Stage Fright Omaha * Summer 1951Spring 1952 Warren understood Doc Thompson's concern about how he would support a family, even though he had no such doubts himself. Since he couldn't work for Graham-Newman, he had decided to become a stockbroker, and to do it in Omaha, far from the canyons of Wall Street. If you wanted to make money in the stock market, went the common wisdom, the place to do it was New York, so his decision was an unusual one. But he felt free from the conventions of Wall Street; he wanted to work with his father; Susie was in Omaha; and he was never happy far from home.

At almost twenty-one, Warren was supremely confident in his own investing abilities. By the end of 1951, he had already boosted his capital from $9,804 to $19,738. He had earned seventy-five percent in a single year.1 As a matter of course, however, he consulted his father and Ben Graham. To his surprise, both said, "Maybe you should wait a few years." Graham-as always-thought the market was too high. Howard, pessimistic, favored mining stocks and gold stocks and other investments designed to protect against inflation. He didn't think any other kind of business would be a good investment, and he worried about his son's future.

That didn't make sense to Warren. Since 1929, the value of businesses had grown substantially.

"It was absolutely the reverse effect of what you saw in other times, when the market was staggeringly overvalued. I had looked at companies. I just couldn't see why you wouldn't want to own them. It was on a micro level, not an assessment of the growth of the economy or anything like that, and I was working with micro money. But it just seemed to me that it was crazy not to own them. On the other hand, here's Ben, with his two hundred IQ and all experienced, telling me to wait. And my dad, who, if he told me to walk out a window, I would have done it." Still, to make this decision to defy the advice of his two great authorities-his father and Ben Graham-was an enormous step for him. It required him to consider the possibility that his judgment might be superior to theirs, and that the two men whom he most deeply respected were not thinking rationally. Yet he was certain he was right. He might have walked out a window if his father told him to-but not if it meant leaving a Moody's Manual full of cheap stocks behind.

In fact, the opportunities he saw were so plentiful that they justified borrowing money for the first time. He was willing to take on debt equal to a quarter of his net worth. "I was already running short of money to invest. If I was enthused about a stock I would have to sell something else to buy it. I had an aversion to borrowing money, but I got a loan for five thousand dollars or so from the Omaha National Bank. I was under twenty-one and my dad had to cosign the loan. Mr. Davis, the banker, conducted it as a rite of passage. He said something like, 'You're going into manhood now,' and referred to this five thousand dollars, saying, 'It's a solemn obligation, and we know you've got the kind of character to pay it back.' This went on for half an hour while I was sitting there next to this big desk."

Howard probably felt both proud and a little silly cosigning a loan for his son, who had been a full-fledged businessman for at least a dozen years. Since Warren had made up his mind, Howard was also willing to take him on at his own firm, Buffett-Falk-though only after suggesting that he interview at a prominent local firm, Kirkpatrick Pettis Co., to see what the best of Omaha stockbroking had to offer.

"I went to see Stewart Kirkpatrick and said during the interview that I wanted intelligent customers. I was going to try to look for people who could understand things. And Kirkpatrick said, in effect, don't worry about whether they're intelligent, worry about whether they're rich. Which is okay, you can't knock him for that. But I wouldn't have wanted to work anyplace but at my dad's firm."

At Buffett-Falk, Warren was installed in one of its four private unair-conditioned offices, next to the "cage," a glassed-in area where a clerk handled the money and securities. He started out selling his favorite stock to the safest people he knew, his aunt and his college friends, including his first roommate at Wharton, Chuck Peterson, who was now in the real estate business in Omaha and with whom he'd reconnected.

"My aunt Alice was the first call I made, and I sold her a hundred shares of GEICO. She made me feel good about myself. She was interested in me. And after that Fred Stanback, Chuck Peterson, and anybody I could get to buy it. But mostly I got myself to buy it, because when other people didn't buy it, I'd just figure out a way to buy five more shares myself. I had this big ambition. I was going to own one-tenth of one percent of the company. It had 175,000 shares outstanding, and I figured if the company would become worth one billion dollars someday and I owned that much, I would be worth a million dollars. So I needed 175 shares."2 Yet in the meantime, his job was to sell on commission, and beyond this narrow circle, Warren found that almost insurmountably difficult. He got a taste of the obstacles his father had faced to build his brokerage business back when the grand old families of Omaha-the owners of the banks, stockyards, breweries, the big department stores-peered down their noses at the grandson of a grocer. Alone in Omaha now, with his parents back in Washington, Warren felt that he got no respect.

These were the days when all stocks were sold by full-service stockbrokers, and most people bought individual stocks rather than mutual funds. Everybody paid fixed commissions of six cents a share. Transactions took place in person or over the telephone, as part of a relationship. Every trade was preceded by a few minutes of chat with "your broker," part salesman, part adviser, part friend. Your broker might live in your neighborhood, and you saw him at parties, you golfed with him at your country club, and he came to your daughter's wedding. General Motors brought out new models of its cars every year, and a businessman might trade his car more often than his stocks. That is, if he owned any stocks.

Important accounts didn't take Warren seriously. Nebraska Consolidated Mills, a client of his father's, once scheduled him to come out at five-thirty a.m.3 "I was twenty-one. And I'd go around to all these people to sell them stocks, and when I'd get all through they'd say, 'What does your dad think?' I got that all the time." Warren, who looked like a "dork," struggled to make sales.4 He didn't know how to read people, couldn't make small talk, and certainly wasn't a good listener. His mode of conversation was to broadcast rather than receive. When nervous, he sprayed forth information about his favorite stocks like a fire hose. Some potential clients listened to his pitch, checked with other sources, and used his ideas, but bought the stocks through other brokers, so he didn't get the commission. He was shocked at this perfidy from people he'd spoken to face-to-face and would be seeing again around town. He felt cheated. Other times he was simply baffled. Once he walked in on a guy who was in his seventies sitting with a pile of dollar bills on his desk and a secretary in his lap. Every time she kissed him, the man gave her a dollar bill.

