The Writers Coin

So I finally read the “new” biography on Warren Buffett—The Snowball—all 838 pages of it. Why would I wade through that many pages to read about some guy that  picks stocks? Well, because he’s probably the greatest investor any of us has ever seen.

That and another book: Buffett: The Making of an American Capitalist. That book was my “intro” to Buffett—it’s a fantastic book that gives you a great idea of what the man is like and how his mind works.

But if Buffett is the appetizer, The Snowball is the main course. Not only because it’s the first authorized biography on the Oracle of Omaha, but because it goes into great detail on all of the topics that the first book touched on.

A LOT of detail. Like all the crazy, Tom Sawyer schemes Buffett and his friends had to make money when they were young. It’s a fun read, though there were topics that I thought were just “kind of interesting,” and the details on those kind of slowed the read down a little.

I already gave a preview of the book and discussed Buffett’s opinion on the estate tax (or death tax).

So instead of going chapter for chapter, which would take a few thousand words, I’m just going to highlight some of the most interesting parts of the book. As Ramit would say, “things you would talk about at a cocktail party.”

So if you can’t make your way through this tome of all things Buffett, here are some good nuggets, as per my opinion:

• After staying away from foreign stocks for pretty much his whole life, Buffett discovers Korean stocks in 2004. Since they have a totally different accounting system over there, he had to teach himself that new system. Which he did. And then he mastered it and started scooping up cheap companies.
• When he announced he would be leaving all of his money without leaving behind a Warren Buffett foundation or a hospital/university wing named after him, it not only made history, but he set a precedent for other philanthropists about how to give their money away.
• He was famously anti-computers and anti-Internet because he couldn’t understand them. Yet he still continued to beat the market without having minute-by-minute information about the market. Why? Because Buffett invests for the long term, he doesn’t care what the market does from one day to the next, so he doesn’t need to know. But his obsession for bridge eventually got him plugged into the net: he would play online for hours at a time.
• Big pimpin’. I know, it’s weird, but Warren Buffett is/was not a traditional one-woman man. He’s got his quirks, and one of them is that he needs more than one woman in his life. The way he grew up and the way his mother treated her kids may have had something to do with it, but the end result is that he lived a life of a rapper for a little while there. Except without the excessive spending and the drugs. And the rap—there was no rap.
• The Long Term Capital Management debacle—Buffett wanted to make that deal. It’s just that no one could get a hold of him because he was trying to use a satellite phone in Yellowstone park that wasn’t working properly. So he missed the deal.
• Buffett is NOT a fan of stock options. He wants to reward those that get good results, but boards are notorious for rewarding the most mediocre performances. He also went on a crusade to change the way stock options were accounted for—they didn’t “cost” anything right away, which made the books look that much better. This cost him some relationships, since all his friends were filthy rich, and this hit them right in the gut. But he still stuck to his guns.
• In one sentence, the essence of Buffett’s success: “Buffett’s real brilliance was not just to spot bargains (though he certainly had done plenty of that) but in having created, over many years, a company that made bargains out of fairly priced businesses.”
• Check out what his buddy Charlie Munger said in 2003: “I’ll be amazed if we don’t have some kind of significant blowup in the next five to ten years.” Boom. He called it.
  
• He’s a man of routine: there’s a part in there where they explain how he eats the same lunch every day, day in and day out. When I read that part I was like “Me too!” Sad, but true.
• It’s happened many times over the course of his life: people start to question his ability to make money because “times have changed” or because “Buffett hasn’t adapted.” But every time he’s come through and his reputation has grown more and more because of it.
• He was pretty much set to retire way before he was an investing rock star, but he couldn’t stay away. An obsessive person like this? No way he could just walk away.
• The Ovarian Lottery: VERY big deal to Warren. He repeats this a lot: he was incredibly lucky to be born in the USA with the skill-set he was born with. When he was in China he was watching these men pulling tugboats and he realized that any one of them might be “smarter” or “savvier” than him, but it wouldn’t matter because they were born in a poor town with no prospects. Buffett feels incredible lucky and he hates it when people claim that they “did it on their own.” Luck is always a factor, right from the moment we come out of the womb.
• His advice to college students: “The purpose of life is to be loved by as many people as possible among those you want to have love you.” Pretty deep from a man considered to have the emotions of a robot. A robot with no emotions, that is.
• On corporate misbehaving: Buffett feels strongly about doing “the right thing” and not cheating anyone, to the point that it almost got him in trouble with a couple deals he made because the SEC couldn’t understand why he overpaid for certain deals. He claimed it was “the right thing to do,” and they wouldn’t believe that. Anyway, his philosophy on the “right” thing is to make decisions as if they were going to be plastered all over the front page the next day—everyone will find out about them. If it wouldn’t bother you to have your moves published like that, then go for it. I like that…

If you have the slightest bit of interest in knowing more about Warren Buffett, you have two choices: you read Buffett: The Making of an American Capitalist or you read The Snowball. If you want the Cliff Notes version, read the former, if you want every little detail and more of the recent stuff he’s done, go for the latter. Either way, you won’t be disappointed.

I’ve finally finished Alice Shroeder’s HUGE biography on Warren Buffett, The Snowball, and before posting a full review and comparing it to the also fantastic Buffett: The Making of an American Capitalist, I wanted to discuss a very interesting topic near the end of the book.

The Estate Tax (AKA, The Death Tax)

This is basically a gift tax that is imposed on someone when they die and want to pass off their wealth to their heirs. I can already hear many of you raising your voices, “Why should I have to pay to keep the money I made in my family? Don’t my children deserve it?”

