The Snowball Summary: Alice Schroeder

2
The Snowball Summary

The Snowball Summary provides a free full summary, key takeaways, top quotes, author biography and other vital points of Alice Schroeder’s famous book about Warren Buffett.

Warren Buffett is the sum of each person in the world as a multibillionaire. Despite his fortune, he avoided show-off. In fact, he pays himself $100,000 yearly. This, in today’s American economy, labels him as upper-middle-class. He still lives in his simple Omaha house which he bought in 1958. Buffett still likes an old suit too costly customized tailoring. When Buffett was just a multimillionaire, his shoe soles had holes. But, he didn’t care. For him, clothes don’t matter. Instead, making money matters. He does this better than anybody else in the world. In 2008, Forbes ranked him the wealthiest man in the world. At that time, his net worth was $62.3 billion.

Author Alice Schroeder records the life of Buffett. And, she does a wonderful job. Schroeder is a famous former research analyst. She uses her knowledge to record Buffett’s business activities and investment philosophy. We praise her skills as a writer and researcher. Her book The Snowball has interesting accounts on Buffett. This is among the best business biographies. It shows how Buffett earned the most significant fortune in the world.

This Summary Will Help You Learn

  • Who is Warren Buffett;
  • What is his business and personal history;
  • Buffett’s investment philosophy; and
  • How to become the wealthiest man in the world.

Take-Aways

  • Very early in his life, Buffett committed himself to get rich.
  • Now, he’s richer than anybody else in the world.
  • Buffett made his fortune by his expert investment criteria. He’s superb at finding a firm’s earning capacity and long-term value.
  • It’s against his mantra to let the stock market shifts affect him.
  • Buffett never trusts stock booms. Also, he’s not surprised by stock falls.
  • He seeks undervalued firms.
  • Buffett avoids Wall Street. He prefers operating from Omaha, Nebraska.
  • He operates with strong center staff. This policy helps him be calm about his duty toward investors.
  • Buffett has a simple taste, but he’s a complicated man. He’s an ordinary person who led an extraordinary life.
  • He intends to give most his fortune to charity.

Best Selling Books

SaleBestseller No. 1
The Snowball: Warren Buffett and the Business of Life
542 Reviews
The Snowball: Warren Buffett and the Business of Life
  • Bantam
  • Alice Schroeder
  • Publisher: Bantam
  • Edition no. 0 (10/27/2009)
  • Paperback: 832 pages
Bestseller No. 2
The Snowball: Warren Buffett and the Business of Life by Alice Schroeder (2008-09-29)
542 Reviews

Suggested Reading: The Warren Buffett Way Summary

Suggested Reading: One Up On Wall Street Summary

The Snowball Summary

The World’s Wealthiest Individual

Warren Buffett is the real owner of all his vast fortune. Because he earned it all himself. He didn’t prefer living on Wall Street. Rather he prefers living and working from Omaha, Nebraska. It’s a small city in the central USA. All through his career, Omaha was Buffett’s base. But, the rest of the world sees Omaha as an ordinary town. To make such a huge fortune, Buffett studied the stock market. He learned all that he could about firms and their growth potential. Such hard-earned insights were his road to becoming the world’s richest man.

Benjamin Graham was Buffett’s mentor. Plus, Buffett adapted his investment philosophy from Graham only. The philosophy is straightforward. Buffett suggests seeking firms that low priced stocks. Such value must be less than the firm’s internal value. Then he says to invest accordingly. Buffett isn’t bothered by the seasonal ups and downs. It’s because he invests for the long-run. His focus is on firms with high earning potential and sound basics. And because of this process, he became the richest person. Of course, his legendary expertise is much easy to say than to achieve. Not everyone can separate winners from losers. So, how did Buffett turn into the best stock-picker and firm evaluator?

The answer is his dedication to becoming a millionaire since childhood. An early photo of his shows him holding his favorite toy proudly. It’s a change-maker which dispenses coins. While growing up, Buffett studied all he could find on investing and business. This included old newspapers and magazines too. He went on to far exceed his original economic goal. And, this’s a proof of his focus and his typical formula for financial success. His story is a classic tale of dedication which pays off above expectations.