"My dad hadn't taught me what to do in that sort of circumstance. Generally speaking, I was not getting reinforcement. When I first started selling GEICO to people, Buffett-Falk had this little office downtown, and the stock certificates would come in and Jerome Newman's name would be on those certificates. He was the seller I was buying from. And the guys at Buffett-Falk said, 'What the hell. If you think you're smarter than Jerry Newman...'"

In fact, Graham-Newman was forming a new partnership, and some of the investors had given the firm GEICO shares to fund money into the partnership. So in effect, it was they who were selling, not Graham-Newman. Warren didn't know that.5 But when it came to GEICO, he didn't care who was selling. It did not occur to him to ask anyone at the firm why they were selling. He was unshakeably certain of his own opinion. Nor did he hide that fact.

"I was sort of a wise guy, with this graduate degree, among people who hadn't gone to college. One time an insurance agent, Ralph Campbell, came in to see Mr. Falk and said, 'What's this kid doing going around promoting this company?' GEICO was a company that didn't use insurance agents. And I said, like a wise guy, 'Mr. Campbell, you better buy this stock for unemployment insurance.'"

The full import of Dale Carnegie's first rule, don't criticize, hadn't sunk in. Warren used what would later become the trademark Buffett wit to show that he knew more than everybody else, but why would anyone have been willing to believe that of a twenty-one-year-old? And yet he did. It must have stunned people at Buffett-Falk to watch him, morning through night, ripping through the manuals, adding to his file cabinets of knowledge.

"I went through the Moody's Manuals page by page. Ten thousand pages in the Moody's Industrial, Transportation, Banks and Finance Manuals-twice. I actually looked at every business-although I didn't look very hard at some."

Even though endlessly fascinated by the game of finding stocks, Warren wanted to be more than an investor, more than a salesman. He wanted to be a teacher, to emulate Ben Graham. He signed up to teach a night course at the University of Omaha.

At first he partnered with his stockbroker friend Bob Soener, who taught the first four weeks of "Profitable Investing in Stocks." While Soener explained to the class basics such as how to read the Wall Street Journal, Warren stood in the hallway listening for any good investment ideas. Then he took over for the next six weeks.6 Eventually he taught the whole course and gave it the more cautious name of "Sound Investing in Stocks." In front of his classroom, he lit up, pacing the floor as if he couldn't get the words out fast enough, even though the students had to struggle not to drown in the flood of information he threw at them. But despite his deep vein of knowledge, he never promised the class they would get rich or that taking his class would give them any particular result. Nor did he brag about his own success at investing.

His students ranged from stock-market professionals to people who had no head for business-housewives, doctors, retirees. They symbolized a subtle shift: Long-absent investors were starting to come back for the first time since the 1920s-part of why Graham thought the market was overvalued. Warren adapted his teaching to the range of their knowledge and skills. He modeled his teaching style after Graham's, using the "Company A, Company B" method and some of his mentor's other little teaching tricks. He handed out grades with the strictest fairness. His aunt Alice took the course and sat in the classroom gazing at him with adoring eyes.7 He gave her a C.

People were always throwing out the names of stocks, asking him whether to buy or sell. He could speak from memory for five or even ten minutes about any stock they named: its financial data, price/earnings ratio, the volume of shares that traded-and from all appearances, he could do this for hundreds of stocks, as if he were quoting baseball statistics.8 Sometimes a woman in the front row would say, "My late mother gave me ABC stock, and now it's up a little bit. What should I do?" Then he would say, "Well, I think I would sell that, and maybe buy...," giving three or four options such as GEICO or one of a few stocks about which he was entirely confident (and already owned).9 The students remarked on his unusual conservatism when responding to their questions about how to invest.

Meanwhile, Warren was working like a woodpecker in April to make money for himself. He was going to be taking care of a family soon, which would divide his income into two streams. Part of what he made-his stream-would go back into the mill and continue to grow. And part he would spend for him and Susie to live, a significant change in his circumstances. Until now, he had been able to pare his expenses by living in the maid's room at Columbia, eating cheese sandwiches, and taking his dates to lectures or playing the ukulele for them instead of escorting them to the posh "21" Club. Now that he was back in Nebraska, he was able to cut his costs even further by living in his parents' house, even though it meant occasional contact with Leila when they came back from Washington.

He had never needed motivation to try to work his capital as hard as possible, and now he sat in the office at Buffett-Falk with his feet on his desk, searching systematically through the Graham and Dodd book for more ideas.10 He found a stock, Philadelphia and Reading Coal & Iron Company, a company that mined anthracite coal. It looked cheap because it was selling for $19 and a fraction, but had about $8 a share worth of culm banks.*14 Warren would happily spend hours figuring out how much coal mines and culm banks were worth in order to make a rational decision about a stock. He bought Philadelphia and Reading Coal & Iron shares himself and sold them to his aunt Alice and Chuck Peterson. When the stock immediately dropped to $9 a share, he saw that as a reason to buy even more.

He bought a textile company called Cleveland Worsted Mills. It had current assets*15 of $146 per share, and the stock was selling for less than that. He felt the price did not reflect the value of "several well-equipped mills."

Warren wrote a short report on the stock. He liked the fact that the company was paying out a lot of what it earned to shareholders-giving them a bird in the hand. "The $8 dividend provides a well-protected 7% yield on the current price of approximately $115," the report noted.11 He wrote "well-protected" because he thought Cleveland Worsted Mills had enough earnings to cover its dividend. That proved less than prescient.