And that’s the whole debate about this tax. Some people think there should be no tax—that people should be able to pass their wealth down to the next generation without being “punished” for it. On the other side of the coin, there are people that think the tax should stick (and should even be higher!). What may surprise you is who is on each one of these sides.

Keep the Tax

Warren Buffett wants the death tax to stay: he doesn’t believe in dynastic wealth—that is, one shouldn’t be able to just pass along all their wealth down to their heirs without being taxed. Why? Let’s go to the book for the answer:

If the estate tax were eliminated, he said, somebody else would have to make up the difference, since the same amount of money would still be required to pay for running the government.

Not only that, less than two percent of Americans actually pay the tax—most of it is paid by the really rich—as the book says, the “colossally rich.” And as for that “somebody else” that would have to make up the difference? It would be the regular tax payers like you and me that don’t make tons and tons of money. And to Buffett, that’s not cool.

This has made Warren Buffett very unpopular in his social circle. He hangs out with these “colossally rich” people all the time, so he’s basically taking stabs at their checkbooks.

But making up the tax shortfall isn’t his only reason. The other thing that pisses him off is that this small group of people has a very powerful lobby and that’s why the elimination of the tax is even being discussed. Buffett calls this “government by the wealthy, for the wealthy.” To Warren, this is against the American way of giving everyone an equal, fair shot.

Against the tax

This one becomes pretty clear now: if you own a private Jet and seven homes all over the world, you probably don’t like this tax. And they have a point—why should they have to pay a tax to pass along their wealth when they earned all that money? Isn’t it theirs to do as they please?

At first, those were the questions I had. After all, this is America and we don’t want anyone taking anything that we earned away from us, right? Well, at issue is a philosophical debate over that term I dropped a while back: dynastic wealth.

Dynastic Wealth

What this basically means is that rich families get richer and richer, while the rest of the country simply trudges along. But wait, isn’t that the American way? That anyone can “make it” if they work hard enough? And if they do, they get to decide however they want how to handle those riches?

Sure, but let’s get back to Buffett about this because what he has to say turns the tables on this whole idea of what we think this country is all about:

Dynastic wealth turns a meritocracy upside down. In effect it says that the people who should allocate resources of this country should be the descendants of those who excelled in amassing resources long ago.

I don’t like anything where the bottom twenty percent keep getting a poorer and poorer deal.

We’ve all heard this kind of talk, and when it comes from one of the richest people in the world, it’s easy to scoff. But if you know anything about Warren Buffett, you know that he truly believes this. That’s what makes the man so refreshing and interesting: here is a rich guy who only cares about money as a way to grade himself.

Pro Sports

One more thing before I close out of here, since I like to follow sports so much: This topic gets me thinking back to a line that pro sports athletes use all the time after signing a huge contract: “I gotta feed my kids. And now I can feed my kids’ kids, and their kids too.”

I think back to Warren’s comment and I pictures the descendants of this athlete with the monster contract just sitting around living off the millions he made long ago. Is that what he wants for them?

Your take

I’m curious to hear other people’s take on this. I know a lot of really rich people give a lot of money to charities and use their money to help out the disadvantaged, but do you think these people should still pay the death tax? Should it be higher?

I just started The Snowball, but I wanted to share some first impressions in case anyone out there is interested in the book.

• It’s BIG: It’s over 1,000 pages and even though a lot of it is endnotes, it’s still a huge book. Not very portable and very heavy.
• Detailed: I read and loved Buffett: The Making of an American Capitalist, thinking that was the definitive version. But this goes into his past more, his family, his childhood, etc. It goes a lot deeper than that book. Which you may or may not like, but all these Tom Sawyer-ish stories, I think, are excellent.
• His father was a huge influence on him. The whole “inner scorecard” thing gives you a glimpse into the inner workings of all things Warren.
• A book: There was a book that had a HUGE influence on the young, socially inept Warren, and that was How to Win Friends and Influence People. He took to that book like a personal Bible in order to get himself socially respectable, at least. Which kind of worked.
• Innate Talent: Warren Buffett has a photographic memory, and that’s one of the things that makes him so great. That, along with his passion for numbers and figuring out the odds of something, are what turned him into a great investor.
• He was an entrepreneur from day one: He was creating businesses since he was a little kid, always on the lookout of ways to make money. From pinball machines to selling gum, he dabbled in everything.

This is all within the first 120 pages, so I have a LONG way to go, but it’s very interesting to see what he was like as a young kid and all the tendencies that he had then and have developed as he matured. You could see even then that this was going to be someone incredibly special.

I have a guest post running over at Make Love Not Debt, a great blog about personal finance and its effects on relationships. The site is a great niche for newlyweds like myself and for those about to take the leap. It’s run by a couple whose actually getting married and going on their honeymoon right now — so it’s cool getting the dual perspective like that. 

My post is called “Mine vs. Ours — A Newleyweds’ Case Study” and it’s about how tough it is to get used to sharing all the things that used to me “mine” and are now “ours.” Check it out and make sure to peruse their site as well, they’ve got some good content over there.

And a Couple Good Reads

Also, check out these articles I enjoyed this past week:

• A nice, concise article that isn’t all fluff and doom-and-gloom. It’s just a straight-up explanation of what’s happening right now and what caused it. He mentions Buffett and links to a shareholder letter he wrote in 2003 where he pretty much called the derivative mess that’s happening right now. If you haven’t read much of Buffett’s letters, you really should. He’s great. 
• This is one of those “it’s about time” kind of things. The US treasury is going to launch an education program to teach kids about credit. Finally. Too bad it takes a collapse of the markets due to out-of-control leverage for kids to finally be taught this stuff.
• Here’s a very clear explanation of all the things that have happened in this most-recent financial mess from the always reliable and entertaining Freakonomics blog.