Founders - #100 Warren Buffett (The Snowball)

Episode Date: December 1, 2019

What I learned from reading The Snowball: Warren Buffett and the Business of Life by Alice Schroeder.----Come see a live show with me and Patrick O'Shaughnessy from Invest Like The Best on October 19th in New York City. Get your tickets here! ----Subscribe to listen to Founders Premium — Subscribers can listen to Ask Me Anything (AMA) episodes and every bonus episode. ---[0:01] What he was teaching were the lessons that had emerged from the unfolding of his own life [4:35] The dichotomy of Warren Buffett [9:20] Warren Buffett wants to be remembered as a teacher [11:52] Buffett’s idea of Inner scorecard vs Outer scorecard [13:49] Warren Buffett’s early family life [18:03] Learning to avoid the habit of thinking in only one direction (18:03), [24:30] Warren’s WHY [29:58] A young troublemaker and how Warren’s dad convinced him to change his behavior [32:20] Warren did what you are doing right now: Since a young age Warren had studied the lives of men like Jay Cooke, Daniel Drew, Jim Fisk, Cornelius Vanderbilt, Jay Gould, John D. Rockefeller, and Andrew Carnegie.[33:48] Turning a rejection into one of the best things to ever happen to him[38:30] Mimicry instead of independent thought: Warren didn’t understand why they couldn’t see what was right before their eyes. [42:20] One of the most inspiring things about reading biographies is you are constantly reminded that we all have the ability to improve. A young Warren Buffett was so afraid of public speaking he would vomit. [48:06] Warren learning from and working with his idol: Ben Graham[52:20] Warren’s advice for everyone: Sell yourself an hour a day [57:28] Intensity is the price of excellence and examples of people Warren wanted to do business with [1:01:08] Warren Buffett is an obsessive/Munger would later call Buffett an implacable acquirer, like John D. Rockefeller in the early days of assembling his empire, who let nobody and nothing get in his way. (1:01:08), [1:13:10] Warren Buffett on his biggest mistake [1:16:11] What Buffett valued in the lives of others/His idea about claim checks [1:19:25] His “Twenty Punches” approach to investing [1:22:38] Warren’s answer to the question, “What has been your greatest success and greatest failure?” ----“I have listened to every episode released and look forward to every episode that comes out. The only criticism I would have is that after each podcast I usually want to buy the book because I am interested so my poor wallet suffers. ” — GarethBe like Gareth. Buy a book: All the books featured on Founders Podcast ----Founders Notes gives you the ability to tap into the collective knowledge of history's greatest entrepreneurs on demand. Use it to supplement the decisions you make in your work.  Get access to Founders Notes here. ----“I have listened to every episode released and look forward to every episode that comes out. The only criticism I would have is that after each podcast I usually want to buy the book because I am interested so my poor wallet suffers. ” — GarethBe like Gareth. Buy a book: All the books featured on Founders Podcast

What he was teaching were the lessons that had emerged from the unfolding of his own life. In that unfolding he admits to ambition, but he denies that there was ever a plan. He finds it hard to acknowledge his own powerful hand as the creator of the sweeping canvas that is his masterpiece. As he tells the story, a series of happy accidents built Berkshire Hathaway. A money-making machine sprang up without design. Its elegant structure of true partnership with like-minded shareholders built on what Charlie Munger calls a seamless web of deserved trust, with an investment portfolio buried deep inside an interlocked set of businesses whose capital could be moved at will.

All of this turbocharged with float. And all of this had come about, he claims, simply as a reflection of his personality. The final product was a model that could be analyzed and understood, yet few did. What people paid attention to was simply how rich he was. He wanted them to study his model. The truth is this. When Warren was a little boy fingerprinting nuns and collecting bottle caps, he had no knowledge of what he would someday become. Yet as he rode his bike through Spring Valley, flinging newspapers day after day, pulse pounding, trying to make his deliveries on time. If you had asked

him if he wanted to be the richest man on earth, with his whole heart, he would have said yes. That passion led him to study a universe of a thousand stocks. It made him burrow into libraries and basements for records nobody else troubled to get. He sat up nights studying hundreds of thousands of numbers that would glaze anyone else's eyes. He read every word of several newspapers each morning and sucked down the Wall Street Journal like his morning Coke. He read magazines like the Progressive Grocer to learn how to stock a meat department.

He stuffed the backseat of his car with Moody's manuals and ledgers on his honeymoon. He spent months reading old newspapers, dating back a century to learn the cycles of business, the history of Wall Street, the history of capitalism, the history of the modern corporation. Since childhood, he had read every biography he could find of people he admired, looking for the lessons he could learn from their lives. He attached himself to everyone who could help him and coattailed anyone he could find who was smart. He ruled out paying attention to almost anything but business, art, literature, science, travel, architecture. He ignored it all so that he

could focus on his passion. He defined a circle of competence to avoid making mistakes. To limit risk, he never used any significant amount of debt. He never stopped thinking about business, what made a good business, what made a bad business, how they competed, what made customers loyal to one versus the other. He had an unusual way of turning problems around in his head which gave him insights nobody else had. In hard times or easy, he never stopped thinking about ways to make money. All of this energy and intensity became the motor that powered his innate intelligence,

temperament, and skills. All right, so that was an excerpt from the book that I read this week and the book that I'm going to talk to you about today, which is The Snowball, Warren Buffett, and the Business of Life by Alice Schroeder. And just two quick things before I jump back into the book. Number one, listeners have been sending me a lot of suggestions for books to cover on the podcast. Actually, this book, Snowball, was one of the most requested books. So please, if you have any suggestions, please keep them coming. And two, if you haven't yet emailed me your review of the podcast, please do.

In return, I'll send you a private link to seven hidden episodes of Founders. All you have to do is leave a review in your podcast player of choice, screenshot it, and then send it to foundersreviews at gmail.com. And if you're listening to this on Overcast or Breaker, all you have to do is press the star on the episode or the heart, and then you screenshot that and email that to me. And once again, the email one more time is foundersreviews at gmail.com. Okay, so I want to jump right back into the book, and I want to start with this excerpt, which I think is really important because it shows the dichotomy of Warren Buffett.

And let me just read directly from the book. It says his public image was that of a simple man and he seemed genuine yet. He lived a complicated life He owned five homes, but occupied only two of them Somehow he wound up having in effect two wives He spoke in homely aphorisms with a kindly twinkle in his eye and had a notably loyal group of friends Yet along the way he earned a reputation as a tough, even icy deal maker. He seemed to shun publicity, yet managed to attract more of it than almost any other businessman

on earth. He jetted around the country in a G4, often attended celebrity events, and had many famous friends, yet he said that he preferred Omaha, hamburgers, and thrift. So most of the notes that I took and the highlights that I saved in this book have to do with two things. One, there are a lot of them are direct quotes from Warren Buffett himself, which I'm going to rely on heavily. He worked directly with the author, with Alice, and she spent over 2,000 hours doing interviews with him, friends, and then going through a bunch of his documents.

So there's a lot of, like, firsthand quotations from him that I found. They contain, you know, he's got a lot of useful ideas. He's been, at the time the book was published, you know, he had about a 50 to 60-year career. And then the second thing I'm going to focus on a lot is his personality. I'm going to go back and forth between the ideas of the person and the person themselves. And I think the combination of these two gives you a good idea as to who Warren was. And then obviously, you know, a lot of the ideas that he had, which I think are tied a lot to his personality. So one of the ideas he has is that, just like the intro said,

he spent a lot of time thinking about what makes a good business, what makes a bad business. And so one of the insights he has is that there's industry and products that can have a huge societal impact, and yet they don't make any money for the owners. So these are things he tries to avoid. And so now you're going to hear some direct quotes from Warren. He says, there were 2,000 auto companies.

The most important, he's talking about if you go back in time and look at the birth of the automobile industry, let's say in the early 1900s, you would think, oh, my God, this is the most, like, this is wildly entertaining. This is going to be really important. Let me work here. And that might have been a bad decision. So he says, there were 2,000 auto companies. The most important invention, probably the first half of the 20th century it had an enormous impact on people's lives if you had seen it at the time of the first cars how this country would develop in connection with

automobiles you would have said this is the place i must be but of those 2 000 companies as a few as of a few years ago only three car companies companies survived. And at one time or another, all three were selling for less than book value. So automobiles have had an enormous impact on America, but in the opposite direction on investors. So through these quotes, he's saying, you know, it's fine to work in an industry that you find exciting, but it's not always the exciting industries are the impactful ones that uh that make money so he talks about the automobiles in his shareholder letters

uh when i covered a few probably a few months ago by now um the example he used over and over again is uh the the airline industry how if you really loved capitalism uh he makes the joke that you would have shot down uh the makes the joke that you would have shot down uh the wright brothers and he would have saved a lot of money um okay so i want to skip ahead the similarities this is this is uh i i struggled with with parts of this book um because there's a lot of obviously warren buffett's career is heavily dependent on and intertwined with charlie munger but i i didn't want But there were so many good ideas and interesting things about Charlie Munger in this book, but I've already done three podcasts on him.