"I called it Cleveland's Worst Mill after they cut off paying the dividend." Warren was so mad that he decided to spend some money to find out what was wrong. "I went to an annual meeting of Cleveland's Worst Mill, and I flew all the way to Cleveland. I got there about five minutes late, and the meeting had been adjourned. And here I was, this kid from Omaha, twenty-two years old, with my own money in the stock. The chairman said, 'Sorry, too late.' But then their sales agent, who was on the board of directors, actually took pity on me, and so he got me off on the side and talked to me and answered some questions." The answers, however, changed nothing. Warren felt awful; he had gotten other people to buy Cleveland's Worst Mill too.

There was nothing he hated more than selling people investments that lost them money. He couldn't stand disappointing people. This was what it had been like back in the sixth grade when the Cities Service Preferred stock he'd gotten Doris to invest in was clobbered. She hadn't hesitated to "remind" him about it, and he'd felt responsible. Now, he would do anything to avoid the feeling of letting someone down.

Warren began looking for any way to make himself less dependent on the job he was starting to hate. He had always enjoyed owning businesses, and decided to buy a gas station with a friend from the National Guard, Jim Schaeffer. They bought a Sinclair station that was next to a Texaco station "that consistently out-sold us, which drove us crazy." Warren and his brother-in-law Truman Wood, who had married Doris, even worked at the station themselves on weekends. They washed windshields "with a smile"-despite Warren's aversion to manual labor-and did everything they could to attract new customers, but instead drivers continued to pull in to the Texaco station across the street. Its owner "was very well established and very well liked. He beat us every month. That's when I learned the power of customer loyalty. The guy had been in business forever and had a clientele. Nothing we could do was going to change that.

"My service station was the dumbest thing-I lost two thousand dollars, and that was a lot of money for me at the time. I'd never had real damage in a loss. It was painful."

It seemed to Warren that nearly everything he did in Omaha reinforced his sense of youth and inexperience. He was no longer a precocious boy who was acting like a man, but a young man-about to get married-who looked and sometimes acted like a boy. Kaiser-Frazer, the stock he had shorted two years before in Bob Soener's office, still hung stubbornly around five dollars a share instead of going to zero as he had expected. Carl Falk was always giving him funny looks and questioning his judgment. And Warren felt more and more queasy about the very nature of his job. He started to think of himself as being like "a prescriptionist." "I had to explain to people who didn't know enough about whether they should take aspirin or Anacin," and people would do anything the "guy in the white coat"-the stockbroker-told them to do. The stockbroker got paid based on turnover instead of advice. In other words, "he's getting paid based on how many pills he sells. He gets paid more for some pills than others. You wouldn't go to a doctor whose pay was totally contingent on how many pills you took." But that's how the business of being a stockbroker worked at the time.

Warren felt there was a conflict of interest inherent in the business. He'd recommend a stock like GEICO to his friends and family, and tell them that the best thing to do was to hold it for twenty years. That meant he didn't get any more commissions from them. "You can't make a living that way. The system pits your interests against your clients."

Nevertheless, he had begun to develop a small clientele of his own through his network of graduate school friends. In the spring of 1952, he went to Salisbury, North Carolina, to spend Easter with Fred Stanback. He charmed and amused Fred's parents and entertained the family by talking stocks, quoting Ben Graham, and asking for a Pepsi-Cola and a ham sandwich for breakfast.12 Soon afterward, back in Omaha, Fred Stanback's father gave him an order to sell some stock in a washing-machine company, Thor Corporation. Warren found a customer through another broker, Harris Upham, who wanted to buy it. Then he got another call from Stanback's bank about the sale and thought he had two orders. He sold the Thor Corporation stock twice, the second time unwittingly selling stock he didn't have. Now he had to find additional shares, and ended up buying them at a loss to cover the second sale.

Mr. Stanback treated him graciously despite the mistake. He absorbed the entire loss even though it was Warren's fault. Warren was grateful and never forgot it. He had more reason for concern about the second buyer, a man known as "Mad Dog" Baxter, who was a remnant of Omaha's days as a major gambling layoff center*16 and an associate in some of the city's many illegal betting parlors. Baxter had arrived at Buffett-Falk in person, strolled up to the cashier's cage, and pulled out a wad of $100 bills, waving it around ostentatiously. Once again, "Carl Falk looked at me questioningly." Was Buffett-Falk being used to launder illegal gambling money? Situations like this reinforced Warren's dislike for his job. Even when he wasn't selling stocks, he felt conflicted. He had turned Buffett-Falk into a "market maker," a firm that acted as a middleman, buying and selling stocks as a dealer.13 The firm made a profit by selling a stock to clients at a slightly higher price than it paid, and buying stock from clients at a lower price than it sold the stock for. The difference, or "spread," was its profit. The spread was invisible to the customers. Acting as a market maker lifted a brokerage firm from being a mere order taker to being a player in the Wall Street game. While Warren was proud that he had the know-how to set Buffett-Falk up as a market maker, the conflict bothered him.

"I don't want to be on the other side of the table from the customer. I never was selling anything I didn't believe in myself or own myself. On the other hand, there was a markup that was undisclosed. If anybody asked me about it, I told them. But I don't like anything like that. I want to be on the same side of the table with the people who are my partners, everybody knowing what's going on. And a promoter, by his nature, doesn't do that."

