Warren was in awe of Ben Graham, but nonetheless he was preoccupied with money. He wanted to amass a lot of it, and saw it as a competitive game. If asked to give up some of his money, Warren responded like a dog fiercely guarding its bone, or even as though he had been attacked. His struggle to let go of the smallest amounts of money was so apparent that it was as if the money possessed him, rather than the other way around.

Susie had learned this only too well. Even within their apartment building, Warren had quickly earned a reputation for tightfistedness and eccentricity. It was only after he was embarrassed by the state of his shirts at work-for Susie never ironed more than the collar, front placket, and cuffs-that he allowed her to send the shirts to a laundry.25 He made a deal with a local newsstand to buy week-old magazines at a discount as they were about to be thrown away. He had no car, and when he borrowed that of a neighbor, he never filled up the tank. (When he finally got a car, he washed it only when it was raining, so the rain could do the manual labor of rinsing.)26 For Warren, holding on to every penny this way, since he had sold that first pack of chewing gum, was one of the two things that had made him comparatively rich at age twenty-five. The other was collecting more cash. Since Columbia, he had started making money at an accelerating rate. Now, much of his time Warren spent in a reverie, statistics about businesses and their stock prices swirling in his head. When he wasn't studying something, he was teaching it. To keep his Dale Carnegie skills limber so he would not freeze in front of an audience, he got a gig teaching investing for the Scarsdale Adult School at the high school in a nearby suburb. Meanwhile, the Buffetts' social set consisted of couples whose breadwinners were mainly interested in stocks.

Now and then he and Susie were invited to a country club or to dinner parties with other young Wall Street couples. Bill Ruane had introduced him to several new acquaintances like Henry Brandt, a stockbroker who looked like a disheveled Jerry Lewis and had graduated at the top of his class from Harvard Business School, and his wife, Roxanne. Among the Wall Street set, Warren struck people as the "hickiest person you ever saw," as one of them put it. But when he started holding forth about stocks, the others sat transfixed at his feet, like "Jesus and the apostles," said Roxanne Brandt.27 The wives sat by themselves and had their own conversations, and there Susie stood out as much as her husband did among the men. Warren wove his financial spells, and Susie charmed the wives with her engaging simplicity. She wanted to know all about their children, or their plans to have children. She knew how to get people to open up to her. She would ask about some big life decision, then, with a soulful look, say, "Any regrets?" Out would come pouring the other person's most intimate feelings. Soon someone she had met half an hour before felt she had a new best friend, even though Susie never confided intimacies in return. People loved her for being so interested in them.

But mostly Susie was on her own as she waited for their second child to be born, her days filled with laundry, shopping, cleaning, and cooking, as well as feeding, changing, and playing with Little Susie. All this felt right and normal to both of them. As Ricky Ricardo had said in the first season of I Love Lucy three years before, "I want a wife who's just a wife."28 Lucy's ambitions and her fruitless efforts to fulfill them made the show comical. So, as Susie fed Warren dinner, she supported him at his work as if it were a daily sacrament; she recognized the reverence he felt for Mr. Graham. But she also observed from a distance. Warren didn't share the details of his job, which in any case didn't interest her. She continued the patient work of bolstering his confidence, and of "putting him together" by showering him with affection and teaching him about people. One thing she was firm about at home was the importance of his bonding with their daughter. Warren was not the type to play peekaboo or take over the diaper changing, but he would sing to Little Susie every night.

"I sang 'Over the Rainbow' all the time. It got to be hypnotic, almost like Pavlov's dogs. I don't know whether it was too boring or what-but she'd fall asleep as soon as I started. I'd put her up on my shoulder, and, basically, she would just sort of melt in my arms."

Having hit on a reliable system, Warren never messed with it. While singing, he could easily be off rummaging around in his mental files. So "Over the Rainbow" it was, night after night.

On her own, housekeeping, raising a baby, and taking care of Warren in a sterile suburb of New York, Susie may have welcomed anybody who showed up at the door. One day in late 1954, a salesman for Parents magazine dropped by the apartment. Whatever the salesman told Susie, when Warren got home he concluded that the paperwork she'd signed committed them to less favorable terms than she had thought. He was incensed that his wife had been misled. He called several times and talked to the magazine's representatives, but they apparently said "nothing doing" when he asked for his money back.

Warren mounted a crusade. He wanted more than his $17 back; he wanted to right an injustice, to bring the reprobate Parents magazine to its knees. He went around the apartment building and found a number of others willing to join the cause. He sued the magazine in small-claims court in Manhattan and looked forward to testifying on behalf of all the allegedly swindled subscribers of Parents magazine. He clicked his heels with glee at the thought of the magazine's lawyers running their meter. There was a bit of his father in this episode, but with a pecuniary slant and better odds of winning, so that his mother would have approved.

But to his chagrin, before the trial took place he got a check in the mail. Parents magazine had settled. The crusade was foiled.

On December 15, 1954, Warren had come home from work because Susie's labor was beginning, and then came a ring at the door. Susie answered it and found a door-to-door missionary who had come to call. She politely invited him to sit down in the living room. And she listened.

So did Warren, who was thinking to himself that only Susie would have let the man inside. Warren began to encourage the conversation to wind down. Agnostic for a number of years, he had no interest in being converted, and his wife was in labor. They needed to get to the hospital.

