PART FIVE.

The King of Wall Street.

43.

Pharaoh.

Omaha * 19801986.

Five hundred of the grateful rich, wearing black tie and ball gowns, walked up the red carpet and into New York's swanky Metropolitan Club for Buffett's fiftieth birthday party. With Berkshire Hathaway trading at $375 a share, the Buffetts' net worth had more than doubled in the past year and a half. They could easily afford to rent the place.1 Dotted among the Buffett Group members were semi-demi-celebrities like the actor Gary Cooper's daughter. Susie had ordered a cake shaped like a six-pack of Warren's beloved Pepsi-Cola. He had asked his old pinball partner Don Danly to bring him the balance sheet for Wilson's Coin-Operated Machine Company.2 Buffett was beginning to gather materials from his early business efforts-treating these objects like totems and showing them to people with a slight tinge of reverence. They seemed like tangible evidence of himself, reassuring artifacts.

Susie brought her band from San Francisco and took center stage to sing a version of "Shuffle Off to Buffalo" to her husband: Warren got fed up with candy With stamps he wasn't handy....

The song continued for verse after verse on the theme of Buffett's latest caper: packing up his duffel and shuffling off to Buffalo to buy an undervalued paper.

Susie's star turn, corny but sweet, was the beginning of a new tendency. Buffett's family and friends had started to recount-in his presence-the list of the companies and investments he had collected like the beads on a rosary. The man himself, with eyebrows sprouting like ivy tendrils over the frames of his glasses, now looked less awkward in black tie. The modern Berkshire Hathaway that he had created churned out new beads for the rosary almost like a clockwork. Buffett's hunt for things to buy had become more ambitious, free of the cigar butts and lawsuits of the decades before. The great engine of compounding worked as a servant on his behalf, at exponential speed and under the gathering approval of a public gaze. The method was the same: estimate an investment's intrinsic value, handicap its risk, buy using margin of safety, concentrate, stay in the circle of competence, let it roll as compounding did the work. Anyone could understand these simple ideas, but few could execute them. Even though Buffett made the process look effortless, the technique and discipline underlying it actually did involve an enormous amount of work for him and his employees. As his business empire had expanded from coast to coast, from the shores of Lake Erie to the suburbs of Los Angeles, Kiewit Plaza remained at the center-a quiet but endlessly busy temple of commerce, furnished with dinged, scuffed steel-frame furniture and linoleum floors. With every new investment, there was more to do; but the number of people at headquarters barely changed. Buffett still remained behind closed doors, guarded by Gladys. The very rich Bill Scott now worked part-time and spent the rest of his days playing with his polka band. A new manager, Mike Goldberg, now augmented the headquarters staff. Verne McKenzie managed the finances. The employees rarely left their tiny offices except for the occasional conclave in the conference room, which seated only four people. No chats took place around the watercooler. As for a period of ease following the scuffle at the Buffalo Evening News, McKenzie put it this way: "There was never such a time."3 Those who tested Rickershauser's Law of Thermodynamics found that the sun was indeed nice and warm, but Buffett was so focused and his mind worked at such speed that extended conversations with him left them sunburned. "My mind was so tired," said one friend. "I had to recuperate from seeing him," said another. "It was like being pounded on the head all day long," said a onetime employee.

Buffett had the energy and enthusiasm of a restless teenager; he seemed to remember every fact and figure he had ever read; he finagled people into volunteering for tough jobs, then assumed they could accomplish miracles; and while remarkably tolerant of others' quirks and flaws, was less so of quirks and flaws that cost him money. So eager for results was he, so confident of others' skills, so unaware of how far short of his own they fell, that he chronically underestimated people's workloads. Buffett, the sun around whom everyone revolved, was impervious to the effects of Rickershauser's Law of Thermodynamics himself.

"People tell me I put pressure on them. I never intend to. Some people like to apply pressure. I never do. It's actually the last thing I like to do. I don't think I'm ever doing it, but I've had enough people tell me that I do it that it must be true."

The managers out in the hinterlands who ran the businesses that Berkshire and Blue Chip owned were lucky because Buffett largely left them alone, his trick of management being to find obsessed perfectionists like himself who worked incessantly; then ignore them except for a "Carnegizing"-attention, admiration, and Dale Carnegie's other techniques-every now and then. Most would not have had it any other way.

The decisions Buffett had made about stocks in the 1970s were defiant bets against pessimism in the great bear market, plagued by rampant unemployment and consumer prices that rose at an intolerable fifteen percent a year. Now that bet suddenly paid off, thanks to a desperate President Carter, who had appointed a new Federal Reserve Chairman, Paul Volcker, in 1979. Volcker ratcheted up the central bank discount rate to fourteen percent to get inflation under control. In 1981, new President Ronald Reagan began to cut taxes sharply, started deregulating business-and supported Volcker despite the howls of pain his policies were causing. The economy and markets had been going through a seizure for two and a half years. Then, in late 1982, the bull market of the 1980s began its stampede as the prices of stocks started catching up with the growth in corporate earnings.4 Much of the money used for Buffett's late seventies spending spree came from a bonanza of float from insurance and trading stamps. While National Indemnity prospered, at Blue Chip stamp sales continued to shrink, but investments made from the slowly dwindling pool of float from prepaid stamps paid handsomely.5 The turnaround of the Buffalo Evening News meant that Buffett and Munger no longer had to debate whether Blue Chip's largest asset was worth more dead than alive. The News would live; it now threw off a steady stream of profits. In 1983, they finally agreed on a value for Blue Chip, and Berkshire swallowed it whole-the last step of the great untangling.6 Buffett and Munger were now full partners for the first time-although Munger was the junior partner by miles.

Buffett made Munger, who now owned two percent of Berkshire, the company's vice chairman. Munger also now took over as president and chairman of Wesco, a wee thing compared to the now-swollen Berkshire, but Munger's own. It dangled like a tiny strand of spaghetti from the corner of Berkshire Hathaway's mouth, the only morsel that Buffett had yet failed to swallow. Wesco's shareholders eventually figured out that he would get to it someday, and inevitably they began to value Wesco's stock at a forbidding price.

Munger's influence on Buffett's thinking had always far outweighed his financial clout. They thought so much alike that the main difference between their behavior in business was that Munger on occasion would veto deals that the more easily enraptured Buffett might have struck. Their attitude toward their shareholders was identical. With the merger done, in the 1983 annual report the two men spelled out to Berkshire's shareholders a set of principles from which they would operate. They called them the "owner-oriented principles." No other management told its company's owners these things.

"Although our form is corporate, our attitude is partnership," they wrote. "We do not view the company as the ultimate owner of our business assets, but, instead, view the company as a conduit through which our shareholders own the assets."7 This statement-deceptively simple-amounted to a throwback to a former generation of corporate governance. The modern-day corporate chief viewed the shareholders as a nuisance, a noisy or quiet group to be appeased or ignored. They were certainly not his partners or his boss.

