dividend check that got “lost in the mail.”
Susie, who had thrown the dividend checks down the incinerator and had never had the nerve to tell her husband about the incident, might have been shocked to hear him so cavalierly dismiss a $60 million dividend check lost in the mail, had she known.2 And why should Buffett now be interested in whether American Express had, as he put it, “standards for financial integrity and responsibility … beyond those of the normal commercial enterprise”? From whence had come the notion that a reputation for integrity would translate into a business “worth substantially more”? Why did Warren want to testify? While he had always shared his father’s commitment to honesty, now he seemed to have inherited Howard’s penchant for pontificating on matters of principle.
Buffett had always wanted to influence the managements of companies in which he invested. But in the past he had not attempted to turn his investments into a church, where he could preach while passing around the collection plate.
As if to confirm Buffett’s sense that moral rectitude had financial value, American Express paid the settlement and worked through its travails, and the stock, which had plunged below $35, rose to more than $49 per share. By November 1964, the partnership owned more than $4.3 million of American Express stock. It had made other huge bets: $4.6 million in Texas Gulf Producing and another $3.5 million in Pure Oil. Together, the three made up more than half the portfolio.3 By 1965, American Express alone was almost one-third of the partnership’s portfolio.
Buffett, fearless in concentrating his bets, would keep buying into 1966 until he had spent $13 million on American Express. He felt the partners ought to know a new “ground rule” and told them he might invest as much as forty percent of the assets in a single stock.4
Warren had ventured far from the worldview of his mentor, Ben Graham. The hard-nosed “quantitative” approach espoused by Graham was the world of the speed handicapper, of the cigar-butt stooper who worked from pure statistics. Come to work in the morning, flip through the Moody’s Manual or the Standard & Poor’s weekly report, look for cheap stocks based on a handful of numbers, call Tom Knapp at Tweedy, Browne & Knapp and buy them, go home when the market closed, and sleep well at night. As Buffett said of this, his favorite approach, “The more sure money tends to be made on the obvious quantitative decisions.” But the method had a couple of drawbacks. The number of statistical bargains had shrunk to virtually nil, and since cigar butts tended to be small companies, it did not work when large sums of money were involved.
While still working this approach, Buffett had had what he would later call a “high-probability insight” about American Express that confounded Ben Graham’s core idea. American Express’s main asset was its customers’ goodwill. He had bet his partners’ money—his family’s, his friends’—on the competitive advantage that Charlie Munger had been talking about when he spoke of the “great businesses.” This was the method of the class handicapper, of Phil Fisher, and it involved qualitative, as opposed to quantitative, assessments.
Buffett would later write to the partners that buying “the right company (with the right prospects, inherent industry conditions, management, etc.)” means “the price will take care of itself.… This is what causes the cash register to really sing. However, it is an infrequent occurrence, as insights usually are, and of course, no insight is required on the quantitative side—the figures should hit you over the head with a baseball bat. So the really big money tends to be made by investors who are right on qualitative decisions.”5
This new emphasis on a qualitative approach paid off in the stupendous results Buffett was able to announce to his partners at the end of 1965. When Buffett made his annual report to them, he compared the huge gain to an earlier prediction that he could beat the Dow by ten percent a year—and referred to the dazzling performance by saying, “Naturally no writer likes to be publicly humiliated by such a mistake. It is unlikely to be repeated.”6 Despite the irony, he had begun a tradition of hedging against his partners’ high expectations. As his record of outstanding results lengthened, his letters also began to display a preoccupation with measuring success and failure. As readers began to recognize this pattern, some assumed he was manipulating them, while others accused him of false modesty. Hardly anybody knew how deep his sense of insecurity ran.
