6. The SEC prepared a study stating that the new system, NASDAQ, was "on the horizon" in 1963. NASDAQ went live on February 8, 1971, and traded as much volume as the American Stock Exchange in its first year. Eric J. Weiner, What Goes Up: The Uncensored History of Modern Wall Street, New York: Little, Brown, 2005.

7. Warren Buffett letter to the Graham Group, January 16, 1968.

8. Warren Buffett letter to the Graham Group, September 21, 1971.

9. DRC earnings were down overall $400,000, or 17%, in 1968. Associated Cotton Shops earned about 20% on the money employed in the business-an outstanding performance in any year but especially in difficult 1968.

10. Letter to partners, January 24, 1968.

11. Buffett lost money in stocks at times and was quick to cut his losses. The margin of safety didn't prevent losses but shifted the odds away from large losses.

12. The Youth International Party (Yippees), a prankster group of anarchist activists, nominated Pigasus the Pig as their party candidate. Leader Jerry Rubin said, "Why vote for half-pigs like Nixon, Wallace, and Humphrey, when you can have the whole hog?" at a speech to the University of British Columbia Faculty Club (October 24, 1968).

13. Interview with Verne McKenzie, who says that Chace was upset but did not show it. He did what he had to do.

14. The impact of credit cards and a radical change in consumer thinking about consumption is hard to overstate. Savings and layaway-once commonplace in purchasing even items such as clothing-were replaced by debt. Although economists debate measures of household wealth over time, the result has been a world of renters who tithe to financial institutions. The "earthquake risk" is a catastrophic mass deleveraging. (See 2008 credit crisis.) 15. Retailers paid, on average, 2 for every dollar of sales for the stamps they gave out and tacked this onto the price of their goods.

16. They priced Blue Chip cheaper, at 1.5.

17. Blue Chip had 71% of the trading-stamp business in California at the time. "Safe on Its Own Turf," Forbes, July 15, 1968.

18. Sperry & Hutchinson sued Blue Chip when the Alpha Beta and Arden-Mayfair food chains dropped S&H stamps in favor of Blue Chip stamps. Blue Chip paid $6 million to settle this case.

19. Each "package," priced at $101, consisted of $100 face amount of 6.5% ten-year debt plus three shares of $0.333 par common stock. A total of 621,600 Blue Chip shares were included in the offering. Nine retailers who were big Blue Chip customers split another 45%, which went into trusts for ten years. The remaining 10% went to company management (as reported in the Wall Street Journal, September 23, 1968).

20. A couple of gas-station chains were still suing, as were a group of small trading-stamp companies in Northern California. Blue Chip Stamps annual report to shareholders, 1969.

21. One of the Graham Group members recalls this.

22. Letter to partners, January 24, 1968.

23. Leslie Berlin, The Man Behind the Microchip. New York: Oxford University Press, 2005.

24. Buffett shorted 10,000 shares of Control Data in the third quarter of 1965 in the low $30s-at this point he had over $7 million of his portfolio in shorts. He eventually bought some Control Data for the partnership in 1968, as a "workout," meaning an arbitrage.

25. Interview with Katie Buffett, who said Fred wanted to put in $300 and she "snitched a little" to add another hundred. She thought she would have been better off putting more money in the partnership.

26. In the form of a convertible debenture.

27. Leslie Berlin, The Man Behind the Microchip.

28. Buffett told his partners about the "particularly outstanding performances" of Associated Cotton Shops and National Indemnity Company. But the controlled companies had only a "decent" performance overall; Berkshire and Hochschild-Kohn were dragging down the results.

Chapter 33.

1. A former Kelly girl temporary office worker, Kaiser came to work in January 1967 and stayed until her retirement in 1993.

2. Interview with Donna Walters. Buffett shared Walters with Sol Parsow, the men's haberdasher in the building's lobby.

3. Blue Chip stamps were the closest equivalent.

4. Beginning with "Love Only Thing That Stops Guard," Omaha World-Herald, April 20, 1952, continuing to a cute feature picture of Susie and the kids packing a picnic Thermos, and a story about him buying Sam Reynolds's house.

5. Loomis's recollections are from her memoir in Fortune, "My 51 Years (and Counting) at Fortune," Fortune, September 19, 2005.

6. Loomis wrote an admiring profile of hedge-fund manager A. W. Jones, "The Jones Nobody Keeps Up With," Fortune, April 1966, around the time or shortly before she met Buffett. In this article she mentions Buffett in passing. She did not begin to profile him in her writing until "Hard Times Come to the Hedge Funds," Fortune, January 1970.