No matter how Warren thought about his job as a stockbroker, there was always a potential conflict of interest, and always the possibility that he would lose money for his clients and open himself up to disappointing them. He would much rather manage people's money instead of selling them stocks, with his interest on the same side as the customer's. The problem was, there were no such opportunities in Omaha. But in the spring of 1952, he wrote an article about GEICO that attracted the attention of a powerful man, and with that, his luck seemed about to change. The article, "The Security I Like Best," which appeared in the Commercial and Financial Chronicle, was not just an advertisement for Warren's favorite stock, but an explanation of his ideas about investing. It caught the attention of Bill Rosenwald, who was a son of Julius Rosenwald, a philanthropist and the longtime chairman of Sears, Roebuck & Co. The younger Rosenwald ran American Securities, a money management firm launched with family stock in Sears14 that sought high returns while minimizing risk and preserving capital. After contacting Ben Graham, who gave Warren a strong recommendation, Rosenwald offered Warren a job. Few jobs in money management were as prestigious, and Warren was dying to accept it, even though that meant moving back to New York City. To do so, however, he had to get permission from the National Guard to leave Omaha.

"I asked my commanding officer whether it would be possible to transfer to New York to take this job. He said, 'You'll have to go down and see the commanding general.' So I went down to Lincoln, sat there in the state capitol, waited awhile, went in to see General Henninger, and said, 'Corporal Buffett reporting.' I'd written him ahead of time explaining and asking permission.

"And right away he said, 'Permission denied.'

"That was the end of it. That meant I was in Omaha as long as he wanted to keep me captive."

Thus Warren was stuck at Buffett-Falk, writing prescriptions for a living. The main comfort he had during the challenges of his first year back in Omaha was his fiancee. He had begun to lean on Susie. All the while, she was working at figuring Warren out. She began to understand the damage Leila Buffett's rages had done to her son's self-worth, and she started trying to repair it. She knew that the main thing he needed was to feel loved and never criticized. He also needed to feel that he could succeed socially. "People accepted me more when I was with her," he says. Even though she was still at the University of Omaha while he had been working, he was like a toddler gazing up at a parent when it came to his relationship with his future wife. Both were still living in their parents' homes. Over time, Warren had developed a way of dealing with his mother, which was to avoid being alone with her, while making use of her dutiful nature when in her presence by besieging her with demands and requests. Yet the long stretches that he had spent away from her while attending college had lowered his tolerance for Leila's company instead of raising it. When she and Howard came back from Washington for Warren and Susie's wedding, Susie noticed that her fiance avoided his mother as much as he could. When forced to be in her company, he would turn his face away from her and clench his teeth.

It was time for Warren to move out. He called Chuck Peterson, saying "Chas-o, I haven't got a place for us to live," and Chas-o rented him a tiny apartment a couple of miles from downtown. When Warren gave Susie, who had a strong sense of self-expression, an allowance of $1,500 to furnish their first apartment, she and her future sister-in-law Doris took off for Chicago to shop for furniture in the colorful modern style she liked.15 As the wedding date, April 19, 1952, approached, the question arose whether the ceremony would take place at all. The week before, the Missouri River flooded upstream of Omaha. With the waters heading south, officials predicted they would crest above the riverbank and flood the city during the weekend. This made it likely that the National Guard would be called out.

"The whole town turned out with sandbags. I had all these buddies coming in for the wedding-Fred Stanback was going to be best man, and various ushers and guests. They were all kidding me because I was in the National Guard. They said, 'Well, don't worry about it, because we'll substitute for you on the honeymoon.' Jokes like that. This was going on all week."

A few days beforehand, Howard drove Warren and Fred down to the river. Thousands of volunteers were building double walls of sandbags, six feet high and four feet deep. The earth sank under the wheels of the huge trucks hauling sand and dirt, as if they were driving over rubber.16 Warren held his breath, hoping that he would not be called for duty to sandbag and that the temporary levee would hold.

"Saturday came, and we were getting married about three in the afternoon. Around noon, the phone rang. My mother said, 'It's for you.' I picked up the phone. The guy at the other end said, 'C-C-C-Corporal Buffett?' I had a commanding officer who had a really distinctive stutter. 'This is C-C-C-Captain Murphy,' he said.

"If he hadn't stuttered, I'd have said something that'd probably have gotten me court-martialed, because I would have thought it was the guys pulling a trick on me. But as it was, he said, 'We've been activated. What time c-c-c-can you show up at the Armory?'" Warren almost had a heart attack.17 "And I said, 'Well, I'm getting married at three o'clock.' I said, 'I could probably be there by five.' He said, 'Report for d-d-d-duty. We're going to be p-p-p-patrolling East Omaha d-d-down by the river.' I said, 'Yes, sir.'

"I got off the phone totally depressed. Then I get a call an hour later. And this guy had a perfectly normal voice. He says, 'Corporal Buffett?' I said, 'Yes, sir.' He said, 'This is General Wood.'18 That was the commanding general of the Thirty-fourth Division, who lived way out in west Nebraska. General Wood said, 'I'm countermanding Captain Murphy's order. Have a good time.'"

He had two hours left before the biggest event of his life. Warren showed up at the soaring Gothic sanctuary of Dundee Presbyterian Church well before three o'clock. The wedding of a Congressman's son and Doc Thompson's daughter was a major event in Omaha. Several hundred guests, including many of Omaha's top-drawer people, were expected.19 "Doc Thompson was so proud, he was popping buttons all over the place. I was so nervous that I just figured-well, I didn't wear my glasses so that I wouldn't be able to see all those people out there." Warren also asked the normally reserved Stanback to distract him by talking so he wouldn't have to focus on what was happening.20 Bertie stood up for Susie as maid of honor, Susie's sister Dottie as matron of honor. After the photographs, the guests drank nonalcoholic punch and ate wedding cake downstairs in the linoleum-floored church basement. That was the normal thing to do; the Thompsons and the Buffetts weren't club people. Susie smiled wide as an ivory fan. Warren glowed, incandescent, and wrapped his arm around her waist as if trying to keep them both from sailing off into the air. After more photographs, they changed into their going-away clothes and ran through the crowd of cheering guests to duck into Alice Buffett's car, which she had lent them for the honeymoon. Warren had already loaded the backseat with Moody's Manuals and ledgers. All of a sudden, Susie saw the writing on the wall.21 And from Omaha, the newlyweds set off on their honeymoon-a cross-country automobile trip.