So I'm going to talk about Munger a little bit, only in terms of how he relates to Buffett. So this one paragraph I came across illustrates, like, they were very similar. And I keep saying they, they're still alive at the time I'm recording this. But they have a lot of similarities similarities and this is one of them they thought alike and had the same fascination with business as a puzzle worth spending a lifetime to solve they both regarded rationality and honesty as the highest virtues quickened pulses and self-delusion in their view were the major causes of mistakes and they both like to ponder the reasons for failure as a way of deducing the rules of success invert always invert and again i think that's a really good idea

that both munger and buffett use in their lives and one that you don't see many people um copying something i also love about warren which i should have understood this because i read every single one of his shareholder letters but first first and foremost, investing is his passion, but he considers himself a teacher first. And so does Charlie Munger too. That's why if you listen to the podcast, he doesn't report Charlie Salmack. He uses the examples of his writing and his speeches to teach. And I think teaching somebody something is one of the best things you could, like some of the best use of your time, because it's not zero sum. Like you're going to, you could teach somebody something you know, and then that person can go on and teach somebody else what

they knew, and it just keeps multiplying. Knowledge is very, the sharing of knowledge is very much positive sum, and that's one of the best things I love about Buffett is that, you know, he spends an unbelievable amount of time teaching all the lessons that he's learned, that he's accumulated over his lifetime and his career. In fact, I learned from this book that even though he releases a shareholder letter once a year, he works on it for several months. So it's extremely important to him. All right, so let's go into some of the ways Warren Buffett considered himself a teacher.

He says, he gave speeches. He wrote articles. He wrote editorials. He gathered people at parties and gave little lessons. He testified in lawsuits. He appeared in television documentaries and did television interviews and took journalists along with him on trips. He went around to colleges and taught classes.

He got college students to come and visit him. He gave lessons at the opening of furniture stores, the inauguration of insurance telemarketing centers, and dinners for would-be customers of NetJets. He gave locker room talks to football players. He spoke at lunches with congressmen. He educated newspaper folk in editorial board meetings. He gave lessons to his own board of directors.

And above all, he put on the teacher's robes in his letters and meetings with his shareholders. Berkshire Hathaway was his, this is a direct quote from him, Sistine Chapel. That's what he called the building of his business. That's really interesting. Not just a work of art, but an illustrated text of his beliefs, which Munger referred to as Buffett's didactic enterprise. People reeled out of Buffett's office or away from Munger's speeches, figuratively smacking their foreheads and saying, my God, at some insight one of them had about a seemingly intractable problem,

which now, in in hindsight seemed obvious. Okay, so one of the things that Warren taught others and that I learned from him, and it's this idea of the difference between having an inner scorecard or an outer scorecard. And I really, really love this idea, so I want to go over this real quick. And so now Warren's talking here. He says, I feel like I'm on my back and there's the Sistine Chapel and I'm painting away. I like it when people say, gee, that's a pretty good looking painting,

but it's my painting. And when somebody says, why don't you use more red instead of blue? Goodbye. It's my painting. I don't care what they sell it for. The painting itself will never be finished. That's one of the great things about it.

The big question about how people behave is whether they've got an inner scorecard or an outer scorecard. It helps if you can be satisfied with an inner scorecard. I would also say it's probably the single only way to have a happy life. Back to Buffett. I always pose it this way. I say, look it, if the world couldn't see your results, would you rather be thought of as the world's greatest investor,

but in reality have the world's worst record, or be thought of as the world's worst investor when you actually have the best? That's a really good metaphor. This is where he's going with it. If all of the emphasis is on what the world's going to think about you forgetting about how you really behave you'll wind up with an outer scorecard now he's going to tie this in the reason i bring this up is because we're i'm going to focus on his early life as well and he talks about learning this lesson from his father so he says uh

um now my dad he was a 100% inner scorecard guy. He was really a maverick. Another word for maverick is, of course, misfit. But he wasn't a maverick for the sake of being a maverick. He just didn't care about what other people thought. My dad taught me how life should be lived. I have never seen anybody quite like him. So I just love that idea of focusing on the inner scorecard.

All right, so let me talk a little bit about Warren's father. Warren just talked about him being a maverick, right? Well, let's see some of the actions that his father's name is Howard, that Howard Buffett took in his life, that would definitely be the decisions of a maverick. So in one case, Warren's father decided to become a stockbroker. And he decides to do this in the year 1927. Obviously, two years later, the stock market collapsed. And here is Warren reflecting on that time.

So he says, amid the bankruptcies and suicides that followed, people began to hoard money and nobody wanted stocks. So he's going to lose his job but he says it was four months before my dad made his next sale his first commission was five bucks my mother used to go out with him at night on the streetcar waiting outside when he would call on somebody just so he wouldn't feel so depressed when he came home so he loses his job and then his dad's gonna make a very unusual decision, given the times. And so this is Warren on his dad's maverick decision to open a business selling stocks

during the Great Depression. On August 15, 1931, he went down to the bank and the bank was closed. He had no job and his money was in the bank. He had two little kids to feed. He didn't know what to do. There was not another job to find. So there's not another job to find. So, okay, Howard's like, I'm just going to make my own. Within two weeks, Howard and his two partners, I'll skip over their names,

filed the papers to start a stock brokerage firm. It was a maverick decision to open a stock-broking business at a time when no one wanted to buy stocks. And so a young Warren Buffett is now seeing his father build a business in a terrible economic environment. And so Howard Buffett never became rich, but he wound up being a stockbroker, owning his own brokerage firm, and then he became a congressman.

But what Warren saw was that his dad would go door to door and for years just slowly building up his business until it was somewhat successful. And so he had a deep love for his father and learned a lot from him. And what I found interesting reading the book is that he had the exact opposite relationship with his mother. His mother was terrible, so much so that later on in his life when Warren would be forced to spend time with his mother, he would shake and grit his teeth. She was a terrible, overbearing mother. So I'm going to read some of that to you here. And the note I left myself was, you know, his mother was extremely mean to her children.

One quote from the book was that she was not content until she had you in tears. This is obviously a terrible environment to grow up in. So it says, there was always something that we did or said, and there would be this flash, and then it didn't subside. These are direct quotes from Warren, by the way. All of your past sins would be brought up. It was just endless. When in rage, Lila, that's her name, would verbally lash the children over and over again. And it was always the same. Their lives were easy compared to her sacrifices. They were worthless, ungrateful, selfish, and should feel shamed. She would pick at every real and imagined flaw.

And so a few paragraphs later, we see the difference. Remember Howard Buffett, inner scorecard person. Well, Lila Buffett is an outer scorecard person. And as a result, I noted off myself, this is just a terrible way to live. It's the key to having an unhappy life, if that's what you're after. And it says, describing as the author describing Warren's mother, what mattered most to Lila was the esteem of others. She had what Warren would later come to call an outer scorecard she was

always worrying about what the neighbors would think um as a result here's a description of warren as a child warren showed early signs of a knack with people but was also the competitive precocious child intellectually aggressive yet physically retiring so warren used these these early interactions with his family to learn traits that he wanted to to replicate and once he wanted to avoid and something he learned from two of his uncle's was really fascinating they would hang out at like his dad's office and they talked about the market and Warren's really young he's gonna be around a little before age 10 at this time and this is how he learns to avoid

the habit of thinking in only one direction. So Warren says, Uncle Frank was a total bear on the world, and Uncle John was a total bull. I would sit between the two of them, and they'd sort of vie for my attention and try to tell me why they were right. Each man was enslaved by his longstanding habit

of thinking only in one direction. Warren noticed that the numbers seemed to change according to some immutable law of their own he's talking about the stock market although his great uncles were both eager to sway him of their respective and extreme points of view warren noticed that their opinions appeared to have no connection whatsoever to the numbers passing overhead that's such an important insight for his life he was determined to figure out the pattern but as of yet did did not know how. So his father would take some trips to New York City at the time, and he brought along his young

son. So he takes Warren when Warren's 10 years old to visit the New York Stock Exchange. And this is where Warren gets a glance into his future. And something he picked up on, which is really interesting, how you can have experiences in your life and you never realize like what you'll remember from them or what impacts you. So they go into this office at the stock exchange and there's a, they have a guy going around who would roll hand roll cigars for each of the members and, and like deliver it at almost like a waiter does at a table. Right. And Warren's like, Oh my God, these people must be making tons of money

