The word "capital"-money-was an important hint at what Buffett was thinking when he acquired National Indemnity, for capital was his partnership's lifeblood. He was pulling capital from Berkshire and it needed to be put to work. National Indemnity took a lot of risk and needed gobs of capital to do so. "By most standards," he wrote, "National Indemnity is pushing its capital quite hard. It is the availability of additional resources in Berkshire Hathaway that enables us to follow the policy of aggressively using our capital which, on a long-range basis, should result in the greatest profitability within National Indemnity.... Berkshire Hathaway could put additional capital into National Indemnity, should underwriting turn sour."23 Buffett had figured out a whole new type of business. If National Indemnity made money, he could send those profits out to buy other businesses and stocks, instead of leaving them to hibernate in National Indemnity's vault. But if the lion ate the lion tamer, National Indemnity might need money to pay the lion tamer's weeping family. Then the money could come back home to National Insurance from the other businesses.

Grafting the insurance business onto Berkshire Hathaway, the mess of a textile mill, made its capital homeostatic. It could respond internally to the environment at Buffett's command, rather than hibernating like a lizard when it got cold or running out when the sun shone to find a rock on which to sun itself.

The key was to price the risks right. Thus he needed Jack Ringwalt, who had talked himself into selling his own business, to stick around. Buffett paid Ringwalt handsomely and cultivated him as a friend; and as with Ben Rosner and Associated Cotton Shops, he had bought an excellent business run by an able manager.

The two men often played tennis in California. Ringwalt, whose taste in clothes resembled Buffett's, would show up in a grimy old sweatshirt that his daughter had made for him. His racy nickname, Jet Jack, stretched in huge letters over his bay window of a gut. Once when he and Buffett were having lunch at a Jolly Roger restaurant, a little kid came up to him. "Can I have your autograph, Jet Jack?" he asked. Ringwalt swelled with pride. The kid thought he was a celebrity: an astronaut or a movie star. He may not have looked the part except to a little kid, but in his heart, he still felt like Jet Jack.

And rightly so, because the swashbuckle came from inside, not from the way he looked. Ringwalt may have sold his company, but he had gotten back a bit of his own-for what he did with some of the money he got from selling National Indemnity was to buy stock in Berkshire Hathaway.24

31.

The Scaffold Sways the Future Omaha * 19671968 The greatest wave of riots, lootings, and burnings since the Civil War swept the country during the summer of 1967. Afterward, Dr. Martin Luther King said, "Many more riots of the kind we had last summer and we shall be in danger of a right-wing takeover of the fascist type!"1 Privately angry at the movement's lack of progress, King still refused to endorse violent resistance; some activists felt that the Student Nonviolent Coordinating Committee and Dr. King's Southern Christian Leadership Conference should have mounted a much more confrontational response to the ugly force of nightsticks and cross burnings they faced that summer.

Omaha's nonviolent activists counted the Buffetts-both of whom were now influential in town-among their informal network. Rackie Newman, the wife of Warren's best friend in Omaha, Nick Newman, was working with Susie to pressure the YMCA and the boards of other organizations to give a fairer share of money to their branches in impoverished areas. Through the United Methodist Community Center, run by an African-American friend, Rodney Wead,2 Susie and Rackie sent black kids to summer camp and set up an interracial dialogue group for local high school students.3 Wead had become a frequent presence in the Buffett house. John Harding, who ran Buffett's back office, collected thousands of signatures for an open-housing petition. Nick Newman helped bring Warren directly into the struggle by sponsoring his participation in various local civil-rights groups. Warren's role was not to labor, but to speak. He, Newman, and Harding testified before the legislature in Lincoln on open housing. For her part, Susie went out and at least a few times actually bought houses, fronting for blacks who wanted to move into white neighborhoods.4 Recently, Warren had been introduced to Joe Rosenfield, who ran the Younkers chain of department stores based in nearby Des Moines.5 Rosenfield was well connected in both local and national politics and shared the Buffetts' political views. He was also a trustee of Grinnell College, which sat like a tiny radical island in the middle of the farming hamlet of Grinnell, Iowa.6 Its liberal-minded students tended to go into social services after graduation, and the school was focusing its funding on increasing its African-American enrollment.

Eighty-some years after its founding in 1846, Grinnell had nearly gone broke, but in the quarter century since Rosenfield had taken over the endowment, he had built it to nearly $10 million.7 He had a keen wit, as well as an edge of sadness about him, having lost his only son in a tragic accident; Susie Buffett quickly developed a special relationship with him. Given all their shared interests, Rosenfield naturally wanted to involve the Buffetts with Grinnell, his most important cause.

In October 1967, the college was presenting a three-day fund-raising convocation on "the liberal arts college in a world of change" and had assembled a brilliant panoply of 1960s culture in its speakers' roster-including author Ralph Ellison, whose novel Invisible Man had won a National Book Award; social biologist Ashley Montagu, who had questioned the validity of race as a biological concept; communications theorist Marshall McLuhan, who had popularized the idea of a media-driven "global village" contemporary artist Robert Rauschenberg; and Fred Friendly, the retired former president of CBS News. But the speaker they were all waiting for was Dr. Martin Luther King Jr.8 Nobel Peace Prize winners were not everyday visitors to Iowa. Rosenfield had invited the Buffetts to the convocation; they were among the five thousand people who packed themselves into Darby Gymnasium for that Sunday morning's program.

King flew in with the president of Morehouse College, who was going to introduce him. They were hours late; state troopers, deputies, police, and private security guards had been standing on alert since before ten a.m., ready for trouble. As they waited, the audience grew hungry and restless.

Finally King strode to the podium, dressed in his preacher's robes. He had chosen the theme of "Remaining Awake During a Revolution," and his resonant voice rang out with a quote from poet James Russell Lowell's "The Present Crisis," the anthem of the civil-rights movement.

Truth forever on the scaffold, Wrong forever on the throne: Yet that scaffold sways the future, And behind the dim unknown, Standeth God within the shadow Keeping watch above His own.9 He spoke of the meaning of suffering. Inspired to nonviolent resistance by Gandhi, King invoked the lessons of the Sermon on the Mount. Blessed are the persecuted, it said, for theirs is the kingdom of heaven. Blessed are the meek, for they shall inherit the earth.