"On my wedding night, I had chicken fried steak at the Wigwam Cafe in Wahoo, Nebraska," Buffett says.22 The Wigwam was a tiny hole-in-the-wall less than an hour from Omaha, with a few booths and cowboy decor. From there, Warren and Susie drove thirty miles to the Cornhusker Hotel in Lincoln to spend the night, "and that's all I'll say on that subject," Buffett says.

"The next day I bought a copy of the Omaha World-Herald and it had run an article that said, 'Only love can stop the Guard.'" 23 The 1952 flood was the worst in modern times in Omaha, the effort spent to avert it Herculean. "The other guys were sandbagging for days, patrolling in the flood, with the snakes and rats. I was the only guy that didn't get called out."

The newlyweds traveled all over the western and southwestern United States. Warren had never been there, but Susie knew the West Coast well. They visited her family, took in the sights, went to the Grand Canyon, and had a wonderful time. "We did not stop to visit companies and look at investments, as has been reported," Buffett insists. On the way back they stopped in Las Vegas, which was full of ex-Omaha people. The "layoff bookies" Eddie Barrick and Sam Ziegman had moved there shortly before and bought into the Flamingo Hotel.24 They were soon followed by another associate, Jackie Gaughan, who had invested in casinos from the Flamingo to the Barbary Coast. All these characters had shopped at the Buffett grocery store, and Fred Buffett got along well with them, even though he wasn't a gambler. For Warren, Vegas felt almost homey, carrying echoes of the racetrack and full of people who knew his family. So he was not afraid of the house. "Susie won a jackpot on the slot machine. She was only nineteen. They wouldn't pay her because she was underage. I said, 'Lookit, you took her nickels.' And they paid her."

After Vegas, the Buffetts headed back to Omaha. Warren could not stop chortling over his luckless colleagues in the Guard. "Oh, the honeymoon was great. It was great. Three weeks. And all the time, these guys in the Guard were sloshing it up."

PART THREE.

The Racetrack.

20.

Graham-Newman.

Omaha and New York City * 19521955.

A few months after the wedding, Susie went to Chicago with her parents and new in-laws for the Republican convention in July of 1952. The Thompsons and the Buffetts descended on Chicago, not as delegates but as part of an army. Politically speaking at least, they were now one united family, and this election year they were on a crusade to reclaim the White House for the Republicans after twenty agonizing years under the Democrats.1 Doris would be working behind the scenes alongside her father, while the much younger Bertie and Susie, innocents at the spectacle, spent their time gawking at celebrities like John Wayne, who had shown up for the Grand Old Party.2 Warren, of course, stayed in Omaha, grinding away. Politics fascinated him, but not like money. He still hated working as a "prescriptionist," and kept toiling at it while trying to find a way out. His old teacher David Dodd tried to help him by referring him to the Value Line Investment Survey, an investment adviser and research publisher, which was looking for "new men." The job would have paid well-"at least $7,000 a year."3 But Warren did not plan to be an anonymous researcher. So he carried on trying to sell GEICO to uninterested clients while reading the convention news that was being reported under inch-high headlines in the newspapers. For the first time in history, a convention was also being covered on television, and Warren watched eagerly, struck by the power of this medium to magnify and influence events.

The front-runner going into the convention was Senator Robert Taft of Ohio.4 Known as "Mr. Integrity," Taft headed a minority wing of the Republican Party-centered around isolationist Midwesterners-that wanted the government to be small, to stay out of everybody's business, and above all to go after Communism more aggressively than Truman had done.5 Taft made his friend Howard Buffett head of his Nebraska presidential campaign and also head of his speakers' bureau. To oppose Taft, the so-called Eastern Liberal Establishment6 that Howard so despised had drafted retired General Dwight D. Eisenhower-a moderate who had served as the Supreme Commander of Allied Forces in Europe during World War II and was the first Supreme Commander of NATO forces. Eisenhower, a politically adroit diplomat with excellent leadership skills, was a popular figure viewed by many as a war hero. As the convention approached, "Ike" began to catch up in the polls.

What would prove to be the most controversial Republican convention in history unfolded in Chicago as Eisenhower backers pushed through an amendment to the convention rules, passed on a contentious vote, that handed him the delegates to win the nomination on the first ballot. Taft's outraged supporters felt robbed. But Eisenhower soon made peace with them by promising to combat "creeping socialism," and Taft insisted that his followers swallow their outrage and vote for Eisenhower for the sake of regaining the White House. The Republicans united behind him and his running mate, Richard Nixon; "I Like Ike" buttons sprouted everywhere.7 Everywhere, that is, except on Howard Buffett's chest. He broke with the party by refusing to endorse Eisenhower.8 This was an act of political suicide. His support within the party evaporated overnight. He was left standing on principle-alone. Warren recognized that his father had "painted himself into a corner."9 From his earliest childhood, Warren had always tried to avoid broken promises, burned bridges, and confrontation. Now Howard's struggles branded three principles even deeper into his son: that allies are essential; that commitments are so sacred that by nature they should be rare; and that grandstanding rarely gets anything done.

Eisenhower defeated Adlai Stevenson in the November election, and in January Warren's parents dragged themselves back to Washington to finish out the rest of Howard's lame-duck term. Warren, who had for some time recognized obsessive qualities in Howard and Leila that disadvantaged them in various ways, had begun to absorb something of his in-laws' style. Dorothy Thompson was easygoing, and her husband, though autocratic, was more personable and astute at human relations than the rigorously idealistic Howard Buffett. The more time he spent with Susie and her family, the more they influenced him.