We don't play accounting games, Buffett and Munger said. We don't like a lot of debt. We run the business to achieve the best long-term results. All of these sounded like simple truisms-except that so few managements could honestly make all of these statements.

Incidentally, Buffett also wrote that year, "[r]egardless of price, we have no interest at all in selling any good businesses that Berkshire owns, and are very reluctant to sell sub-par businesses"-even if that hurt performance-"as long as we expect them to generate at least some cash and as long as we feel good about their managers and labor relations."8 That was a warning in the guise of a hint to Gary Morrison, who took over from Ken Chace at Berkshire in 1982 after the exhausted Chace retired. By then, Buffett had shut down the Manchester mill and cut back on production in New Bedford by one-third.

"The textile business would make money for about ten minutes each year. We made half the men's suit linings in the country, but nobody ever went to a tailor and said, 'I'd like a pin-striped gray suit with a Hathaway lining.' A square yard of cloth that came out of our mill cost more than a square yard from somewhere else, and capitalism's frugal that way. We'd get awards from Sears, Roebuck as supplier of the year, and we took them fishing, and supplied them during World War II, and I was personal friends with the chairman of Sears, and they'd say, Your products are wonderful. And we'd say, How about another half a cent a yard? And they'd say, You're out of your mind. So it was a terrible business."

Instead of "generating cash," Morrison begged Buffett to give him cash so that he could upgrade the mills. Buffett said no.

And yet he clung to the beleaguered mills. Thus, it had been even harder, like having a root canal without novocaine, for him to sell one of the company's most profitable businesses, the Rockford Bank. But he had had to do it; the Bank Holding Company Act required it in order for Berkshire to carry on its nonbanking interests (especially in insurance).9 Even so, he still carried money with Gene Abegg's picture on it in his wallet afterward.

He was equally loath to lose Ben Rosner, who had finally retired from Associated Cotton Shops. Rosner's underlings had made fun of his toilet-paper-pickin' ways. Sure enough, as soon as they took charge, Associated fell into the tank. For months, Verne McKenzie slogged back and forth to New York's garment district, peddling its soggy carcass.10 Finally, he found some buyer willing to pay half a million dollars to haul away the remains of a business that only recently had earned Berkshire as much as $2 million a year.

A few of the Berkshire companies were so self-steering that it was hard to tell the difference between a well-run business and one guided by the wind alone. At Wesco, Lou Vincenti, who resisted being managed, succeeded in concealing his Alzheimer's from Buffett and Munger for several years.

"We didn't see him that often," says Buffett, "and he would sort of get himself psyched up to try and get past that. Plus, we didn't want to see it. Charlie and I loved him so much we didn't want to face it."

"Lou Vincenti was decisive, he was intelligent, and he was honest and shrewd," says Munger. "And he ran the last savings and loan in California to go to a computer-run system for depositor's accounts, because it was still cheaper to do it manually with community-college students working as part-time employees. You can see how that would turn Warren and me on. He was cranky and independent and a very good human being. And we loved him so much that even after we found out, we kept him in his job until the week that he went off to the Alzheimer's home. He liked coming in, and he wasn't doing us any harm."11 Buffett and Munger turned this story into a jokey parable, saying that they wanted more businesses that could be run successfully by a manager with Alzheimer's.

Buffett was sensitive to the subject of Alzheimer's. He took great pride in his powerful memory; now his mother grew forgetful. Her state of mind could be obscured by the way that Leila had always tended to live in the past, and to create her own ideal reality-her version of Buffett's bathtub memory, in which-whoosh-the plug popped up, and bad memories drained away. Now in her late seventies, her son's glory was her major joy, but Warren still trembled if he had to spend time with her. It was no wonder, since the old rages still flared up occasionally. By now, virtually every member of the family had had the experience of picking up the phone and hearing her wrath come scorching over the line. Her victims all ran for comfort to Susie, who said, "You have to understand that this just happens sometimes, to other people and not just you. Warren and Doris went through it for years. So just don't focus on what she said, because it's not true."12 Peter was one grandchild whom Leila had always left alone. She sometimes commented that he looked like Howard and had a way of walking like Howard, so possibly that was why. The resemblance was only in appearance, however. Peter had dropped out of Stanford not long before graduation and married Mary Lullo, a recently divorced woman six years his senior who had four-year-old twin girls, Nicole and Erica. Peter treated them as his own daughters, they began using the name Buffett, and they became great favorites of Big Susie's. Warren had been trying to interest Peter in Berkshire for some time and eventually sent his protege, Susie's former tennis buddy, Dan Grossman, to talk to him about working in the business, but Peter had no interest; his future lay in music.13 He cashed in $30,000 of his Berkshire stock to finance a recording and music production company, Independent Sound, scoring commercials out of his apartment in San Francisco with Mary as his business manager and promoter.14 Susie stayed close to Peter through his music, while she continued to toy with the idea of reviving her career, working with a pair of producers, Marvin Laird and Joel Paley. She took them to Omaha and toured them around the Old Market jazz clubs. They felt like they were writing an act for "their favorite English teacher." Susie displayed no signs of wealth, but since they had heard something about a newspaper and See's, they thought, "Maybe she'll pay us in candy."

At last they settled on an act that Susie would perform at Delmonico's in New York at a benefit for New York University. The act she wanted them to create would reflect her personality-a bohemian, gypsy soul and a wicked, sly sense of humor. In the end, however, she sang a conventional medley, replacing the soulful, passionate songs of 1977 with standards: "String of Pearls," "I'll Be Seeing You," "The Way You Look Tonight," "Satin Doll," "Take the A Train," "Seems Like Old Times."

At the benefit, Warren beamed as he watched his wife work the audience. Laird and Paley realized that showing off his talented, beautiful wife made Buffett proud and happy. It seemed to them that, unlike most show-business people, Susie's performance wasn't about her ego. Performing was a way of connecting with the audience, and giving something to her husband.15 Laird and Paley, who referred to themselves jokingly as "musical gigolos," became part of Susie's singing life, meeting Peter and going down to the Laguna house to work with her for the next few years on her music as she considered whether she could make a viable career out of it. They never met Susie Jr., who had moved to Washington, where Katharine Graham took an interest and arranged for her to work as an editorial assistant, first at the New Republic and then at U.S. News & World Report. In November 1983, in a huge wedding at New York's Metropolitan Club, she married again, this time to Allen Greenberg, a public-interest lawyer for Ralph Nader. Greenberg had her father's cool analytical bent and looked like someone who lived in a library. Both Susie's parents took to their new son-in-law immediately, and people remarked on how much Allen resembled Susie's father-rational, dispassionate, good at saying no. The newlyweds moved into a Washington town house but rented most of it out to other tenants and lived in a tiny apartment. By this time Susie Jr. had sold all her Berkshire stock-when it was trading for less than $1,000 per share.