if they can they have so much money that they can hire one person and all they do is hand roll cigars so this is that experience he says he grasped it right away the style exchange must pour for must pour forth streams of money rivers fountains cascades torrents of money enough to hire a man for the pure flippery of rolling cigars handmade custom cigars for the stock exchange members that day as he beheld the cigar man a vision of his future was planted he kept that vision of when he went back to Omaha old enough now to organize his quest and pursue it all the more systematically. Okay. So I guess this is, I didn't know when I was going to talk to you about this, but I guess this is a good time. Cause I always try to think like, we know the time compounds that, that, that money compounds,

but also the knowledge compounds. And so a lot of times, like as I go through each of these books, they all have an impact on me, right? And then I start thinking, like, how do each of these people compare? Like, what are the personal traits that I want to keep for my life? What are the ones I want to avoid? And I realized there's like a huge similarity between Warren Buffett and Enzo Ferrari and here it is one of the ways I should I should say they both found out extremely extremely early in life exactly what they wanted to do this is Warren Buffett at 10 years old making decision I'm gonna be invest I'm gonna invest until my last breath which he's obviously still doing to this day. Enzo Ferrari had the same thing. He knew that he wanted to race cars

since he was eight years old. And he wanted to do, and he did that basically until the day he died. They were, the way they compare is they're both obsessives. Now here's the thing. I am glad that a person like Enzo Ferrari existed. Somebody that spent every waking hour in the pursuit of his goal. But at the same time, even though I think if you analyze your own life, you probably have some sort of obsessive nature to you. I don't want the of warren buffett and enzo ferrari though because part of what makes them the the part of what made them so successful at their chosen endeavor is also what makes a lot of their personal lives like a big mess and so i want you to keep that thought in mind as we go through when we're learning about warren buffett like

i think studying warren buffett listening to what he has to says on business. That's a no-brainer. He's got some of the best ideas That you'll ever find in the history of business, right? But When I went like something that's been in my mind a lot since I read that book the man of all for all markets But Ed Thorpe is like I really feel Ed Thorpe. I've said this over and over again. Like he mastered life. He made enough like he got to do what he wanted in life, right? He was an entrepreneur through and through. Got to dictate how he spent his time, had to control how he spent his time, was financially successful, made more money than he could ever spend.

But then he stopped. He not that he stopped, but he would do it. He would deliberately not pursue businesses and investment opportunities that he knew were going to be successful if they would take away time from other things that were important to him. So he worked out every day. He had an unbelievable focus on taking care of his physical body, which in turn, now, if you go watch interviews with Ed Thorpe, you see him at 84, 85 years he's like first of all he looks like 20 years younger but he's still mentally sharp um so he didn't he didn't abuse his body um he had a great relationship with his kids he had a great relationship with his wife you can't really

say the same thing for warren buffett which i'll cover more um in in a little bit you definitely can't say the same thing for enzo ferrari either um his son he had a relationship with him but other than that like he didn't he just didn't he was not a very personal person so that's just been on my mind a lot i want to if if if there's something that i keep can't stop thinking about as a result of all the reading that i'm doing like i i think i should share it with you because there might be some there might be something in there that that that sticks with you and then maybe changes the way you um like you organize your life and as you go through it because i think ed thorpe you get to might be something in there that that that sticks with you and then maybe changes the way you um like you organize your life and as you go through it because i think ed thorpe you get to the end of his life probably not a lot of regrets right warren buffett has a lot of regrets it's in this

book and what i really respect about warren is that i was shocked first of all this book is shocking the stuff you're going to learn about him but he also told the author he's like listen if if there's like go with the unflattering if you're if you learn about him. But he also told the author, he's like, listen, if there's like, go with the unflattering, if you're, if you have to choose between two different versions of the story, go with the unflattering one. Like he wasn't trying to hide his faults. And I think that I'm guessing here, but I think that's because he really saw himself as a teacher and he wants, Hey, take my good ideas, but also avoid my bad ones. So that's just been on my mind. So, all right, let me jump into this. Now, he's 10 years old. And he's unbelievably lucky because he found out what he wants to do with his life, right? And I want to tell you the why. Why does he want to do this, which I think is

extremely important to understanding the person, right? And then once you understand the person, I think you can understand how they arrived at their ideas. And then really, I feel like the organization of a person's business of a founder's business really is tied into their personality i don't think you could separate the two i think the businesses and the opportunities that you pursue in your life are going to be a reflection of who you are and that's why i also think that warren and and and charlie are constantly telling us to follow our natural drift all right so this is the why i remember he stole a young kid here he says he worked with a passion for the future he saw ahead of him right there in sight he wanted money

it could make me and that was a quote from Warren it could make me independent then I could do with what I wanted to do with my life and the biggest thing I wanted to do was work for myself I didn't want other people directing me the idea the idea of doing what I wanted to do every day was very important to me. And so one way to find out what you want to do in life is by experiencing things that you don't want to do. So his grandfather had this grocery store in Omaha. His grandfather was a very hard person. You essentially work from morning to night with him uh with almost no breaks he was just unreal he was relentless and so warren worked there and he learns hey this this is not

the life for me he says i'm i may have been the lowest paid person to ever work in the grocery business i didn't learn anything except that i didn't like hard work um so this is just another story that happened a few chapters later. And his dad's friend, at this time, Warren's living in Washington, D.C., which he does not like at all. He wants to go back to Omaha, but he's there because his father has now been elected to Congress. Now, his dad's friend asked Warren to help him with a business problem. Okay, Warren is in junior high at this time. So here, this little story is going to illustrate. We're going to see early signs of Warren's calm, level-headed thinking. And I'm going to read it to you in a second, but there was a book I did on Henry Kaiser.

I think it was maybe Founders Number 66 or something like that. And there's something that Henry said in that book. I mean, like what kind of person can found over a hundred companies? Like there goes just an insane person. But he said something that I always try to think of in my own life. Like when I'm presented with a problem, like try not to, I try not to default to stress or anxiety or anything like that. But he said that problems are just opportunities and work clothes. And if you look at that, you're just like, okay, well, I have a problem. Like, I just need to solve this problem.

So like, what's the most level-headed way to think about this? And so we see a lot of that thinking here with Warren, even though he's super young. And so now he gets this call. He says, Warren, I'm in a terrible jam. The board of directors told me to get rid of our Washington DC warehouse. This is a real problem for me. We have hundreds of pounds of stale cornflakes and cases of barbecue dog biscuits. I'm in a real pickle. I'm 1200 miles away and you're the only businessman I know in Washington. He said, I know I can count on you. As a matter of fact, I told our warehouse men to deliver these cornflakes and barbecue dog biscuits to your house. Whatever you get for them, send me half. You can keep the rest. And now this is Warren.

He says, all of a sudden, these huge trucks come up and fill our garage. They fill our basement, everything. My dad couldn't even get the car in or out or anything. And he says, and now I've got these things, and now I've got to get rid of these things. Well, I just try to figure out who it would be useful to. And obviously, the dog biscuits would be useful to a kennel. The cornflakes were not fit for human consumption anymore, so I figured they might be good for some animal. So I sold the cornflakes to some poultry guy. I made probably a hundred bucks for the merchandise. When I sent the 50% to to some poultry guy. I made probably $100 for the merchandise. When I sent the 50% to Mr. Miller, he wrote back and said,

You saved my job. That's just amazing that he trusted. It really goes to, I think it tells us what kind of person. He was very unusual. In the book, Charlie Munger eventually closes his own investment practice and becomes Warren Buffett's junior partner at Berkshire Hathaway. And people are like, if you know Charlie, he's very headstrong. He's like, why would you ever accept to be anybody's junior partner? He's like, first of all, I have other things I'm involved in. He's really into architecture, so he built homes. He had a lot of investments in real estate,

liked to design boats and the like. But he said something that was interesting. He's like, you don't understand. This is no normal person. So he truly realized, hey, I'd rather have access to Warren's brain, even as a junior partner, than just run my own show and not have access to that. So I think those traits were probably evident based on this story from a very young age in Warren's life. This is more traits from a young Warren Buffett that stayed with him during his career. And he says, I like to work by myself, where I could spend my time thinking about things I wanted to think about. Washington was upsetting at first, but I was in my own world all the time. I could be sitting in a room thinking, or I could be riding around flinging

things and thinking. He was talking about delivering newspapers there. So he's obviously very gifted from a young age, but he was also rebellious, which I found interesting. He really did not want to be in Washington, D.C. He wanted to go back to Omaha. So he starts rebelling in really interesting ways. And when I read this section, I thought of that quote by the founder of Patagonia, Yvon Chouinard, which that's definitely not how you pronounce his name. But he says in his book, like, if you want to understand the entrepreneur, you have to study the juvenile delinquent. Well, here at 14 years old is Warren becoming a juvenile delinquent.

