“ The Snowball – Warren Buffett and the Business of Life ”

( Life story of Warren Buffet that is currently the third-richest person in the world )

Writer:

Alice Schroeder

Submitted To :

Mr. Awais Ijaz

Submitted By :

Adnan Amin Khan

4589-FMS/MBA/S10

Dated :

Wednesday, Dec 29 , 2010

International Islamic University Islamabad

This Book “ The Snowball – Warren Buffett and the Business of Life “ is Life story of
Warren Buffet that is currently the third-richest person in the world , is about 600 pages
book and written by Alice Schroeder. She was a Wall Street analyst and managing director
at Morgan Stanley before becoming a full time writer. Buffett had met Schroeder when she
was working as an analyst, admired her work, and agreed to speak to her. It is interesting
that Buffett would suggest Schroeder turn to full time writing, as he seemed to
unconsciously pick his own biographer. Like his renowned sharpness for picking the right
stocks, his canniness also extends to biographers. Warren Buffett showed early signs of
being entrepreneurial through being involved in various business dealings as a child,
including purchasing bottles of cola cheaply and selling them for a profit. He also made his
first investment in the stock market when he was just 11 years old.

This book in detail , outlines many of his deals. Even more details on personal
relationships-a real dissection of who he is and how he came to be what he is .How he
really wanted to be a farmer , his migration to Decatur. How $ 1000 invested with Warren
early on made multi millionaires out of a number of people.

One of the major themes of The Snowball is the famous investor’s need to surround himself
with supportive and intelligent women. With Schroeder he has a writer who deeply
admires her subject, finding Buffett to be an exemplar of honesty, decency and common
sense, someone immune to the modern day obsession with conspicuous wealth and fame.
Yet Schroeder also follows Buffett’s suggestion when digging for facts on her subject.
“Whenever my version is different from somebody else’s, Alice, use the less flattering
version.”

Warren Buffett, apart from being the world’s most successful investor, is the CEO of
Berkshire Hathaway and is worth an estimated $ 47 billion. Despite his wealth he still lives
in the house in Nebraska he bought for $31,500 in 1958. Additionally, he is a great
philanthropist and has announced that his entire fortune will go to charity upon his death.

The extraordinary investing highs of Buffett’s life are indeed humbled by his many human
frailties. There is his natural timidity, an aversion to confrontation at all costs. Like most
obsessive geniuses, Buffett lets his personal relationships fall into neglect, most notably
with his children. He suffers an inability to deal with the ugly realities of life: sickness,
suffering and death.

Emotionally, Buffett is not a giver but a needy taker. Hence he surrounds himself with
nurturing women. Ironically the man who ruled the stock markets, who excelled at
scientifically picking apart the entrails of business balance sheets, could barely dress
himself and fix breakfast every morning without help. Like his attitude to food (“If a three-
year doesn’t eat it, I don’t eat it.”), Buffett is in many respects quite childlike and immature,
needing constant mothering.
  Warren Buffett and His Philosophy of Wealth

If this is ‘the less flattering version’, then they are only minor personal failings. Buffett may
have clung tenaciously to every penny throughout his life, and drained the women close to
him to their last emotional drop, but the grand scheme of his life, what it all meant in the
end, was perhaps best illustrated by his decision in 2006 to give away approximately 10
million Berkshire Hathaway Class B shares to the Bill and Melinda Gates Foundation (worth
approximately US$30 billion). Collecting money was a great game, but giving it away,
redressing the imbalances in society, was the right thing to do.

“Wealth is just a bunch of claim checks on the activities of others in the future. You can use
that wealth in any way you want to. You can cash it in or give it away. But the idea of
passing wealth from generation to generation so that hundreds of your descendants can
command the resources of other people simply because they came from the right womb
flies in the face of a meritocratic society.”

“I know people who have a lot of money, and they get testimonial dinners and they get
hospital wings named after them. But the truth is that nobody in the world loves them. If
you get to my age in life and nobody thinks well of you, I don’t care how big your bank
account is, your life is a disaster.”

The Snowball is a grand work of biography. Schroeder has done a wonderful job of making
an unlikely subject, an investment guru obsessed with numbers and financial reports, into
an absorbing life. She skillfully weaves the politicial, personal and cultural events that
surrounded Buffett, showing how they helped form Buffett’s life and philosophy. Most
notably there is Buffett’s father, Howard Buffett, a Republican politician and deeply honest,
who would remain a major influence.

