By JOHN GREENWALD Sunday, Jun. 24, 2001
Even as a small boy in Omaha, Nebraska, Warren Buffett wanted to be very, very rich. His first possession was a nickel-plated money changer that he proudly strapped to his belt. By age five he was selling Chiclets from a stand outside his house. At six he bought a six-pack of Coke for a quarter and hawked the sodas for a nickel apiece. He soon was charting stocks and made his first purchase--three shares of energy company Cities Service preferred stock--at age 11; they rewarded him with a $5 gain. Thus launched, Buffett vowed to become a millionaire by the time he was 30 and added, "If not, I'm going to jump off the tallest building in Omaha."
He never had to. His latest blockbuster deal came two weeks ago when Walt Disney Co. agreed to pay $19 billion to acquire Capital Cities/ABC. Buffett, whose Berkshire Hathaway holding company is the largest stockholder of Capital Cities/ABC, brokered the buyout and saw the 20 million shares that Berkshire had acquired for $345 million a decade ago surge to a value of $2.3 billion as a result of the deal. The merger raised the value of the investment by $400 million overnight.
Such gains have earned Buffett, 64, a personal fortune worth some $12 billion in Berkshire stock and made him the second-richest man in America after his friend Bill Gates, chairman of Microsoft. "In the annals of investing, Warren Buffett stands alone," observes Wall Street Journal columnist Roger Lowenstein, whose biography of Buffett will be published by Random House later this month. According to Lowenstein, an investor who had placed $10,000 with Buffett in 1956 would have holdings today worth about $95 million.For Buffett, money has its own logic. He does not enjoy what it can buy. In fact, spending money interferes with its real purpose from the Buffett point of view--the sheer pleasure of accumulation. "He views money as basically a way of keeping score," says Lowenstein, "a way of measuring his success." While a boy, Buffett told a friend, "It's not that I want money. It's the fun of making money and watching it grow." As Lowenstein puts it, Buffett acquired while growing up "an overly reverent view of money's proper role, as if spending were a sort of sinfulness." Years later, on a tour of San Simeon, the William Randolph Hearst mansion in California, Buffett grew impatient with a guide and blurted out, "Don't tell us how he spent [his money]. Tell us how he made it."
Buffett's focus can make him come across as machinelike in his detachment. When a visitor to his office noted that Buffett had no stock terminal or computer, the billionaire replied that none was necessary: "I am a computer," he said. Buffett's son Peter recalls giving his father a birthday card and feeling dismayed when "he just sort of opened it and closed it--he read it that fast. I guess I was waiting for some response."
Buffett himself lives frugally. His Omaha house was bought for $31,500 in 1958; he drives a gray Lincoln Town Car without a chauffeur and does his own tax returns. He keeps a summer home at Laguna Beach, California, but shuns the water, preferring to stay inside and work. "It's a great [ocean] view," says Susan Buffett Greenberg, the eldest of Buffett's three children, "but he's never seen it."
Buffett's reluctance to part with money also shows up in his relatively modest philanthropy. The Buffett Foundation, which is funded by contributions from Berkshire Hathaway and makes gifts as directed by shareholders, donated less than $7 million last year, mainly for population control. Buffett is just as tightfisted with his own children: when his daughter Susan, who was pregnant, and her husband needed $30,000 to enlarge their kitchen, Buffett refused even to lend the money at the going interest rate. He explained, Lowenstein writes, "that if he were the quarterback of the Nebraska football team, it wouldn't be fair of him to pass the job to a son or daughter, and that he felt the same about his money."
Even as a young man Buffett worried about how large an inheritance his children should receive, partly out of concern that they would become spoiled. He now plans to bequeath them a relatively modest amount. His Berkshire Hathaway stock will go to his wife Susie, who already holds more than $900 million worth in her own right, and whichever one dies last is to leave the shares to the foundation.
Buffett's domestic arrangements are as unconventional as his views about wealth. For nearly two decades he has lived with his mistress Astrid Menkes, a former waitress, while maintaining close ties with his wife, who moved to San Francisco in 1977 but has never sought a divorce. Susie continued to watch out for Buffett after she left him, suggesting to several women in Omaha that they call her devastated husband for a movie, or go by to fix him dinner. Menkes heeded the call and soon moved in. Over time, Lowenstein writes, "this most unlikely trio developed a rhythm. Astrid took care of Buffett day to day; Susie was with him if Buffett was accompanied outside of Omaha" on business trips or to socialize with friends. Among the closest: Capital Cities/abc chairman Tom Murphy and Katharine Graham, who chairs the Washington Post Co., of which Berkshire owns 15%.
But Buffett is also known for his fidelity toward the not-so-famous friends he has been accumulating since boyhood. When a money-manager chum suffered a family tragedy, the billionaire dropped everything to spend several days with the bereaved man. On another occasion Buffett waged a campaign that forced an exclusive Omaha eating club to admit a Jewish friend. On the Sunday before each Berkshire annual meeting, Buffett throws an afternoon-long bash for the company's shareholders, many of whom he knows by name.
Buffett traces his independent cast of mind largely to his father, a stockbroker who lost his job and savings in the Depression but recovered to become a three-term Republican Congressman and an anti-Roosevelt firebrand. The father drilled into his three children a favorite maxim from Emerson: "The great man is he who in the midst of the crowd keeps with perfect sweetness the independence of solitude." Warren Buffett, who has golfed with President Clinton and leans toward the Democrats, ignored his father's right-wing politics but absorbed his think-for-yourself mentality. Such independent thought, together with Buffett's photographic memory and ability to add columns of numbers in his head, remains key to his investment strategy.
That strategy has become famously simple. "He looks at the stock market as a place where businesses are occasionally on sale at a discount, and when he finds them he just buys them and holds them," Lowenstein says. "It's almost the way a person might buy a house. You find a house and you buy it because you like it and want to live there and hope it will appreciate."
This homey philosophy doesn't always pay off. Berkshire Hathaway's profits fell 28% last year to $494.7 million, as the value of its holdings of USAir and Salomon Brothers slumped. With USAir tottering near bankruptcy, Berkshire had to write off three-quarters of its $358 million stake in the troubled airline.
The most embarrassing failure was at Salomon, where a Buffett-inspired compensation plan compounded financial woes. As the largest shareholder, he had stepped in as acting chairman after a government-bond trading scandal nearly shattered the firm in 1991. But when Salomon scrapped its system of awarding nearly automatic multimillion-dollar bonuses--a system that struck Buffett as absurd--in favor of incentives tied to profits, more than two dozen traders and investment bankers quit. This was not the first time Wall Street's most successful investor was at odds with its culture. He might say it's the secret of his success.Related Links
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