He says, in fact, the quote was, I was becoming a four-star delinquent. So at the age of 14, he just starts stealing a bunch of stuff from the local Sears, and he can't stop. This is Warren describing that. He says, we'd just steal the place blind. We'd steal stuff for which we had no use. We'd steal golf bags and golf clubs.

I walked out of the lower level where the sporting goods were, up the stairway to the street carrying a golf bag and golf clubs and all the clubs were stolen and so was the bag i stole hundreds of golf balls so his dad eventually hears about this and this is how his dad actually got warren to change his behavior which i thought was interesting he says by now is no great mystery how to motivate warren howard threatened to take away his source of money. My dad, who was always supportive of me, Warren said, he says, I know what you're capable of. And I'm not asking you to perform 100%.

But you can either keep behaving this way or you can do something in relation to your potential. But if you don't do it, you have to give up the paper routes. And that hit me. My dad was low keykey he was just he was just sort of letting me know that he was disappointed with me and that killed me more than that killed me a lot more than his telling me i couldn't do this or that so he goes back to managing his paper routes he has so many of them and he starts hiring other people underneath him so he kind of builds builds this organization within an organization, and he makes so much money.

This is really another surprising fact. He made so much money from his paper route that he's able to buy a 40-acre farm while he's still in high school. So it says, Warren himself had bought a 40-acre farm for $1,200 about 70 miles away. A tenant farmer worked the farm farm and they shared the profits. This is kind of like the sharecroppers back in the podcast I did on Jim Clayton. Just the kind of arrangement Warren liked with someone else doing the sweaty, boring work.

So describes Warren's early fascination with biographies and the note I left myself as someone needs to tell him about Founders Podcast. And so this is Warren's bookcase. And it said, the bookcase had also held a series of small biographies, many of them on business leaders. Since a young age, Warren had studied the lives of men like Jay Cook, Daniel Drew, Jim Fisk, Cornelius Vanderbilt, Jay Gold, John D. Rockefeller, and Andrew Carnegie. Some of these books he read and reread. Another surprising fact about a young Warren Buffett is he had no interest in going to college.

Warren would have soon just liked to skip the whole thing. What was the point, he asked himself. I knew what I wanted to do. I was already making enough money to live on. This is such an interesting quote. College was only going to slow me down. So if it was up to him, he wouldn't have gone to college. It was his dad insisted.

And so he said he would have never defied his father on something so important. So he acquiesced. And I think something that ties into his desire not to want to go to college, and this is a common trait for entrepreneurial minds and it says throughout his his entire educational history he had shown little interest in formal school schooling as opposed to learning and he considered himself largely self-taught so he tries to he decides hey I'm gonna go to business school and he tries to get into Harvard

and he gets rejected. And so he actually does something really smart here. He turns a rejection into one of the best things that ever happened to him. And so it says, and yet Warren would later consider his rejection by Harvard, the pivotal episode of his life. Almost immediately, he started investigating other graduate schools. While leafing through the Columbia catalog one day, he came across two names that were familiar to him, Benjamin Graham and David Dodd. Warren, throw a quote from Warren here. These were big names to me. I had just read Graham's book, but I had no idea he was teaching at Columbia. So they both, they're partners, Ben Graham and David Dodd are partners, and they both wrote books that Warren loved, but he especially loved Graham's book, and so the book actually mesmerized him. He says,

when he found The Intelligent Investor, which is Graham's book, he read it and reread it. Warren said of the book, it was almost like he found God. So Warren wants to go to Columbia. He discovers that Graham and Dowd are there too late. In fact, the deadline has passed. So he actually does something really smart here. He writes a personal letter to the partner of Graham, which is David Dodd, because David Dodd also had an influence in the admissions office. And even though the rules like, you know, you like you turn this in too late, people are people. And if you're sincere, he wrote like a letter of like the impact that David and Ben's work had had on his life. And it wound up being helpful.

So it says, while Dodd may have been touched in some way by the personal nature of the application, he and Graham were more interested in their students' aptitude for business and investing than their emotional maturity. Graham and Dodd were trying to create leaders. They taught a specialized craft. Whatever the reason, after the deadline and without an interview, Warren was accepted to Columbia. And around this time in Warren's life, we see a lot of traits that he keeps nearly forever, and the reason the book is named Snowball. He says, but since Warren looked at every dollar as $10 someday,

he wasn't going to hand over a dollar more than he needed to spend. Every penny was another snowflake for his snowball. He also did this because he believed in the power of compounding, but he understood that getting rich and staying rich are two different skills um so he winds up meeting another grammite i guess is what they're called somebody that that was also another student that was also interested in the teachings of ben graham and he said he was describing him he said he found a man after his own heart a believer that wealth is hard to accumulate and easy to lose um so around this time this is actually an example of

an idea that he will repeatedly use in his career um so he finds out that ben graham has an investment in i think he's on the board of directors of geico a tiny insurance company at the time so he takes the train i think it's like a few hour train ride to go to to knock on Geico's office door, which is closed at the time, but he winds up finding somebody in there. And this is something that he'll do repeatedly. So let me just read it to you first. It says, Warren was starting to grapple with the fundamental concept of business. How do companies make money? A company was much like a person.

It had to go out and find a way to keep its roof over its employees and shareholders' heads. He grasped that because Geico sold insurance at the cheapest price, the only way it could make money was to have the lowest possible costs. So we see this idea of having the lowest possible costs, watching your costs being a huge strategic advantage in running a business. Something Warren talks about, Charlie Munger, Carnegie, Frick, even Steve Jobs are all obsessed with this. He also learned that the insurance companies take their customers' premiums and invest them long before the claims are paid.

That sounded to him like getting to use somebody else's money for free, just the kind of idea that appealed to him. So what I mean about that is, I think he spends like, I want to say six hours, four hours, something, one person working at Geico sat down and took an interest in Warren's curiosity. And so Warren's like, listen, you know, explained he was a student of Graham.

I want to know how you guys make money. Teach me about the insurance business. That was hugely important because if you listen to the podcast I did on the shareholder letters, like he talked that that was essentially Warren's main focus on how to increase the amount of float which is he wants that because he can invest customers premiums for a good amount of time before he has to pay anything out so he thought of that essentially it's like a free investment so he leaves the meeting and with geico starts researching business becomes extremely enthusiastic about the business he wants to buying the whole company you know what probably 40 years after this this point in the story but i would say like when i'm in conversation day-to-day with

people i don't know that well and i try to avoid situations like that i would say one of my most controversial beliefs is that humans don't think that they mimic that most of like we are capable of rigorous thought on a few select variables in our life and other than that we have to like look around for us and i'm not i don't exclude myself from that i it's a it's human traits human nature i'm guilty of this as well um warren's also learning that and so one of the main takeaways from the book is that warren had like a like almost like a supernatural level of belief he had i, I would say his personality and his personal life was kind of disheveled and a mess, except for one thing, that he had,

when it came to investing, he had complete faith in himself more than anybody else on the planet. And so while he's going around trying to explain to people why they should invest in Geico, and he's learning this, the fact that most people are not, like he's doing rigorous first principle thinking about the business that is Geico. Most people are not.

They're just copying the beliefs of other people around them. And I think this is important to understand. And then once you have an understanding of that, you start to see it everywhere. And you also start seeing it in your life, which is kind of scary. But this is an example of that. It says, after he heard their views,

he explained his own theory, meaning why they should invest in Geico. And they're saying, no, Geico has no chance. They told Warren he was nuts. Geico, they said, could not succeed over larger, more established companies that used agents. It was a tiny company with a market share of less than 1%. Huge insurance companies with thousands of agents dominated the industry, and so it would ever be. Yet here was Geico, growing like a dandelion in June and printing money like the U.S. Mint. Warren didn't understand why they couldn't see what was right before their eyes.

Because they're not actually looking. They're not actually investigating. It is what what i'm is what i believe actually true and warren was and i gave him a huge advantage in his career uh this is warren on history he haunted the columbia library reading old newspapers for hours on end this is why he did that i would get these newspapers from 1929 i couldn't get enough of it i read everything not just the business and stock market stories. History is interesting, and there's something about history in a newspaper, just seeing a place, the story, even the ads, everything. It takes you into a different world,

told by somebody who was an eyewitness, and you were really living in that time. Another example of mimicry and less of thought, all his other students that are students of Ben Graham, I remember the business students. So all of his fellow students at the time, their big goal was like, okay, I'm going to graduate and I'm going to go work for US Steel. And Warren didn't have, he's like, there's no way I want to work for that. He didn't think that the business was particularly strong at that time. It was just a big business right and warren wanted to to work for ben graham he's like i'm learning so much from him like why don't i and he's doing what i want to do like why don't i go work for him and learn how to build an investment partnership um and so this is warren on the the difference of opinion that he had compared

to all the other all the other students in the class he says i don't uh i don't think there was one guy in the class that thought about whether u.s steel was a good business i mean it was a big business but they weren't thinking about what kind of train they were getting on so he says you know because they were just copying whatever the the desires of other people around them they weren't actually thinking like is this the best path for my life warren realized like there's no way in hell i'm gonna go work there. So he went to get, after several years, first thing, I think he goes back to Omaha. And so, like, Ben Graham turns him down. But after several years, they eventually, Ben Graham eventually hires him.