Howie's first marriage, like his sister's, had not lasted. Despondent, he spoke to his father, who had told him a change of geography would do him good and suggested that he work at one of Berkshire's businesses. Attracted to California, Howie took a job at See's Candies in Los Angeles. Big Susie sent him to live with Dan Grossman, whom Buffett had installed at one of Berkshire's little insurers in Los Angeles when it ran into trouble. Howie started mopping floors and doing maintenance and worked his way up to ordering boxes, while getting into adrenaline-charged scrapes of various types. Buffett told him he had to stay at See's for two years. Howie prepared to wait it out in resignation, but he didn't last at Grossman's. He moved into the house at Laguna, where he felt more at home.16 By chance, Howie was partnered in doubles tennis at Emerald Bay with Devon Morse, a sweet, unhappily married blonde with four daughters. To impress her, he shimmied up a post to change the time on a clock by the tennis court, fell off, and broke his foot. She helped him get home, then showed up at the house with some food. They started to talk and he learned she was trying to leave her rich husband. The marriage that had eventually resulted from their relationship followed a series of Howie-type adventures; the couple removed the children from the home of Devon's husband, a gun collector whose house was filled with hundreds of weapons. In 1982, Howie had convinced Devon that it would be best to relocate to Nebraska, where they were married by a judge, with Buffett and Gladys Kaiser as witnesses.17 Buffett now had six step-grandchildren, and soon added a grandson when Howie and Devon had a child of their own, Howard Graham Buffett Jr., who would become known as Howie B. Buffett liked children well enough but was awkward and stiff around them and had no idea how to play with or engage a child. So he did as he had done with his own children-left them to Susie, who took up the role of grandmother with zest at family gatherings, and quickly added trips to visit grandchildren in Nebraska to her already extensive traveling routine.

Buffett involved himself more actively when it came to Howie's career. At first Howie had gotten a job in real estate, but what he really wanted to be was a farmer. Since he had no capital, Buffett agreed to buy a farm, which he would rent to his son-an arrangement rather like the one he had had with his sharecropper back when he was still in high school. Howie trudged through Nebraska, looking at over a hundred farms and making offers on behalf of his father, who was determined that a farm be a cigar butt and would not pay a nickel more than necessary. Finally, somebody bit in Tekamah, and Buffett plunked down the necessary $300,000.18 Although he took Howie's rent checks, he didn't set foot on the farm. As with Susie's art gallery, he had no interest in the experience, only the money. He compared the farm, as a commodity business, to men's suit linings. "No one goes to the supermarket to buy Howie Buffett's corn," he said.19 That Buffett tried to control his children with money yet never spent any time teaching them about money might seem odd, 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. By now, his shareholder letters, polished to a fine sheen by Carol Loomis, had tackled most financial subjects, and he undoubtedly thought that these, along with the example of his life, served as adequate lessons. It probably didn't occur to him that his kids might need more personal tutoring than his partners.

Buffett did care very much about what they did with their stock, however, because he and Berkshire were as one. To sell the stock was to sell him too. Even so, he did not want his childen to live on Easy Street because of Berkshire Hathaway. Rather, he thought the future of his children and the future of Berkshire Hathaway would ultimately be joined not through ownership of the company, but by an act of philanthropy-their stewardship of the stock in the Buffett Foundation.

Buffett expressed his feelings on the subject of inheritance and philanthropy through a tribute he wrote in the Omaha World-Herald upon the death of Peter Kiewit, a near-mythical figure in Omaha. Kiewit's company, Peter Kiewit Sons', Inc., was reportedly the most profitable construction company in the world, once called the "Colossus of Roads."20 Buffett and Kiewit never had business dealings, but Kiewit owned the Omaha World-Herald and Buffett sat on its board.

The childless, workaholic Kiewit had lived in a penthouse apartment in Kiewit Plaza, where Berkshire was headquartered, and he commuted to work by elevator. Buffett envied him this arrangement.21 Kiewit was another Buffett prototype, a hard taskmaster and penny-pincher in the office who instilled his values through pithy little sayings. The company was his labor of love, and he was often "pleased, but never satisfied." "A reputation is like fine china," he said, "expensive to acquire, and easily broken." In making ethical decisions, therefore, "If you're not sure if something is right or wrong, consider whether you'd want it reported in the morning paper."22 Also like Buffett, Kiewit was obsessed with managing other people's weight.

The main differences between them were three: Kiewit was a hands-on manager. He shunned publicity. And he only seemed to be a cheapskate. While in Omaha, he drove a four-year-old Ford and lived like a Spartan as an example to his employees, but at his Palm Springs vacation home he drove a Cadillac and lived a more-than-comfortable lifestyle.23 Nevertheless, in many ways, Peter Kiewit exemplified Warren Buffett's ideas about how a 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. 24 "Starting from scratch," he wrote, Kiewit "built one of the great construction companies of the world.... Although not the largest, it may well be the most profitable business of its 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," he went on. "Profits went to build the capacity of the organization, not to provide opulence to the 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 the 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 San Simeon. He arranged to have ice hauled daily to the bears in his private zoo, much the way pharaohs used their claim checks to build the pyramids. Buffett had meditated on the economics of the pyramids. If he hired a thousand people to build a pyramid dedicated to himself, he says: "It would all go into the economy. Every dime. And a lot of forms of giving and spending are just a form of that. It's crazy, and it's probably somewhat morally wrong too. But there are people who would think it's great that you're giving employment to the people who are tugging the slabs for the pyramid. And they're making a mistake. It isn't productive. They're thinking in terms of input, not output.

"If you want to build pyramids to yourself, and take a lot of resources out of society, you ought to pay like hell for it. You ought to pay a perfectly appropriate tax. I would force you to give back a huge chunk to society, so that hospitals get built and kids get educated too."

Instead, he noted in this article, some who earned the claim checks passed them along to their heirs, enabling hundreds of descendants to "consume far more than they personally have produced; in effect, their whole lifetimes have been spent at the withdrawal window of the bank of societal resources." Buffett found the results ironic.

"I love it," he says, "when I'm around the country club, and I hear people talk about the debilitating aspects of a welfare cycle, where some woman had a child at seventeen, and she gets food stamps, and we're perpetuating a cycle of dependency. And these same people are leaving their kids a lifetime supply of food stamps and beyond. But instead of having a welfare officer, they have a trust fund officer. And instead of having food stamps, they have stocks and bonds that pay dividends."

Peter Kiewit, he wrote, "made major deposits in society's bank...but his withdrawals have been few." He left about five percent of his wealth to his family. The rest went to a charitable foundation for the benefit of the people of the region in which he lived, the same causes that Kiewit had supported when alive. Most of the company continued to be owned by his employees, and Kiewit had ensured that they could sell only to one another. "Peter Kiewit could not have better served his community and his compatriots," Buffett concluded.