In the year following Howard’s death, Warren began to think of memorializing him in some way—for example, through endowing a university chair. But he could never seem to find the perfect vehicle. He and Susie did set up the Buffett Foundation, which made small grants to educational causes. But this wasn’t what he had in mind for his father. And he had no intention of becoming a philanthropist; it was Susie who liked to dispense money and she who ran the foundation. Instead, Warren worked with no slacking of intensity. After his incredible home run on American Express, he hired John Harding from the Omaha National Bank trust department in April 1965, to handle administration. And yet, when Harding took the job, Buffett warned him: “I don’t know if I’ll necessarily be doing this forever, and if I quit, you’ll be out of a job.”7
But there was no sign of his quitting. Harding had hoped to learn investing, but that ambition was soon destroyed. “Any idea that I wanted to handle investments on my own disappeared when I saw how good Warren was,” he says. Instead, Harding simply put most of his money into the partnership.
Besides shoveling millions of dollars’ worth of American Express stock into BPL, Warren now chased bigger deals that required travel and coordination, both giant cigar butts and “qualitative” class handicapping deals that were a far cry from flipping through the Moody’s Manual in his bathrobe at home. His next target, another cigar butt, lay far from Omaha.
Each of the Grahamites in Buffett’s network was always looking for ideas, and Dan Cowin had brought Buffett a textile maker in New Bedford, Massachusetts, that was selling at a discount to the value of its assets.8 His idea was to buy it and liquidate it, to sell it off piecemeal, and to shut it down. Its name was Berkshire Hathaway. By the time the hair had grown back on Warren’s head from the shock of his father’s loss, he was in full pursuit of this new idea.
Buffett began by circling over the company and observing it. He started leisurely accumulating stock in Berkshire Hathaway. This time, for better or worse, he had chosen a business run by a personality the size of Massachusetts.
Seabury Stanton, president of Berkshire Hathaway, had reluctantly closed more than a dozen mills, one by one, over the past decade. The remnants sprawled along the rivers of the gently moldering towns of coastal New England like empty red-brick temples of a long-lost faith.
He was the second Stanton to oversee the company, and was filled with a sense of destiny. A New England version of American Gothic come to life, Seabury peered coldly down on visitors from his six-foot two-inch height—peered down if, that is, they managed to find him. He sat tucked away in a remote penthouse office at the top of a long, narrow staircase, protected by his secretary’s secretary, far from the din of the looms.
New Bedford, the town that was his headquarters, once shone as the diamond in New England’s crown. For a while the ships that sailed from its harbor to hunt sperm whales made New Bedford North America’s richest city.9 Stanton’s grandfather, a whaling captain, had been head of one of the ruling families of the city, capital of the world’s most swashbuckling business. But as sperm whales grew scarce, Horatio Hathaway, whose family had roots in the China tea trade,10 and Joseph Knowles, his treasurer, organized a group of partners to follow what they saw as the next business trend. They formed a pair of textile mills, Acushnet Mill Corporation and Hathaway Manufacturing Company.11 One of their partners was Hetty Green, the notorious “Witch of Wall Street,” a shipping heiress raised in New Bedford who rode the ferry to New York City from her tenement apartment in Hoboken to make loans and investments. She stalked through lower Manhattan in an ancient black alpaca gown, swirling cape, and rusty veiled hat like an elderly bat. By the time of her death in 1916, Green would be the richest woman in the world.12
Financed by such investors, mill after mill sprang up to comb, spin, weave, and dye the deep stacks of cotton bales unloaded from Southern ships onto the wharves of New Bedford. Congressman William McKinley, chairman of the House Ways and Means Committee, who passed through the region from time to time to christen new mills, sponsored a tariff to protect the textile mills from foreign trade, for it was already cheaper to make fabric elsewhere.13 Thus, even from the beginning, the textile mills of the North needed political help to survive. Early in the twentieth century, a new technology—air-conditioning—revolutionized factories by allowing precise control of humidity as well as particulate matter in the air, and it was no longer economically justifiable to ship cotton out of the South, where labor was cheaper, to the chilly shores of New England. Knowles’s successor, James E. Stanton Jr., watched half his competitors’ mills melt away to the South.14 James Stanton “hesitated to spend stockholders’ money on new equipment when business was so bad and the prospects were so uncertain,” recalled his son.15 He pulled capital out of the business by paying dividends.