Now, something I also found really surprising. This is another surprising fact. A young Warren Buffett was terrified to speak in public, which is surprising because now he has literally arenas full of people that come to hear him speak. So this is Warren talking about that period of life. He says, I was terrified of public speaking. You can't believe what I was like if I had to give a talk. I was so terrified that I just couldn't do it. I would throw up. In fact, I arranged my life so I never had to get up in front of anybody. When I came out here to Omaha after graduating, I saw another ad.

So what he's talking about there is he picked up, he says he was like socially inept and really immature and something that was key to help. He didn't know how to deal with people. He read Dale Carnegie's book, How to Win Friends and Influence People. And he literally copied Dale's system and he used it in his life. And he's like, oh, this works perfectly. So then he sees another ad. Dale Carnegie was making money at the time. We'd go around and give seminars on how to do public speaking. And Warren at one time signed up for it, spent the money. And think about how crazy this is because Warren didn't like to waste money. And then he chickened out and wouldn't do it. He was that terrified. So he sees another ad.

He says, and I knew I was going to have to speak in public sometimes. The agony was such that just to get rid of the pain, I signed up for the course again. So he winds up going through the course. And I bring this up because, again, this is over and over again. I really try to focus on the early parts of these founders lives because like you know for the last as long as i've been aware of warren buffett's existence maybe the last 10 15 years i don't know how long um you know i i saw what everybody else saw like a teacher like a person that gives interviews that has literally his shareholder conference in an arena you know

and the idea that at one point like he'd throw up at the thought of even talking and and you're talking, I'm not talking about a large group, he'd have to give a presentation class with, like, half a dozen people, or he'd throw up, so I think that's, again, just another testament that we're completely adaptable, and we can learn skills, even if we don't possess them at this point in time. I'm looking up at the note, literally the next section, I just ran all over this note. So I said, this is a note I left myself. This is one of the most inspiring things about reading biographies. You're constantly reminded that we all have the ability to improve. So he says, I was a wreck, he recalls.

He was drifting on the brink of a nervous breakdown. I felt odd. I was socially inept. But beyond that, I hadn't found a cruising speed in life so he's talking about there is like he was fascinated he'd read books he'd read he'd study everything he could to learn about how to invest but he didn't he couldn't build personal relationship with people he wanted to date girls was terrible at it he wanted to make friends and he would just fall back on talking about investing all the time, even when he was in college.

And I think this is really important saying that, listen, I hadn't found a cruising speed in life. I remember this feeling when I was a younger person, like you feel extremely awkward in many cases, like being a young person in high school and college is it's a very awkward part of your life. You're transitioning from childhood into adulthood and it's not easy. And just know that like if you're going through that, if you happen to be at that age, and you're listening to this, like Warren Buffett went through it too, you'll be fine, you'll get through this. So even though in high school and college, he was a student, but he considered himself a businessman, first and foremost, one of the businesses he bought and started when he was in college, which surprised me, he actually bought a gas station. And it did not go well

and but he he took a lesson away from it so this is him learning about how powerful customer loyalty is by owning a gas station and getting his ass kicked he says we did everything we could to attract new customers but instead drivers continued to pull in the texico station across the street its owner was very well established and very well liked. He beat us every month. That's when I learned the power of customer loyalty. The guy had been in business forever and he had clientele. Nothing we could do was going to change that. So after college, he's graduating from college. We're now at the point of his life. He goes back to Omaha. His first job was as a stockbroker and he hated it. My own personal thought is like this experience may also be why in his shareholder letters and public talks, they're full of remarks on the lack

of value most people in the investment industry provide. And he felt that he was constantly at odds with like what was good for the stockbroker is not good for his customer. He didn't like that. So he said, well, Warren felt that there's a conflict of interest inherent in the business. He'd recommend a stock like Geico to his friends and family and tell them that the best thing they could do was hold it for 20 years. That meant he didn't get any more commissions from them. You can't make a living that way, Warren said. The system puts your interest against that of your clients.

And again, even as a, now he's a you know a young man a young adult warren is still full of self-doubt uh his mother had convinced both warren and doris his sister that deep down they were worthless in every area of life except business susie was discovering susie is his wife um she plays an extremely important role in Warren's life. Susie was discovering her husband was riddled with self-doubt. He had never felt loved and he saw, and she saw that he did not feel lovable. This blew my mind. Like, think about that. I needed her in my life like crazy, he says. I was happy in my work, but I wasn't happy with myself. She literally saved my life. She resurrected me. She put me together. It was the same kind of unconditional love that you would get from a parent. Okay, so I just mentioned one of the things I most admire about Buffett was that

he had a complete and unwavering belief in his self when it came to business. So at this point in Warren's life, he finally succeeds in getting a job working for his idol. But even so, his confidence in his judgment allows him to adopt different strategies than Graham. So this is just one quick example of that. Graham's idea of diversification was extreme. Some of his positions were as small as $1,000.

Warren, who had such confidence in his own judgment, saw no reason to hedge his bets that way and inwardly rolled his eyes at diversification. Now, what he learns working for Graham, though, does become the Berkshire M.O. He says, what Warren was learning about keeping his ears open was the art of capital allocation, placing money where it would earn the highest return.

In this case, Graham Newman, which is the name of Graham's partnership, was using money from one business to buy a more profitable business. Over time, that would be the difference between bankruptcy and success. So this is really interesting too. Warren eventually leaves Graham's partnership. Graham is going to semi-retire. Warren's going to move away from New York City, which he realizes he can't live in full-time because he can go back to Omaha. This is where he decides to start his own partnership. He's 26 years old. What I also found interesting is that he also turned down an opportunity.

Graham offered him to become a junior partner. And remember, Graham is his idol. But this also gives us an insight into Warren's personality. Warren would never be a junior partner to anyone. Remember, he thought he had unbelievable belief in his ability to invest and to build a very profitable business. So he goes back to Omaha, and he's going to start doing that. He's going to raise money. Instead of being a stockbroker, he's going to do partnerships to invest other people's money along with his own. And this is why. He would have no

boss. He could invest from his house. He could put friends and relatives in the same stocks that he would have bought for himself. If he took a quarter of every dollar he earned for those partners as a fee, and then reinvested that in the partnership, he'd be a millionaire much faster. Armed with Ben Graham's method of buying stocks and a Graham-like hedge fund, he had every reason to think of himself as a rich man. He viewed the partnership as a compounding machine.

Once money went into it, he did not intend to make withdrawals. So as part of running this new business, he's got to go around and raise money. He's got to pitch people and say, why should you give me money to invest on your behalf? And so this is actually really interesting because it's not much of a sales pitch at all. So this is his unique sales pitch. And sales pitch is in quotation marks. And this is also his introduction to Charlie Munger. But Warren was not there to sell the davises so he's sitting down with this couple in omaha and he's trying to raise money from them he laid out his ground rules

he wanted absolute control over the money and would tell his partners nothing about how it was invested that was the sticking point not for him him was Ben Graham's handicap of people riding on his coattails. So what he's talking about there is Ben Graham would share all the investments he makes. This is what I'm buying. This is the price I'm paying, that kind of stuff. And so as a result, over time, people would just copy Ben Graham. It increased the prices and it wound up making Ben Graham less money over time.ren uh favorite secrecy he says they would get an annual summary of his performance and they could put money in or withdraw it only on december 31st the rest of the year their money would be locked up into a partnership all the while now

this has been excuse me this is warren describing the meetings in all the while eddie eddie davis paid no attention to me. Dorothy Davis listened very intently, asking good questions. Eddie was in the corner doing nothing. He seemed like a very old guy to me, but he was not yet 70. When we got all the way through, Dorothy turned to Eddie and said, what do you think? And Eddie said, let's give him $100,000. In a much more polite way, I said, Dr. Davis, you know, I'm delighted to get this money, but you weren't really paying a lot of attention to me while I was talking. How come you're doing it? And he said, well, you remind me of Charlie Munger. And I said,

well, I don't know who Charlie Munger is, but I'd really like to meet him. So now Warren's going to tell us some good idea that he learned from Charlie that he says everybody should do. So he says, Charlie, as a very young lawyer, was probably getting $20 an hour. And he thought to himself, who's my most valuable client? And he decided it was himself. So he decided to sell himself an hour of his work each day. He did it early in the morning, working on these construction projects and real estate deals.