"Warren," said Doc Thompson, who handed down advice with the authority of the Sermon on the Mount, "always surround yourself with women. They're more loyal and they work harder."10 His son-in-law hardly needed to be told that. Indeed, Warren had always craved being taken care of by women, as long as they didn't try to order him around. Susie could see that he was eager for her to assume a motherly role. So she wrapped herself around her husband as she worked on "fixing" him, the wreck, the mess. "Oh, my God," she said, "he was a case."11 When they met, she recalled, "I had never seen anyone in so much pain."

Warren may not have been aware of the depths or dimensions of his pain, but describes the powerful role she played in his life. "Susie was as big an influence on me as my dad, or bigger probably, in a different way. I had all these defense mechanisms that she could explain, but I can't. She probably saw things in me that other people couldn't see. But she knew it would take time and a lot of nourishment to bring it out. She made me feel that I had somebody with a little sprinkling can who was going to make sure that the flowers grew."

Susie recognized Warren's vulnerability, how much he needed to be soothed and comforted and reassured. More and more, she could see the effect his mother had had on her children. Doris was the more badly damaged, but Leila had convinced both Warren and Doris that deep down they were worthless. In every area of life except business, Susie was discovering, her husband was riddled with self-doubt. He had never felt loved, and she saw that he did not feel lovable.12 "I needed her like crazy," he says. "I was happy in my work, but I wasn't happy with myself. She literally saved my life. She resurrected me.13 She put me together. It was the same kind of unconditional love you would get from a parent."

Warren wanted a lot of things from his wife that you would ordinarily get from a parent. Not only that, he had grown up with a mother who did everything for him. Now Susie took over. Although their basic model of wedded life was typical of the time-he made the money, she took care of him and covered the domestic front-their arrangement was extreme. Everything in the Buffett household revolved around Warren and his business. Susie understood her husband was special; she willingly became the cocoon for his embryonic ambitions. He spent his days working and his nights hunched over the Moody's Manual. He also arranged his schedule to give himself leisure time to play golf and Ping-Pong, even signing up as a junior member of the Omaha Country Club.

Susie, barely twenty years old, was no Betty Crocker, but she had taken up rudimentary cooking and basic housekeeping like any 1950s wife-at a time when Omaha women were auditioning to appear on the show Typical Housewife on local television station KTMV. She devoted herself to fulfilling her husband's few but specific requirements: Pepsi in the refrigerator, a lightbulb in his reading lamp, some indifferently cooked version of meat and potatoes for dinner, a shaker full of salt, popcorn in the cupboard, ice cream in the freezer. He also needed help getting dressed, assistance in dealing with people, tenderness, head rubs, cuddling, and hugs. She even cut his hair, because he claimed he was afraid to go to the barber.14 Warren was "nuts about Susie, and she felt things" that were inside him, he says. He describes her role as the giver, his as the receiver. "She was absorbing more about me and sensing much more about me than I was sensing about her." They were always seen kissing and cuddling, Susie often in Warren's lap; she frequently said this reminded her of her father.

Six months after the wedding, Susie was pregnant and had dropped out of the University of Omaha. Her sister, Dottie, was pregnant, too, with her second baby. She and Susie had remained particularly close. A dark-haired beauty, Dottie resembled her father in intelligence, and, according to family lore, she had possessed the highest IQ in the school when she attended Central High. But in both looks and domesticity, she was more like her mother.15 She had married Homer Rogers, a pilot and war hero with a big baritone voice whom everybody called Buck Rogers, although he was modest about his war exploits. Homer was a convivial, energetic cattleman, as beefy as the oversize steers he bought and sold. The Rogerses always had a crowd at their house, Dottie playing piano while Homer sang something like "Katie, Katie, get off the table, the money's for the beer." Susie and Warren did not take part in the Rogerses' active social life, since they tended to be more serious-minded and they did not drink, but the sisters spent a lot of time together on their own. Dottie had always had difficulty making decisions, and since having her first son, Billy, she seemed dazed at the demands of motherhood. Susie, naturally, took charge and helped her.

Susie had also become close to her sister-in-law Doris, who was working in Omaha as a schoolteacher now that she was married. Her husband, Truman Wood, was a handsome man with a pleasant personality who came from a prominent Omaha family, but Doris was starting to wonder if she was a racing filly hitched to a Clydesdale. A girl of action, Doris told Truman to giddyup. He ambled along a little faster, but not much.

Susie's protectiveness toward Warren and his sister ticked up a notch in January 1953 after Eisenhower was sworn in, when Howard's final congressional term ended and he and Leila returned to Nebraska for good. Doris and Warren felt the strain of having Leila back in town. Warren could hardly bear to be in the same room with his mother, and she still turned on Doris periodically.

Howard was at loose ends back in Omaha. Warren set up a partnership, Buffett & Buffett, that formalized the way they had occasionally bought stocks together. Howard contributed some capital, and Warren's contribution was a token amount of money, but mostly ideas and labor. But Howard looked at going back into the stockbroking business for the third time with dismay. Warren had been tending his old accounts while he served in Congress, but Howard knew that Warren hated it, had never stopped trying to get Ben Graham to hire him, and would leave in an instant if he could go to New York. For his part, Howard missed his true love, politics. He harbored a desire to enter the Senate, especially now that there was a Republican in the White House. Yet his ambitions conflicted with his extreme political views.

On July 30, 1953-Alice Buffett's birthday-Susie and Warren's first child, a daughter, was born. They named her Susan Alice and called her Little Susie, sometimes Little Sooz. And Susie became a passionate, playful, and devoted mother.

Little Susie was Howard and Leila's first grandchild. A week later, Susie's sister, Dottie, gave birth to her second son, Tommy. Within months, Doris became pregnant with her first child, a daughter, Robin Wood. By the spring of 1954, Susie was pregnant with her second child. Now the Buffetts and Thompsons had a new focus-grandchildren.

