‘Snowball: The business of life’ is mammoth of a book which even at being 700 pages long is both entertaining and enlightening. It offers a glimpse of a very diverse and eventful life of Warren Buffett and goes behind the making of the legend. I learned many things from this book which captures Warren in both his positives and negatives.
- Obsession
Warren Buffet was obsessed. Obsessed with making money and compounding. First via finding cigar butts. Then by buying wonderful businesses and distressed assets. Buying all kinds of businesses. Obsession is the thing that distinguishes the good from the great. Bill gates and warren Buffett agreed ‘focus’ was the reason they became the legends in their fields. ‘Focus’ they meant is far more intense and obsessive to what most people think.
- Stayed in his circle of competence
He was very early influenced by the ‘shoe button complex’ in which a successful shoe button maker thinks himself an expert in every topic. Staying in his circle of competence of three things namely money, business and himself made him the legend he is today. As Charlie Munger said ‘Specialization is the crux of human existence. No one wants to go to a doctor who is half dentist and half proctologist’.
- Had a great partner and found great people
He had a great mentor in Benjamin Graham. Though he deviated from his investment philosophy later in life, he shaped him. Charlie Munger, who is his junior partner at Berkshire shaped his views and helped him evolve. He learned from him and made him better at what he did. All of his businesses were run by fanatics who knew the inside out of the business. He bought their company and retained them as the head. He found great managers such as Ajit Jain, Greg Abel, etc to run his businesses. This skill of finding great people and showering them with trust has done him wonders.
- Reputation matters
Key theme of this book is Buffett’s reputation. Reputation works like compound interest. Great and trustworthy people do business with similar people. On the other side, reputation is built by drops and lost by buckets. Warren and Charlie realize this more than anyone and have always tried to maintain a great reputation. They did not trade extra money for an ounce of reputation and that is what is important in business for the long term. It always works out better this way.
- Being a learning machine
Buffett spends most of his day reading and thinking. Throughout the book, Buffett learning habits have been mentioned. Many people think but don’t read. Some read but don’t think. Doing both of them leads to better mental models and decisions.
- Ovarian Lottery
No matter you accept it or not. There are always certain factors in making of an individual in his story which are out of his control. Would Buffett be the Warren Buffett if he was born in Bangladesh in 1930? Most likely not. Luck matters and one has to have some luck to at least survive the game.
- Many investments which failed
All is investments were not multibaggers. Some of them wet down a ditch from which they didn’t recover. Blue chip stamps got busted, Berkshire Hathaway (the textile mill) was a cigar butt with no puffs, Salomon gave him nightmares, his adventures in airlines turned out to be bad and so on. Investing is difficult as many things ranging from macroeconomic to cultural shifts can be death sentence to once a prosperous business. One doesn’t have to be correct every time. But learning from mistakes is pivotal.
- Buying businesses wasn’t all that rosy
Almost all his businesses he bought gave him headaches. National Indemnity lost money for first few years, Coca Cola(investment) got involved in controversies, General Re wrapped itself in frauds and losses for first few years, Buffalo news had labour strikes and initial huge losses, Nebraska furniture mart had management fights, he got his ass handed over in Diversified retailing and the list goes long. What is surprising was that he managed to turn most of them around. He bought businesses when neither did they made good money nor did they were popular among investors. But he understood and believed the strength of the management and the assets they had. He isn’t perfect. No one is. But one doesn’t need to be perfect.
- Honesty, ethical and fair
He valued honesty. Never mislead his own partners and shareholders. Did no monkey business with people and thought himself as an agent of justice. He was fair and that is why everyone wanted to business with him. He could make a lower bid for a business than his competitor and still walk away with the cake because he valued the empire that they built and never backtracked on his commitments.
- Not always a nice guy
In business, you don’t have to be always nice. One has to be fair and rigid keeping the best interest of shareholders in mind but also not be completely indifferent to human emotions. It was the grey line between these factors in which Buffett operated and was able to influence people to such a degree that his managers worked to make Berkshire the mammoth it is today. Buffett didn’t like confrontation but fought when it was needed.
- Cost of Success
He was drowned in journals and annual reports to the point that he ignored his wife and children and almost alienated her own wife. Success sometimes has a cost. He made great business relations but still struggled to keep his family together. Later did he realize in life the importance of family especially his wife when she left him. It left him depressed and lonely. He used to weep in memory of her and wasn’t able to pull himself together. We usually value things after we lose them. He didn’t have a great relationship with his children either initially. Only did it get better with age when he realized the importance of his own family.
- Evolution
Most importantly, he learned from his mistakes. Changed his investment philosophy from cigar butts to qualitative investing. He always learned and evolved. That is the most important takeaway.
Great stories mentioned in snowball which I loved reading
- Charlie Mungers backstory
- Rose Blumkin and the Nebraska Furniture Mart
- Blue Chip Stamps and the SEC
- See’s candies acquisition
- Salomon Crisis that nearly took down Buffett
- Buffett and Gates meeting
- Acquisition of Berkshire Hathaway
- Warren’s relationship with Susan, Astrid and his children over the years
- Buffalo news strikes
- Washington Post and Kay Graham