Everybody should do this be the client and then work for other people too and sell yourself an hour a day this is charlie on a real reason that uh to build wealth i had a considerable passion to get rich munger said not because i wanted ferraris i wanted the independence i desperately wanted it that sounds like buffett too. He saw himself as a gentleman squire. Money wasn't a competition to him. He wanted to join the right clubs, but he didn't care whether the other members were richer than him. Beneath the surface arrogance, his deep respect for authentic achievement gave him a genuine humility that would be crucial in forming a relationship with the man he was about to meet. So that goes back to what I was saying earlier, why somebody like Munger, who was intelligent and

successful in his own right, would choose to be the junior partner because he had a deep respect for authentic achievement. He wasn't in competition with other people. He just wanted freedom. Oh, I like this idea a lot. It's a reminder to myself that our opportunities may be unlimited, but our time is not. So it says, Warren never overextended himself. When something new came into his life, something else went out. The two exceptions were money and friends. That's probably a good idea. Oh, this I found interesting.

So at this point, he's buying the Berkshire Hathaway. I talked a lot about that in the podcast on Shareholder Letter, so I'm not going to cover that again here. But something I found interesting was that the family that originally owned Berkshire Hathaway, they were partners with this woman named Hedy Green. And I actually have a book I'm waiting to read. It's a book about Hedy Green that will eventually be an episode of Founders. But listen to this description of her. One of their partners was Hedy Green, the notorious witch of Wall Street. A shipping heiress raised in New Bedford who rode the ferry to New York City from her tenement apartment in Hoboken to make loans and investments.

She stalked through lower Manhattan in an ancient black alpaca gown and a rusty veiled hat like an elderly bat. I don't even know what that description means. By the time of her death in 1916, Greene would be the richest woman in the world. That's crazy. This is Buffett looking back on his decision to buy Berkshire Hathaway, which he thought was a terrible idea. So I bought my own cigar butt and I tried to smoke it. So this is the cigar butt What would you call it like system of investing that Ben Graham was famous for popularizing and this is worn

Describing what that means you walked on the street and you see a cigar butt and it's kind of soggy and disgusting and repels you But it's free and there may be one puff left in it Bert so that's why why he was buying Berkshire because he was still using this system to invest in at this time, which Munger obviously convinces him to change and to just focus on buying really great businesses. But anyways, Berkshire didn't have any more puffs. So all you had was a soggy cigar butt in your mouth. That was Berkshire Hathaway in 1965. I had a lot of money tied up in that cigar butt.

I would have been better off if I had never heard of Berkshire Hathaway. He talks about a lot that usually your biggest mistakes in life are not your acts of commission, but the acts of omission. This is one of his biggest mistakes and also features somebody that have featured on Founders Podcast two times so far. He says he also bought some stock in Disney after meeting Walt Disney and seeing the entertainment showman's singular focus his love of work and wait and seeing let me say that again he also bought some stock in disney after meeting walt disney and seeing the entertainment showman singular focus his love of his work and the way that these had

translated into a priceless catalog of entertainment. But the concept of great businesses had not entirely sunk in yet, and he didn't load up. Instead of buying more stock in Disney, he bought more in Berkshire. So one of my favorite quotes that I save and I look at from time to time, it's in this folder I keep on my cell phone. It's about just things I want. I flip through. Basically, it's a way to remind me of things I thought were important. One of them is this quote from this biography on Walt Disney, which I covered, I think, in Founders episode number two.

But it said, Walt Disney seldom dabbled. Everyone who knew him remarked on his intensity when something intrigued him he focused himself entirely on it as if it were the only thing that mattered so i think what we're seeing here is berks as walter walter is warren seeing that about walt as well um so i'm going to skip ahead a little bit he um he's warren's going around buying a bunch of different businesses at the time So, I'm going to skip ahead a little bit. Warren's going around buying a bunch of different businesses at the time and he buys this, he's actually investing in retail, which he comes to regret later on, but he buys this business

from a very extreme character. And this guy's name is Ben Rosen, Rosner, something like that. But anyways, ben's an extreme character he had a fourth grade education but he became so good at retailing that he created a company that made millions of dollars in the 1960s and so this is uh warren talking about ben he loved it too much to quit he kept a duplicate set of store records in the bathroom so he could look at them while he was sitting on the can. He had this rival, Milton Petrie of Petrie stores. One time, Ben went to a big bash at the Wardoff, and Milton was there.

They immediately started talking business, and Ben said, how much do you pay for light bulbs? How much do you mark up? And that's all that Ben could talk about, so they're talking business. He said, finally, he said to Milton, how much are you paying for toilet paper? And Milton said, so much. Ben was buying his toilet paper quite a bit cheaper. And he knew that you want to be not just cheaper, but right. And Milton said, yeah, but that's the best price I can get. Ben said, excuse me.

And he got up and left the black tie to benefit, drove out to his warehouse in Long Island, and started tearing open cartons of toilet paper and counting the sheets because he was suspicious. He knew that Milton could not be paying too much by that wide of a margin, and therefore, he must be getting screwed himself somehow on toilet paper and sure enough the vendors were saying there were 500 sheets per roll in one of these things and there weren't he was actually getting screwed on toilet paper buffett knew that he wanted to be in business with the kind of guy who would leave a black tie party to count sheets of toilet paper and so i'm sharing that story because one, I think it's humorous. It's interesting, right? But it also gives a key insight into Buffett because we kind of, we have a tendency to be attracted to people that are like us or that have traits that maybe

either, even if we don't have ourselves, that we'd want to have. So you'd have to ask yourself, why would Buffett want to be in business with people like Ben Rosner or Rosner and It's because Buffett has this quote that he says he says intensity is the price of excellence So it says Buffett felt at home with the Ben Rosner's of the world. He saw in their relentlessness the spirit of success He was sick of problem companies like this other, it's called Hoshchild Con. It was a retailer he bought and then he regretted it, didn't make that much money. And he was looking for more Ben Rosners, people who had built excellent businesses that he could buy. He and Rosner shared a mutual obsession. As Buffett liked to put it, intensity is the price of excellence.

All right, so we just talked about how he missed an opportunity to invest in Walt Disney's company. He also makes the same mistake with Bob Noyce, one of the founders of Intel. What I found really interesting is that Warren actually knew Bob. I think they went on board together or something like that. And he had the chance to invest in the very, very early days of Intel, and he declined. And so the book tells us why. It says, as much as Buffett admired Noyce, he did not buy Intel for the partnership,

thus passing on one of the greatest investing opportunities of his life. He felt he couldn't understand whether it was gonna be a good business or not. All right, so Buffett, I need to tell you where we are in the story. He's in his late 30s at this point. And even as he tried, he couldn't be anything else but what he is. And that's an obsessive. So he shuts, he's getting a lot of

pressure from his wife too, because they're super rich right now. I mean, enough that like, especially how they live, that they'd have enough money for the rest of their life. I think he'd like, say, 16 or 20 million dollars, something like that at this point. But he shuts down his partnership. And this is the beginning of what's going to be the company he's known for now, where he has this Berkshire Hathaway. You just everything's involved in one company. Right. and um he's writing he wrote a letter to his his shareholders at the time about uh this was like a few years before saying hey i'm gonna like maybe my goal shouldn't be as much like he had a outstanding i think he returned something like another exact number let's say 20 or 30 percent a year for 10 years that he had the partnership it was fantastic right and he also talked about

like okay i'm not like as the money grows i'm not gonna be able to do this so let me like set the bar a little lower and he tries to like take a step back but he just can't because that's not that's not who he is so it says buffett wrote to partners to tell them that simply lowering his goal hadn't lessened his intensity if i'm going to participate publicly i can't help but being competitive he said i don. I know I don't want to be totally occupied with outpacing an investment rabbit all my life, so the only way to slow down is to stop. And then he delivered his bombshell. He gave notice of closing down the partnership in early 1970. I am not attuned to this market environment, and I don't want to spoil a decent record by trying to play a game I don't understand just so i can go out a hero but what would he do now

and he says i don't have an answer to that question i do know that when i'm 60 i should be attempting to achieve different personal goals than those of which had a priority age 20. so i bring that up to you because one this is an important part of his life this is where he starts laying the foundation for you know his 16 his masterpiece, his Sistine Chapel or whatever. But he kind of does have the same goal though at 60 that he did at 20. It's obviously a lot more successful, maybe more complex. He's got interesting opportunities, but the theme is basically the same. I'm just trying to accumulate as much money as possible and making like trying to achieve the greatest return as possible so that doesn't actually really change and so now this is what i was