By the time Stanton’s son Seabury, a Harvard graduate, took over in 1934, the aged, rickety Hathaway plant still rattled out a few bolts of cotton cloth each day. Seabury became seized with a vision of himself as the hero who saved the textile mills. He and his brother Otis conceived a five-year plan to modernize.16 They shifted from cotton to rayon, the poor man’s silk, and made rayon parachute cloth during the war, enjoying a temporary boom. Year by year the tides lapping at his shore—cheaper foreign fabric, better-automated competition, and lower labor costs in the South—presented a rising threat to Seabury’s mills.
In 1954, Hurricane Carol’s fourteen-foot storm surge poured into Hathaway’s Cove Street headquarters. Rather than rebuild the mill, the obvious response would have been to join the march southward. Instead, Seabury Stanton merged Hathaway with another mill, Berkshire Fine Spinning, trying in effect to build a levee against a tidal wave.17
Malcolm Chace, Berkshire’s master, steadfastly refused to sink a nickel into modernization. Chace naturally opposed Seabury Stanton’s plans, but the new Berkshire Hathaway was governed by Stanton’s sense of destiny. He simplified the product line, focusing on rayon, turning out more than half the men’s suit linings in the United States.18 He continued his “relentless” modernizing, pouring another million dollars into the mills.
By this time, his brother Otis had begun to have doubts about the feasibility of remaining in New Bedford, but Seabury thought the time for a textile mill to move south had passed,19 and refused to give up his dream of reviving the mills.20
When Dan Cowin approached Buffett about Berkshire in 1962, Buffett was already aware of it, just as he was of any U.S. business of a meaningful size. Berkshire was worth—according to its accountants—$22 million as a business, or $19.46 per share.21 And yet, after nine years of losses, anyone could acquire the stock for just seven and a half bucks. Buffett started buying it.22
Seabury had been buying Berkshire’s stock as well, making a tender offer for shares every couple of years. Buffett’s theory was that Seabury would continue, and he could time his own transactions, buying whenever the stock got cheap and selling it back to the company whenever the price rose.
He and Cowin set about buying stock. Had anyone known Buffett was buying, it might have pushed up the price, so he bought through Howard Browne of Tweedy, Browne. The broker was a favorite of Buffett’s because everyone there was closemouthed, of utmost importance to him. Tweedy, Browne had code-named the Buffett partnership’s account BWX.23
When Buffett arrived at Tweedy, Browne, which maintained a tiny office at 52 Wall Street—the same Art Deco building where Ben Graham had once worked—it felt like entering an old-fashioned barbershop, with its black-and-white ceramic tile floor. Along the center of the trading room ran a twenty-foot wooden table, which the firm had acquired somewhere on its way to a garbage dump. Its surface bore the marks of generations of schoolchildren armed with penknives. To write down figures, a tablet had to be placed underneath the paper; otherwise, “Todd loves Mary” would be embossed into the text.
On one side of the child-scarred table, Howard Browne ruled with benign authority. He and his partners faced the firm’s trader, who—like all traders—sat, jumpy and restless, waiting for the phone to ring so that he could trade. Next to him, an empty space at the table served as the “visitors’ desk.” The cheapest of wooden filing cabinets lined the walls.
Past the trading room, in a small rented alcove half filled with a water cooler and a coatrack—in effect a sort of closet—sat Walter Schloss, running his partnership from a battered desk. Using Graham’s method without the slightest variation, he had been averaging returns of better than twenty percent a year since leaving Graham-Newman. To pay his rent to Tweedy, Browne, in lieu of cash he gave the firm commissions by trading stocks. His trades were few, and he was getting a great bargain on the rent. He limited his other expenses to the cost of a subscription to Value Line Investment Survey, some paper and pencils, subway tokens, and nothing else.