As touched as she was by Dr. King's powerful words, Susie must also have been deeply moved by the way he transfixed her husband.10 Buffett had always responded to powerful, charismatic orators. Now he saw King standing before him: moral courage in the flesh, a man who had been beaten and imprisoned, put in shackles and sentenced to hard labor, stabbed and clubbed for his beliefs, a man who had carried a movement on the strength of his ideas for nearly a decade despite enraged opposition, violence, and limited success. King had once described the power of nonviolence, which "has a way of disarming the opponent. It exposes his moral defenses. It weakens his morale and at the same time it works on his conscience.... Even if he tries to kill you, you develop the inner conviction that some things are so precious, that there are some things so dear, some things so eternally worthful, that they are worth dying for. If an individual has not discovered something that he will die for, he isn't fit to live. When one discovers this, there is power in this method."11 King was a prophet, a man who saw a vision of glory, of evil exposed through visible suffering, of people roused from sleep by the sight of horrors. He called his followers to nail themselves to his vision, to lift it up behind them and drag it through the streets. Christianity, he said, has always insisted that the cross we bear precedes the crown we wear. One of his lines, which he repeated in many of his speeches, struck Buffett's heart and pierced his reason.12 "The laws are not to change the heart," he said, "but to restrain the heartless."

"With that great voice of his, he just rumbled that out, and then went on and used that as a theme."

Susie had often told her husband that there was more to life than sitting in a room making money. That October 1967, in the throes of the civil-rights struggle, he had written a special letter to the partners, which showed that something in his thoughts had changed. This letter went out a little earlier than the annual report he wrote to the partners each year, and it laid out his strategy without revealing the year's pending results. After describing the "hyper-reactive pattern of market behavior against which my analytical techniques have limited value," he went on to say: "My own personal interests dictate a less compulsive approach to superior investment results than when I was younger and leaner.... I am out of step with present conditions. On one point, however, I am clear. I will not abandon a previous approach whose logic I understand (although I find it difficult to apply) even though it may mean forgoing large, and apparently easy, profits to embrace an approach which I don't fully understand, have not practiced successfully, and which, possibly, could lead to substantial permanent loss of capital."

He also brought up another reason for this "less compulsive approach": Personal goals, he said, had begun to intrude: "I would like to have an economic goal which allows for considerable noneconomic activity.... I am likely to limit myself to things which are reasonably easy, safe, profitable, and pleasant."

Buffett then stunned his partners by dropping his stated goal of beating the market by ten points a year to beating it by just five points a year-or to earning nine percent, whichever was less. If they could find better results elsewhere, he said, they should go, and he wouldn't blame them.

He knew that this was taking a risk. Some of the hot new mutual funds were doing much better than the partnership, doubling their money in a year. Each January, the partners could add money to the partnership-or take it out. Many other skippers were forecasting sunnier skies.

Yet his timing in announcing that he was cutting the goal worked in his favor. The Dow produced an unusually poor year in 1966.13 Some of the partners, shaken by the market's roiling, had advised him to sell stocks. He paid attention neither to the market nor to advice, and the partnership beat the Dow by thirty-six points, the best record in its ten-year history. "If you can't join 'em, lick 'em," he wrote.14 So, it was not a bad time to be offering his partners the chance to take their money elsewhere.

One side effect of this strategy would be to test their trust in him. They would be making their decision without knowing the actual results of his latest year-and for 1967 he was about to report his second stellar year in a row. If they stayed in, it would be because of that trust and because they were willing to accept his more modest goal. Beating the market by five points a year, compounded over any long-term period, would produce stupendous wealth.*25 Even Ben Graham had beaten the market by just 2.5 percent a year. Buffett's revised goal of nine percent put a floor on their results that was still two percent or more better than owning an average bond. That consistency, year after year, and not losing money, would lead to a stunning result. Sticking with him, an investor took only a modicum of risk, could achieve these extraordinary returns, and do so safely. Nevertheless, by lowering his target, Buffett had just taken his partners down a peg psychologically, and the results reflected that.

For the first time, instead of investors rushing to put more money into the partnership, they pulled out a net $1.6 million of capital in January 1968. Yet it was a fraction of what might have been. Less than one in thirty dollars had gone elsewhere. And when he reported his 1967 results a few weeks later, Buffett Partnership, Ltd. had advanced thirty-six percent-versus the nineteen percent rise in the Dow. Thus, in two years, a dollar in Buffett's stewardship grew more than sixty cents, while a dollar in the Dow was still a measly dollar.

He wished the departing partners Godspeed with what might be perceived as the subtlest trace of irony: "This makes good sense for them, since most of them have the ability and motivation to surpass our objectives and I am relieved from pushing for results that I probably can't attain under present conditions."15 "Financial genius is a rising market," as Kenneth Galbraith would later say.16 Now Buffett had more time to pursue the personal interests he had spoken about, and less pressure-at least in theory. After King's speech, Rosenfield easily recruited Buffett to become a Grinnell trustee. Given Buffett's dislike of committees and meetings, this signified how much he had been touched by the convocation-as well as how close he had grown to Rosenfield. Naturally, he went straight onto the finance committee, where he found the trustees to be a group of like-minded men. Bob Noyce, who ran a company called Fairchild Semiconductor, which made electronic circuits-something about which Buffett knew little and had even less interest-was chairman. Noyce, a former Grinnell graduate who had once been expelled from school for stealing a pig to roast at a luau-a serious offense in a pig-farming state-had the aura of a man who knew what he was about.17 Yet "he was really a regular guy. He didn't seem like a scientist at all," says Buffett. Above all, Noyce had an overarching hatred of hierarchy and a love of the underdog, in keeping with the guiding spirit of Grinnell.

Buffett seemed to feel a sense of urgency to do something more for civil rights too. He felt he could best serve the cause by using his brains and financial savvy behind the scenes. Rosenfield began to introduce Buffett around the Democratic Party power network. Buffett started to get involved with Iowa's Democratic Senator Harold Hughes and with Gene Glenn, who was running for the Senate.

Then, in March 1968, the most controversial man in America, former Alabama Governor George Wallace, arrived at the Omaha City Auditorium to campaign for President.18 More than five thousand people crammed into a room designed to seat 1,400 to see the man who had run for governor seven years before on the platform "Segregation now, segregation tomorrow, segregation forever."19 It took less than eight minutes for his supporters to collect the signatures to place him on the Nebraska ballot. The odor of stink bombs filled the air. When Wallace began to speak, demonstrators pelted the platform with sticks, bits of placards, paper drinking cups, and stones.20 Chairs flew, nightsticks cracked, blood splattered, and the police sprayed the crowd with Mace. As the melee spilled out along 16th Street, rioters pulled drivers out of cars and beat them. People started throwing Molotov cocktails, flames raced through the neighborhood, sidewalks filled with broken glass, and looters pawed through the stores. Hours later the violence passed, and calm finally began to descend. Then an off-duty policeman shot and killed a sixteen-year-old black boy inside a pawnshop, mistaking him for a looter.21 Over the next few days, high school students walked out of class, smashing windows and setting fires.22 A few days later, police and snipers armed with automatic weapons traded shots and arrested several people, including members of the Omaha Black Panthers.23 The racial violence continued all that summer, even as Susie never stopped going to the North Side. She trusted in her excellent relations with the community and discounted the personal danger; Warren was not always aware of the details of what she was doing but did feel that at times she went too far in putting others' interests before her own. His own horror of violence and fear of mob rule had roots that went back a generation.