7. Buffett says that he never actually overslept his paper route. This seems to be his version of the common "test-anxiety dream."

8. Interview with Geoffrey Cowan.

9. Interview with Tom Murphy.

10. Warren Buffett letter to Jay Rockefeller, October 3, 1969. Buffett added, "It tends to be a very poor business unless you have a life-size fold-out of a girl in the middle. I have frequently told my partners that I would rather lose money logically than make money for the wrong reasons. Hopefully, I will come up with some similar aphorism to rationalize this deal."

11. Buffett put in $32,000 to start.

12. Interview with Charles Peters, with additional condensed comments adapted from Peters's memoir, Tilting at Windmills. New York: Addison-Wesley, 1988.

13. Buffett put in another $50,000.

14. After being told that he couldn't donate his investment in the Washington Monthly to charity, "I finally let them give the stock to one of the people who worked there, just to get rid of it," says Stanback. "It was worthless."

15. Letter to partners, May 29, 1969.

16. Ibid.

17. Ibid.

18. The Buffetts hired teachers as babysitters, but Howie co-opted the teachers' husbands into becoming his confederates, doubling the degree of lawlessness.

19. Al Pagel, "Susie Sings for More Than Her Supper," Omaha World-Herald, April 17, 1977.

20. Interview with Milton Brown.

21. Berkshire Hathaway annual meeting, 2004.

22. Letter to partners, October 9, 1969.

23. John Brooks, The Go-Go Years. New York: Ballantine Books, 1973.

24. The stock had "split" so that each share became five, then promptly rose to $25 per share.

25. Blue Chip had called a shareholders' meeting to vote on a secondary offering in which shareholders could offer blocks of existing stock to the public.

26. Interview with Wyndham Robertson, who says she could barely understand the code when she first joined the Graham Group two years later in Carmel.

27. Letter to Graham Group, September 21, 1971.

28. Interviews with Marshall Weinberg, Tom Knapp, Fred Stanback, Ruth Scott.

29. Interview with Ed Anderson.

30. Letter from Warren Buffett to Graham Group, September 21, 1971.

31. Interview with Fred Stanback.

32. Interview with Sandy Gottesman, who notes that they basically broke even on the deal; he says that a bit of mythology has arisen around the Hochschild-Kohn deal. "It goes down in history as an enormous mistake," he says. "And I don't think it was as big a mistake as represented...it's grown way out of proportion."

33. Supermarkets General bought Hochschild-Kohn in 1969 for $5.05 million cash plus $6.54 million in non-interest-bearing notes with a present value of about $6 million. Effectively, DRC received about $11 million.

34. From the 1969 Diversified Retailing annual report. But if Buffett had been hit by the proverbial bus, under the terms of the debenture, the obligation for mandatory redemption would have ceased. So he was taking the element of random chance out of it.

35. Wilder was not the only doubter. "Danny [Cowin] thought I was crazy to do it," says Buffett.

36. Cited in the 1989 letter to shareholders.

37. "How Omaha Beats Wall Street," Forbes, November 1, 1969.

38. The article stated that Buffett had lived in the house since his marriage in 1952, an error later repeated by other writers. The Farnam house was far from the "starter home" that is implied. Articles often refer to the house as "modest" or some similar term and rarely mention its extensive remodeling. Buffett bought the house in 1958.

39. Evelyn Simpson, "Looking Back: Swivel Neck Needed for Focus Change Today," Omaha World-Herald, October 5, 1969.

Chapter 34.

1. Carol Loomis, "Hard Times Come to the Hedge Funds," Fortune, January 1970, the first of a series of Loomis articles that showcase Buffett's opinions.

2. Book value. Tangible book value was $43. Warren Buffett letter to partners, October 9, 1969.

3. Ibid.

4. The more inquisitive partners may have discovered that Berkshire Hathaway owned Sun Newspapers by reading its 1968 annual report.

5. Letter to partners, October 9, 1969. Buffett explained that he expected stocks to yield about 6% after tax for the next ten years, roughly the same as a "purely passive investment in tax-free bonds." Even the best managers, he said, were unlikely to do better than 9% after tax. Compare this to the 17% return he had projected to partners in the early years of the partnership and the 30% average he had actually achieved.

6. Letter to partners, December 5, 1969.

7. According to Buffett, a couple of them never were able to find anyone they trusted to manage their money, and one ended up working as a fortune-teller in San Diego.

8. Letter to partners, December 26, 1969.

9. This statement is intriguing since Buffett had just named Dow Jones as the stock he would like to own on a desert island. However, the Sun was not a good investment.