Nowhere else in New York did Buffett feel so at home as sitting at the Tweedy, Browne visitors’ desk. The firm had branched out into arbitrage, workouts (all-but-completed turnaround situations where a little money remained to be made), and “stubs” (companies being acquired and broken up)—all the sorts of things he liked. It traded securities such as fifteen-year Jamaica (Queens) Water warrants—rights to buy the water company’s stock, which rose whenever there was speculation that New York City would someday take over the waterworks. They fell again when speculation lulled. Tweedy, Browne bought them every time they dropped and sold them every time they rose, over and over and over again.
The firm also made a specialty of fencing with the managements of these obscure, undervalued businesses, trying to force out hidden value, as with Sanborn Map. “We were always in court suing,” one partner says.24 All of it reeked of the old Graham-Newman days and bore little similarity to the gargantuan American Express deal, but Buffett loved the atmosphere. Tom Knapp had commandeered a huge storage closet, filling it with the four-cent Blue Eagle stamps he and Buffett had made the mistake of buying and topographical maps of the Maine coastline. The pile of maps continually grew, for Knapp was funneling the cash he made from stocks into buying up the coast of Maine.25 The pile of Blue Eagles slowly shrank as Tweedy, Browne pasted forty stamps onto each batch of the Pink Sheets they sent to Buffett once a week, every week.
The Pink Sheet quotations for stocks not listed on the New York Stock Exchange were stale the moment they went to print. Buffett used them merely as a starting point for the telephonic bazaar in which calls to numerous brokers might be required to make a trade. He was a master at working this system through his brokers. The lack of a publicly posted price reduced competition. Someone who was willing to call every market maker and squeeze them mercilessly had a meaningful advantage over the less energetic or the more fainthearted.
Browne would call Buffett to let him know they had XYZ stock on offer at $5 a share.
“Hmmm, $4¾ bid” Buffett would say, without hesitation. This maneuver, Casting the Line, would fish out how hungry the seller was.
After calling the client to see if he would take a lower price, Browne would call Buffett with the response: “Sorry. Can’t take less than five bucks.”
“Unthinkable,” Buffett would answer.
A few days later, Browne would call Buffett again. “We got the stock at $4¾. We’ll go along with $4¾ bid.”
“Sorry,” Buffett would now say instantly. “$4½ bid.”
Browne would go back to the seller, who would say, “What the hell? What happened to the $4¾?”
“We’re just passing along the message. $4½ bid.”
More calls would go back and forth until a week later, Browne came back to Buffett: “Okay. $4½ bid,” he’d say.
“Sorry,” Buffett would say, and drop it another eighth. “$4⅜.”
Thus he Buffetted the price ever lower. And rarely—almost never—did he want a stock badly enough to raise his bid.26
He placed his first order for Berkshire Hathaway through Tweedy on December 12, 1962, for two thousand shares at $7.50 a share, paying the broker a $20 commission.27 He told Tweedy to keep buying.
Cowin got the scuttlebutt on Berkshire from board member Stanley Rubin, Berkshire’s top salesman, who happened to be a friend of Otis Stanton, another member of the board. Otis felt his brother was out of touch. Protected by his secretaries in his ivory tower, Seabury was doing more and more drinking as the clash between his lofty vision and reality worsened.28 The brothers were by now sharply at odds.29 Otis felt his brother should have taken a strike rather than giving in to demands for higher wages.30 He also disapproved of Seabury’s choice of a successor, his son, Jack. Otis had his own idea about who should succeed Seabury—Ken Chace, the vice president of manufacturing.