Howard Buffett had recounted over and over to his children a scene he had witnessed when he was sixteen years old-a day when thousands of people converged on the Douglas County Courthouse, broke in and attempted to lynch the mayor of Omaha, and beat, castrated, and lynched an elderly black man who had been accused of rape. Afterward they dragged his body through the streets, shot bullets into it, lynched it again, and set it afire. The Courthouse Riot became the most shameful episode in Omaha's history. Howard missed seeing much of the violence, but witnessed the lynch mob turning a streetlamp into an improvised scaffold, and the mayor of Omaha hanging by a noose around his neck before being rescued in the nick of time.24 The memory haunted him for the rest of his life.25 He had seen with his own eyes the speed with which ordinary people, formed into a mob, could act out the lowest depths of human nature.

King's warning earlier that year about mass social unrest potentially leading to fascism required no explanation to Warren Buffett. His own commitment to siding with the underdog went beyond instinct and rested partly on this train of logic. Many people thought such a thing was inconceivable in the United States, but the seemingly impossible happened time and again. The law is not to change the heart, King said, but to restrain the heartless. And who are they, the heartless? That he did not say.

A few weeks later, King flew to Memphis to speak at the Masonic temple. He reflected on a woman who had stabbed him in New York City and the persistent rumors that an assassin was waiting for him. "I don't know what will happen now," he told the audience. "We've got some difficult days ahead. But it really doesn't matter with me now, because I've been to the mountaintop." The next day, April 4, as he stood on the balcony of the Lorraine Motel preparing to lead a march of sanitation workers, he was fatally shot in the neck.26 Grief, rage, and frustration poured out of black communities across America, turning urban centers into fiery combat zones.

At this time, tens of thousands of students were demonstrating against the Vietnam War on college campuses. The Vietcong had launched the Tet Offensive, attacking a hundred South Vietnamese cities. Americans had been horrified by a photograph of a South Vietnamese police chief shooting a Vietcong guerrila in the head point-blank, an image that for the first time changed the Communists from an abstraction to human beings. The U.S. government had just eliminated most draft deferments, finally putting the sons of the upper middle class at risk of being drafted. Public sentiment turned decisively against the war. By the time King was shot, the country felt as though revolution could erupt at any moment.

In their various ways, many people decided they were fed up, and done with being put down. Buffett's friend Nick Newman abruptly announced that he would no longer attend meetings at clubs that discriminated against Jews as members.27 Warren, too, was moved to take action. Since his Graham-Newman days, he had broken away from the segregated 1950s culture and the anti-Semitism of his family's elder generation to forge friendships and business connections with a wide circle of Jewish people. He even seemed to feel a sense of personal identification with Jews, some thought; their status as outsiders fit with his own sense of maladjustment and his alignment with the underdog. Some time before, Buffett had quietly resigned from the Rotary Club, repelled by the bigotry he saw as a member of its membership committee. But he never told anyone the reason. Now he made it his personal project to sponsor a Jew-his friend Herman Goldstein-for membership in the Omaha Club.

Since one of the rationales that institutions like the Omaha Club used to defend their exclusionary policies was that "they have their own clubs that don't admit us," Buffett decided to ask Nick Newman to nominate him for the all-Jewish Highland Country Club.28 Some of its members objected, using the same logic employed by the Omaha Club: Why take in gentiles when we had to establish our club because their clubs wouldn't have us?29 But a couple of rabbis got involved and an Anti-Defamation League spokesman appeared on Buffett's behalf.30 Once accepted, Buffett quietly stormed the Omaha Club, armed with his Jewish country-club membership. Herman Goldstein was voted in, and the long-standing religious barrier to membership there finally toppled.

Buffett had devised a clever solution, a way to get the club to do the right thing without confronting anyone. It avoided the thing he dreaded, but it also reflected his reasoning-probably correct-that marching and demonstrations would not change the minds of well-off businessmen.

It also worked because he was now a well-known figure in Omaha. He was no longer an upstart; he had clout. The man who had once had to work to get off the blacklist of the Omaha Country Club had singlehandedly effected what was perhaps the most significant organizational change since its founding in one of Omaha's most elite institutions.

Yet Buffett wanted to play more than just a local role. With his money, he knew he could have an impact at the national level, for 1968 was an election year, and it would take a lot of money to try to unseat an incumbent President-Lyndon Johnson-in favor of an antiwar candidate.

Vietnam was the central issue of the campaign, and Eugene McCarthy, the liberal Senator from Minnesota, was initially the only Democrat willing to run in the primaries against Johnson.

The campaign had started in New Hampshire, where a McCarthy "children's crusade" against the war sent nearly ten thousand young activists and college students to knock on almost every door in the state in heavy snow. He won forty-two percent of the New Hampshire vote, a strikingly strong showing against an incumbent President. Many students, blue-collar workers, and antiwar voters considered McCarthy a hero. Buffett became treasurer of his Nebraska campaign, and he and Susie attended a campaign event, she smiling broadly in an eye-catching dress and mob cap that she had had made out of fabric striped with McCarthy's name.

Then Johnson announced that he would not run again and John F. Kennedy's brother Robert Kennedy entered the race. He and McCarthy raced through a bitter primary battle in which there was no clear front-runner until Kennedy won the California primary, giving him a decisive lead in delegates. But on the night of his victory, he was shot by an assassin, dying twenty-four hours later, and Johnson's Vice President, Hubert Humphrey, announced his candidacy. He captured the nomination at a tumultuous Democratic convention in Chicago marked by battles between police equipped with nightsticks and Mace and rioting antiwar protesters. Buffett then supported Humphrey against the Republican Richard Nixon, who won the election. In later years, McCarthy switched parties several times and made several erratic independent runs for President, undermining his credibility as a serious politician.

Buffett was notably loyal to his close friends. His enthusiasm for more distant acquaintances, and especially for public figures was fickle, however, waxing and waning with their stature in others' eyes. In his insecurity, he worried constantly about how associating with others reflected on him. Eventually he regretted and downplayed his association with McCarthy. But his involvement in politics and his commitment of money signaled a sea change in Buffett's life. For the first time he had made room for something besides investing, a "noneconomic activity" with roots in his family's past and one that stretched toward the unknowable future.