Susie continued listening. "Tell me more," she said. Now and then she pulsed and moaned slightly as the missionary kept talking.29 She ignored Warren's signals, obviously feeling it more important to be polite to the visitor and make him feel understood than to get to the hospital. The caller seemed oblivious to the fact that she was in labor. Warren sat there, helpless and increasingly agitated, until the preacher ran out of steam. "I wanted to kill the guy," he says. But they made it to the hospital in ample time, and Howard Graham Buffett arrived early the next morning.

21.

The Side to Play New York City * 19541956 Howie was a "difficult" baby. Whereas Little Sooz had been quiet and placid, Howie was like an alarm clock you couldn't turn off. His parents kept waiting for the clamor to lessen, but it only increased. The apartment suddenly seemed full and noisy all the time.

"He had some kind of digestive problem. We experimented with all these different kinds of milk bottles. I don't know whether he was getting air in or not, but he was up all the time. Compared to Little Sooz, Howie was a trial."

It was Big Susie who jumped to the sound of the alarm clock. Since Warren had grown up between a speechifying father and a mother who alternated grotesque rages with pitter-patter chatter, perhaps it was not surprising that he had learned to shut his ears to what was going on around him. Not even Howie's howling nights distracted him much. In his little office in the apartment's third bedroom, he could lose himself for hours in his thoughts.

At work he had become absorbed in a complicated new project that would become a seminal event in his career. Shortly after Warren joined Graham-Newman, the price of cocoa suddenly spiked from a nickel to more than fifty cents a pound. Over in Brooklyn, Rockwood & Co., a chocolate maker "of limited profitability,"1 faced a dilemma. Its number one product was Rockwood chocolate bits, the kind of nuggets used in chocolate chip cookies, and the company couldn't raise its prices much on this grocery item, so it began running a huge loss. However, with cocoa-bean prices so high, Rockwood also had a chance to unload the cocoa beans it already owned to reap a windfall profit. Unfortunately, the ensuing tax bill would eat up more than half those profits.2 Rockwood's owners approached Graham-Newman as a possible buyer of the company, but Graham-Newman wouldn't pay the asking price. So they turned instead to the investor Jay Pritzker, who had spotted a way to avoid the huge tax bill.3 What he realized was that the 1954 U.S. Tax Code said that if a company was reducing the scope of its business, it could pay no tax on such a "partial liquidation" of its inventory. So Pritzker bought enough stock to take control of Rockwood, choosing to keep the company going as a maker of chocolate bits, and to get out of the cocoa-butter business. He attributed thirteen million pounds of cocoa beans to the cocoa-butter side of the business, the amount of beans that would be "liquidated."

Rather than sell the beans for cash, however, Pritzker offered them to the other shareholders in exchange for stock. He did so because he wanted their shares to increase his ownership of the company. So he offered them a good deal as an incentive-$36 worth of beans4 for shares that were trading at $34.5 Graham spotted a way to make money from this offer-Graham-Newman could buy Rockwood stock and swap it to Pritzker for cocoa beans it could sell to make a $2 profit on every share. This was arbitrage: two nearly identical things trading at a different price, which enabled a canny trader to simultaneously buy one and sell the other and profit on the difference, with virtually no risk. "In Wall Street the old proverb has been reworded," as Buffett wrote later. "Give a man a fish and you feed him for a day. Teach a man to arbitrage and you feed him forever."6 Pritzker would give Graham-Newman a warehouse certificate, which is just what it sounds like: a piece of paper that says the holder owns so many cocoa beans. It could be traded like a stock. By selling the warehouse certificate, Graham-Newman would make its money.

$34 (G-N's cost for a share of Rockwood-which it turns in to Pritzker) $36 (Pritzker gives G-N a warehouse receipt-which it sells at this price) $ 2 (Profit on each share of Rockwood stock) Virtually no risk, however, means there is at least some risk. What if the price of cocoa beans dropped, and the warehouse receipt was suddenly worth only $30? Instead of making two dollars, Graham-Newman would lose four bucks for every share of stock. To lock in its profit and eliminate that risk, Graham-Newman sold cocoa "futures." It was a good thing, too-for cocoa prices were about to drop.

The "futures" market lets buyers and sellers agree to exchange commodities like cocoa or gold or bananas in the future at a price agreed upon today. In exchange for a small fee, Graham-Newman could arrange to sell its cocoa beans at a known price for a specified period of time, thus eliminating the risk that the market price would drop. The person on the other side of the trade-who was acquiring the risk that the price would drop-was speculating.7 If cocoa beans got cheaper, Graham-Newman was protected, because the speculator would have to buy Graham-Newman's cocoa beans for more than they were worth.8 The speculator's role, from Graham-Newman's perspective, was to sell what amounted to insurance against the risk of the price dropping. At the time, of course, neither knew which way cocoa prices would move.

Thus, the goal of the arbitrage was to buy as many Rockwood shares as possible while at the same time selling an equivalent amount of futures.

Graham-Newman assigned Warren to the Rockwood deal. He was made for it; he had been arbitraging stocks for several years, buying convertible preferred stock and shorting common stock issued by the same company.9 He had studied arbitrage returns over the preceding thirty years in detail and had discovered that these "riskless" deals typically returned twenty cents for every dollar invested-a lot more than the seven or eight cents profit from the average stock. For several weeks, Warren spent his days shuttling back and forth to Brooklyn on the subway, exchanging stock for warehouse certificates at Schroder Trust. He spent his evenings studying the situation, sunk in thought while singing "Over the Rainbow" to Little Sooz and shutting out the screams as Big Susie struggled to give Howie a bottle.