The depression era boy who delivered newspapers, dodging snapping dogs and knocking
on doors to ensure he got payment never left the grown man. The investment expert who
made billions in trading stocks also had an abhorrence for the razzle-dazzle culture of Wall
Street. Buffett, now an old man, esteems the love and the respect of your peers as the
ultimate value in life. Holding onto money may be the only way to compound it and make it
grown, but ultimately giving is more important than hoarding.

Perhaps there is one last question. How to make lots of money? Does the book provide an
easy answer? No. Money is made over a long period of time, slowing adding each
‘snowflake’ you save to your snowball until it grows bigger and bigger. Thrift, common
sense, delayed gratification and the absence of greed are what’s needed. And yet maybe
that’s not enough, either. Perhaps the greatest investment you can make, according to
Buffett, the sage of Omaha, is in personal relationships.
  Warren Buffett is Born

Warren Buffett, the man who we've all come to know as the "Oracle of Omaha," was born in
Omaha, Nebraska. His dad was a man named Howard Buffett. Howard was a stockbroker
and United States Representative. Warren's mom was named Leila Buffett. He was born on
August 30, 1930 to his father Howard, a stockbroker-turned-Congressman. The only boy,
he was the second of three children, and displayed an amazing aptitude for both money and
business at a very early age. Acquaintances recount his uncanny ability to calculate
columns of numbers off the top of his head - a feat Warren still amazes business colleagues
with today. He was quickly identified by his family and others as being exceptionally good
with numbers. In his youth he made money by reselling cokes and delivering newspapers.

At only six years old, Buffett purchased 6-packs of Coca Cola from his grandfather's grocery
store for twenty five cents and resold each of the bottles for a nickel, pocketing a five cent
profit. While other children his age were playing hopscotch and jacks, Warren was making
money. Five years later, Buffett took his step into the world of high finance. At eleven years
old, he purchased three shares of Cities Service preferred at $38 per share for both himself
and his older sister, Doris. Shortly after buying the stock, it fell to just over $27 per share. A
frightened but resilient Warren held his shares until they rebounded to $40. He promptly
sold them - a mistake he would soon come to regret. Cities Service shot up to $200. The
experience taught him one of the basic lessons of investing: patience is a virtue.

 Warren Buffett's Education

In 1947, a seventeen year old Warren Buffett graduated from High School. It was never his
intention to go to college; he had already made $5,000 delivering newspapers (this is equal
to $42,610.81 in 2000). His father had other plans, and urged his son to attend the Wharton
Business School at the University of Pennsylvania. Buffett stayed two years, complaining
that he knew more than his professors. When Howard was defeated in the 1948
Congressional race, Warren returned home to Omaha and transferred to the University of
Nebraska-Lincoln. Working full-time, he managed to graduate in only three years.

Warren Buffett approached graduate studies with the same resistance he displayed a few
years earlier. He was finally persuaded to apply to Harvard Business School, which, in the
worst admission decision in history, rejected him as "too young". Slighted, Warren applied
to Columbia where famed investors Ben Graham and David Dodd taught - an experience
that would forever change his life.

 Ben Graham - Buffett's Mentor

Ben Graham had become well known during the 1920's. At a time when the rest of the
world was approaching the investment arena as a giant game of roulette, he searched for
stocks that were so inexpensive they were almost completely devoid of risk . One of his
best known calls was the Northern Pipe Line, an oil transportation company managed by
the Rockefellers. The stock was trading at $65 a share, but after studying the balance sheet
Graham realized that the company had bond holdings worth $95 for every share. The value
investor tried to convince management to sell the portfolio, but they refused. Shortly
thereafter, he waged a proxy war and secured a spot on the Board of Directors. The company
sold its bonds and paid a dividend in the amount of $70 per share.

When he was 40 years old, Ben Graham published Security Analysis one of the greatest
works ever penned on the stock market. At the time, it was risky; investing in equities had
become a joke (the Dow Jones had fallen from 381.17 to 41.22 over the course of three to
four short years following the crash of 1929). It was around this time that Graham came up
with the principle of "intrinsic" business value - a measure of a business's true worth that
was completely and totally independent of the stock price. Using intrinsic value, investors
could decide what a company was worth and make investment decisions accordingly. His
subsequent book, “ The Intelligent Investor “ which Warren celebrates as "the greatest book
on investing ever written", introduced the world to Mr. Market - the best investment
analogy in history.