A few months later, a moment came when it looked as though Howard's time might have arrived. On the morning of July 1, 1954, news came from Washington that Nebraska's senior Senator, Hugh Butler, had been rushed to the hospital with a stroke and was not expected to live. The deadline for entering the primary election that would fill his Senate seat was that very night. Howard's sense of propriety was such that he refused to file the papers to run until Butler had actually died, so the Buffetts waited anxiously all day for news. They knew that Howard's name recognition in Douglas County meant that if he ran in a special election without having to go through the party nominating process, even though the party bigwigs were disenchanted with him, the odds were excellent that he could win.

Word of Butler's death came in the early evening, after Secretary of State Frank Marsh's office had closed at its usual five p.m. Howard threw his candidacy filing in the car and he and Leila drove to Lincoln, assuming that they had plenty of time because the deadline was midnight. They tried to file the papers at Marsh's home, but he refused them, even though Howard had paid the filing fee earlier in the day. Infuriated, they returned to Omaha.

The state Republican convention was in session at the time, and on the news of Butler's death, delegates on the floor elected a temporary successor to serve out his term.16 Anyone serving would more or less automatically be elected to Butler's job in November. As the ranking Republican in the state, Howard was an obvious choice. But he was seen as a zealot, as a guy who tilted at windmills, unyielding on trivial ethical matters and disloyal to his own party for not supporting Eisenhower. Instead, the convention elected Roman Hruska, the well-liked Congressman who had taken Howard's seat when he retired. Howard and Leila sped back to Lincoln and quickly filed suit with the State Supreme Court to force the party to accept his nomination. But twenty-four hours later, they gave up the futile fight and dropped the lawsuit.

Warren was furious when he heard the news about Hruska. "They slit Daddy's throat from ear to ear," he said. How dare the party repay Howard's decades of loyalty this way?

At fifty-one years of age, Howard had just seen his future disappear. As his anger ebbed, his depression grew. Until now, a retired senior party politician like him would have had a role to play, but he had been shut out of the arena that was the center of his life, that made him feel useful in the world. He tried to get a teaching position at the University of Omaha, which the family felt was reasonable given his business experience and tenure as a Congressman. But Howard was considered such an oddball locally that the school would not hire him, even though his own son taught there and Doc Thompson was dean of the College of Arts and Sciences. He ended up going back to work at Buffett-Falk. Eventually, he found a part-time teaching job as a lecturer at Midland Lutheran College, thirty miles from Omaha.17 The family harbored bitter feelings toward the local establishment, which it felt had essentially run Howard out of town.

Leila dissolved in a pool of misery. Through the reflected glory it bestowed on her, Howard's position in the world may have meant even more to her than it did to him. Her sister Edie was now living in Brazil, Bertie lived in Chicago, and her relationships with Doris and Warren were unsettled at best, so she had only twenty-two-year-old Susie to lean on. But Susie was a busy, pregnant young mother, who had her hands full caring for Warren as well.

And soon, Susie would no longer be in Omaha. For two years, Warren had kept corresponding with Ben Graham. He suggested stock ideas like Greif Bros. Cooperage, a company he and his father had bought for their partnership. He traveled to New York periodically and dropped in on Graham-Newman.

"I would always try to see Mr. Graham."

Surely it wasn't typical for former students to hang about at Graham-Newman.

"No, well, I was persistent."

By the time the local Republican Party slammed the door to the Senate nomination in his father's face, Warren was already on his way to New York. "Ben wrote and said, 'Come on back.' His partner, Jerry Newman, explained it by saying, 'You know, we just checked you out a little further.' I felt I'd struck the mother lode." Whether he would accept the position was never in question. And this time, the National Guard said yes.

Warren was so excited about being hired that he arrived in New York on August 1, 1954, and showed up at his new job at Graham-Newman on August 2, a month before his official starting date. There, he discovered that a week earlier, tragedy had struck Ben Graham. Four weeks shy of his own twenty-fourth birthday, Warren wrote his father: "Ben Graham's son Newton (26) who was in the Army in France committed suicide last week. He had always been a little unbalanced. However Graham didn't know it had been a suicide til he read it in the New York Times on an Army release, which of course is really tough."18 When he went to France to collect his son's remains, Ben met Newton's girlfriend, Marie Louise Amingues, known as Malou, who was several years older than Newton. He returned a few weeks later but was never quite the same afterward. He also began to correspond with Malou and made periodic visits back to France. But in those days Warren knew nothing of his idol's personal life.

Instead, he had to attend to his own, for one of his first tasks was to find his family a place to live. Susie and Little Susie had remained in Omaha during his first month in New York City. "I tried to live at Peter Cooper Village first, one of two big projects built by Metropolitan Life immediately after World War Two. My friend Fred Kuhlken from Columbia lived in Peter Cooper. Walter Schloss lived in Peter Cooper. Everybody wanted to get into Peter Cooper. Under some kind of special section of the law, it was really reasonable, seventy or eighty bucks a month, and very nice. I applied before I went and got a postcard about two years later saying I'd been accepted. If I had been accepted earlier I would have lived in the city."

Instead, Warren searched far and wide for a cheap apartment. Discounting the impersonal location and long commute, he finally settled on a three-bedroom apartment in a white-brick building in the middle-class suburb of White Plains, about thirty miles away in Westchester County, New York. When Susie and Little Susie arrived a few weeks later, the apartment was still not ready, so the family moved into a room in a house in Westchester that was so cramped they had to devise a makeshift crib from a dresser drawer. The Buffetts stayed there only a day or two.

