The Scaffold Sways the Future

Omaha • 1967–1968

The greatest wave of riots, lootings, and burnings since the Civil War swept the country during the summer of 1967. Omaha’s nonviolent activists counted the Buffetts—both of whom were now influential in town—among their informal network. Rackie Newman, the wife of Warren’s best friend in Omaha, Nick Newman, was working with Susie to pressure the YMCA and the boards of other organizations to give a fairer share of money to their branches in impoverished areas. Through the United Methodist Community Center, run by an African-American friend, Rodney Wead,¹ Susie and Rackie sent black kids to summer camp and set up an interracial dialogue group for local high school students.² Wead had become a frequent presence in the Buffett house. Nick Newman helped bring Warren directly into the struggle by sponsoring his participation in various local civil-rights groups. Warren’s role was not to labor, but to speak: He testified before the legislature in Lincoln on open housing. For her part, Susie went out and at least a few times actually bought houses, fronting for blacks who wanted to move into white neighborhoods.³

Recently, Warren had been introduced to Joe Rosenfield, who ran the Younkers chain of department stores based in nearby Des Moines.⁴ Rosenfield was well connected in both local and national politics and shared the Buffetts’ political views. He was also a trustee of Grinnell College, which sat like a tiny radical island in the middle of the farming hamlet of Grinnell, Iowa.⁵ Eighty-some years after its founding in 1846, Grinnell had nearly gone broke, but in the quarter century since Rosenfield had taken over the endowment, he had built it to nearly $10 million.⁶ He had a keen wit, as well as an edge of sadness about him, having lost his only son in a tragic accident; Susie Buffett quickly developed a special relationship with him. Given all their shared interests, Rosenfield naturally wanted to involve the Buffetts with Grinnell, his most important cause.

In October 1967, the college was presenting a three-day fund-raising convocation on “the liberal arts college in a world of change” and had assembled a brilliant panoply of a speakers’ roster—including author Ralph Ellison, whose novel Invisible Man had won a National Book Award, and communications theorist Marshall McLuhan, who had popularized the idea of a media-driven “global village.” But the speaker they were all waiting for was Dr. Martin Luther King Jr.⁷ Nobel Peace Prize winners were not everyday visitors to Iowa. Rosenfield had invited the Buffetts to the convocation; they were among the five thousand people who packed themselves into Darby Gymnasium for that Sunday morning’s program.

King had chosen the theme of “Remaining Awake During a Revolution,” and his resonant voice rang out with a quote from poet James Russell Lowell’s “The Present Crisis,” the anthem of the civil-rights movement.

He spoke of the meaning of suffering. Inspired to nonviolent resistance by Gandhi, King invoked the lessons of the Sermon on the Mount. Blessed are the persecuted, it said, for theirs is the kingdom of heaven. Blessed are the meek, for they shall inherit the earth.

As touched as she was by Dr. King’s powerful words, Susie must also have been deeply moved by the way he transfixed her husband.⁹ Buffett had always responded to powerful, charismatic orators. Now he saw King standing before him: moral courage in the flesh, a man who had been beaten and imprisoned, put in shackles and sentenced to hard labor, stabbed and clubbed for his beliefs, a man who had carried a movement on the strength of his ideas for nearly a decade despite enraged opposition, violence, and limited success.

King was a prophet, a man who saw a vision of glory, of evil exposed through visible suffering, of people roused from sleep by the sight of horrors. He called his followers to nail themselves to his vision, to lift it up behind them and drag it through the streets. Christianity, he said, has always insisted that the cross we bear precedes the crown we wear. “If an individual has not discovered something that he will die for, he isn’t fit to live,” King said.¹⁰ One of his lines, which he repeated in many of his speeches, struck Buffett’s heart and pierced his reason.¹¹

“The laws are not to change the heart,” he said, “but to restrain the heartless.”

“With that great voice of his, he just rumbled that out, and then went on and used that as a theme.”

Susie had often told her husband that there was more to life than sitting in a room making money. That October 1967, in the throes of the civil-rights struggle, he had written a special letter to the partners, which showed that something in his thoughts had changed. It laid out his strategy without revealing the year’s pending results. After describing the “hyper-reactive pattern of market behavior,” he went on to say: “My own personal interests dictate a less compulsive approach to superior investment results than when I was younger and leaner.… I am out of step with present conditions. On one point, however, I am clear. I will not abandon a previous approach whose logic I understand (although I find it difficult to apply) even though it may mean forgoing large, and apparently easy, profits to embrace an approach which I don’t fully understand, have not practiced successfully, and which, possibly, could lead to substantial permanent loss of capital.”