On the surface, Rockwood was a simple transaction for Graham-Newman: Its only cost was subway tokens, thought, and time. But Warren recognized the potential for even more "financial fireworks" than Graham-Newman had.10 Unlike Ben Graham, he did not do the arbitrage. Thus he did not need to sell cocoa futures either. Instead, he bought 222 shares of Rockwood stock for himself and simply kept it.

Warren had thought through Pritzker's offer carefully. When he divided all the beans Rockwood owned-not just the beans attributed to the cocoa-butter business-by the number of Rockwood shares, it amounted to more than the eighty pounds per share that Pritzker was offering. So people who did not turn in their shares would end up with stock worth more cocoa beans per share. Not only that-all the extra beans left on the table by those who did turn in their stock would bump the number of beans per share even more.

Those who kept their stock would also profit because they wound up with a share of the company's plant, its equipment, money due from customers, and the rest of the Rockwood business that was not being shut down.

Warren had inverted the situation, thinking about it from Pritzker's point of view. If Jay Pritzker was buying, he wondered, why did it make sense to sell? And after doing the math, he could see that it didn't make sense. The side to play on was Jay Pritzker's. Warren had looked at the stock as a little slice of the business.

With fewer shares outstanding, his slice was worth more. He was taking more risk than had he simply done the arbitrage-but he was also making a calculated bet with odds heavily in his favor. The $2 profit from the arbitrage was easy to earn, however, and riskless. When the price of cocoa beans dropped, the futures contracts protected Graham-Newman. They, and a significant percentage of other shareholders, accepted Pritzker's offer and left a lot of cocoa beans on the table.

Hanging on to the stock, however, turned out to be a brilliant call. Those who played the arbitrage, like Graham-Newman, made their $2 a share. But Rockwood stock, which had traded for $15 before Pritzker's offer, shot up to $85 after it was over. So instead of making $444 from his 222 shares, as he would have from the arbitrage, Warren's calculated bet earned him an extraordinary sum-around $13,000.11 In the process, he had also made a point of getting to know Jay Pritzker. He figured anybody smart enough to have figured out that deal "was going to do more smart things later." He went to a shareholders' meeting and asked some questions, and that was his introduction to Pritzker.12 Warren was then twenty-five, Pritzker thirty-two.

Even working with a relatively small amount of capital-less than $100,000-Warren saw that by using this kind of thinking he could open up a world of possibilities for himself. His only constraints were the money, energy, and time he had available. It was lumberjack labor, but he loved doing it. This was nothing like the way most people invested: sitting in an office and reading reports that described research performed by other people. Warren was a detective, and he naturally did his own research, just as he had collected bottle caps and thought about fingerprinting nuns.

To do his detective work he used the Moody's Manuals-Industrial, Banks and Finance, and Public Utility. Often he went down in person to Moody's or Standard & Poor's. "I was the only one who ever showed up at those places. They never even asked if I was a customer. I would get these files that dated back forty or fifty years. They didn't have copy machines, so I'd sit there and scribble all these little notes, this figure and that figure. They had a library, but you couldn't select from it yourself. You had to request things. So I would name all these companies-Jersey Mortgage, Bankers Commercial, all these things that nobody'd ever requested, ever. They'd bring them out, and I'd sit there taking notes. If you wanted to look at SEC documents, as I often did, I went down to the SEC. That was the only way to get them. Then, if the company was nearby, I might very well go see the management. I didn't make appointments ahead of time. But I got a lot done."

One of his favorite sources was the Pink Sheets, a weekly printed on pink paper, which gave information about the stocks of companies so small that they were not traded on a stock exchange. Another was the National Quotation book, which came out only every six months and described stocks of companies so minuscule that they never even made it into the Pink Sheets. No company was too small, no detail too obscure, to pass through his sieve. "I would pore through volumes of businesses and I'd find one or two that I could put ten or fifteen thousand dollars into that were just ridiculously cheap."

Warren was not proud; he also felt honored to borrow ideas from Graham, Pritzker, or any useful source. He called that riding coattails and did not care whether the idea was glamorous or mundane. One day he followed up on a lead of Graham's, the Union Street Railway.13 This was a bus company in New Bedford, Massachusetts, selling at a big discount to its net assets.

"It had a hundred sixteen buses and a little amusement park at one time. I started buying the stock because they had eight hundred thousand dollars in treasury bonds, a couple of hundred thousand in cash, and outstanding bus tickets of ninety-six thousand dollars. Call it a million dollars, about sixty bucks a share. When I started buying it, the stock was selling around thirty or thirty-five bucks a share." The whole company was selling for half the value of its cash in the bank. Buying the stock was playing a fifty-cent slot machine that was virtually guaranteed to pay off a buck.

Under the circumstances, the company was, naturally, trying to buy its own stock, running an ad in the local New Bedford paper inviting shareholders to sell it to them. Warren, facing competition, began running his own ad: "Write to Warren Buffett at such-and-such address if you want to sell your stock." "Then, because it was a regulated utility, I got the list from the public-utility commission in Massachusetts that showed the largest shareholders. And I worked that to find more stock. And I wanted to see Mark Duff, who ran the company."

Visiting management was part of Warren's way of doing business. He used those meetings to learn as much as he could about a company. Getting personal access to management played to his ability to charm and impress powerful people with his knowledge and wit. And he also felt that by becoming friendly with the management of a company, he might be able to influence the company to do the right thing.