Among philanthropists, Buffett also admired Andrew Carnegie and John D. Rockefeller as original thinkers. Carnegie had built public libraries in poor neighborhoods all across the United States. The Carnegie Foundation had sent Abraham Flexner as an emissary to study medical education in the United States.25 When his 1910 paper caused a national scandal by revealing the shocking condition of medical schools, Flexner convinced the Rockefeller Foundation to donate enough money to revolutionize medical education. Rockefeller also wanted to tackle problems that lacked a natural funding constituency. He found that poor black colleges, lacking rich alumni, had no way to improve themselves. "In effect, John D. Rockefeller became their alumnus," Buffett says. "He tackled problems without concern of which among them was most popular, and he backed them up big-time."

At this point, the Buffett Foundation had a token $725,000 and gave away less than $40,000 a year, nearly all to education.26 Susie ran the Buffett Foundation, which reflected their joint philosophy that money should go back to society. If she'd had access to them, Susie would have given away large amounts quickly. But Buffett was in no rush. He felt that by allowing the money to compound over time, there would be more to give away in the end-after he was gone. Certainly by 1983 he had a good argument in favor of this idea. Between 1978 and the end of 1983, the Buffetts' net worth had increased by a stunning amount, from $89 million to $680 million.

As he became richer, requests for money from friends, strangers, and charities poured in to Kiewit Plaza. Some were heartfelt pleas from the genuinely needy. Other people seemed to feel entitled to his money. The United Way, universities, cancer, churches, heart disease, the homeless, the environment, the local zoo, the symphony, the Boy Scouts, the Red Cross-all deserving causes, but the answer was the same: If I did it for you, I would have to do it for everybody. Some of his friends agreed with him, while others were perplexed that a man so generous with his time, advice, and wisdom was such a tightwad with his cash. It's not like it would kill him to peel off a few bucks, they said. Why didn't he find the joy in giving?

But as long as Buffett was still amassing the snowball, promising to give it all away after he died was like the "jam tomorrow" of Alice in Wonderland's White Queen. "After he died" was the same as never; another hedge against mortality, one of Buffett's great preoccupations. The "White Queen" form of denial was self-reinforcing in a peculiar way. By now, the Buffetts had at least nine friends or relatives who had, or whose family members had, attempted or committed suicide. Most recently, one of his friends' sons had driven his car off a cliff on Christmas Eve. Then, Rick Guerin's wife, Ann, had shot and killed herself a few days before their son's eighth birthday. By now, Buffett had a queasy preoccupation with suicide that was perfectly reasonable under the circumstances. Yet he himself was determined to live as long as possible-and to make money until the very end.

As his wealth grew, Buffett's often articulated and unwavering determination to keep making money at a furious rate while withholding it from his family and his foundation finally sparked a rebellion among his friends. Rick Guerin had written to Joe Rosenfield about the possibility of Buffett becoming the world's richest man: "What will Warren do when he becomes No. 1 sled dog and sees that there's more to the world than hair and a small target? (He thinks it's a bull's-eye, but we know better.)"27 When the Buffett Group met in Lyford Cay, Bahamas, between the snorkeling and deep-sea fishing George Gillespie sparked a hot debate by organizing a talk on "The Children (and Charity) Will Have to Wait." Years earlier Buffett had said he gave his kids a few thousand dollars for Christmas each year and told them to expect half a million dollars when he died.28 That, he thought, was "enough money so that they would feel they could do anything, but not so much that they could do nothing."29 This phrase would become one of his mantras, repeated over the years. "Warren, that's wrong," said Larry Tisch, one of his former partners. "If they aren't spoiled by age twelve, they won't be spoiled."30 Kay Graham, tears streaming down her face, asked, Don't you love your children, Warren?

Prompted by Carol Loomis, Fortune took up the issue in a cover story: "Should You Leave It All to the Children?" Family comes first, many people said.

"My kids are going to carve out their own place in the world and they know that I'm for them, whatever they want to do," Buffett said. But "just because they came out of the right womb," setting them up with a trust fund-which he considered "a lifetime supply of food stamps"-could be "harmful" and an "antisocial act."31 This was the rational Buffett. This Buffett had once written to a friend when his children were toddlers that he wanted to see "what the tree has produced" before deciding what to do about giving them money.32 Nevertheless, Buffett had made a decision that demonstrated newfound-if slight-flexibility. In 1981, he set up an innovative program in which Berkshire Hathaway would contribute $2 per share to a charity of the shareholder's choice. Berkshire did not pay a dividend, but this program allowed the shareholders to direct how the company spent its charitable dollars rather than letting top management donate to its pet causes and receive the credit. The program did not allocate much money, but for Buffett to do it at all was a loosening of the fist. And the shareholders loved it. The participation rate in the program was always close to one hundred percent.

To Buffett, the collector of information, the contributions program also turned out to be a tiny gold mine. It gave him an insight into the philanthropic interests of each shareholder, which he could never have gotten any other way. Collecting this information had no purpose whatsoever-even less than collecting nuns' fingerprints. Buffett, however, was insatiably curious and had a deep interest in knowing about his shareholders as individuals, as if they were part of an extended family, which was how he thought of them.

At fifty-three, Buffett-who had already "retired" twice-was thinking through issues of philanthropy and inheritance. The subject that visibly unnerved him was retirement. He joked about working after he was dead and made a point of highlighting elderly managers like Gene Abegg and Ben Rosner. But now they had retired, and Lou Vincenti had Alzheimer's. Perhaps it was not surprising, therefore, that Warren's next move would be to strike a deal with an eighty-nine-year-old woman, one who would outlast anyone he had ever met.

44.

Rose Omaha * 1983 Rose Gorelick Blumkin came to Omaha from the tiny village of Shchedrin, in the region of Minsk. Born in 1893, she and her seven brothers slept on straw on the bare floor of a two-room log house because her rabbi father couldn't afford to buy them a mattress.

"I dreamed all my life, since I was six years old," she said. "The first dream of mine was to go to America.

"In Russia, they used to have pogroms against the Jews. They'd cut up the pregnant women and take out the kids. They'd tear up their fathers and then have a dance in the main market. I was six years old when I found out about that. I said, I'm going to America when I grow up."1 At thirteen, Rose walked barefoot for eighteen miles to the nearest train station to save the leather soles of her brand-new shoes. She had the equivalent of four cents in her pocket and hid under a train seat for three hundred miles to save her money, until she reached the closest town, Gomel. There she knocked on twenty-six doors until the owner of a dry-goods store responded to her proposition. "I'm not a beggar," the four-foot-ten-inch girl said. "I've got four cents in my pocket. Let me sleep in your house and I'll show you how good I am." The next morning, "When I came to work I waited on customer. I rolled out the material and I added it up before anybody picked up a pencil. And at twelve o'clock he asked me if I was going to stay."2 By age sixteen, she was a manager, supervising six married men. "Don't worry about the men, Mamma!" she wrote her mother. "They all mind me!"3 Four years later she married Isadore Blumkin, a shoe salesman in Gomel.4 That same year, World War I broke out, vigilantes ran amok in Russia, and Rose made up her mind. They had money for only one passage to America, so she sent her husband and started saving to go herself. Two years later, the czarist monk Rasputin was killed by revolutionaries in December 1916. Fearing the chaos that would ensue even more than the cruelties of the czarist regime, Rose began her journey to America two weeks later, boarding the Trans-Siberian Railway on a train headed for China.