Personal goals, he said, had begun to intrude: “I would like to have an economic goal which allows for considerable noneconomic activity.… I am likely to limit myself to things which are reasonably easy, safe, profitable, and pleasant.”

Buffett then stunned his partners by dropping his stated goal of beating the market by ten points a year to beating it by just five points a year—or to earning nine percent, whichever was less. If they could find better results elsewhere, he said, they should go, and he wouldn’t blame them.

He knew that this was taking a risk. Some of the hot new mutual funds were doing much better than the partnership, doubling their money in a year. Each January, the partners could add money to the partnership—or take it out. Many other skippers were forecasting sunnier skies.

Yet his timing worked in his favor. The Dow produced an unusually poor year in 1966.¹² Some of the partners, shaken by the market’s roiling, had advised him to sell stocks. He paid attention neither to the market nor to advice, and the partnership beat the Dow by thirty-six points, the best record in its ten-year history. “If you can’t join ’em, lick ’em,” he wrote.¹³ So, it was not a bad time to be offering his partners the chance to take their money elsewhere.

One side effect of this strategy would be to test their trust in him. Only he knew that for 1967 he was about to report his second stellar year in a row. If they stayed in, it would be because of that trust and because they were willing to accept his more modest goal. Even Ben Graham had beaten the market by just 2.5 percent a year. Buffett’s revised goal of nine percent put a floor on their results that was still two percent or more better than owning an average bond. Beating the market by five points a year, year after year, and not losing money, would lead to a stunning result.^* Sticking with him, an investor could achieve these extraordinary returns, and do so safely. Nevertheless, by lowering his target, Buffett had just taken his partners down a peg psychologically, and the results reflected that.

For the first time, instead of investors rushing to put more money into the partnership, they pulled out a net $1.6 million of capital in January 1968. Yet it was a fraction of what might have been. Less than one in thirty dollars had gone elsewhere. And when he reported his 1967 results a few weeks later, Buffett Partnership, Ltd. had advanced thirty-six percent—versus the nineteen percent rise in the Dow. Thus, in two years, a dollar in Buffett’s stewardship had grown more than sixty cents, while a dollar in the Dow was still a measly dollar.

He wished the departing partners Godspeed with what might be perceived as the subtlest trace of irony: “This makes good sense for them, since most of them have the ability and motivation to surpass our objectives and I am relieved from pushing for results that I probably can’t attain under present conditions.”¹⁴

“Financial genius is a rising market,” as Kenneth Galbraith would later say.¹⁵

Now Buffett had more time to pursue the personal interests he had spoken about, and less pressure—at least in theory. After King’s speech, Rosenfield easily recruited Buffett to become a Grinnell trustee. Given Buffett’s dislike of committees and meetings, this signified how much he had been touched by the convocation—as well as how close he had grown to Rosenfield. Naturally, he went straight onto the finance committee, where he found the trustees to be a group of like-minded men. Bob Noyce, who ran a company called Fairchild Semiconductor, which made electronic circuits—something about which Buffett knew little and had even less interest—was chairman. Like Buffett, he had an overarching hatred of hierarchy and a love of the underdog, in keeping with the guiding spirit of Grinnell.

Buffett seemed to feel a sense of urgency to do something more for civil rights too. He felt he could best serve the cause by using his brains and financial savvy behind the scenes. Rosenfield began to introduce Buffett around the Democratic Party power network. Buffett started to get involved with Iowa’s Democratic Senator Harold Hughes and with Gene Glenn, who was running for the Senate.

In March 1968, riots broke out after a visit to Omaha by former Alabama Governor George Wallace, the most controversial man in America. A segregationist who was running an independent campaign for President, Wallace lit the match for days of confrontation between police and blacks, including Omaha’s Black Panthers.¹⁶ The racial violence continued all that summer. Susie never stopped going to the North Side. She trusted in her excellent relations with the community and discounted the personal danger; Warren was not always aware of the details of what she was doing but did feel that at times she went too far in putting others’ interests before her own. His own horror of violence and fear of mob rule had roots that went back a generation.

Howard Buffett had recounted over and over to his children a scene he had witnessed at age sixteen—a day when thousands of people converged on the Douglas County Courthouse, broke in and attempted to lynch the mayor of Omaha, and beat, castrated, and lynched an elderly black man who had been accused of rape. Afterward they dragged his body through the streets, shot bullets into it, lynched it again, and set it afire. The Courthouse Riot became the most shameful episode in Omaha’s history. Howard missed seeing much of the violence, but witnessed the lynch mob turning a streetlamp into an improvised scaffold, and the mayor of Omaha hanging by a noose around his neck before being rescued in the nick of time.¹⁷ The memory haunted him for the rest of his life.¹⁸ He saw with his own eyes the speed with which ordinary people, formed into a mob, could act out the lowest depths of human nature.