32.

Easy, Safe, Profitable, and Pleasant Omaha * 19681969 In January 1968, Buffett had issued a call to his fellow Grahamites, summoning them together for the first time as a meeting of the faithful in the middle of a stock market gone mad. "[T]here has been a tremendous change in attitude in the last few years, and I think the gang that is assembling in La Jolla is about all that is left of the old guard,"1 he wrote, inviting Graham's former students Bill Ruane, Walter Schloss, Marshall Weinberg, Jack Alexander, and Tom Knapp. He also invited Charlie Munger, whom he had introduced to Graham, as well as Munger's partner, Roy Tolles, and Jack Alexander's partner, Buddy Fox. Ed Anderson, who had left Munger's partnership to become a partner in Tweedy, Browne, was on the guest list, too, as was Sandy Gottesman, who, Buffett told Graham, is "a good friend of mine and a great admirer of you." Lastly, he said, "I think you probably remember Henry [Brandt], who works very closely with us."2 Fred Stanback, Buffett's partner in deals like Sanborn Map and the best man at his wedding, was too busy to attend. A few years after Warren had finished at Columbia, he and Miss Nebraska 1949, Vanita Mae Brown, had reunited for dinner in New York. They made it a sort of double date by bringing along Susie and Fred, who had met Vanita at least once before through Warren. She was then Vanita Mae Brown Nederlander, having been briefly married to a member of the Nederlander family, theater owners who were part of an American entertainment dynasty. After the dinner, Fred, Warren's most introverted friend, became, as another friend put it, "putty in her hands," as if to prove the old maxim that opposites attract. Initially, their marriage probably seemed like a sort of charming postscript to Warren's career at Columbia: a couple brought into the Buffetts' circle from that era. He did have a tendency to arrange his friends' lives, asking them to partner with him, putting them on his companies' boards, and in general wrapping them into his life through ties of various kinds. Two friends married may have felt almost like a compliment to him, but it turned out to be the worst decision Fred ever made in his life.

He and Vanita had been living in Salisbury, North Carolina, where Fred grew up and where his family had built their "Snap Back with Stanback" headache-powder business. Now Fred himself needed boxcarloads of headache powder; he was extracting himself from this pulse-pounding marriage. Vanita had thoroughly established herself in tiny Salisbury and remained there to torment him with all her considerable creativity while they battled in the courts. Thus, unlike the rest of the Grahamites, Fred's interest in the stock market had been temporarily diverted. It was at a time when the market was growing less attractive anyway: Hundreds of millions of dollars had been poured into it by people mindlessly coattailing so-called experts, who themselves had no more than a couple of years' proven ability to make money. More than fifty new investment funds had come to market, with nearly sixty-five more waiting in the wings.3 For the first time in U.S. history, it became fashionable for a broad group of individuals to own stocks.4 Buffett would describe this phase as resembling "an ever-widening circle of chain letters," even a "mania," populated mostly by "the hopeful, credulous, and greedy, grasping for an excuse to believe."5 In a business that was still transacted through paper trade tickets and physical delivery of stock certificates, trading volume had reached such a level that the market was nearly crushed under the weight of paperwork. Huge numbers of orders were duplicated or never executed, the tickets misplaced or simply thrown in the garbage, while file rooms worth of stock certificates disappeared, presumed stolen, amid rumors that the Mafia had infiltrated the market. All sorts of reforms pushed through in 1967 and 1968 automated and computerized the trading systems in a desperate effort to catch up. One of the most important would shut down the old "under-the-counter" market. The National Association of Securities Dealers announced that it was about to bring online a new system called NASDAQ that would quote prices for smaller stocks.6 Instead of appearing on Pink Sheets that were stale the moment they were printed, the prices of most companies not listed on the stock exchanges would now be posted and updated electronically as they changed. Market makers had to show their hands and stand by the quotes they posted. Any trader who was very knowledgeable, good at haggling, and strong of backbone was not going to like the new system. In the middle of an already difficult market, it was going to make Buffett's job harder.

To each of the Grahamites coming to La Jolla, Warren sent out instructions. "Please do not bring anything more current than a 1934 edition of Security Analysis along with you," he wrote.7 Whatever their age, wives, too, would remain at home.

In his letter, Buffett reminded them that they were there to listen to Graham, the Great Man, not one another. Several in the group-Munger, Anderson, Ruane-were inclined to be loquacious. When it came to investing, of course, no one had more of this tendency than Buffett himself. At age thirty-seven, he had finally attained peerage and was able to call his former teacher "Ben," but sometimes he still slipped and said "Mr. Graham." So he must have been at least partly reminding himself not to try to take over as the best student in the class.

Thus instructed, the dozen Graham-worshippers convened at the Hotel del Coronado, across the bay from San Diego. Warren had wanted to meet at a much cheaper venue such as a Holiday Inn; he made sure the group knew that the extravagance of this pink-and-white Victorian confection of a resort was Graham's idea.

By the time the dozen arrived in San Diego, a huge storm with lashing rain and churning seas had hit, but no one cared; they were there to talk about stocks. Buffett was bursting with pride at having engineered a tribute to his teacher and a chance to show off the wisdom of Ben Graham to his new friends. Graham arrived at the Coronado late. Ever the teacher, as soon as he got there, he immediately gave them an exam.

Graham was almost painful to listen to under any circumstances. Every sentence was complex and larded with classical allusions. The exam he gave them was much the same. "They were not terribly complicated questions, although they were a little-you know, some were French history, or something like that. But you thought you knew some of the answers," says Buffett.

They didn't. Only Roy Tolles got more than half. By answering everything "true" except a couple that he knew for certain were not, he scored eleven out of twenty. The "little exam" turned out to be one of Graham's teaching tricks, designed to show that even an easy-looking game can be rigged. Buffett would later have a saying: Knowing that a clever guy is stacking the deck is not necessarily protection.

During the rest of the meeting, Graham tolerated the discussions of stock promotion, manufactured performance, phony accounting, institutional speculation, and the "chain-letter acquisition syndrome" with bemusement.8 But he was no longer engaged; instead, he wanted to tell riddles and joined with enthusiasm in brainteasers and word and numbers games.