For seven days she rode the train until, at the border town of Zabaykai'sk, a Russian guard stopped her before she could enter China. She told the man she was buying leather for the army and promised him a bottle of slivovitz on her return. Either naive or lenient, he let her through the border. She rode through Harbin, Manchuria, to Tientsin, China, on another train. By then Rose had journeyed over nine thousand miles across almost the entire continent of Asia.5 From Tientsin she used her small stock of money to take a boat to Japan, with stops at Hiroshima and Kobe along the way, until she finally arrived in Yokohama. There she waited for another two weeks until finding the Ava Maru, a cargo boat carrying peanuts that gave her steerage passage to the United States. As the Ava Maru crossed the Pacific for six leisurely weeks on its way to Seattle, "I never saw so many peanuts," she said later. "I thought I'd never get here."6 She had carried dry black bread on board but was too sick for most of the journey to eat.7 Landing in Seattle on the Jewish holiday Purim after almost three months of travel with a face swollen from illness, Rose was met at the dock by the Hebrew Immigrant Aid Society, fed a kosher dinner, and given a hotel room. "When I came to this country," she said, "I thought I am the luckiest one in the whole world."8 The HIAS put a tag around her neck with her name and "Ft. Dodge, Iowa," where her husband had settled and was working as a junk peddler. They sent her on a train through Minneapolis to Fort Dodge, where the American Red Cross met her and reunited her with Isadore. Rose got pregnant right away and gave birth to a daughter, Frances. She didn't know a word of English.

Two years later, she still spoke hardly any English. Feeling isolated, the Blumkins decided they had to live in a place where Rose could converse in Russian and Yiddish, so they moved to Omaha, a town filled with 32,000 immigrants drawn by the railroads and packinghouses.9 Isadore rented a pawnshop. "You never hear of a pawnshop going broke," he said.10 Rose stayed home and had three more children, Louis, Cynthia, and Sylvia. Sending fifty dollars at a time back to Russia, she brought ten of her relatives to America. Unlike her husband, she still didn't speak much English. "I was too dumb," she said. "They couldn't drill it in me with a nail. The kids teached me. When my Frances started kindergarten, she says, 'I'll show you what an apple is, what a tablecloth, what a knife.'"11 But the store struggled and the family almost did go broke during the Depression. Then Rose took charge. I know what to do, undersell the big shots, she told her husband. "You buy an item for three dollars and sell it for $3.30. Ten percent over cost!" When the old-fashioned suits they carried weren't selling, Rose handed out ten thousand circulars all over Omaha, saying their store would outfit a man for five dollars from head to toe-underwear, suit, tie, shoes, and straw hat. They took in $800 in a single day, more than they had made the entire year before.12 The store branched into jewelry, used fur coats, and furniture. Then Rose drove the department stores crazy when she started underselling them on new fur coats on consignment.13 But she had a philosophy: "It's better to have them hate you than to feel sorry for you."

Soon customers started asking her for more furniture. At first she accompanied them to wholesalers and bought for them at ten percent over her cost. She noticed that, unlike pawnbroking, selling furniture was a "happy business," so in 1937 she borrowed $500 from a brother to open a store called Blumkin's in a basement near her husband's pawnshop. But the furniture wholesalers didn't want her as a customer, because their dealers complained that she was underselling them. So Rose went to Chicago, found one sympathetic man, and ordered $2,000 worth of merchandise from him on thirty days' credit. The time came due and she was short, so she sold her own house furnishings cheap to pay off the debt. "When my kids came home, they cried like somebody will die," she recalled. "Why I took away the beds and the refrigerator? The whole house, an empty house? I told them, they were so nice to me I can't stand it not to keep my promise."14 That night she took a couple of mattresses from the store for the family to sleep on. "The next day I brought in a refrigerator and stove," she said, "and the kids quit crying." 15 In school the other children picked on her son, Louie, for having a pawn-broker as a father. He found it painful but ignored their taunts, worked in the store after school, remained a good student, and became an all-American diver at Tech High while delivering sofas until midnight. His mother by now had established the Nebraska Furniture Mart and moved to larger quarters. In a side business, she sold and rented out Browning automatic shotguns during hunting season. Louie's favorite job was testing the guns by firing them into cinder blocks in the family's basement.16 By the time the United States entered World War II in 1941, Louie had enrolled at the University of Nebraska, but he dropped out to enlist in the service after only a few semesters, still just a teenager. During the war, he and his mother wrote each other every day. His mother was discouraged, and he urged her not to quit.17 Because the big wholesalers refused to sell to the Nebraska Furniture Mart, Rose had become a furniture "bootlegger," traveling on trains all over the Midwest to buy overstock merchandise at five percent over wholesale from stores like Macy's and Marshall Field's. "They could see she knew what she was doing," says Louie. "They were fond of her and would say, here's this dining-room set that just came in. It wasn't easy or cheap, but she got it." Rose said, "The more [the wholesalers] boycotted me, the harder I worked."18 You don't own the country, the country belongs to everyone, was her attitude.19 She developed a lasting hatred of big shots. "When you're down they spit on you," she said. "When you start making some dollars they start paying attention. Phooey. Who needs them? Give me the middle class and I'll be happy." Her slogan was "Sell cheap and tell the truth, don't cheat nobody, and don't take no kickbacks."20 When she made a sale, she also told the employees, "Deliver it before they change their minds!"21 Louie won a Purple Heart at the Battle of the Bulge. After the war, he came straight home to Omaha in 1946 and went back to work. He learned everything about merchandising: buying, pricing, inventories, accounting, delivery, display. To Rose, nobody was as good as Louie. Ruthless with her employees, she screamed at them at the top of her lungs: "You worthless golem! You dummy!" But after his mother fired them, Louie would hire them back.

Four years later, the store was prospering, but then the Korean War began, and sales started to sink. Rose decided to give the business a boost by adding carpet to her line. She went to Marshall Field's in Chicago and told them she was buying carpet for an apartment building; they sold her three thousand yards of Mohawk carpet for $3.00 a yard. She retailed it for $3.95, half the standard price, although the fact that she had lied to Marshall Field's seemed to bother her for years afterward.22 Rose had managed to launch a successful carpet business by giving her customers a better price than the other carpet dealers. But carpet maker Mohawk filed a lawsuit to enforce their minimum-pricing policies-under which manufacturers required all their retailers to charge a minimum price-and sent three lawyers to court. Rose showed up alone. "I say to the judge, 'I don't have any money for a lawyer because nobody would sell to me. Judge, I sell everything ten percent above cost, what's wrong? I don't rob my customers."23 The trial lasted only an hour before the judge threw the case out. The next day, he went out to the Furniture Mart and bought $1,400 worth of carpet.