But such were the tales that would later be told about Warren's frugal habits that this story grew arms and legs and scuttled into the legend that he was too cheap to buy Little Susie a crib, and she therefore slept in a drawer throughout much of her White Plains infancy.19 As the pregnant Susie unpacked and arranged her new household while taking care of their baby and getting to know the neighbors, Warren rose every morning and took the New York Central train to Grand Central. In that first month, he had parked himself in the file room at Graham-Newman and, eager to know everything about how the company worked, begun to read through every single piece of paper in every single drawer in an entire room filled with big wooden files.

Only eight people worked there: Ben Graham; Jerry Newman; his son Mickey Newman; Bernie Warner, who was the treasurer; Walter Schloss; two women secretaries; and now Warren. The thin gray laboratory-style jacket Warren had coveted was at last his. "It was a big moment when they gave me my jacket. We all wore them. Ben wore it, Jerry Newman wore it. We were all equal in our jackets."

Well, not quite. Warren and Walter sat at desks in a windowless room that contained the ticker machine, the direct lines to the brokerage houses, some reference books and files. Walter sat next to the direct lines and made most of the calls to brokers. Ben, Mickey Newman, or, most commonly, Jerry Newman appeared periodically from their private offices to check a quote on the ticker machine. "We would look up stuff and read. We would go through Standard & Poor's or a Moody's Manual and look at companies selling below working capital. There were a lot then," recalls Schloss.

These companies were what Graham called "cigar butts": cheap and unloved stocks that had been cast aside like the sticky, mashed stub of a stogie one might find on the sidewalk. Graham specialized in spotting these unappetizing remnants that everyone else overlooked. He coaxed them alight and sucked out one last free puff.

Graham knew that a certain number of cigar butts would turn out foul, and thought it futile to spend time examining any individual cigar butt's quality. The law of averages said most of them were good for a puff. He was always thinking in terms of how much companies would be worth dead-what their assets would be worth if liquidated. Buying at a discount to that value was his "margin of safety"-his backstop against the percentage that presumably would go bankrupt. As a further backstop, he bought tiny positions in a huge number of stocks-the principle of diversification. Graham's idea of diversification was extreme; some of his positions were as small as $1,000.

Warren, who had such confidence in his own judgment, saw no reason to hedge his bets this way and inwardly rolled his eyes at diversification. He and Walter collected numbers from the Moody's Manuals and filled out hundreds of the simple forms that Graham-Newman used to make decisions. Warren wanted to know all the basic information about every company. Once he had looked over the field, he narrowed it down to a handful of stocks worth even more careful study, then concentrated his money on what he considered the best bets. He was willing to put most of his eggs in one basket, as he had done with GEICO. By that time, however, he had sold his GEICO shares, because he never seemed to have enough money to invest. Every decision had an opportunity cost-he had to compare each investing opportunity with the next best one. As much as he liked GEICO, he had made the wrenching decision to sell it after finding another stock that he coveted even more, called Western Insurance. This company was earning $29 a share, and its stock was selling for as little as three bucks.

This was like finding a slot machine that would come up cherries every time you played. If you put in twenty-five cents and pulled the handle, the Western Insurance machine was virtually guaranteed to pay at least two bucks.20 Anyone sane would play that slot as long as she could stay awake. It was the cheapest stock with the highest margin of safety he'd ever seen in his life. He bought as much of it as he could, and he cut his friends in on the deal.21 Warren was a bloodhound for anything free or cheap. With his prodigious ability to absorb numbers and to analyze them, he quickly became the fair-haired boy of Graham-Newman. It came so naturally to him; Ben Graham's cigar butts resembled his old hobby of stooping at the racetrack for cast-off winning tickets.

He paid close attention to what was going on in the back where the partners-Ben, Jerry, and Mickey-worked. Ben Graham was on the board of Philadelphia and Reading Coal & Iron Company, and Graham-Newman controlled the company. Warren had discovered this stock on his own, and by the end of 1954 he had put $35,000 into it. His boss would have been appalled, but Warren was confident-and eavesdropped with fascination.22 Philadelphia and Reading-which sold anthracite coal and owned the supposedly valuable culm banks-actually wasn't worth much as a business. Over time, it was going nowhere. But it was throwing off extra cash, which it could use to transform itself into a better business by buying another company.

"I was just a peon sitting in the outer office. A guy named Jack Goldfarb came in to the office to see Graham-Newman. He negotiated with them and they bought the Union Underwear Company from him for Philadelphia and Reading Coal and Iron, creating what became Philadelphia and Reading Corporation.23 That was the beginning of the company's transformation into something more diversified. I was not in the inner circle, but I was terribly interested, knowing something was going on."

What Warren was learning about by keeping his ears open was the art of capital allocation-placing money where it would earn the highest return. In this case, Graham-Newman was using money from one business to buy a more profitable business. Over time, it could mean the difference between bankruptcy and success.

Transactions like this made Warren feel that he was sitting on the windowsill looking in at high finance as it was taking place. Yet, as he soon found, Graham did not behave like anyone else on Wall Street. He was always mentally reciting poetry or quoting Virgil and was apt to lose packages on the subway. Like Warren, he was indifferent to how he looked. When someone observed, "That's an interesting pair of shoes," Graham looked down at the brown oxford on one foot and the black one on the other and said, without blinking, "Yes, as a matter of fact, I've got another pair just like them at home."24 Unlike Warren, however, he cared nothing about money for its own sake, nor was he interested in trading as a competitive game. To him, stock-picking was an intellectual exercise.

"One time, we were waiting for an elevator. We were going to eat in the cafeteria down at the bottom of the Chanin Building at Forty-second and Lex. And Ben said to me, 'Remember one thing, Warren: Money isn't making that much difference in how you and I live. We're both going down to the cafeteria for lunch and working every day and having a good time. So don't worry too much about money, because it won't make much difference in how you live.'"