Buffett, however, was as much engaged as ever, notwithstanding the tenor of his letter to his partners in October 1967, when he wrote that from now on he would limit himself to activities that were "easy, safe, profitable, and pleasant." When he returned to Omaha from San Diego he focused intensely on the problems of the partnership. He needed to let the partners know that all was not well at some of the businesses they owned and in his next two letters dropped subtle hints. After having described the travails of textiles eloquently in 1967, he made no further mention of the business in 1968, although the prospects and results of the Berkshire mills had not improved. Earnings at DRC were falling because of Hochschild-Kohn.9 Still, Buffett did not take the logical next step, which would have been to sell Berkshire Hathaway and Hochschild-Kohn.

Here, his commercial instincts chafed against some of his other traits: the urge to collect, the need to be liked, the preoccupation with avoiding confrontation after the Dempster windmill war. In an intricate minuet of rationalization, he explained his thinking in his January 1968 letter to the partners: "When I am dealing with people I like in businesses I find stimulating (what business isn't?), and achieving worthwhile overall returns on capital employed (say, ten to twelve percent), it seems foolish to rush from situation to situation to earn a few more percentage points. It also does not seem sensible to me to trade known pleasant personal relationships with high-grade people, at a decent rate of return, for possible irritation, aggravation, or worse at potentially higher returns."10 Some of the growing crowd of Buffett-watchers may have read these words with surprise. Measuring by "overall" returns allowed for some businesses to do considerably worse than the average. To witness Buffett-who squeezed the last tenth of a percentage point from a buck like a miser gripping a toothpaste tube-dismissively waving away "a few more percentage points" was astonishing.

Yet his performance stopped complaints, for even as he lowered expectations, he continued to surpass himself. Despite the deadweights, the partnership had averaged more than a thirty-one percent return over the dozen years of its existence, while the Dow had produced nine percent. The margin of safety Buffett always insisted on had skewed the odds sharply in his favor.11 Along with his talent for investing, its cumulative impact on his batting average meant that $1,000 put in the Dow was now worth $2,857, whereas he had turned it into nearly ten times that, $27,106. Buffett's partners by now trusted him to always deliver more than he promised. He manifested predictability and certainty in 1968, the tumultuous year in which students would take over and close Columbia University, flower-child demonstrations would turn militant, and activists would nominate a pig for President.12 But by mid-1968, Buffett had made a decision to try to jettison the intractable Berkshire Hathaway-a business that was neither easy, safe, profitable, nor pleasant-and its unlucky textile workers. He offered to sell the company to Munger and Gottesman. They came to Omaha to visit and talk. After three days of discussion, however, neither man wanted to buy something that Buffett thought he was better off without. He was stuck with Berkshire Hathaway.

Because the Apparel and Box Loom divisions were not self-sustaining and it would take gobs of cash to keep them running, Buffett was now forced to act. Deploying capital with no hope of a return was a cardinal sin to him. He told Ken Chace what to do. Chace was upset, but, in typically stoic fashion, he followed orders and shut the two divisions down.13 Still, Buffett could not bring himself to put a spike through the whole thing and bury it.

What he was left with, therefore, was a partnership that owned two businesses, one thriving-National Indemnity-and one failing-Berkshire Hathaway-plus eighty percent of DRC, the retail holding company, and, of course, shares in a wide range of other companies. As 1968 waned, stocks on the fringes of the market began to slide; investors concentrated on the biggest, safest names. Indeed, Buffett himself started buying the blandest, most popular stocks that remained reasonably priced: $18 million of AT&T, $9.6 million of BF Goodrich, $8.4 million of AMK Corp. (later United Brands), $8.7 million of Jones & Laughlin Steel. But above all, he kept accumulating more Berkshire Hathaway-despite his restriction against buying any more bad businesses and even though the textile business was sinking into the mud. Only a short while ago, he had tried to sell it to Munger and Gottesman, but now that he could not sell it, he seemed to want as much of the stock as he could get.

He and Munger had also discovered another company they saw as promising and were buying as much stock of it as they could. This was Blue Chip Stamps, a trading-stamp company. They would buy it separately and together, and over the course of time Blue Chip would dramatically reshape the course of both men's careers.

The trading stamp was a marketing giveaway. Retailers handed stamps to their customers with their change. Customers dumped them in a drawer, then pasted them into little booklets. When redeemed, enough of the booklets bought them anything from a toaster oven to a fishing rod or a tetherball set. The small thrill of saving stamps fit neatly into a disappearing world: a world of thrift, a world that feared debt, that viewed these "free gifts" as the reward for taking the trouble to collect and save those stamps and for never wasting anything.14 But the stamps were not really free.15 The stores paid for them and marked up the merchandise accordingly. The national leader in trading stamps was Sperry & Hutchinson, except in California. There, a group of chains had shut out the S&H Green Stamp by starting their own trading stamp, Blue Chip, and selling it to themselves at a discount.16 Blue Chip had a classic monopoly.

"When you had all the major oil companies and grocers giving out a single stamp, it became like money. People would leave their change behind and take the stamps. Morticians gave out stamps. Prostitutes gave them. I always thought the funniest thing would be if the madam would call in one of the girls and say, 'From now on, I think you better double-stamp, honey.' It was ubiquitous. Everybody had them. People even counterfeited them."

In 1963, the Department of Justice had filed suit against Blue Chip for restraint of trade and monopolizing the trading-stamp business in California.17 S&H also sued it. With the stock in a slump, Rick Guerin, who had founded his own partnership, Pacific Partners, noticed Blue Chip and took it to Munger. Buffett had noticed it too. "Blue Chip did not have an immaculate conception," Charlie Munger concedes, but they all decided to make a calculated bet that Blue Chip could work its way out of its woes-the S&H lawsuit being the most threatening.

They wanted it because Blue Chip had something called "float." The stamps were paid for in advance; the prizes got redeemed later. In between, Blue Chip had use of the money, sometimes for years. Buffett had first encountered this tantalizing concept with GEICO, and it was part of why he had wanted to own National Indemnity. Insurers, too, got paid premiums before the claims came in. That meant they could invest this steadily growing stream of "float." To someone like Buffett, who was supremely confident in his investing ability, such a business was catnip.

All kinds of businesses had float. Deposits in banks were also float. Customers often thought of banks as doing them a kind of favor by holding their cash in a safe place. But the bank invested the deposits in loans at the highest interest rates they could charge. They made a profit. That was "float."

Buffett, Munger, and Guerin understood how to invert every financial situation. If someone offered them trading stamps, they upended the situation and thought, "Hmm, it's probably better to own the trading-stamp company," then figured out why. They would no more spend time saving trading stamps to get a hibachi or a croquet set than they would wear their great-aunt Betsy's petticoats to the office. Even Buffett-a boyhood stamp collector who still dreamed occasionally about counting stamps, and had a sentimental stash of Blue Eagle stamps in his basement-would rather own Blue Chip stock than collect Blue Chip stamps.