Through his simple yet profound investment principles, Ben Graham became an idyllic
figure to the twenty-one year old Warren Buffett. Reading an old edition of Who's Who,
Warren discovered his mentor was the Chairman of a small, unknown insurance company
named GEICO. He hopped a train to Washington D.C. one Saturday morning to find the
headquarters. When he got there, the doors were locked. Not to be stopped, Buffett
relentlessly pounded on the door until a janitor came to open it for him. He asked if there
was anyone in the building. As luck (or fate) would have it, there was. It turns out that there
was a man still working on the sixth floor. Warren was escorted up to meet him and
immediately began asking him questions about the company and its business practices; a
conversation that stretched on for four hours. The man was none other than Lorimer
Davidson, the Financial Vice President. The experience would be something that stayed
with Buffett for the rest of his life. He eventually acquired the entire GEICO company
through his corporation, Berkshire Hathaway.

The next year, Warren went much further than closing the fund to new accounts; he
liquidated the partnership. In May 1969, he informed his partners that he was "unable to
find any bargains in the current market". Buffett spent the remainder of the year
liquidating the portfolio, with the exception of two companies - Berkshire and Diversified
Retailing. The shares of Berkshire were distributed among the partners with a letter from
Warren informing them that he would, in some capacity, be involved in the business, but
was under no obligation to them in the future. Warren was clear in his intention to hold
onto his own stake in the company (he owned 29% of the Berkshire Hathaway stock) but
his intentions weren't revealed.

 Berkshire Hathaway

By 1965 Warren Buffett had accumulated enough Berkshire Hathaway shares to take
control, at which point he named Ken Chase as President. At this time Berkshire Hathaway
stock was worth about $15 a share; today the stock is trading around $140,000 per share.
Since he took control of Berkshire Hathaway, Buffett has not only used it as a mechanism
for investment, but also as an umbrella company for subsidiary companies including World
Book Encyclopedia and G.E.I.C.O.

 Warren Buffett Gains Control of Berkshire Hathaway

Buffett's role at Berkshire Hathaway had actually been somewhat defined years earlier.
On May 10, 1965, after accumulating 49% of the common stock, Warren named himself
Director. Terrible management had run the company nearly into the ground, and he was
certain with a bit of tweaking, it could be run better. Immediately Mr. Buffett made
Ken Chace President of the company, giving him complete autonomy over the organization.
Although he refused to award stock Options on the basis that it was unfair to shareholders,
Warren agreed to cosign a loan for $18,000 for his new President to purchase 1,000 shares
of the company's stock.

Two years later, in 1967, Warren asked National Indemnity's founder and controlling
shareholder Jack Ringwalt to his office. Asked what he thought the company was worth,
Ringwalt told Buffett at least $50 per share, a $17 premium above its then-trading price of
$33. Warren offered to buy the whole company on the spot - a move that cost him $8.6
million dollars. That same year, Berkshire paid out a dividend of 10 cents on its outstanding
stock. It never happened again; Warren said he "must have been in the bathroom when the
dividend was declared".

In 1970, Buffett named himself Chairman of the Board of Berkshire Hathaway and for the
first time, wrote the letter to the shareholders (Ken Chace had been responsible for the task
in the past). That same year, the Chairman's capital allocation began to display his
prudence; textile profits were a pitiful $45,000, while insurance and banking each brought
in $2.1 and $2.6 million dollars. The paltry cash brought in from the struggling looms in
New Bedford, Massachusetts had provided the stream of capital necessary to start building
Berkshire.

A year or so later, Warren Buffett was offered the chance to buy a company by the name of
See's Candy. The gourmet chocolate maker sold its own brand of candies to its customers at
a premium to regular confectionary treats. The balance sheet reflected what Californians
already knew - they were more than willing to pay a bit "extra" for the special "See's" taste.
The businessman decided Berkshire would be willing to purchase the company for $25
million in cash. See's owners were holding out for $30 million, but soon conceded. It was
the biggest investment Berkshire or Buffett had ever made.

Following several investments and an SEC investigation (after causing a merger to fail,
Warren and Munger offered to buy the stock of Wesco, the target company, at the inflated
price simply because they thought it was "the right thing to do". Not surprisingly, the
government didn't believe them), Buffett began to see Berkshire's net worth climb. From
1965 to 1975, the company's book value rose from $20 per share to around $95. It was also
during this period that Warren made his final purchases of Berkshire stock (when the
partnership dolled out the shares, he owned 29%. Years later, he had invested more than
$15.4 million dollars into the company at an average cost of $32.45 per share). This
brought his ownership to over 43% of the stock with Susie holding another 3%. His entire
fortune was placed into Berkshire. With no personal holdings, the company had become his
sole investment vehicle.