referencing earlier like the downside of obsession obsessives is that they lack balance and this is why i was mentioning earlier like i think ed thorpe understood this and it's also why i keep saying that ed thorpe to me has mastered life and so so this inability to quit, even though he's already essentially won the game, causes eventually a rift in his marriage that he doesn't even see coming. So let me read this part to you. He says, even though Susie was a fountainhead of generosity to her many fans, friends, and dependents, she was starting to need a little attention herself. It wouldn't have taken

much according to her friends she disagreed that making money was life's purpose she felt impoverished denying herself travel museums theater and other forms of culture because of warren's lack of interest he praised her effusively in public but when at home lapsed into his normal preoccupied state that's a hell of a statement if he would make an effort to go to an art gallery with her now and then or just take her on a trip because she wanted to go it would have made all the difference she said but while he did sometimes show up when asked if she had to ask it was a favor not a gift And so tied to this inability to stop is a huge personality trait of Buffett. He's unable to be placated, he's relentless, and he's unstoppable. And so Munger picks up on this. Charlie Munger would later call Buffett an implacable acquirer, like John D. Rockefeller

in the early days of assembling his empire, who let nobody and nothing get in his way. Eventually, though, if you listen to my podcast, I don't know John D. Rockefeller, he eventually retired, quote unquote. He still made a lot more money. In fact, he made more money in retirement than he did when he was actively working. But Buffett didn't copy John D. Rockefeller in that regard. So just to reiterate, I think that's one thing from the life of Warren Buffett that I don't want to replicate. I don't want to ruin my personal relationships with my family and my friends because of my obsessive nature with work, right? But here is something that I do want to copy Warren on. So let me give some background before

I read it to you. A friend wants Warren to manage a pension fund portfolio. Warren didn't want to. He finally agreed as a favor with a disclaimer up front. And I'll tell you, let me read it to you first and I'll tell you what the main point is. He said he gave a warning FMC, which was the pension fund, would be would come last among his priorities after Berkshire and Warren and Suzy Buffett. It says his friend jumped at the opportunity anyway, not mistaking the larger point. And this is what his friend said about why he went forward anyways. That Buffett was willing to do it at all meant that he would do it well. And so the main point to me for that is that the last sentence

is what having a good reputation means. And if you can have such a good reputation with your colleagues, with your friends, with people you associate with, that they know that you're going to do something with them or for them, that you would say no if you wouldn't be able to do it well. I think that's something I want to strive for. I think that shows how well like well respected Warren was especially his ability to manage obviously capital but I think it's fantastic to have a reputation as sterling as that this actually surprised me so he liquidates his his partnership right and then he puts all of his money

into the company is gonna be called Berkshire so he invested all of his money and then it runs's going to be called Berkshire. So he invested all of his money and then it runs out of his personal money, which also is one that was surprising, but two speaks to his, his like lack of, you know, he talks a lot about like not wanting to diversify, wanting to like make good decisions and then go all in on his good decisions. So it says, as 1974 began, stocks for which he had recently paid $50 million lost a quarter of their value. Berkshire too slid down to $64 a share. I think today that stock is trading over $300,000 a share. Isn't that crazy?

All right. Some of his former partners began to fear that it had been a mistake to keep the stock. But Buffett saw it the opposite way. He wanted to buy more Berkshire and more blue chip. But this is now a quote from Buffett. He says to buy more Berkshire and more blue chip. But, and this is now a quote from Buffy, he says, I'd run out of gas. I'd use all the $16 million of cash that I got out of the partnership to buy stock in Berkshire and blue chip. So all of a sudden, I woke up one day and I had no money at all. I was getting $50,000 a year salary from Berkshire

and some fees from FMC, but I had to start my personal net worth again, over again from zero. He was very, very rich, but cash poor. So one of the investments he starts making at this time is he starts investing into the Washington Post. He makes a ton of money on this deal. He starts buying up stock. He becomes friends with the person running the company now. And there's actually a biography that Jeff Bezos read about Kay Graham, Catherine Graham, that I want to read and then cover for founders because I think it's fascinating. Because her life story, in case you don't know, is her father started the Washington Post, or maybe he bought it after the fact, I can't remember. And he sells mostly

control to Kay's husband, right? Because they thought that women were not good at business at this time. How ridiculous would that be? but k's husband was like a manic depressive and he winds up shooting himself he was like abusive to her and he shot himself just one day like they're at their farm or something she's down for a nap and she hears a gunshot she goes downstairs and he killed himself so then she has to at 46 years old no business experience at all i think she's like four children she has to figure out how to run the washington post she does a fantastic job. And she also becomes really good friends with Warren, puts Warren on the board. He makes an investment, et cetera. So he helped her on that. So I'm going to eventually, like that story is so compelling to me. Like, how is that even

possible? I think that's the great thing about business is like, you know, anybody can learn how to do that at whatever age. But there's some specific advice that Kay Graham, or that Warren gave to Kay about the Washington Post and about Business in General that I was good, I pulled out and I want to share with you. He helped her understand it was always a mistake to pay too much for something you wanted. Impatience was the enemy. For a long time, the Post did very little and grew slowly but Buffett taught taught Graham the immense value of buying the her company's own stock when it was cheap to reduce the shares outstanding that increased the size of each slice of the

pie meanwhile the post avoided making expensive mistakes and became much more profitable as a result so he's teaching, hey, increase the amount you own if it makes sense to do so at that time. Be patient. And then the growth and the profits will catch up with your company as long as you're avoiding making expensive mistakes. But this whole quickened pace that Munger and Buffett talk about all the time is like don't do something for the sake of activity.

Like you could be taking what you think is one step forward and be going you know five steps backwards um at this point is in in his life his wife eventually leaves let me put that in quotation marks uh what we're about to see here is warren's biggest regrets in life um which is also odd since it's part of what makes him so successful but i i went and researched when this book came out like 10 years ago, the biggest takeaway from the book was the fact that Warren had two wives. I don't even know how to describe it. And I'm not going to get too much into it because it's outside the scope of the point of founders.

But I do think it's important when there's something that happens in their lives that we can avoid, I want to bring it up. So his wife is deeply unhappy. She, this is so bizarre, but she essentially says, hey, buy me this little apartment and I'm going to buy an apartment in San Francisco, but I'm not leaving you.

You know, I'll still be here, but I need my own life kind of thing. So once the kids grew up and they were out of college, essentially she's saying like she was so unfulfilled that she needs her own life. So she, she moves to San Francisco, her tennis coach, quotations marks, moves there with her and he gets an apartment very close to hers and they start traveling together. He thought essentially they're, they thought essentially they're in a relationship. And he thought eventually she's going to divorce Warren and they would get married.

And she just couldn't do it because she thought it would devastate Warren. It's almost like she was more like a mother figure than a wife to him, which is like, it's just a complicated relationship. And this book goes in detail about it. So essentially she says, don't worry, I'm not leaving.

We're gonna stay together, but I'm just gonna have a separate life. And I'll come back to Omaha and I'll do everything you need. So this is happening, they're in like their forties. They stay married until she dies at 72. And then I think this was like 2004. So the last like 30 years of the relationship, they were married, but like in the public.

So like if Warren had to go to a public meeting she'd go the shareholder she'd go as his wife but then his wife installs this other person that's like 10 years longer than her astrid meeks um who was like a friend of hers and said hey like essentially just hooked up warren with another woman and then once his wife dies he marries her but she wound up being his companion for 30 years. It's bizarre. All Warren says about it is, if you knew all the people involved, it would make sense to you, okay?