In 1968, Blue Chip began settling the lawsuits filed against it by competitors.18 It entered into a "consent decree" with the Justice Department, under which the grocery chains that owned it would sell forty-five percent of the company to the retailers who gave away the stamps.19 To remove even more control from the grocers who had given Blue Chip its less-than-immaculate conception, the Justice Department required the company to find another buyer for one-third of its stamp business. Still, it looked as though Blue Chip had survived this part of the legal fight.20 Munger's partnership had bought 20,000 shares, and Guerin bought a similar amount. In the process, Munger developed the proprietary attitude about Blue Chip that Buffett displayed about Berkshire Hathaway. He warned others away from it. "We don't want anyone buying Blue Chip," he told people. "We don't want anyone buying this."21 As the market rose, Buffett increased the partnership's temporary cash position to the tens of millions, even though he was still buying stocks in huge chunks. His partnership also took over large blocks of Blue Chip stock from Lucky Stores, Market Basket, and shares owned by Alexander's Markets, however, and would continue to buy for the next few months until the partnership had acquired more than 70,000 shares. For National Indemnity and Diversified, he also bought five percent of the stock of Thriftimart Stores, one of Blue Chip's largest shareholders. Buffett figured he could eventually get Thriftimart to swap the Blue Chip it owned for its own stock. Fortunately they were betting mainly on the S&H lawsuit settling-otherwise, the timing would have been awful.

Just as he and Munger and Guerin were making large commitments to Blue Chip, its steadily growing sales apexed. Women had started to lose interest in sitting at home, sticking trading stamps in a book. The burgeoning women's liberation movement meant that they had better things to do with their time, more money, and with that a sense of entitlement that meant that if they wanted an electric blender or a fondue set, they went out and bought it, rather than fussing over books of stamps to trade in for it. Social roles and conventions had gone topsy-turvy, the Establishment culture so reviled that young people said categorically, "Don't trust anyone over thirty." Buffett, at thirty-eight, did not feel old personally-he would never feel old personally-but "I am in the geriatric ward, philosophically," he wrote to the partners.22 He was out of step with modern culture and finance.

In 1968, the prospect of Vietnam peace talks in Paris set off another boisterous rally in the market. Though proud of having husbanded, tended, and compounded his partnership, with minimal risk, from seven investors and $105,000 to more than three hundred people and $105 million, Buffett had become an elder of the market, seemingly eclipsed by young barnstormers who could flash a couple of years' worth of showy numbers and joy-ride new investors into giving them $500 million nearly overnight.

He seemed especially-and comfortably-antiquated when it came to all the new technology companies that were forming. At Grinnell College, he showed up for a meeting to find his fellow trustee Bob Noyce itching to leave Fairchild Semiconductor. Noyce, Gordon Moore (its research director), and its assistant director of research and development, Andy Grove, had decided to start a nameless new company in Mountain View, California, based on a vague plan to extend the technology of circuits to "higher levels of integration."23 Joe Rosenfield and the college endowment fund each said they would put in $100,000, joining dozens who were helping to raise $2.5 million for the new company-which was soon to be named Intel, for Integrated Electronics.

Buffett had a long-standing bias against technology investments, which he felt had no margin of safety. Years ago, in 1957, Katie Buffett, wife of his uncle Fred Buffett, had arrived at Warren's back door one day with a question. Should she and Fred invest in her brother Bill's new company? Bill Norris was leaving Remington Rand's*26 UNIVAC computer division to start a company called Control Data Corporation to compete with IBM.

Warren was horrified. "Bill thought that Remington Rand was falling behind IBM. I thought he was out of his mind. When he left Remington Rand he had six kids and no money to speak of. I don't think Bill left to get rich. I think he left because he just felt frustrated. Everything had to go to New York to get approved and come back. And Aunt Katie and Uncle Fred wanted to put a few bucks in Control Data there right at the start. Bill didn't have any money. Nobody had any money, in a sense." Well, except Warren and Susie. "I could have financed half the thing if I'd wanted. I was very negative on it. I told them, 'It doesn't sound like much to me. Who needs another computer company?'"24 But since Bill was Katie's brother, for once she and Fred had ignored Warren's advice and invested $400 anyway, buying the stock at sixteen cents a share.25 That Control Data had geysered investors with money hadn't changed Buffett's opinion about technology. Many of the other technology companies that had started at the same time had failed. As much out of regard for Rosenfield as for any other reason, however, Buffett signed off on a technology investment for Grinnell.26 "We were betting on the jockey, not the horse," as he saw it.27 But, more important, Rosenfield provided the margin of safety by guaranteeing the college's investment. And 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. While he had lowered his investing standards in difficult environments-and would do so again-one compromise he would never make was to give up his margin of safety. This particular quality-to pass up possible riches if he couldn't limit his risk-was what made him Warren Buffett.

Now the whole market was starting to look like Intel to him, however. His 1968 year-end letter assessed it soberingly, saying that investing ideas were at an all-time low.28 "Nostalgia just isn't what it used to be," he concluded.

As he later explained: "It was a multi-trillion-dollar market, and yet I couldn't find a way to invest $105 million intelligently. I knew I didn't want to manage other people's money anymore in an environment where I didn't think I could do well, and yet where I'd feel obliged to do well."

That attitude was remarkably different from 1962, when the market was similarly soaring. Both times he bemoaned it. But then he had raised money with an energy that belied his inability to put it to work.

The partners were dumbfounded by the contrast between his dour words and the wing-walk way he seemed to be earning money for them. Some began to impart an almost supernatural level of confidence to him. The more he surpassed his own gloomy predictions, the more the legend seemed to grow. But he knew it wasn't going to last.

33.

The Unwinding Omaha * 1969 In the outer office on Kiewit Plaza's eighth floor, Gladys Kaiser sat guarding Warren Buffett's doorway. Rail-thin, perfectly made up, chain-smoke drifting through her platinum hair, Gladys dispatched paperwork, phone calls, bills, and nonsense with brisk efficiency.1 She kept Buffett off limits to everyone-including his family at times. It made Susie seethe, but with Gladys guarding the door there was nothing she could do.

Susie blamed Gladys. And, of course, Warren would never give Gladys an actual order to keep Susie out. But everyone at his office knew how to interpret what he wanted from his subtle way of saying something without directly stating it. Nobody would so much as cough if they thought he would disapprove. People had to follow hints and signals as if they were stated rules simply to work at the Buffett Partnership. Beetled brows and "hmmmf" meant "Don't even consider it." "Really?" meant "I disagree but won't say so directly." An averted head, crinkled eyes, and backpedaling meant "Help me, I can't." Gladys brooked no nonsense in following these unarticulated requests and orders, and sometimes people's feelings got hurt. But her job was to protect her boss, and that meant doing things he couldn't bring himself to do. She had to be tough enough to take the blame.