King had warned earlier that year that mass social unrest could potentially lead to fascism. This required no explanation to Warren Buffett. His own commitment to siding with the underdog went beyond instinct and rested partly on this train of logic. Many people thought such a thing was inconceivable in the United States, but the seemingly impossible happened time and again. The law is not to change the heart, King said, but to restrain the heartless. And who are they, the heartless? That he did not say.

A few weeks later, King flew to Memphis to speak at the Masonic temple. The next day, April 4, as he stood on the balcony of the Lorraine Motel preparing to lead a march of sanitation workers, he was fatally shot in the neck.

Grief, rage, and frustration poured out of black communities across America, turning urban centers into fiery combat zones. At the same time, tens of thousands of students were demonstrating against the Vietnam War on college campuses. The U.S. government had just eliminated most draft deferments, finally putting the sons of the upper middle class at risk of being drafted. Public sentiment turned decisively against the war. There was such turbulence in the air that the country felt as though revolution could erupt at any moment.

In their various ways, many people decided they were fed up, and done with being put down. Buffett’s friend Nick Newman abruptly announced that he would no longer attend meetings at clubs that discriminated against Jews as members.¹⁹ Warren, too, was moved to take action. Since his Graham-Newman days, he had broken away from the segregated 1950s culture and the anti-Semitism of his family’s elder generation to forge friendships and business connections with a wide circle of Jewish people. He even seemed to feel a sense of personal identification with Jews, some thought; their status as outsiders fit with his own sense of maladjustment and his alignment with the underdog. Some time before, Buffett had quietly resigned from the Rotary Club, repelled by the bigotry he saw as a member of its membership committee. But he never told anyone the reason. Now he made it his personal project to sponsor a Jew—his friend Herman Goldstein—for membership in the Omaha Club.

Since one of the rationales that institutions like the Omaha Club used to defend their exclusionary policies was that “they have their own clubs that don’t admit us,” Buffett decided to ask Nick Newman to nominate him for the all-Jewish Highland Country Club.²⁰ Some of its members objected, using the same logic employed by the Omaha Club: Why take in gentiles when we had to establish our club because their clubs wouldn’t have us?²¹ But a couple of rabbis got involved and an Anti-Defamation League spokesman appeared on Buffett’s behalf.²² Once accepted, Buffett quietly stormed the Omaha Club, armed with his Jewish country-club membership. Herman Goldstein was voted in, and the long-standing religious barrier to membership there finally toppled.

Buffett had devised a clever solution, a way to get the club to do the right thing without confronting anyone. It avoided the thing he dreaded, but it also reflected his reasoning—probably correct—that marching and demonstrations would not change the minds of well-off businessmen.

It also worked because he was now a well-known figure in Omaha. He was no longer an upstart; he had clout. The man who had once had to work to get off the blacklist of the Omaha Country Club had singlehandedly effected what was perhaps the most significant organizational change since its founding in one of Omaha’s most elite institutions.

Yet Buffett wanted to play more than just a local role. With his money, he knew he could have an impact at the national level. 1968 was an election year, and it would take a lot of money to try to unseat an incumbent President—Lyndon Johnson—in favor of an antiwar candidate.

Vietnam was the central issue of the campaign, and Eugene McCarthy, the liberal Senator from Minnesota, was initially the only Democrat willing to run in the primaries against Johnson.

The campaign had started in New Hampshire, where McCarthy won forty-two percent of the vote, a strikingly strong showing against an incumbent President. Many students, blue-collar workers, and antiwar voters considered McCarthy a hero. Buffett became treasurer of his Nebraska campaign, and he and Susie attended a campaign event, she smiling broadly in an eye-catching dress and mob cap that she had had made out of fabric striped with McCarthy’s name.

Then Johnson announced that he would not run again and John F. Kennedy’s brother Robert Kennedy entered the race. He and McCarthy raced through a bitter primary battle until Kennedy won the California primary. But on the night of his victory, he was shot by an assassin, dying twenty-four hours later, and Johnson’s Vice President, Hubert Humphrey, announced his candidacy. He captured the nomination at a tumultuous Democratic convention in Chicago marked by battles between police equipped with nightsticks and Mace and rioting antiwar protesters. Buffett then supported Humphrey against the Republican Richard Nixon, who won the election.

Although Buffett regretted and downplayed his association with McCarthy, his involvement in politics during that tumultuous year signaled a sea change in his life. For the first time he had made room for something besides investing, a “non-economic activity” with roots in his family’s past and branches that stretched toward the unknowable future.