So I'm gonna skip over that, because it's more like gossipy, but I want to focus on, essentially what's happening in Warren's life is, he's destroyed by this. He didn't see it coming, which is bizarre to me, but it's not really bizarre because he only had time to focus on one thing, and you can't be focused on making more money every

minute of every day and then also carrying on a relationship with your wife and your kids we're going to see here so again this is another example of something i want to avoid i do not want this aspect of warren's life says warren would eventually come to explain whatever he did to make susie leave was his biggest mistake. Parts of it are sort of not understandable, he says. It was definitely 95% my fault, no question about that. It may have even been 99%. I just wasn't attuned enough to her, and she'd always been perfectly attuned to me. You know, my job was getting more and more interesting and more interesting as i went along and then your spouse starts to come second when susie left she felt less needed than i should have made her feel she kept me together for a lot of years and contributed 90 to raising the kids it shouldn't have happened

and it's totally my fault he had been shocked into realizing the truth of Susie's insistence that sitting in a room making money was no way to spend life. She'd asked him to quit over and over again before this, just we have enough money, just enough, like stop, and he just wouldn't. He began to see what he had missed. While he was friendly enough with his kids, he hadn't really gotten to know them. He would spend the next few decades trying to repair these relationships. Much of the damage could not be undone. At 47, he was just beginning to take stock of his losses. Shortly after that, I stumbled on another part where that just, it really surprised

me and it was, I just don't think I would choose the same path it's this section i'm going to read to you it's going to be bizarre because again think about warren thinks of himself as a teacher right but he didn't teach his own kids about personal finance so it says uh that buffett tried to control his children with money yet never spent any time teaching them about money might seem odd yeah it does but it was the same story as with his employees. He felt any smart person could figure it out. He handed the kids their Berkshire stock without stressing how important it might be to them someday, explaining compounding or mentioning that they could borrow against the stock without selling it. And a bunch of them do. They sell

things that would be worth maybe even billions of dollars to them now, they would sell, I forgot what the prices were, but they were a couple hundred bucks a share, whatever it was at the time. By now, his shareholder letters had tackled most financial subjects, and he undoubtedly thought that these, along with the example of his life, served as adequate lessons for his children. So essentially he said, well, the information's out there. If they want it, they can go get it, which to one degree you understand, but your whole life was about increasing the value of money and finance.

I don't know why you wouldn't sit down and make those lessons explicit for your children because they seem to be so helpful. They're just helpful life skills. Another way to understand people, and especially this applies to Warren Buffett, I think it applies to a lot of people. You can also we can see what's important to Buffett by seeing what he valued in the lives of others. And so this example of that is a local businessman in Omaha that he respected. And he says, in many ways, Peter Kiewit exemplified Warren Buffett's ideas about how life should be lived. When Kiewit died, Buffett's tribute not only honored the man,

it expressed as much as anything that Buffett ever wrote how he would like to be remembered himself. So this is what he wrote about Kiewit. Starting from scratch, he built one of the great construction companies in the world. Although not the largest, it may well be the most profitable business of any type in the country. An achievement possible only because Kiewit was able to transmit throughout an organization of thousands of employees an unremitting insistence on excellence and efficiency. Kiewit was overwhelmingly a producer, not a consumer. Profits went to build the capacity of the organization, not to provide opulence to its owner. In essence, one who spends less than he earns is accumulating

claim checks for future use. At some later date, he may reverse the procedure and consume more than he earns by cashing some of those accumulated claim checks or he may pass them on to others either during his lifetime by gifts or upon his death by bequest william randolph hearst buffett wrote used up many of his claim checks by building and maintaining his castle in sam simeon so what they're talking about is hearst castle it's in california actually visited there this past summer. I knew I was going to eventually read the biography of William Randolph Hearst. And I was on a road trip to California with my family. And we said, hey, let's stop here. I thought it'd be an opportunity not only to see my daughter, to see the place. So it's fascinating, but also chance to learn um and kind of get an idea of the person that uh william renhoff first uh was

that'll be an upcoming founders episode eventually so this next part i really like because it's advice for those who still haven't found what they want to do in life something i love that warren does he still does it to this day is like spends a lot of time talking to young younger people college students, high school students, people like that. Very few people at that point in their life know what they want to do. So this is his advice for that. People ask me where they should go to work,

and I always tell them to go work for whom they most admire. He urged them not to waste their time and their life. It's crazy to take little in-between jobs just because they look good on your resume. That's like saving sex for your old age. Do what you love and work for whom you admire the most and you've given yourself the best chance in life you can. More advice he gives. He always said the biggest mistakes and regrets in his life were acts of omission as opposed to commission. He says it over and over again. And this held true in his life were acts of omission as opposed to commission he says it over and over again and this held true in his personal life as well and it says the errors of omission in his personal life inattention neglect mischances were always there these were the side effects of

intensity but they were shadow presences visible only to those who knew him well he spoke of them only in private if at all all. More good life advice to students. To the students, he explained his 20 punches approach to investing. He says, you'll get very rich if you thought of yourself as having a card with only 20 punches in a lifetime and every financial decision used up one punch. You will resist the temptation to dabble. You'd make more good decisions and you would make more big decisions. Use that word dabble. Remember the quote I just said about Walt Disney seldom dabbling. I really like that idea. Think about your life as you have 20 opportunities at most, so don't waste them. You get very rich if you thought of yourself as having

a car with only 20 punches in a lifetime, and every financial decision used up one punch. This is just another thing. Warren, the teacher. As long as he could be teaching something to somebody, Buffett had never ceased talking. And I think we definitely benefit from, the world benefits from that personality trait of his. This is more good advice from Warren that is probably even more true today. Buffett said, Buffett was the best there ever would be at the one thing that only he could do perfectly,

which was to be himself. He talks about in the book of not, like a lot of people are tempted to go through life as the echo of somebody else, which I thought was an interesting term he used. Basically copying the decisions and the traits of other people, but losing the echo of somebody else which i thought was an interesting term you use like basically basically copying the decisions and the traits of other people but losing the sight of themselves and so he's like i can't go through life as an echo like he'll learn from everybody around him but he's got to be who he is and i think that's great advice um this is just another

example of i i think like we're unbelievably lucky lucky to be uh like it's just what a time to be alive um this dis dis intermediation that he's going to talk about here um i think we're we're benefit from because it's exploded the width and the depth of opportunities for entrepreneurs and he says in buffett's lifetime this rapid disintermediation of the entirety of traditional media, that is, the replacement at varying speeds of recorded music, movies, newspapers, radio, television, and magazine by a single medium, the internet, was the greatest change in business that he had ever witnessed in any of the industries that he had studied. Some more advice from Buffett, and this is now around the time of the financial crisis in 2007-2008 And the advice he gives here is something that he successfully avoided, right? So he says, you absolutely never want to be in a position where tomorrow morning

You have to depend on the kindness of strangers I spent a lot of time thinking about that I never want to have to come up with a billion dollars tomorrow morning Or any significant amount Because you just cannot be sure of anything This is also why he keeps a margin of safety. He talks about all the time, right? You have to think about things that have never happened before. You always want to have plenty of money around. And so in addition to have a margin of safety, he also gives advice that you should cap your downside, which we see over and over and over

again in the lives of these entrepreneurs. And this actually helped Warren during that financial crisis. And this is what he talks about it. He says, it's a weird time. We've gone into a different world and nobody knows what will happen to the world. But Charlie and I looked at the downside and nobody else did.

And nobody else did very much. So again, it's rare. And I think the fact that it's rare is why we should heed that advice because it's something that a few people do that serves them well. We should use that as like examples in our own life. Like, okay, not only is that an important idea,

but something in our nature causes us to avoid that. So how can we be hyper aware of that and make sure that we don't make the same mistake that most people do and what buffett's talking about there is like most people didn't even think about like the worst case scenario or the fact that they could things could change rapidly they could potentially run out of money and be ruined um and you know he's right in the middle of that there's tons of of companies that that's that sought out warren and asked them for them for essentially an investment or buying or bailout during this time. He made a lot of money during this time because he had excessive amounts

of cash, but he turned on a lot of people and those people went out of business or went broke. So it's just devastating. And finally, I want to close on this last idea where I try to really focus on, because I feel like if you want to learn the best business advice from Warren Buffett, like I'm never going to be able to beat the podcast I did on the shareholder letters, you know, because that's explicitly what it's about. But I think there's also personal things that are just as important,

if not more important than those business lessons that we can learn from the lives of the people we're studying. And this is something that I definitely am going to consider and learn from the lives of the people we're studying. And this is something that I definitely am going to consider and learn from the life of Warren Buffett. So I want to end on the advice that he gave college students while his wife is dying. So he knows she's going to die soon. He's going through the struggles.

And so that opens up like emotional thoughts and wounds and i'm very curious to see like what at those periods in those in people's lives like what do they think is the most important while they're feeling that so this is him talking to i think georgia tech students about this they asked him what had been his greatest success and greatest failure. He didn't tell him about his business mistakes of omission this time. Instead, he said, Basically, when you get to my age, you'll really measure your success in life by how many of the people you want to have love you actually do love you. 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 That's the ultimate test of how you've lived your life The trouble with love is you can't buy it. You can buy sex, you can buy testimonial dinners, you can buy pamphlets that say how wonderful you are. But the only way to get love is to be lovable. It is very irritating if you have a lot of money.

You'd like to think you could write a check. I'll buy a million dollars worth of love, please. But it doesn't work that way. The more you give love away, the more you get. And that is where I'll leave the story. If you want the full story, buy the book. If you buy the book using the link in the show notes or the link at founderspodcast.com, that helps support this podcast. And I have one request, please. Please tell one friend this week about Founders. I'd really appreciate it. And I'll talk to you next week.