But even though the Furniture Mart was selling carpet, furniture sales were depressed due to the war; Rose still couldn't pay her suppliers. Finally a friendly Omaha banker, Wade Martin, asked her what was wrong. "I don't know what I'm going to do," she said, "I can't eat the merchandise."24 He loaned her $50,000 for ninety days, but Rose couldn't sleep worrying about how she was going to pay it back. She hit upon the idea of renting the Omaha City Auditorium and cramming it with sofas and dinettes and coffee tables and TV sets. Master merchandisers, she and Louie took out an ad in the paper that was strictly truthful, yet played on wartime scarcity.

This is It! The Sale of Sales! Shortages? Malarky! We can't eat 'em! We must sell 'em! We've been shipped so much merchandise this past 60 days, we have no warehouse room. Yes, we're overloaded, and how! We can't eat 'em and usually couldn't sell as much in six months. So we've staged the largest sale ever of its type ever held in this area...45,000 square feet filled with the most unheard of savings of famous brand merchandise.

It drew as many people as if the circus had come to town.25 The Furniture Mart sold a quarter of a million dollars' worth of furniture in three days. Omaha now knew that Rose Blumkin and the Furniture Mart meant discount furniture, and "From that day, I never owed anybody a penny," she said.26 That same year, Isadore died of a heart attack. Rose and Louie kept on going. Gradually, "Mrs. B" was becoming a name that everybody knew in Omaha. People came into the store at every stage of their lives: when they got married, when they bought their first house, when they had a baby, when they got a big promotion. The Blumkins bought in huge quantities, cut expenses to the bone, and sold at ten percent above their cost. When a tornado tore the roof off their huge new West Side suburban store in 1975, she and Louie moved everything to their remaining downtown store without hesitation. "If you have the lowest price, they will find you at the bottom of a river," she said. They did. When a fire burned down the store, she gave the firefighters free TV sets.27 "Everything Mrs. B knew how to do, she would do fast. She didn't hesitate and there was no second-guessing. She'd buy five thousand tables or sign a thirty-year lease or buy real estate or hire people. There was no looking back. She just swung. You got about two inches outside the perimeter of her circle of competence, she didn't even want to talk to you about it. She knew exactly what she was good at, and she had no desire to kid herself about those things."

By the early 1980s, Rose and Louie Blumkin had built the largest furniture store in North America. Its three acres sold over $100 million of furniture a year under one roof, ten times the volume of stores of similar size.28 From then on, sales grew every single year, in good economies or bad, whether Omaha grew or shrank.29 The prosperous, established home furnishing retailers in Omaha who had been her competitors when she started had vanished. Other retailers came into the city and tried to compete with the Mart. Rose cased their showrooms, she and Louie created discount campaigns, and they broke them financially and drove them away. The Mart captured half the business in the metropolitan area-more than Sears, Montgomery Ward, Target, and all the other furniture and appliance retailers combined. Customers began to arrive from Iowa, Kansas, and the Dakotas.

"She grew her own town. Her retailing circle just kept spreading out farther and farther, and her parking lot was full of cars from a hundred or more miles away."30 Rose became known as Mrs. B, even to her family. She awoke at five a.m., ate only fruits and vegetables, and never touched liquor. A few gray hairs appeared around the edges of her lacquered black bun, but it stayed firmly in place as she raced around the store with the energy of a young woman, shouting or slicing her arms through the air for emphasis. As her bargaining position grew stronger, she brooked no sympathy for her suppliers. "Seven dollars? We go bankruptcy tomorrow should we pay that," she sniffed at one's demand.31 The wholesalers who had formerly snubbed her now kneeled at her feet. She loved it. "If you want to sell her twenty-three hundred end tables, she will know in a minute what she can pay, how fast she can move them...and she'll buy them from you. She'll wait until just before your plane is going to leave in some blizzard when you have to get the hell out of Omaha and can't afford to miss your flight. She will be very tough in dealing with you."32 She was hard at it six and a half days a week. "It's mine habit," she said. In her mind, the showroom was her home. Her daughter, Cynthia Schneider, who decorated her mother's house, had arranged the furniture "just as you would find in the store" because "it's the only way we could be sure she would be comfortable."33 The lampshades remained covered in plastic. Price tags dangled from some of the furniture. "I only use the kitchen and bedroom," said Mrs. B. "I can't wait until it gets daylight, so I can get back to the business."

On Sunday afternoons-the only time all week she wasn't at the store-she drove around town with Louie. "I go shop the windows," she said. "I plan an attack on the shopkeepers, thinking, 'How much hell can I give them?'"34 All her work, she said, was inspired by her "diamond mother," who had run a grocery in Russia. She never forgot waking in the night to find her mother doing laundry and baking bread at three a.m. "She would carry a hundred pounds of flour twenty blocks for three cents' profit," she said. "It broke my heart."35 And so, Rose's soft spot was refugees and immigrants. She sometimes put them to work in the bookkeeping department, telling them, "You don't need English to count."36 In 1982, the Omaha World-Herald interviewed her. She said that over the years the family had rejected several offers to buy her company. "Who could afford to buy a store this big?" One of the offers, she told Louie, was Berkshire's. Buffett had talked to her a few years earlier and she'd told him: "You'll try to steal it."37 A year later, Buffett heard that the Blumkins were negotiating with a company in Hamburg, Germany, that operated the largest furniture store in the world, a model similar to theirs. The Blumkins were selling! "You don't have to be very smart to figure out it's a good idea to go into partnership with Mrs. B," Buffett said.38 Maybe this time they were serious. Twenty-some-odd years before, on yet another occasion, Rose had summoned Buffett to her store downtown, indicating that she was thinking of selling. He really wanted to buy the Furniture Mart for Berkshire. He had walked in to find a short, squat woman lecturing a group of men lined up against the wall: her grandsons and sons-in-law and nephews. She turned to Buffett. "'See all these guys next to me?' she said. 'If I sell it to you, you can fire them. These people are a bunch of bums, and they are all related to me and I can't fire them. But you can fire them. They're bums, bums, bums.'

"She went on like this for an hour, literally. The word 'bums' recurred many, many times." The relatives, long used to Rose, stood, impassive. "Then she dismissed me. I had served my purpose."

It was too bad; he would have liked to buy the store.39 "She thought the only one who was worth anything was Louie, and he was perfect." When she was pleased with Louie, as she usually was, she told him, "Oy, oy, oy, oy, it's beautiful, you did such a good job."40 If the Blumkins had talked themselves into selling, now was the time. Mrs. B had had two knee replacements, ceding most of the day-to-day operations to Louie. But she was still running the carpet department. "Something about carpet fascinated her," said Louie.41 If somebody needed carpet for a nine-by-twelve room, she priced it out, added the tax, and gave the buyer a discount for being a good customer, all calculated within seconds in her head. And she still made occasional forays into the furniture department, often enough that the family could never be sure if even their own furniture was safe. Once, Rose called her daughter and told her to "empty the baby chest," because she had a customer. "When I made up my mind," she said, "I didn't want to wait for nothing. That's mine habit."42 Nevertheless, it was Louie to whom Buffett talked. Louie said, "You should meet my sons Ron and Irv, who'll be running the store someday."