The Early Years

People in Buffett’s family were Nebraska tradespeople. They were honest, straightforward and no-nonsense kinds. Buffett’s father, Howard, worked with his father in his grocery store. He then later went on to attend the University of Nebraska. Post that; he started selling insurance. Howard’s second son was born in 1930. His name was Warren Edward. He was born when the Great Depression had just begun. Soon after, Howard launched a stockbroking firm. Its name was Buffett, Sklenicka & Co. This took real courage to do so because people were shunning stocks at that time. But, Howard’s company was a winner.

Even as a kid, Warren loved collecting things and numbers. In fact, his hobbies were measuring and counting. Of course, such interests laid the foundation. Even as a boy, Buffett was a real businessman. The first products he sold were gums to his neighbors. Then, Warren sold golf balls. He got these balls from the lake near a golf course. Buffett even sold peanuts and popcorns at college football games. But, even then Buffett saved each penny he earned. While growing up, Buffett read all newspapers and investment books in his father’s office. At that time his favorite book was One Thousand Ways to Make $1,000. He avidly read it. Buffett promised himself that when he turns 35, he’ll be a millionaire.

Howard was elected to the Congress during the 1940s. Hence, Howard and his family shifted to Washington D.C. While there, Buffett entered junior high and also became a paperboy. In fact, in 1944, he filed his first tax return. When Buffett turned 14, he had $1,000 as savings. With his dedication, he doubled the amount. Then Warren bought a 40-acre renter farm in Nebraska. When Buffett was a teenager, he also started pinball business. Under this, he purchased and installed machines in local salons. Besides this, Warren also did horse race handicapping. In there, he sold a tip sheet he called Stable-Boy Selections.   

Graduation Years and Family Life

On completing high-school, Buffett attended the Pennsylvania University. It was only for a short time as he didn’t like it. When Harvard rejected him, Buffett was shocked. Then he attended Columbia University. It’s there that he took lectures with Benjamin Graham. In no time, Warren became Graham’s best student. In fact, he also memorized Graham’s book Security Analysis. This book Graham wrote with David Dodd, another Columbia professor.

By this time, Warren regularly invested in Wall Street. His focus was on firms which always made money by keeping costs low. These included GEICO, the insurance company. Initially, he bought 350 shares and then many later on. He went back to Omaha after graduation. There, he sold shares for his father’s company. Besides this, he started teaching investing at the Omaha University. He then went on to marry Susan Thompson. His capital was $19,738 by 1951 which he reinvested.

He lived a humble life with his wife on his earnings as a teacher and stockbroker. This wasn’t tough as Buffett lived simply. He only washed his car when it rained. Hence, he saved a lot on the water. The couple’s first child was born in 1953. Her name was Susan Alice. Then they had two sons, Peter and Howard.

Working with Graham

In 1954, the couple shifted to New York. While there, he worked at Graham’s investment company. He followed Graham’s investment philosophy to the core. Thus, he went on to focus on firms’ net worth. Also, he bought shares in companies the Wall Street undervalued. As per Graham, these firms were “cigar butts.” Warren then studied Standard & Poor’s and Moody’s. No doubt he was an expert with numbers and analyzing them. And hence, he fast turned into a sensation at Graham’s company by suggesting great buys. While there, Warren learned a critical lesson on capital allocation. And this became his core investment principle. On his retirement, Graham offered Warren a partnership. This was because Graham wanted to keep Warren in the firm. But, Warren came to New York only to work with Graham. And with him gone, Warren had no reason to remain. Hence, he shifted back to Omaha with his family.

Buffett Associates Ltd.