Graham, on the other hand, did not visit managements, much less try to influence them. He called this "self-help" and thought it was "cheating" to get the inside dope, even though it was legal. He felt that by definition being an investor meant being an outsider, someone who confronted managements rather than rubbing shoulders with them. Graham wanted to be on a level playing field with the little guy, using only information that was available to everyone.14 Following his own instincts, however, Warren decided to visit the Union Street Railway on a weekend.

"I got up at about four a.m. and drove up to New Bedford. Mark Duff was very nice, polite. Just as I was about ready to leave, he said, 'By the way, we've been thinking of having a "return of capital" distribution to shareholders.'" That meant they were going to give back the extra money. "And I said, 'Oh, that's nice.' And then he said, 'Yes, and there's a provision you may not be aware of in the Massachusetts statutes on public utilities that you have to do it in multiples of the par value of the stock." The stock had a $25 par value, so that meant it would be paying out at least $25 per share.*17 "And I said, 'Well. That's a good start.' Then he said, 'Bear in mind, we're thinking of using two units.' That meant they were going to declare a fifty-dollar dividend on a stock that was selling at thirty-five or forty dollars at that time." So if you bought a share you got all your money back right away, and then some. And afterward, you still owned the slice of the business represented by your share of stock.

"I got fifty bucks a share, and I still owned stock in the place. And there was still value in it. The bus companies hid assets in these so-called special reserves and land and buildings and car barns where they kept the old streetcars. And I'll never know whether my trip up there precipitated that or not." The conflict-wary Buffett by now had honed to a fine edge the skill of getting his way without asking for it out loud. Thus, while he thought he might have influenced Duff, he could not be certain what had prompted Duff's decision. What mattered to him was that he got the result he wanted without a fight. He had made about $20,000 on this trade. Who knew there was so much money in buses?15 Nobody in the history of the Buffett family had ever made $20,000 on one idea. In 1955, that was several times more than the average person earned for a whole year's work. Doubling your money and then some for a few weeks' work was spectacular. And yet, what was more important to him was doing it without taking any significant risk.

Susie and Warren did not talk about the details of cocoa-bean arbitrage and bus-company stocks. She wasn't interested in money, except as something to be spent. And what she knew was that even though waves of money were rolling in to the little apartment in White Plains, Warren gave her only a small household allowance. She hadn't grown up keeping track of every tiny expense, so being married to a man who saved money by making deals with newsstands to buy week-old magazines meant a whole new way of life. She did her best to manage the household herself, but the disparity between what Warren was making and what he gave his wife had become stunning. One day she telephoned her neighbor Madeline O'Sullivan in a panic.

"Madeline, something terrible has happened," she said. "You've got to come down here!" Madeline rushed down to the Buffett apartment and found Susie distraught. She had accidentally thrown a batch of dividend checks that had been sitting on Warren's desk into the apartment's incinerator chute, which led straight down to the building's furnace.16 "Maybe the incinerator isn't running," Madeline said, so they called the building superintendent, who let them into the basement. Sure enough, the incinerator was cold. They rooted through the garbage looking for the checks, with Susie all the while wringing her hands and saying, "I can't face Warren." When they found the checks, Madeline's eyes grew wide. They were for as much as thousands of dollars, not $25 or $10 as she had assumed.17 The Buffetts, living in the little apartment in White Plains, were getting truly rich.

As Howie screamed and their money grew, Warren became slightly more accommodating with the checkbook. Despite his thriftiness, he was so enthralled with Susie that he ultimately gave her what she wanted. That June, they returned to Omaha for his sister Bertie's wedding to Charlie Snorf. By then, Warren had agreed that Susie could have some help with homemaking. So while they were in Omaha they started searching in a hurry for an au pair to return to White Plains with them.

By advertising in the newspaper, they hired a young woman from a small town who "seemed a very proper type"-but wasn't. Warren threw her on a bus back to Omaha; Susie looked for a replacement, because she needed the help-raising Howie was more than a two-person job-and she knew they could afford it.

Warren's brilliant performance at Graham-Newman had made him the golden boy of the firm. Ben Graham took a personal interest in Warren, and in his warmly outgoing and beleaguered wife. Graham had given them a movie camera and projector as a baby gift when Howie was born, and even showed up at their apartment with a teddy bear for the little boy.18 On one or two occasions when he and his wife, Estey, had the Buffetts over for dinner, he noticed that Warren gazed googly-eyed at Susie, and that the two of them held hands a lot. But he could also see that Warren did not woo his wife, and that Susie might have liked the occasional romantic gesture.19 When Susie mentioned with longing that Warren did not dance, Graham dropped by Warren's desk with a gift certificate to the Arthur Murray dance studio in White Plains, where Graham clumped around the dance floor during his own lessons. Graham checked with the studio a little later and found that his protege had never used the gift certificate. He mentioned this to Warren and encouraged him to go ahead. Now on the hook, Warren stumbled through three lessons with Susie, then dropped out. He never did learn to dance.20 This didn't get in the way of his rapid ascent at Graham-Newman. Within eighteen months of his starting there, both Ben Graham and Jerry Newman seemed to be treating Warren as a potential partner, which meant a certain amount of family socializing. In mid-1955, even the dyspeptic Jerry Newman extended an invitation to the Buffetts to what they thought was to be a "picnic" at Meadowpond, the Newmans' mansion in Lewisboro, New York. Susie arrived wearing something suitable for a hayride, only to find the other women in dresses and pearls. Though they felt like a couple of hillbillies, the faux pas did nothing to hurt Warren's golden boy status.