Buffett invited Ron and Irv to come to his office for a visit, and struck up a relationship with them. He sent Louie a letter, explaining his thoughts on the pros and cons of their selling to Berkshire. The Blumkins should be in no hurry to sell, he wrote, dealing with them as honestly as anyone possibly could. If "you decide not to sell now, you are very likely to realize more money later on. With that knowledge you can deal from strength and take the time required to select the buyer you want."

Then he laid out what he really had to offer. They could sell to another furniture company, he wrote, or to somebody in a similar business. But "such a buyer-no matter what promises are made-usually will have managers who feel they know how to run your business operations, and sooner or later, will want to get into hands-on activity.... They will have their own way of doing things and, even though your business record undoubtedly will be far better than theirs, human nature at some point will cause them to believe that their methods are superior."

Then there is "the financial maneuverer, usually operating on large amounts of borrowed money, who plans to resell either to the public or to another corporation as soon as the time is favorable," he wrote. "If the sole motive of the owners is to cash their chips and put the business behind them, either of these types of buyers is satisfactory.... But if the sellers' business represents the creative work of a lifetime and remains an integral part of their personality and sense of being, both of these types of buyers have serious flaws.

"Any buyer will tell you that he needs you and, if he has any brains, he most certainly does need you. But a great many, for the reasons mentioned above, don't subsequently behave in that manner. We will behave exactly as promised, both because we have so promised, and because we need to."

Buffett explained that if he bought, he wanted the Blumkins to stay on as partners. If they looked back with regret, the deal would be a disappointment for everyone, including him. He told Louie that he would get involved in only two things: capital allocation and selecting and compensating the "top man."

Buffett had something else to offer. He was not German. The German company had offered well over $90 million, but to Mrs. B, who had traveled 9,000 miles across Asia to escape the pogroms, selling to a German company was anathema. The Blumkins agreed to sell the company to Berkshire, so Buffett drove out to the 200,000-square-foot store to make a deal. There he found the eighty-nine-year-old Rose gunning the motor of her three-wheeled golf cart and racing around the store, roaring at her employees, "You're all good for nothing! I wouldn't give a nickel for all of you!" while Louie and her three sons-in-law looked on.43 "I don't even want to take inventory," said Buffett. "I'll take your word, Mrs. B, whatever you say you got."

Mrs. B looked at her sons-in-law, who stood against a wall. One of them was taller than her by at least a foot. "Norman's been married to Frances forty-one years," she said. "Jerry's been married to Sylvia thirty-six years. Charles was married to Cynthia thirty-nine years ago. I told those boys, 'I don't take return merchandise!'"

Her daughters owned twenty percent of the stock and had sent their husbands to sign off on the deal. The sons-in-law were not dumb and knew that they'd get far more money from the Germans. "And she snarled at them, Just tell me how much more you think you're going to get and I'll give it to you. She wanted to divide up the money and get them out of there so it would be Louie's company, and they stood there against the wall, quivering. They wanted to go. And then she said the price was fifty-five million dollars for ninety percent of the company." Mrs. B had said, "I don't understand stock." She wanted cash. "They stood there mute, but they were also thinking, as soon as this sale goes through, we get the money, we're getting the hell out of here.

"She really liked and trusted me. She would make up her mind about people and that was that." Buffett knew she made decisions about everything once and for all and in the blink of an eye, so he wasn't taking much risk, but, "I told Mrs. B after she signed, I said, 'If you change your mind on this it's okay with me.' I would never say that to any other seller in the world, but I just felt that this was just such a part of her, if there was any reason she decided she didn't want to do it after-I didn't want her to feel bound. And she said, 'I don't change my mind.'

"When I was leaving, I told Louie, 'I'm terrible with accents. Sometimes I don't understand your mother perfectly; the last thing I want in the world is a misunderstanding with her.' And Louie said, 'Don't worry, she'll understand you.'

"After the deal was done, I said, 'Mrs. B, I've got to tell you something. It's my birthday today.'" Buffett was fifty-three. "And she said, 'You bought an oil well on your birthday.'"

The Blumkins had never had an audit, and Buffett did not ask for one. He did not take inventory or look at the detailed accounts. They shook hands. "We gave Mrs. B a check for fifty-five million dollars and she gave us her word," he said.44 Her word was as good as "the Bank of England." Buffett, however, still wanted to make sure that Rose had no regrets.

The contract was just over a page of Carnegizing. It began, "You own a hundred percent of the outstanding stock of Nebraska Furniture Mart, Inc. ('NFM') which operates a remarkably successful furniture and appliance retailing business.... Berkshire Hathaway, Inc. ('Berkshire') has long admired what you have accomplished together and hereby proposes to purchase from you ninety percent of such outstanding stock."45 To announce the deal, he held a press conference and showed a video on the company's history. Mrs. B dabbed at her eyes as the film was shown.46 Buffett had not only found another unusual specimen to add to his collection of interesting personalities. Something about Mrs. B's indomitable will, history of hardship, and strength of character inspired awe in him.47 "Dear Mrs. B," he wrote to her. "I have promised Louie and his boys that all members of the family are going to feel good about this transaction five, ten, and twenty years from now. I make you the same promise."48 Buffett had promised more than that. Mrs. B was used to operating in total control and privacy; she did not want Buffett to throw her financial dress up in the air and show her knickers to the world. He had promised her that the accounts of the Furniture Mart would not be separately reported when Berkshire Hathaway filed its financial statements with the SEC, as of course was legally required.

Buffett had no worries about getting a waiver from the SEC-or rather getting one of his employees to get the waiver. He was a likable boss who never lost his temper, never changed his mind capriciously, never said a rude word to anyone, never berated or criticized his employees, didn't second-guess people on their work, and let them do their jobs without interference. He also operated on the assumption that if somebody was smart, they could do anything. Charlie Munger said of him, "Warren doesn't have stress, he causes it." Dale Carnegie said to give people a fine reputation to live up to, and Buffett had learned that lesson well. He knew how to Carnegize heroic accomplishments out of his people.

The gist of what he told his employees was something like: "You're so good, this won't take you any time at all, and it won't cost anything to do. And, of course, you'll have it back to me in the next mail. Because you're just so damn great at what you do. It would take three people to replace you."49 Verne McKenzie, who had only just finished mopping up the Blue Chip mess, was assigned the thankless task of convincing the SEC to grant an exception to its rules so that Mrs. B would not suffer the pains of an audit or of having to unveil her financial secrets to the shareholders of Berkshire Hathaway. He began to go through torture navigating the government's unsympathetic maze while Buffett offered blithe assurances that he could easily get this done.50 Buffett, meanwhile, had the happy job of diving into a new business and a new collection of people. He grew fond of Louie and "the boys" he started driving out to 72nd Street at eight-thirty in the evening when the store closed to go out to dinner with Louie, Ron, and Irv, talking for hours about furniture and merchandising. He started taking "the boys" and their wives on an annual vacation.