Warren had $174,000 by 1956. Though only 26, he wanted to retire. He planned to live off the investment income which he could earn from the nest egg. This was when he invited some relatives and friends over. He planned to help them benefit from his expertise. 6 people became partners at the new Buffett Associates Ltd. These included his father-in-law, sister Doris and her spouse, and his Aunt Alice. Warren was the 7th partner. The partners had to pay him 50% of the profits above a 4% limit. This was Warren’s management fee. He even took 1/4th of the downside. Soon, the number of partners increased. And the partnership made money quickly. Buffett made many additional partnerships with others. This included Charlie Munger who was an attorney and had his investment firm. He went on to become Buffett’s main partner. By now Buffett was earning high returns from all partnerships. He kept on reinvesting his money. Hence, his money kept growing. Indeed, his “snowball” was increasing significantly. 

By 1958, he was managing over a million dollars per year. He planned to beat the Dow by 10% yearly. In fact, he was doing so good that he didn’t hire new partners. Now, if anyone wanted his advice, they had to ask him. Buffett merged his partnership in 1962 into Buffett Partnership Ltd. Its assets were $7.2 million. Now, Buffett was a millionaire. His initial investment in American Express paid well. But, Berkshire Hathaway investment didn’t. Still, he bought 2,000 stocks of the company in 1962 at $7.5/share. Then he purchased some more. He then ended up buying the whole company besides many other. 

San Francisco Susie

Buffett was busy making himself and his partners rich. His wife also became active on behalf of Omaha’s deprived black community. She even went on to become a part-time singer. This led to creating a separate life for herself. Still, she was very supportive of Warren. By 1996, Buffett’s net worth was $10mn. But, Berkshire Hathaway wasn’t performing well. He tried selling the firm to Charlie Munger. But Munger declined. He had high regards for Buffett’s expertise in investment. Hence, he didn’t want to buy a firm that Buffett didn’t want to keep. This led to the closure of Berkshire Hathaway plan. Many workers were laid off. Since then, the firm became Warren’s holding firm. By 1974, he became a business mogul, with his many firms. His fortune crossed $70mn by 1977. He was just 47. But his wife wanted more. She had shifted to San Francisco where he lived alone. Though she loved Warren but wanted a life beyond Omaha. Susie and Warren stayed devoted. They even daily talked over the phone. In 1978, at Susie’s request, Astrid Menks started taking care of Buffett. The two eventually started living-in together. This was an unusual arrangement. But Warren never explained it to the world. It worked well for them. And that’s what mattered to him.

Richer and Richer

Over time, Warren kept on expanding his and his partners’ wealth. When he turned 50 in 1980, Berkshire Hathaway had a share price of $375. By 1983, his net worth was $680mn. And he soon became a billionaire by 1985. In 1987, the company had a share price of $2,950. And Warren’s net worth at that time was $2.1bn. This made him the 9th wealthiest man in the USA. By the turn of 1991, he was the 2nd wealthiest. His net worth at that time was $3.8 billion. The initial partners of Buffett also became made an enormous fortune. By 2008, Buffett was the wealthiest person in the world.

All through his journey, he watched his expenses. He made careful investments. Buffett always invested his profits. His mantra was to allow his money to grow at compound interest. Buffett was never affected by the shifts in the stock market. This was especially so when the market moved to technology. He openly said that he didn’t understand it. Admitting, “the software industry isn’t my area of expertise. I know Dilly Bars but not software.” Hence, he stayed away from software’s busts, bubbles, and booms.

The Salomon Brothers Debacle

Buffett had a huge love for money. But for his honesty and the hard-earn image was more important. In 1991, Salomon Brothers tested this reputation. It was an investment bank in which Warren had $700m invested with Berkshire Hathaway. Paul Mozer, a Salomon executive, made some illegal bids while dealing with US Treasury. This news hit the Wall Street. And the entire Wall Street went into a rage. It was found out that the CEO also knew of such misdeeds. This led the whole company in the scam. The CEO should’ve fired Mozer, but he didn’t. Hence, he had to resign. The stocks of the company fell sharply.