Walter Schloss was not invited to events like these. He had been pigeonholed as a journeyman employee who would never rise to partnership. Jerry Newman, who rarely bothered to be kind to anyone, treated Schloss with more than his usual contempt, so Schloss, married with two young children, decided to strike out on his own. It took him a while to get up the nerve to tell Graham,21 but by the end of 1955 he had started his own investment partnership, funded with $100,000 raised from a group of partners whose names, as Buffett later put it, "were straight from a roll call at Ellis Island."22 Buffett was certain that Schloss could apply Graham's methods successfully and admired him for having the guts to set up his own firm. Though he worried that "Big Walter" was starting out with so little capital that he would not be able to feed his family,23 Buffett put not a dime of his own money into Schloss's partnership, just as he had not invested in Graham-Newman. It would be unthinkable for Warren Buffett to let someone else invest his money.

He did find someone to replace Schloss, however. Buffett had met Tom Knapp at a luncheon at Blythe and Company down on Wall Street.24 Ten years older than Warren, tall, handsome, dark-haired, blessed with a wicked sense of humor, Knapp had taken one of David Dodd's night courses and gotten hooked; he changed his major from chemistry to business on the spot. Graham hired Knapp as the second gentile in the firm. "I told Jerry Newman, 'It's the old story-you hire one gentile, they take over the place,'" Buffett says.

By the time Knapp was sitting at Walter Schloss's old desk next to Buffett, Warren had begun to be aware of the private side of Graham's life. Knapp himself got initiated when Graham invited him to watch a speech at the New School for Social Research, where, he says, he found himself seated at a table with six women. "As Ben spoke," Knapp says, "I became aware that each one of those women was in love with him. And they didn't seem to be jealous of each other, and they all seemed to know him very, very well."25 Indeed, by early 1956, Graham was bored by investing: his outside interests-women, the classics, and fine arts-tugged at him so strongly that he had a foot out the door. One day when Knapp was out, the receptionist directed a gangly young man into the windowless lair where Warren was filling out forms. Looming over him was Ed Anderson, who explained that he was a chemist, like Knapp, not a professional investor. He worked at the Livermore Laboratory of the Atomic Energy Commission in California, but followed the market in his spare time. He had read The Intelligent Investor, with its copious examples of cheap stocks like Easy Washing Machine, and was wildly impressed. My God! he thought. That can't be true. How could you buy these companies for less money than they had cash in the bank?26 Intrigued, Anderson had been riding Graham's coattails. After buying a single share of Graham-Newman, he used its quarterly statements to figure out what Graham was doing, then bought those stocks. Graham never discouraged this; he liked other people to learn from and emulate him.

Anderson had come in because he was thinking about buying another share of Graham-Newman, but he had noticed an oddity and he wanted to ask about it. Graham had loaded up on shares of American Telephone & Telegraph. It was the least Graham-like stock imaginable-owned, studied, and followed by all, valued fairly, with as little potential as it had risk. Was something going on? he asked Warren.

Warren thought for a second. It was impressive that this man with no business background-a chemist-had the perception to see that AT&T was out of pattern. Too many people thought that "business" was some sort of priesthood practiced only by those with special training. He said to Anderson, "This might not be the best time to buy another share."27 They chatted a bit longer and then parted in a friendly way, intending to keep up the acquaintance. Warren was very glad that his friend Schloss had gone out on his own. From watching the firm's trading patterns and keeping his ears open, he had already figured out that Graham was going to shut down his partnership.

Ben Graham's career was coming to an end. He was sixty-two years old, and the market had surpassed the peak of 1929.28 Its priciness made him nervous. He had beaten the market by 2.5 percent for more than twenty years.29 He wanted to retire and move out to California to enjoy life. Jerry Newman was also retiring, but Jerry's son, Mickey, would stay on. In the spring of 1956 Graham gave notice to his partners. But first he offered Warren the opportunity to become a general partner in the firm. That he would choose someone of Warren's age and experience shows how valuable he had made himself in such a short time. Nevertheless: "If I had stayed I would have been sort of the Ben Graham of it, and Mickey would have been the Jerry Newman of it-but Mickey would have been the senior partner by miles. It would have been called Newman-Buffett."

Even though Warren was flattered, he had gone to Graham-Newman to work for Ben. It wasn't worth it to him to stay, not even to be thought of as Graham's intellectual heir. Moreover, all the while that he was carrying out the bus bell-ringer and the cocoa-bean caper he was thinking, "I don't like living in New York. I'm on the train back and forth all the time." Above all, he was not cut out to work with a partner-least of all as someone's junior partner. He turned the offer down.

22.

Hidden Splendor Omaha * 19561958 I had about $174,000, and I was going to retire. I rented a house at 5202 Underwood in Omaha for $175 a month. We'd live on $12,000 a year. My capital would grow."

In retrospect, it would strike people as odd that at the age of twenty-six, Warren used the term "retire." Maybe it was a way to downplay expectations. Or maybe it referred to his notion of capital as money that worked as a sort of servant to make you rich. The overseer of capital was not an employee.

Mathematically speaking, Warren could theoretically "retire" on his own money and still reach his goal of being a millionaire by age thirty-five.*18 Since entering Columbia with $9,800, he had grown his money by more than sixty-one percent a year. But he was in a hurry, and it would require a very aggressive compounding rate to meet his goal.1 Therefore he had decided to start a partnership like Graham-Newman's sister hedge fund, Newman & Graham.2 It was possible that he did not think of this as having a "job." In fact it was a near-perfect way of not having a job. He would have no boss, could invest from his house, and could put friends and relatives into the same stocks that he would have bought for himself. If he took a quarter of every dollar he earned for these partners as a fee and then reinvested that in the partnership, he could be a millionaire much faster. Armed with Ben Graham's method of buying stocks and a Graham-like hedge fund, he had every reason to think of himself as a rich man.