10. Emphasis added by author. By then, a small cult of Buffett-stalkers monitored his holdings, and curiosity about Buffett's intentions was rife among many partners. The importance of a clear statement of his intentions-after more than a decade of obsessive secrecy-should have been unmistakable (at least with hindsight).

11. Buffett indulged in a bit of score-settling with the underwriters in his letter to partners of December 26, 1969, saying that the deal was pitched "with a heavy weight" placed on a comparison to Sperry & Hutchinson, the nearest competitor, but shortly "before the stock was to be offered, with the Dow Jones Industrials much lower but S&H virtually unchanged, they indicated a price far below their former range." (Blue Chip at the time had declined significantly.) "We reluctantly agreed and felt we had a deal but, on the next business day, they stated that our agreed price was not feasible."

12. It was a little unclear what the filling stations' actual beef was. They had given out Blue Chip stamps and made money doing it. If there were five stamp companies in California, they might have given out stamps that cost more, and it isn't clear that they would have made more money-they might have made less.

13. This takes into account the approximately 90,000 shares of Blue Chip Stamps that were still tied up in BPL because of the delay in the sale.

14. DRC's 1971 annual report discloses $841,042 of notes issued "in exchange for common stock of an affiliated company" due on varying dates, or within twelve months of the death of Warren E. Buffett. DRC continued to issue these notes until 1978, for a total of $1.527 million. During the first year the notes were also payable at the payee's demand. Apparently the notes were reissued with this term eliminated in 1972 (according to the 1972 DRC financial statements).

15. 1970 Annual Statement for Reinsurance Corporation of Nebraska, Berkshire Hathaway, Diversified, and Blue Chip, Forms 10-K and annual reports to shareholders.

16. Interview with Verne McKenzie.

17. Interview with Rhoda and Bernie Sarnat.

18. Interview with Charlie Munger.

19. Through chunks of stock large enough to almost certainly block an unfriendly takeover.

20. Blue Chip sales peaked in 1970 at $132 million.

21. A&P's discounting program, Where Economy Originates, prompted other supermarket chains to adopt discounting in 1972. "The Green Stamp Sings the Blues," Forbes, September 1, 1973.

22. From the files of Berkshire Hathaway.

23. Interview with Bill Ramsey. The sale occurred because Laurence A. See, son of Mary See and a founder of the firm, had died, and Charles See, his brother and executor of his estate, mentioned to an attorney acquaintance while on vacation in Hawaii that he might want to sell. The attorney told Bob Flaherty, who worked for Scudder, Stevens, and Clark, and Flaherty talked to Ramsey, who was also a client of the firm.

24. From Margaret Moos Pick, See's Famous Old Time Candies, A Sweet Story. San Francisco: Chronicle Books, 2005.

25. Interview with Ed Anderson.

26. Buffett and Munger paid 11.4x trailing twelve months earnings for See's (i.e., a price equal to over eleven years' worth of the company's earnings-at the past twelve months' earnings rate). This was a remarkably high price/earnings ratio for Buffett, who rarely paid more than ten times earnings. Paying more than book value was also unprecedented. Susie told at least one friend that he "bought it for her," because of her chocolate obsession, which sounds like something he might have said as an endearment.

27. Since 1960.

28. Letter from John W. Watling to Harry W. Moore, December 3, 1971. Buffett was particularly involved in tax aspects of the deal. He wrote a detailed memorandum outlining a proposed structure for the company's trademarks in order to obtain a tax basis equal to the effective purchase price without incurring the tax costs that a sale would entail under tax law at the time, such as depreciation recapture and investment tax-credit recapture. Price Waterhouse, the accountants for See's, apparently were pleased that Buffett had done their job and wrote a memo concurring with his proposal and explaining how it would be executed (letter from Price Waterhouse & Co. to William F. Ramsey, January 18, 1972).

29. This account is an amalgamation of interviews with Munger and remarks at the Berkshire Hathaway 2003 annual meeting. Warren Buffett and Charlie Munger, "What Makes the Investment Game Great Is You Don't Have to Be Right on Everything," Outstanding Investor Digest, Vol. XVIII, Nos. 3 and 4, Year End 2003 Edition.

30. Interviews with Ed Anderson and Chris Browne. Buffett's reasoning in situations like this and Berkshire was that he needed the stock to get control. However, his allies could have kept their stock and voted with him. Indeed, in his younger days when he had less capital, Buffett had arranged such voting blocks.

31. Warren Buffett letter to Chuck Huggins, December 28, 1971.