During such testing times, Buffet took the post of Salomon’s interim chairman. He was famous for his integrity and honesty. Hence, his readiness to save the firm rescued it from announcing bankruptcy. Buffett had to give a testimony to the US Congress about the scandal. He said that he had warned Salomon’s executives. His words were, “lose money for the company, and I’ll understand. But lose an inch of the reputation for the company, and I’ll be savage.”

Family Matters

In 2004, Warren’s wife died of a brain hemorrhage. After two years, he married his long-time companion Astrid Menks. Also, in 2006, he declared to give way his Berkshire Hathaway shares. These stocks were valued at $37bn. He wanted to give 83% of it to a charity. It was the Bill and Melinda Gates Foundation. This, he said, was for the betterment of the society. In fact, he didn’t even ask the Foundation to memorialize him. His only condition was: the money must be spent fast to help needy people.

Best Selling Books

SaleBestseller No. 1
The Snowball: Warren Buffett and the Business of Life
542 Reviews
The Snowball: Warren Buffett and the Business of Life
  • Bantam
  • Alice Schroeder
  • Publisher: Bantam
  • Edition no. 0 (10/27/2009)
  • Paperback: 832 pages
Bestseller No. 2
The Snowball: Warren Buffett and the Business of Life by Alice Schroeder (2008-09-29)
542 Reviews

Suggested Reading: Security Analysis Summary

Suggested Reading: The Intelligent Investor Summary

The Snowball Quotes

Warren Buffett was a man who loved money, a man for whom the game of collecting it ran in his veins as his lifeblood.”

“When Buffett walked into a room, the electricity was palpable. In his presence, people felt brushed by greatness. They wanted to touch him. They became dumbstruck before him, or babbled inane remarks.”

“Howard Buffett quickly gained a reputation as perhaps the least back­slap­ping congressman ever to represent his state.”

“Since Warren looked at every dollar as $10 someday, he wasn’t going to hand over a dollar more than he needed to spend.”

“He never hosted backyard barbecues, lazed around a swimming pool, stargazed or simply went for a walk in the woods. A stargazing Warren would have looked at the Big Dipper and seen a dollar sign.”

“Buffett had a buoyant optimism about the long-term economic future of American business.”

“If enough people thought that a company’s stock was worth X, it became worth X until enough people thought otherwise.”

“The very mention that Buffett had bought a stock could, all by itself, move its price and revalue a company by hundreds of millions of dollars.”

“Buffett’s testimony in Congress as the reformer and savior of Salomon had turned him from a rich investor into a hero.”

“Buffett would undertake almost anything from his short list of most-loathed tasks – get into an angry, critical con­fronta­tion; fire someone; cut off a long friendship carefully cultivated; eat Japanese food… almost anything – [rather] than make a withdrawal from the Bank of Reputation.”

“In the short run, the market is a voting machine. In the long run, it’s a weighing machine.”

“Balzac said that behind every great fortune lies a crime. That’s not true at Berkshire.”

About the Author

Alice Schroeder was initially a CPA. She then became a famous research analyst. Buffett was very impressed with her writing. In fact, he even suggested that she take up full-time writing.

Feedback

After reading this The Snowball Summary, do you have any comment on it? Please feel free to leave your comment with us!

Suggested Reading: Security Analysis Summary

Suggested Reading: Think and Grow Rich Summary

Suggested Reading: The Intelligent Investor Summary

Last update on 2018-07-18 / Affiliate links / Images from Amazon Product Advertising API

2 COMMENTS

  1. Well the point is really valid, everyone does not own capabilities to identify the loser and winner and separate them. According to my views changing the fortune of a person is not so easy unless and until the person has dedication. The example of Buffet is very helpful and supportive for the beginners and business persons to turn their fortune towards success especially in the financial terms.

  2. Yes, you are right the Market is in real works like a weighing machine when it comes to the long run. The book records the Buffett life events and his struggled life to provide the idea of how he earned success in his life. I read the whole article that gave him inspiration and motivation. In accordance with me, one can ensure success by following the Buffett and his dedication towards his business.

LEAVE A REPLY

Please enter your comment!
Please enter your name here