On the dingy walls above her head hung some framed newspaper clippings, reminders of the 1929 Crash. Dented metal furniture, along with an old ticker machine, furnished the offices. Down the short linoleum hallway beyond Gladys sat the other people who knew how to interpret Buffett's signals and signs. To the left was Bill Scott's little office, where he barked "Hurry up, I'm busy!" at the brokers to execute Buffett's trades. Down the hallway to the right, in a workroom packed with files and the small refrigerator Gladys kept filled with Pepsi bottles, part-time bookkeeper Donna Walters plied her trade, meticulously keeping the partnership's records and preparing its tax returns.2 Just past Walters sat John Harding, managing the partners' and the partnership's affairs. Straight ahead behind Gladys was Buffett's own realm, furnished with a couple of reclining armchairs, a desk, and a litter of newspapers and magazines. Its most prominent feature was the large portrait of Howard Buffett on the wall across from his desk.

Warren arrived every morning, hung up his hat, and disappeared into his sanctuary to read the papers. After a while he emerged and told Gladys, "Get me Charlie." Then he shut the door, got on the phone, and spent the rest of the day swiveling between the phone and his reading, spelunking for companies and stocks to buy. Once in a while he would reappear and tell Bill Scott about a trade.

With the stock market high, Scott was less busy these days. Buffett, his pockets full of the money that National Indemnity produced, was delving for entire businesses, since their prices were less subject to the whim of investors. He had discovered the Illinois National Bank & Trust, one of the most profitable banks he had ever seen, run by seventy-one-year-old Eugene Abegg in Rockford, Illinois. Buffett wanted the crusty Abegg as part of the deal. Abegg resembled Ben Rosner, who had counted sheets of toilet paper. Buffett talked to Abegg about a few things he wanted to change in the business, then said, "I've dropped all the shoes. I'm not a centipede. If you want to go ahead, fine, and if not, then we're still friends."

"Gene had already made a deal to sell the bank to somebody else. But the buyer had started criticizing it, or they wanted an audit and he'd never been audited and he wanted out. He was pretty dominant, and everything he did was unbelievably conservative.

"He carried around thousands of dollars of cash in his pocket, and he cashed checks for people on the weekends. He carried a list of the numbers of unrented safe-deposit boxes with him everywhere and would try to rent you a safe-deposit box at a cocktail party. Mind you, this is the biggest bank in the second-largest city in Illinois at the time. He set every salary and paid every employee in cash, so the head of the trust department did not know how much his own secretaries made. So I went out there, and I named a number that turned out to be about a million dollars less than the other guy. And Gene, who owned a quarter of the stock, called up his biggest shareholder, who owned more than half the stock, and said, 'This young guy from Omaha's come here and offered this. I'm tired of those guys at XYZ Company. If you want to sell to them, then you come run this bank, because I won't.'"

Sure enough, Abegg accepted his offer. And doing business with him cinched Buffett's instinct that strong-willed and ethical entrepreneurs often cared more about how they and the companies they had built were going to be treated by the new owners than about grabbing the last nickel in a sale.

The Illinois National Bank, which Buffett soon came to refer to by its colloquial name of Rockford Bank, had been chartered in the days before the U.S. Treasury assumed the exclusive right to coin money. Buffett was fascinated to discover that it still issued its own currency. The ten-dollar bills featured Abegg's picture. Buffett, whose net worth was now more than $26 million, could have bought almost anything he wanted, but not this. Gene Abegg had done him one better. He and the United States Treasury had the privilege of issuing their own currency, but not the Buffett Partnership or Berkshire Hathaway.3 The idea of legal tender with your own picture on it captivated him. He began carrying a Rockford bill in his wallet.

Heretofore, Buffett had not wanted his picture on a bill or anywhere else. He had more or less shunned the spotlight while managing the partnership. True, a few more stories and photographs of his family had found their way into the local paper than might be expected of someone who wanted privacy.4 Nevertheless, except for his letters to the partners, he had gone through the sixties with his lips sealed-he didn't want anyone coattailing him. He didn't talk about how he invested and he didn't broadcast his results, in contrast to the flash and razzle-dazzle shown by other money managers of the era, whose self-promotion propelled them to nearly instant fame.

Even when the opportunity to promote himself arrived on his doorstep, he hadn't used it. A few years earlier, John Loomis, a securities salesman, visited Buffett at Kiewit Plaza. Loomis's wife, Carol, wrote the investing column for Fortune magazine. She had once interviewed a money manager named Bill Ruane, who told her that the smartest investor in the United States lived in Omaha. Some time later, her husband arrived at the pale monolith of Kiewit Plaza and made his way upstairs to the 227-square-foot space that looked nothing like the office of one of the richest men in town.

Buffett took him over to the restaurant at the Blackstone Hotel across the street, where he downed a strawberry malt and told Loomis what he did. Loomis talked about his wife's job as a journalist, and Buffett found that interesting. He said that if he had not become a money manager, he would have pursued journalism as a career.5 Warren and Susie met with the Loomises when they were in New York not long after. "They got us a special little room someplace where we had lunch," Buffett says. The well-connected young money manager from Omaha with the stellar track record and the ambitious reporter for Fortune found they shared many attributes: a zeal for unmasking the flimflam of fat cats, a magpie obsession with minutiae, and a streak of competitiveness as long as the interstate from New York to Omaha. Carol Loomis was a tall, athletic-looking, no-nonsense woman with short brown hair who tolerated shoddy journalism about as well as Buffett tolerated losing money, and she was a punctilious editor. They began to correspond and she ushered him into the world of big-league journalism. He began helping her with her story ideas. "Carol very quickly became my best friend other than Charlie," he says.6 At first she did not publish anything about Buffett.

By the late 1960s, however, the rising market had made investing in stocks less viable for the partnership. The advantage of a higher profile when trying to buy entire businesses began to outweigh the advantage of secrecy in buying stocks. And thus it was in the late 1960s that Buffett's longtime interest in newspapers and publishing came together with his newly recast investing goals and his desire for personal attention in a way that would fundamentally change his world.