Seabury Stanton responded to Buffett’s purchases as though a takeover threat was imminent, and made several tender offers for the stock. This was exactly what Buffett wanted, for his purchases were predicated on the theory that, eventually, Seabury would buy him out. He wanted the Berkshire stock not to keep it but to sell it. Nevertheless, in every trade there is a buyer and a seller. Seabury Stanton had so far withstood the forces of cheap foreign fabric and Hurricane Carol. Instead of Seabury getting Buffetted, there was a chance that Buffett could get Seaburied.
Eventually, Warren drove up to New Bedford to see the place for himself. For once, he was not just dropping in. Miss Tabor, who was fiercely loyal to Seabury, decided which callers would be allowed through the glass doors and up the narrow stairs to Stanton’s penthouse office.
The two men seated themselves at the glass conference table in a corner, and Buffett asked where Stanton stood on the next tender offer. Stanton looked at him through the wire-rimmed glasses perched on the tip of his nose. “He was reasonably cordial. But then he said, ‘We’ll probably have a tender one of these days, and what price would you sell at, Mr. Buffett?’ or words to that effect. The stock at the time was selling at something like $9 or $10 a share.
“I said I’d sell at $11.50 a share on a tender offer, if they had one. And he said, ‘Well, will you promise me that if we have a tender offer you’ll tender?’
“I said, ‘Well, you know, if it’s in the reasonably near future, but not if it’s twenty years from now.’ But I said, ‘Fine.’
“So now I was frozen. I felt that I couldn’t buy any more stock because I knew too much about what he might do. So I went home, and not too long after, a letter comes from the Old Colony Trust Company, which was part of First National of Boston, offering $11⅜ per share to anyone who would tender their Berkshire.” That was 12½ cents less per share than agreed.
Buffett was furious. “It really burned me up. You know, this guy was trying to chisel an eighth of a point from having, in effect, shaken my hand saying this was the deal.”
Warren was used to doing the Buffetting, and now Stanton had tried to chisel him. He sent Dan Cowin to New Bedford to try to reason with Stanton not to renege on the deal. The two men argued, and Stanton denied that he had made a deal with Buffett; he told Cowin that it was his company and he would do as he pleased. That was a mistake. For trying to chisel Warren Buffett, Seabury Stanton was going to be sorry, very sorry. Buffett decided that—instead of selling—now he would buy.
He vowed that he would have Berkshire; he would buy it all. He would own it lock, stock, loom, and spindle. That Berkshire Hathaway was a failing, futile enterprise daunted him not. It was cheap, and he craved it. Above all, he wanted Seabury Stanton not to have it. Buffett and the other shareholders deserved it more. In his determination, he ignored all the lessons learned from the experience at Dempster—save one. And that was the one he should have ignored.
Buffett sent his scouts out, looking for more chunks of the closely held stock. Cowin got hold of enough to join Berkshire’s board. But other people began to take notice too. Jack Alexander, Buffett’s old friend from Columbia, had an investment partnership with his classmate Buddy Fox. “One day we saw that Warren was buying this Berkshire Hathaway,” he says. “And we started to buy.” On a trip to New York from their office in Connecticut they told him they were following him in the stock. “He got very upset. ‘Look,’ he said, ‘you’re riding on my coattails. That’s not right. Cut it out.’ ”
Fox and Alexander were taken aback. What were they doing wrong? Buffett gave them to understand that he was seeking control. Yet coattail-riding, even in control situations, was a popular pastime among the Graham crowd. It was considered sporting conduct. In effect, Buffett took their stock. I need it more than you, he said. They agreed to sell their stock to him at the then-market price, because it clearly mattered to him so much. He appeared to have some sort of mysterious attachment to Berkshire Hathaway. “It wasn’t that important to us. It was obviously very important to him,” Alexander says.