There was only one problem with his idea. He couldn't tolerate it if his partners criticized him because the stocks went down. But Warren had figured out a solution. He planned to invite only his family and friends-people he was sure trusted him-into the partnership. On May 1, 1956, he started Buffett Associates, Ltd., a partnership based on the Newman & Graham model,3 with seven partners.

Doc Thompson invested $25,000. "Doc Thompson was the kind of guy, he gave me every penny he had, basically. I was his boy." Warren's sister Doris, with her husband, Truman Wood, put in $10,000. His aunt Alice Buffett put in $35,000. "I had sold securities to other people before that, but now I became a fiduciary, and for people who were enormously important to me. These were the people who believed in me. There's no way in the world I would have taken my aunt Alice's or my sister's or my father-in-law's money if I had thought that I'd lose it. At that point I didn't think I could lose money over time."

He already had a separate partnership with his father, and his sister Bertie and her husband had no money they could part with. So his Wharton roommate Chuck Peterson, who put in $5,000, became his fourth partner. Al Jolson aside, he knew all about Warren's brains and financial maturity from having been his roommate. Chuck had been one of the first to let Warren dispense him scrips as a prescriptionist, buying stocks from him before he went to New York City. "I learned real fast how bright he is and how honest he is and how capable," he says. "I would trust him until proven otherwise."4 Warren's fifth partner was Peterson's mother, Elizabeth, who invested $25,000 of the money she had inherited when her husband died the year before.

The sixth partner, Dan Monen, was a quiet, stocky, dark-haired young man who used to play with Warren as a child, digging up dandelions in Ernest Buffett's backyard. Now Warren's lawyer, he didn't have much money but put in what he could: $5,000.

Warren was the seventh. He put in only $100. The rest of his share would come from future fees he earned by managing the partnership. "In effect, I got my leverage from managing the partnership. I was brimming with ideas, but I was not brimming with capital." Actually, by most of the country's standards, Warren was brimming with capital. But he viewed the partnership as a compounding machine-once money went into it, he did not intend to make withdrawals. So he needed to earn the $12,000 a year his family would live on from the rest of his funds. He invested that money separately.

He devised a formula to charge his new partners. "I got half the upside above a four percent threshold, and I took a quarter of the downside myself. So if I broke even, I lost money. And my obligation to pay back losses was not limited to my capital. It was unlimited."5 At the time, Warren was already managing money for Anne Gottschaldt and Catherine Elberfeld, the mother and aunt of Fred Kuhlken, a friend from Columbia. When Fred left for Europe the year before, he had asked Warren to look after part of his aunt's and mother's money.6 Ever since, Warren had been investing it with utmost caution in government bonds under a different, more modest fee arrangement.

He could have invited Gottschaldt and Elberfeld into the partnership, but he felt that it was unfair to charge them a higher fee than they were already paying. Of course, if the partnership was the sure thing he thought it was, that meant he was depriving them of a golden opportunity. If something went wrong with the investments, however, his aunt and his sister and Doc Thompson would never condemn him. He wasn't so sure about anybody else.

Acting as a "fiduciary" meant to Warren that any responsibility he took on would be unlimited. To lay out the ground rules for his partners, he called the first official meeting of Buffett Associates on the very day he founded the partnership. Chuck got them a reservation for dinner at the Omaha Club, the best place in town if you wanted a private room. Warren meant to carefully define and limit his responsibilities; one responsibility he was not assuming was picking up the check for dinner. He told Chuck to pass the word that everyone was going dutch.7 He then used the dinner as an opportunity to talk not just about the partnership's ground rules, but about the stock market. Already he viewed the partnership as a teaching exercise.

The partners quickly split into two camps: the teetotalers and the rest. From his end of the table, Doc Thompson suggested, in a paternal way, that the other faction was going to hell. It was Warren, however, who was the preacher that night; they were there for him to hold forth.

"I started with an agreement with the investors, which has not needed to be changed much as we've evolved. All kinds of good things have flowed out of that, you know. It is the least complicated thing I can imagine.

"I gave them a little summary of the ground rules: Here's what I can do. Here's what I can't do. And here are some things I don't know whether I can do or not. Here's how I'll judge myself. It was fairly short. If you don't feel this way you shouldn't join, because I don't want you unhappy while I'm happy or vice versa."8 After Warren launched the partnership, the Buffetts returned to New York for their final summer. Warren would be helping Ben Graham and Jerry Newman as the partnership wound down. Mickey Newman was now the CEO of Philadelphia & Reading, a full-time job. With neither he nor Warren available to serve as general partner, Graham had decided to shut down the firm.9 Warren had rented a rustic seaside cottage on Long Island for his family from his friend Tom Knapp. The house, part of a group built for people fleeing an influenza epidemic many years before, sat on West Meadow Beach, near Stony Brook on Long Island's North Shore, and faced Connecticut, across Long Island Sound.