Before long, Buffett was immersed in the black-and-white world of journalism. Page by page, newspapers fell to cover the litter of financial reports from the publishers of newspapers and magazines that lay scattered on his desk. When he went to sleep, more newspapers-pulled from a bundle and folded into tidy packets-flew through his dreams. On his most restless nights, he dreamed of oversleeping his childhood paper route.7 Buffett's fortune had grown large enough for him to afford the purchase of a newspaper or a magazine, or both. His dream was to be not just an investor but a publisher-to have the influence that went with owning the means through which the public learned the news. Around 1968, he and some friends tried to buy the entertainment newspaper Variety, but this came to naught.8 Then another acquaintanceship bore fruit. Stanford Lipsey was a friend of Susie's who liked to go to clubs with her and listen to jazz. One day, he showed up in Warren's office and said he wanted to sell the Omaha Sun Newspapers. Buffett was immediately interested; he had already tried to buy it once.

The Sun was a chain of weekly neighborhood newspapers that Stan and Jeannie Blacker Lipsey had inherited from her father. It published seven editions in the Omaha suburbs; its meat-and-potatoes stories were the police blotter, local society news, neighborhood business doings, high school sports-and gossip about who was going steady with whom, which made it a must-read for both parents and kids. Although the Sun was the underdog in Omaha, its editor, Paul Williams, specialized in investigative journalism, and competed by publishing stories that the leading paper, the Omaha World-Herald, missed, often stories that exposed the follies and misdeeds of city bigwigs, stories that would offend major advertisers of the World-Herald. Usually these advertisers shunned the Sun.

Despite his own elevation to the Omaha establishment, Buffett took a particular interest in the muckraking aspect of the Sun. Ever since collecting license-plate numbers to catch bank robbers, he had wanted to play the cop. And "he'd always had this huge admiration for newspapers," Lipsey says. "I recognized intuitively that Warren understood the role of newspapers in our society. There was a new highway about to come through my plant, and I would have had to borrow a whole lot of money to buy a new press. I didn't like the Sun's business prospects, but I knew that Warren had enough money that the journalism wouldn't suffer because of the economics. In twenty minutes, it was done."

"I figured we'd pay a million and a quarter for it and take out a hundred thousand a year," Buffett says. This return was eight percent, about as much as a bond would provide-less, far less, than he expected to earn on a business or a stock, and the long-term outlook suggested that return would decline, not increase. But the partnership's money was lying fallow, and he really wanted to be a publisher. "Part of my deal," Lipsey says, "was that, even though the partnership was closed, he had to take me in." Buffett wanted the Sun so much that he agreed even though he knew he was beginning to consider shutting the partnership down.

Berkshire Hathaway became owner of the Omaha Sun Newspapers on January 1, 1969. But this little neighborhood newspaper was only a beginning; Buffett wanted to be a publisher on a national scale. Joe Rosenfield introduced him to West Virginia's Secretary of State Jay Rockefeller, whom Rosenfield considered a rising political star. Soon, the Buffetts were hosting the Rockefellers for dinner in Omaha; Rockefeller, in turn, introduced Warren to Charles Peters, an idealist whose start-up magazine, the Washington Monthly, seemed like the right national voice to express viewpoints on important ideas. Buffett talked to Gilbert Kaplan, who ran Institutional Investor magazine, to get a handle on magazine publishing.9 Then he wrote to Rockefeller: "You have found my Achilles' heel. I am a pushover for publishing deals-when I like the product.... I might mention that my enthusiasm for publishing adventures is in exact inverse proportion to my calculated assessment of their financial probabilities."10 Buffett introduced Fred Stanback and Rosenfield to the idea of investing in the Washington Monthly, warning them that it was unlikely to be a financial table-pounder. But the scandals it might uncover-the ideas it could promote-the minds it could awaken-the exposes it could expose! They put in a little money.11 In short order, the Washington Monthly ran through its initial capital stake. Buffett held out the possibility of another $50,000. Then he and Peters had a fifty-minute phone conversation. And, "Oh God," says Peters. "As an investment it reeked of the potential for failure. There was his instinct as a hard businessman, and his philanthropic, good-citizen instinct on the other side, and they were clearly at war. He was worried about his business reputation and would come within an inch of pulling out, and I would slowly try to pull him back. Warren kept finding new plausible escape routes, and I tried to block the exits. But the glorious thing was, he ended up staying in."12 Buffett added the condition that the editors had to put in some of their own money while Peters raised some outside, which Buffett said he would match eighty percent.13 Peters was a better journalist than an accountant. They raised the money; the checks went out; then nobody heard from the Washington Monthly for months. "They just vanished," says Buffett. "Fred Stanback complained that he was getting IRS forms late, and had to amend his tax returns."14 Although the Washington Monthly was indeed putting out strong stories-as Buffett had wanted-it wasn't enough. He had known from the beginning that it would not make money, but he thought it ought to be accountable for the money that it had. He was embarrassed at having drawn Stanback and Rosenfield into a bear hunt. The investors felt they were being treated like bank tellers. Buffett wanted to be a partner in journalism, a fellow newshound, not just the guy who bankrolled idealism.

Yet even with mixed results, Buffett was now pursuing the personal concerns of which he had spoken in his October 1967 letter to his partners. Meanwhile, the market continued to dry up and deprive him of opportunities. Spending part of his time as a publishing magnate was no help in adjusting to that reality. Whatever else occupied him, he remained wholly committed to the partnership, too, and it turned out that a "less compulsive approach" to investing was not in his nature. So he started to figure out the best way to wind down the partnership. He says he received offers from a couple of people to buy the management firm, which would have meant the opportunity to sell at a large profit, but he thought this was not right. It was unusual for a money manager to forgo a large sum of money, even in those days, and so far, Buffett had shown no inclination to avoid getting richer. But he had always stayed on the same side as his partners, harnessing his avarice to their benefit as well as his own. Around Memorial Day 1969, Buffett wrote the partners to tell them that simply lowering his goal hadn't lessened his intensity: "If I am going to participate publicly, I can't help being competitive. I know I don't want to be totally occupied with outpacing an investment rabbit all my life. The only way to slow down is to stop."15 And then he delivered his bombshell: He announced he would be giving his formal notice of retirement by year-end and 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."16 What would he do now?

"I don't have an answer to that question," he wrote. "I do know that when I am sixty, I should be attempting to achieve different personal goals than those which had priority at age twenty."17 The partners howled with disappointment, and a few with fear. Many were nafs, like his aunt Alice. They were ministers, rabbis, schoolteachers, grandmothers, and mothers-in-law. His announcement amounted to a market call on stocks. He did not think the game would be worth playing anytime soon. He had taught even the inexperienced to be wary of an overheated market. Some trusted no one other than him. But "he just didn't want to operate in an environment where he didn't feel comfortable with the opportunities," says John Harding, "especially when it was something that he felt he had to devote all his time to."