Warren Buffett Making Money

The Washington Times (Washington, DC), October 26, 2008 | Go to article overview

Warren Buffett Making Money


Byline: James Srodes, SPECIAL TO THE WASHINGTON TIMES

Exactly 79 years ago this weekend Wall Street took up a familiar tactic to halt a financial market crisis that had begun in September 1929 when the Dow Jones Industrial Index of 30 key stocks began to slide from its high of 381.17. By Black Thursday, Oct. 24, 1929, shares had lost 17 percent of their value and the panic was on.

In response, Wall Street's financial giants deputized the New York Stock Exchange's vice president, Richard Whitney, to walk onto the floor and start making major purchases of shares in U.S. Steel at a price well above the market. After a one-day pause for breath, a frenzied sell-off continued. At that point, William C. Durant, the colorful Detroit founder of General Motors stepped to the fore. With dramatic flair, he bought large blocks of shares for his own account - a clear affirmation of this wizard's faith in the American economy's soundness. The 1929 panic continued - despite periods of recovery - in a steady downward decline until the Dow index closed on July 8, 1932 at its crash low of 41.22 - a loss of 89 percent of the value of the shares of American corporations.

For that act of public heroism, Billy Durant went broke and ended his days running a bowling alley in Flint, Mich. The NYSE's Whitney did a stretch in Sing-Sing for his own investing malfeasances.

So what then does Warren Buffett think he's doing? The author of The Snowball, by far the better of the two books under review here, tells us that Mr. Buffett is doing what he is constantly doing - making money. The $5 billion investment in Goldman Sachs is estimated by some to carry a locked-in yield of 17 percent. The $3 billion poured into General Electric carries a locked-in 10 percent dividend. His announcement in last week's New York Times that he is buying American stocks for his personal account merely means he will own most of the same shares that have made his Berkshire Hathaway the mythical Golconda for thousands of individual investors. He even repeated his mantra, Be fearful when others are greedy, and be greedy when others are fearful, in both the newspaper piece and in the book.

What makes this book so interesting is that Mr. Buffett, by the author's account, insisted that the darker side of his life be part of the story. The truth is that despite his openly genial public persona, the Warren Buffett who emerges is a somewhat sad, introverted and compulsive parser of corporate earnings statements, data sheets, industry journals and the like in a constant search for undervalued investments. That and not much else is what makes Buffett Buffett it seems. The book's title, The Snowball, reflects his own metaphor that the compounding effect has on rolling a ball of snow along the ground; it just gets bigger the more one pushes.

According to Alice Schroeder, the Morgan Stanley manager chosen to produce this biography, the man comes by this arid personality because his own parents were bizarre beyond belief. Warren's mother had a number of relatives confined to mental institutions and she herself was in a constant state of rage during which she convinced the boy and his older sister that they were worthless human beings. The father was equally hard work. Diffident with his children to the point of almost becoming a nonperson, Howard Buffett was a Nebraska congressman who was obsessed with his hatred of Franklin Roosevelt. Not surprisingly, the son developed into a conflicted, self-doubter whose only solace was an early interest in mathematics and in calculating the odds on everything from bottle caps to horse racing. He also was determined to become as rich as possible as soon as possible and who can blame him?

As a result, it should not be surprising that Warren was as distant with his own children and his first wife Susan, who put up with his self-absorbed fixation on business as long as she could. Then she moved to San Francisco, where she continued to be the public Mrs. …

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