During the week, Warren saved money by bunking in the city with his stockbroker friend Henry Brandt, whose wife and children were also summering on Long Island. On the weekends he joined his family at the shore and worked in a tiny bedroom in the house. The neighbors told the Knapps they never saw him.10 While Warren worked, Susie, who was afraid of the water and never swam, beachcombed with the kids along the bluffs near the water's edge. Since the cottage had minimal plumbing facilities, the Buffetts fetched drinking water from a spring across the street, and Susie bathed Little Susie, now almost three, Howie, eighteen months old, and herself in the unheated outdoor shower.

That summer brought them two pieces of shocking news. The father of Warren's boyhood friend Bob Russell had committed suicide. And Anne Gottschaldt and Catherine Elberfeld, the mother and aunt of Fred Kuhlken, Warren's friend from Columbia, called to say that Fred had been killed in Portugal after his car skidded eighty feet and rammed into a cork tree.11 As the summer ended, the Buffetts made their plans to return to Omaha. The extreme caution Warren displayed in trying never to disappoint anyone stood in sharp contrast with his risky decision to pursue an investing career working on his own outside of New York City. The market was composed of relationships, people who lunched together at the Stock Exchange or played poker once a week. It hummed along on tips and rumors, gossip passed on by personal contacts and connections made at investor luncheons, in bars, on squash courts, at chance meetings at university-club coat checks. While every small regional city had its little brokerage firm or two-like Buffett-Falk-these were not important players. The hinterlands were staffed by stockbrokers-prescriptionists who survived or prospered by filling the scrips written by the Manhattan money doctors. At that time, no serious American money man worked anywhere but New York City. To leave all this, to go it alone, to think of getting really rich anywhere farther than a limo ride from Wall and Broad was a truly bold and venturesome stroke.

Indeed, for a college graduate to become self-employed, to work at home, to work alone, was strikingly unusual in the 1950s. The Man in the Gray Flannel Suit was the guy who got ahead.12 Businessmen joined a big organization-the bigger the better-then competed with polished ferocity for the best-paying job on the steady climb up the ladder of success, trying not to break a sweat or a golf club along the way. They competed to amass not riches but power-or at the very least to buy the right kind of house in a good suburban neighborhood, to get a new-model car every year, and to pave the way for a lifetime of security.

In his choice of occupation, therefore, Warren was as rare as a Buffett who voted for Democrats. Well aware of her husband's unusual qualities-if not of the apparent riskiness of the course he was charting-Susie arranged for the movers to come, said good-bye to the neighbors, sent out the change-of-address cards, had the telephone service turned off, and packed up their belongings. She flew to Omaha with Little Susie and Howie and moved them all into the house Warren had rented from Chuck Peterson on Underwood Avenue. He had chosen an inviting gray two-story Tudor with picturesque half-beams, a big stone chimney, and a cathedral ceiling. Even the decision to rent a home had been unconventional; owning a home was the quintessence of what most young Americans aspired to in the mid-1950s. The hopelessness of the Depression and the dreary wartime days of making do were fading into memory. Americans stocked their new houses with all the exciting new features and appliances that were suddenly available: washer-dryers, freezers, dishwashers, electric mixers. The Buffetts had plenty of money to buy all these things. But Warren had other plans for his capital, so they rented. And the house they were renting, while attractive, was just barely big enough for them. Howie at almost two would have to sleep in a largish closet.

As Susie began to settle her family in Omaha, Warren closed out his own affairs in New York. He packed up his own desk and files, and sent out his own notices to the companies whose stocks he owned to ensure that the dividend checks followed him to Omaha. Then he got in his car and started driving back to Nebraska, visiting companies along the way.

"I did this zigzag across the country. I just thought it was a great time to hit these companies. I drove through Hazleton, Pennsylvania, and visited the Jeddo-Highland Coal Company. I went through Kalamazoo, and saw the Kalamazoo Stove and Furnace Company. This little odyssey went through Delaware, Ohio, and I visited Greif Bros. Cooperage. That was a company selling at a ridiculously cheap price"-a company he had first discovered in 1951 by flipping through the Moody's Manuals. He and his father had each bought two hundred shares and put them in their little partnership.

Warren arrived in Omaha toward the end of the summer and found that he was needed at home. Little Sooz, calm and timid, sat watching while her brother's inexhaustible demands vacuumed up her mother's energies.13 But in the evenings she wanted her father; she was now afraid to go to bed. When they arrived at the house on Underwood, a moving-company man wearing glasses had spoken to her, and though she did not remember his saying anything untoward, she had frozen in terror and was now convinced that the "glasses man" lurked just outside her bedroom, next to a wrought-iron balcony that overlooked the living room. Warren had to inspect the balcony every night and reassure her that it was safe to go to sleep.

After he had taken care of the "glasses man," he went down the hall to the tiny sunporch off his and Susie's bedroom and got down to business, either partnership work or preparing his lessons-for the first thing he had done when he returned to Omaha, besides forming a partnership, was to take on two classes for the fall semester at the University of Omaha: Investment Analysis for Men Only, and Intelligent Investing. Before long he would add a third course, Investing for Women. The terrified boy who so recently couldn't even strike up a conversation in a Dale Carnegie class had vanished. In his place was a still-awkward young man who nonetheless made a striking impression as he moved restlessly around the room, exhorting the students and spouting an inexhaustible series of facts and figures. Dressed as usual in a cheap suit that looked a couple of sizes too large, he seemed more like a youngish preacher from some missionary sect than a college lecturer.