That fall the Buffett Group lurched across the North Atlantic in heavy seas on the Queen Elizabeth II. Some of Buffett's friends were shocked when told to send $125 in advance for tips and asked to bring tuxedos for several formal dinners. Joy Ruane was so intimidated by this new hauteur that she showed up with seventeen suitcases.51 The food onboard the ship was "second rate," said one member, and the agenda a mix of the typical and the unusual: Wyndham Robertson, another Fortune reporter who was a member of the group, on investing during inflation; a session on stock options; George Gillespie and Roy Tolles on splitting up assets in a divorce-a subject on which views ran hot; Tom Murphy on the race between television networks CBS and Cap Cities; and Charlie Munger on Benjamin Franklin. Buffett spoke on using "game theory" to solve economic problems, based on pioneering economist Adam Smith's "invisible hand,"52 in which people laboring to further their own interests acted collectively for the good of everyone.

All the while, Buffett delighted in telling his friends about the immigrant saga of Mrs. B and her wonderful Furniture Mart, the new money-churning prize he had just bought himself. However, he was almost upstaged by Ed Anderson, who made the prudish members of the group-the majority-fall out of their chairs when he explained his funding of human sexuality research and told with perfect earnestness the touching story of someone who had had a sex-change operation and kept his severed organ in a jar.

But the Buffett Group was falling out of its chairs, anyway. Those who were not below in their staterooms vomiting were imprisoned inside the saloon, where plates slid off the tables and ashtrays flew while the ship rocked and surged across the ocean in driving rain and gale-force winds and they heard story after story of the unsinkable Mrs. B. The Buffett Group was supposed to tour England for several leisurely days upon arriving, but five hours after they landed in Southampton, Rick Guerin was on a plane back to New York.

Nonetheless, through the howling wind, the homilies of Ben Franklin, divorce planning, and penises in a jar, one message came through, loud and clear: Buffett's affection and admiration for Rose Blumkin.53 He had plans for her and enlisted Buffett Group member Larry Tisch in his behind-the-scenes machinations. In a virtuoso display of gratitude and showmanship, he had decided to turn the geriatric Rose into Cinderella.

With the help of Tisch, who was a trustee of New York University, he arranged it so that both Creighton University and NYU gave Rose honorary degrees.54 At Creighton, the tiny Mrs. B was so overcome that she covered her face with her hands and cried on the stage, saying, "Oy, oy, oy, I never even believe it."55 Then she spoke of America, the country that made her dream come true. Her advice to the graduating seniors: "First, honesty," she said. "Second, hard work. Next, if you don't get the job you want right away, tell them you'll take anything. If you're good, they'll keep you."56 In the city for the New York University ceremony, the family took care to keep her from seeing the price of her hotel room, for she had been to New York before and thought anything more than $75 for a hotel room was outrageous.57 She had Louie take her to see Ellis Island and Delancey Street, but getting around the city was a struggle, for she felt cheated by the price of a taxi.58 On the morning of commencement, Mrs. B was "robed" with great pomp and circumstance and received her degree alongside Senator Daniel Patrick Moynihan and the poet Octavio Paz.

Despite the august company of the NYU ceremony, when asked which of the two honorary degrees she preferred, Rose did not hesitate. It was Creighton's. They had bought carpet from her.

Soon after, Berkshire's auditors conducted the Nebraska Furniture Mart's first inventory. The store was worth $85 million. Mrs. B, seized with a severe case of remorse after she had sold it for a total value of $60 million, including the share retained by the family, told Regardie's magazine, "I wouldn't go back on my word, but I was surprised.... He never thought a minute [before agreeing to the price], but he studies. I bet you he knew."59 Buffett, of course, could not have "known," not literally. But he had certainly known there was a whopping margin of safety in the price.

Nevertheless, he practically considered himself a member of the family by now. When Mrs. B turned ninety, the Furniture Mart organized a huge sale, taking out full-page ads for days in the local paper, as it did every year on her birthday. Buffett would tease her about the date of her birthday sales.

"She measured her birthday by the Jewish calendar, which moved around. I used to tease her about that; it really didn't fall on the same day every year. But I said that the way she moved it around was whenever she needed a little more business. Her birthday was quite flexible. She'd smile and look at me and say, 'Well, you don't understand the Jewish calendar.'"

Within two years, however, this fairy tale of a story turned ugly. The indomitable Mrs. B yelled at her grandsons Ron and Irv in front of the customers, calling them bums. As tough a life as she'd lived, and as hard as she'd had to work, who could know more about the business than she? Gradually-and understandably-"the boys" stopped speaking to her.

Finally, when she was age ninety-five, her grandsons overruled her on a carpet purchase and she exploded. It was the last straw. "I was the boss. They never told me nothing,"60 she said, and quit. She also demanded $96,000 in unused vacation pay on her way out the door.61 But sitting at home alone, she acknowledged, was "awful lonely, not to do nothing. I go nuts."62 In ominous newspaper interviews she referred to her grandsons as "dummies" and, shockingly, "Nazis."63 She hinted at solo trips to the North Carolina High Point Market, the furniture industry's largest trade show. She suddenly arranged to have a warehouse she owned right across the street from the Furniture Mart refurbished. She held a "garage sale" in it, and cleared $18,000 in one day, selling "some of her own things."64 A few months later, "Mrs. B's Warehouse" was grossing $3,000 a day before it officially opened.

Asked about the impending battle for customers, she snarled to the local paper, "I'll give it to them." When the paucity of parking spaces at her new store was mentioned, she pointed to the Furniture Mart's lot and said, "Park there...they won't notice." Soon she was embroiled in a fight with her grandsons over city parking ordinances. She put up a sign: "Their price $104, our price $80."65 When Bob Brown on ABC's 20/20 program asked her about the Furniture Mart, she said, "I would it should go up in smoke. I like they should go down to hell...."66 Some time earlier, Buffett had created a saying. "I would rather wrestle grizzlies," he said, "than compete with Mrs. B and her progeny."67 Stuck wrestling grizzlies, Buffett acted as he always did when any of his friends' relationships broke down. He refused to take sides. Mrs. B thought that was disloyal. "Warren Buffett is not my friend," she told a reporter. "I made him fifteen million dollars every year, and when I disagreed with my grandkids, he didn't stand up for me."68 This was torture to Buffett, who couldn't bear conflict and broken relationships.

Louie, who could do no wrong in his mother's eyes, made no headway with Rose. "She figured she lost control of this place, and she blew her top," he says.