Like Fox and Alexander, a few others had also become Buffett-watchers, tracking Warren’s trail like the spoor of Bigfoot. This created competition for the stock. He made it understood among the Grahamites that they were to keep their mitts off Berkshire. The only exception was Henry Brandt; he let Brandt—in recompense for his services—buy it below $8.00. He had begun to carry himself with a bit of swagger, which some people found irritating. Yet his surefootedness, the way he always seemed to be so right, kept them fascinated. Even his cheapskate qualities were part of the aura. For years he had been possibly the only person doing business regularly in New York who managed to get by with not only free lodging (by staying with Fred Kuhlken’s mother, Anne Gottschaldt, on Long Island), but free office space to boot (at Tweedy, Browne).
Now that Susie accompanied him on some of these trips, however, at her behest he had upgraded from hosteling with his deceased college friend’s mother to taking a room at the Plaza Hotel. Not only was the Plaza more convenient for business, but from Susie’s perspective, it put department stores like Bergdorf Goodman, Best & Company, and Henri Bendel close at hand. Then a rumor circulated among Buffett’s friends—the kinds of rumors that always swirled around Buffett, like the one that had him stashing his daughter in a dresser drawer rather than buying her a crib—a rumor that he had found the Plaza’s cheapest room, a tiny windowless cubicle like his old maid’s room at Columbia, and cut a deal to stay there at a beggarly price whenever he came alone to New York.31 Regardless of the rumor’s truth, each time he checked in to the Plaza he doubtless felt a pang of regret, for he no longer stayed in New York scot-free.
The trips to Bergdorf’s were another aspect of how much the New York routine had changed. Susie spent her days going to lunch and shopping; in the evenings they went to dinner, then Broadway or cabaret shows. He liked to see her enjoy herself, and she had become used to shopping at the better stores. Nevertheless, while she now had the power to loosen the purse strings, their game was to tussle over how much money she got to spend. Her way of justifying spending was to do it on someone else’s behalf. Susie Jr. was often a beneficiary; her closets filled with clothes from Bergdorf’s. One time Susie came back from New York with an ermine jacket. They had met a friend of Warren’s who took them to a furrier. “I felt like I had to buy something,” she said. “They were being so nice to me.” She had done it for the furrier’s sake.
Now, all this protecting Berkshire from coattailing would be for naught unless Buffett figured out how to run it well enough to keep Susie in ermine jackets. He made another visit to New Bedford, going by the mill to see Jack Stanton, the heir apparent. Somebody was going to have to run the place once it was wrested from Seabury’s hands, and Warren needed to know who that would be.
But Stanton claimed to be very busy, and sent Ken Chace to escort Buffett around the mill.* Stanton had no idea that his uncle had already suggested Chace as a possible replacement for Seabury.
Ken Chace was a chemical engineer by training, forty-seven, quiet, controlled, and sincere. He did not know that he was a contender to run the company; nonetheless, he spent two days teaching Buffett the textile business while Buffett asked question after question and Chace explained the mills’ problems. Buffett was impressed by his candor and equally impressed by his attitude. Chace made it clear that he thought the Stantons foolish for pouring money into a business that was on its way down the drain.32 When the tour was over, Buffett told Chace he would “be in touch.”33
A month or so later, Stanley Rubin had to be called into service to persuade Chace not to take a job at a competing textile mill. Meanwhile, Buffett was scrambling to buy more stock, including shares that belonged to various members of the Chace family.
Buffett’s final target was Otis Stanton, who wanted his brother to retire. He had no confidence in Seabury’s son, Jack, and doubted Seabury would ever let go of the reins.
Otis and his wife, Mary, agreed to meet Buffett at the Wamsutta Club in New Bedford.34 Over lunch at the graceful Italianate mansion, a relic of New Bedford’s onetime grandeur, Otis acknowledged that he would sell, on the condition that Buffett make an equivalent offer to Seabury. Warren agreed. Then Mary Stanton asked if they could keep just a couple of shares out of the two thousand they were selling, out of family sentiment. Just a couple of shares.