In 1976, Buffett once again became involved with GEICO. The company had recently
reported amazingly high losses and its stock was pummeled down to $2 per share. Warren
wisely realized that the basic business was still in tact; most of the problem were caused by
an inept management. Over the next few years, Berkshire built up its position in this ailing
insurer and reaped millions in profits. Benjamin Graham, who still held his fortune in the
company, died in in September of the same year, shortly before the turnaround. Years later,
the insurance giant would become a fully owned subsidiary of Berkshire.

 Buffett and Charlie Munger

Buffett struck up a friendship with Charles T Munge , a lawyer and investor and Charlie
Munger eventually joined Warren at Berkshire Hathaway as his Vice-Chairman, alter ego,
and friend. Warren Buffett is always the first to acknowledge the contribution that Charlie
Munger has made to Berkshire Hathaway. Under Buffett and Munger, Berkshire Hathaway
has become an investment giant that wholly owns a number of successful companies that
include:

 Geico Corporation
 Nebraska Furniture Mart
 See’s Candy Shops
 Borsheim Fine Jewelry
 Fruit of the Loom
 Helzberg Diamonds
 United States Liability Insurance Group

 Warren Buffet, the man

Warren Buffett, the man, is just as hard to define as Warren Buffett, the investor. He
projects a homespun frugality but one suspects that he plays his personality as close to the
chest as he does his investment secrets. He always claims that it is his partner, Charlie
Munger, who keeps his feet planted firmly in the ground.

Warren Buffet has become a legend and is generally ranked, along with his mentor,
Benjamin Graham, first in a stellar cast of investors that includes Peter Lynch, John Neff,
and Philip Fisher.
  Changes in Warren Buffett's Personal Life

It was shortly thereafter one of the most profound and upsetting events in Buffett's life
took place. At forty-five, Susan Buffett left her husband - in form. Although she remained
married to Warren, the humanitarian / singer secured an apartment in San Francisco and,
insisting she wanted to live on her own, moved there. Warren was absolutely devastated;
throughout his life, Susie had been "the sunshine and rain in my garden". The two remained
close, speaking every day, taking their annual two-week New York trip, and meeting the
kids at their California Beach house for Christmas get-togethers. The transition was hard
for the businessman, but he eventually grew somewhat accustomed to the new
arrangement. Susie called several women in the Omaha area and insisted they go to dinner
and a movie with her husband; eventually, she set Warren up with Astrid Menks, a
waitress. Within the year, she moved in with Buffett, all with Susie's blessing.

 Warren Buffett Wants Two Nickels to Rub Together

By the late Seventies his reputation had grown to the point that the rumor Warren Buffett
was buying a stock was enough to shoot its price up 10%. Berkshire Hathaway's stock was
trading at more than $290 a share, and Buffett's personal wealth was almost $140 million.
The irony was that Warren never sold a single share of his company, meaning his entire
available cash was the $50,000 salary he received. During this time, he made a comment to
a broker, "Everything I got is tied up in Berkshire. I'd like a few nickels outside."

This prompted Warren to start investing for his personal life. According to Roger
Lowenstein's "Buffett", Warren was far more speculative with his own investments. At one
point he bought copper futures which was unadulterated speculation. In a short time, he
had made $3 million dollars. When prompted to invest in real estate by a friend, he
responded "Why should I buy real estate when the stock market is so easy?"

 Berkshire Hathaway Announces Charitable Giving Program

Later, Buffett once again showed his tendency of bucking the popular trend. In 1981, the
decade of greed, Berkshire announced a new charity plan which was thought up by Munger
and approved by Warren. The plan called for each shareholder to designate charities which
would receive $2 for each Berkshire share the stockholder owned. This was in response to
a common practice on Wall Street of the CEO choosing who received the company's hand-
outs (often they would go to the executive's schools, churches, and organizations). The plan
was a huge success and over the years the amount was upped for each share. Eventually,
the Berkshire shareholders were giving millions of dollars away each year, all to their own
causes. The program was eventually discontinued after associates at one of Berkshire's
subsidiaries, The Pampered Chef, experienced discrimination because of the controversal
pro-choice charities Buffett chose to allocate his pro-rated portion of the charitable
contribution pool. Another important event around this time was the stock price which hit
$750 per share in 1982. Most of the gains could be attributed to Berkshire's stock portfolio
which was now valued at over $1.3 billion dollars.