Buffett said no. It was all or nothing.35
Otis Stanton’s two thousand shares pushed Warren’s ownership to forty-nine percent of Berkshire Hathaway—enough to give him effective control. With the prize within his grasp, he met Ken Chace one April afternoon in New York and walked him out to the teeming plaza at Fifth Avenue and Central Park South, where he sprang for two bars of ice cream on a stick. Within a bite or two he got to the point, saying, “Ken, I’d like to have you become president of Berkshire Hathaway. How do you feel about that?” Now that he controlled the company, he said, he could change the management at the next directors’ meeting.36 Chace, who was stunned to be selected despite the hints Rubin had given him when he convinced him not to take another job, agreed to keep quiet until the board meeting.
Not realizing that his fate had been decided, Jack Stanton and his wife raced down from New Bedford to meet Warren and Susie at the Plaza Hotel for breakfast. Kitty Stanton, more aggressive than her husband, pled Jack’s case. Reaching for an argument that would appeal to the Buffetts, Kitty threw in what she must have thought was the clincher. Buffett surely would not overturn New England’s hereditary mill aristocracy, who had overseen the business for generations, to put a mill rat like Ken Chace in charge. She and Jack fit in at the Wamsutta Club. Kitty, after all, was a Junior Leaguer, like Susie.37
Poor Kitty, making this pitch to the man who had refused to join Ak-Sar-Ben and had thumbed his nose at the establishment of Omaha.
It was too late for Jack. It was too late for Seabury, who ruled by autocracy and had no friends on the board. Even his own chairman, Malcolm Chace, did not like him. Thus, when backers of Buffett arranged for him to be nominated to the board at a special meeting, on April 14, 1965, he was swiftly elected a director with much of the board’s support.38
A few weeks later, Buffett flew into New Bedford, where he was greeted by a headline in the New Bedford Standard-Times about “outside interests” taking over the company.39 The planted story infuriated him. The one lesson that had stuck with him from Dempster was to never, ever let himself be branded a liquidator—and wind up with a whole town hating him. Buffett vowed to the press that he would carry on business as usual. He denied that mill closings would result from the takeover—and saddled himself publicly with this commitment.
On May 10, 1965, the board convened at Berkshire’s headquarters in New Bedford. It presented a silver tray to the retiring vice president of sales, approved the minutes of the last meeting, and agreed to increase wages five percent. Then the meeting turned surreal.
Seabury, his nearly bald seventy-year-old head speckled with age spots, claimed that he had planned to retire in December to let Jack succeed him. But, he said, he could not continue as president “of an organization over which he would not have complete authority.”40 With as much hauteur as his character allowed him—which was considerable, despite the mutineers having taken over the ship—Seabury made a little speech, commending himself for his accomplishments. Then he tendered his resignation. Jack Stanton added a bitter little coda, saying that, had he become president in December, he was certain that it would have meant “continued success and profitable operations.” The board listened patiently, then accepted his resignation as well. At that point, Jack Stanton put down his pen and stopped taking the minutes in which these two speeches had been recorded, and the two Stantons stalked out of the room.
Moving quickly on, the board elected Buffett chairman and confirmed Ken Chace in his new job running the doomed company that Buffett—in a moment of folly—had exerted such strenuous effort to acquire. A few days later, he explained his thinking on textiles in a newspaper interview. “We’re neither pro nor con. It’s a business decision. We try to assess a business. Price is the big factor in investment.… We bought Berkshire Hathaway at a good price.”41
He would later come to revise that opinion.
“So I bought my own cigar butt, and I tried to smoke it. You walk down the street and you see a cigar butt, and it’s kind of soggy and disgusting and repels you, but it’s free … and there may be one puff left in it. Berkshire didn’t have any more puffs. So all you had was a soggy cigar butt in your mouth. That was Berkshire Hathaway in 1965. I had a lot of money tied up in the cigar butt.42
“I would have been better off if I’d never heard of Berkshire Hathaway.”
*No relation to Malcolm Chace, who had become chairman of the board when Berkshire Fine Spinning merged with Hathaway Manufacturing.