 Warren Buffett Buys Nebraska Furniture Mart, Scott Fetzer and an

Airplane for Berkshire Hathaway

For all the fine businesses Berkshire had managed collect, one of the best was about to
come under its stable. In 1983, Warren Buffett walked into Nebraska Furniture Mart, the
multi-million dollar furniture retailer built from scratch by Rose Blumpkin. Speaking to
Mrs. B, as local residents called her, Buffett asked if she would be interested in selling the
store to Berkshire Hathaway. Blumpkin's answer was a simple "yes", to which she
responded she would part for "$60 million". The deal was sealed on a handshake and one
page contract was drawn up. The Russian-born immigrant merely folded the check without
looking at it when she received it days later.

Scott & Fetzer was another great addition to the Berkshire family. The company itself had
been the target of a hostile takeover when an LPO was launched by Ralph Schey, the
Chairman. The year was 1984 and Ivan Boesky soon launched a counter offer for $60 a
share (the original tender offer stood at $50 a share - $5 above market value). The maker of
Kirby vacuum cleaners and World Book encyclopedia, S&F was panicking. Buffett, who had
owned a quarter of a million shares, dropped a message to the company asking them to call
if they were interested in a merger. The phone rang almost immediately. Berkshire offered
$60 per share in cold, hard, cash. When the deal was wrapped up less than a week later,
Berkshire Hathaway had a new $315 million dollar cash-generating powerhouse to add to
its collection. The small stream of cash that was taken out of the struggling textile mill had
built one of the most powerful companies in the world. Far more impressive things were to
be done in the next decade. Berkshire would see its share price climb from $2,600 to as
high as $80,000 in the 1990's.

In 1986, Buffett bought a used Falcon aircraft for $850,000. As he had become increasingly
recognizable, it was no longer comfortable for him to fly commercially. The idea of the
luxury was hard for him to adjust to, but he loved the jet immensely. The passion for jets
eventually, in part, led him to purchase Executive Jet in the 90's.

`The 80's went on with Berkshire increasing in value as if on cue, the only bump in the road
being the crash of 1987. Warren, who wasn't upset about the market correction, calmly
checked the price of his company and went back to work. It was representative of how he
viewed stocks and businesses in general. This was one of " Mr. Buffett" temporary
aberrations. It was quite a strong one; fully one-fourth of Berkshire's market Cap was
wiped out. Unfazed, Warren plowed on.

 I'll Take a Coke

A year later, in 1988, he started buying up Coca-Cola stock like an addict. His old neighbor,
now the President of Coca-Cola, noticed someone was loading up on shares and became
concerned. After researching the transactions, he noticed the trades were being placed
from the Midwest. He immediately thought of Buffett, whom he called. Warren confessed to
being the culprit and requested they don't speak of it until he was legally required to
disclose his holdings at the 5% threshold. Within a few months, Berkshire owned 7% of the
company, or $1.02 billion dollars worth of the stock. Within three years, Buffett's Coca-Cola
stock would be worth more than the entire value of Berkshire when he made the
investment.

 Warren Buffett's Money and Reputation On the Line During the

Solomon Scandal

By 1989, Berkshire Hathaway was trading at $8,000 a share. Buffett was now, personally,
worth more than $3.8 billion dollars. Within the next ten years, he would be worth ten
times that amount. Before that would happen, there were much darker times ahead (read
The Solomon Scandal).

 Warren Buffet at the Turn of the Millennium

During the remainder of the 1990's, the stock catapulted as high as $80,000 per share. Even
with this astronomical feat, as the dot-com frenzy began to take hold, Warren Buffett was
accused of "losing his touch". In 1999, when Berkshire reported a net increase of 0.5% per
share, several newspapers ran stories about the demise of the Oracle. Confident that the
technology bubble would burst, Warren Buffett continued to do what he did best: allocate
capital into great businesses that were selling below intrinsic value. His efforts did not go
unrewarded. When the markets finally did come to their senses, Warren Buffett was once
again a star. Berkshire's stock recovered to its previous levels after falling to around
$45,000 per share, and the man from Omaha was once again seen as an investment icon.

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