Despite his brilliance, Warren was still very immature. For Susie, his helplessness at home meant that he was like having a third child to care for. His personality and interests also shaped their social life. In Omaha, a midsize Midwestern city with relatively few important cultural institutions, weekends were filled with weddings, parties, teas, and charity events. The Buffetts lived a much quieter life than most young married couples of their class and era. Although Susie began to climb the ladder of the Junior League and they joined a "gourmet group"-where Warren politely asked each month's hostess to make him a hamburger-they socialized with friends less in crowds than in ones and twos. Most of their social life took place at dinner with other couples, in small groups, or at occasional dinner parties where Warren could talk about stocks. It was always the same: Warren entertained, either holding forth to an audience on stocks or playing the ukulele. Under Susie's tutelage, he could now exchange remarks about other subjects more easily than before, but his mind remained fixated on making money. During meals and parties at home, he often fled small talk by leaving the table to go upstairs. But unlike Ben Graham, he was not upstairs reading Proust; he was working. As for Susie, she knew little and cared less about what Warren did. "I used to write 'security analyst' for his job, and people thought he checked burglar alarms," she said.14 All Warren's recreations remained repetitive, competitive, or, better yet, both. He found playing bridge with Susie unendurable because she wanted the other side to win, and soon sought other partners.15 His mind was like a restless monkey; to relax, he needed an active form of concentration that could keep the monkey occupied. Ping-Pong, bridge, poker, golf all absorbed him and took his mind off money temporarily. But he never hosted backyard barbecues, lazed around a swimming pool, stargazed, or simply went for a walk in the woods. A stargazing Warren would have looked at the Big Dipper and seen a dollar sign.

All of this, plus his nonconformist streak, meant that Warren was not a "joiner," sitting through committee and board meetings. Still, family loyalty did lead him to say yes when his uncle Fred Buffett came over to the house and asked him to join the Rotary Club. He was fond of Fred, proprietor of the Buffett grocery; he and Fred went bowling at the Rotary (repetitive, competitive)-and besides, his grandfather had been president of the Rotary.

On the other hand, when asked to join the Knights of Ak-Sar-Ben, a more important group of civic leaders that combined philanthropy, business, boosterism, and social activities, he said no. For a budding money manager who needed to raise funds for his business, that was like thumbing his nose in the faces of the men who ran Omaha-an act of cocky self-assurance, even arrogance, which set him apart from much of his social set. His sister Doris had made her debut as a Princess of Ak-Sar-Ben. The sister of his brother-in-law and former roommate, Truman Wood, had been Queen of Ak-Sar-Ben. Friends like Chuck Peterson were regulars on its social circuit. As a Congressman, Howard had been obligated to join. But Warren found social hierarchy repugnant and he disdained the smoke-filled backroom clubbiness and conformity of the Ak-Sar-Ben crowd. These were the people who had looked down on his father as the "son of a grocer man." Warren reveled in the chance to spurn Ak-Sar-Ben, and disparaged it with withering comments.

Susie had her own gentler brand of nonconformity. She began to bring Warren into her unusually diverse network of friends. Since high school, she had prided herself on her openness and her commitment to inclusiveness at a time when most people chose friends who were religious, cultural, ethnic, and economic clones. Unlike her own family, Susie did not think this way, and many of her friends-and by this time many of Warren's-were Jewish. In segregated Omaha-not to mention within the Buffett and Thompson families-choosing to cross these social lines was a bold, even defiant act. Susie was aware of this, just as she had been aware in high school and college that dating a Jew was considered shocking. Although she came from a prominent family, social status had value to her mostly as a way to make her friends feel more included. Warren, the anti-elitist, found this aspect of Susie highly attractive. And the Jewish friends he'd made at Columbia and while working for Graham-Newman had opened his eyes to anti-Semitism.

In contrast to Susie, Warren's mother had always been obsessed with fitting in. Leila had researched her ancestry and joined the Daughters of the American Revolution and the Huguenot Society, perhaps searching the past for a stability that she could not find in the present, and certainly not in her immediate family. She had recently received word from Norfolk State Hospital that her sister Bernice had thrown herself into the river in an apparent suicide attempt. Leila, now responsible for Bernice and their mother, handled their affairs in businesslike fashion, striving to be a dutiful daughter while keeping some distance from the family's problems. She and her sister Edie went to visit Bernice and their mother periodically, Leila with less enthusiasm. The Stahl family's history of mental illness was a threatening and shameful topic in the Buffett family, just as it was in society as a whole at the time. Ozzie and Harriet Nelson, Ward and June Cleaver, the prototypical white Anglo-Saxon Protestant American families so ubiquitous on television that they seemed to define an idyllic sort of normality, did not have mentally ill or suicidal family members. The Buffetts' perception of the family history was further muddied by uncertainty over Stella's and Bernice's diagnoses. The doctors could give only vague descriptions of what were clearly serious problems. Obviously, however, the mental illness was inherited, and it manifested in adulthood. Warren and Doris, who were close to their aunt Edie, knew that their mother had grown apart from her as Edie, too, had become more impulsive and moody. They had some suspicions that Leila's own behavior and personality might be at least partly related to the family lineage. The ticking clock hung over them, and they examined themselves for any signs of abnormality.

Warren, who desperately wanted to be but had never felt "normal," assuaged his anxiety with statistics, reasoning that the mysterious disorder seemed to affect only the family's women. He never dwelled on the unpleasant. He would later come to think of his memory as functioning like a bathtub. The tub filled with ideas and experiences and matters that interested him. When he had no more use for information, whoosh-the plug popped up, and the memory drained away. If new information about a subject appeared, it would replace the old version. If he didn't want to think about something at all, down the drain it went. Certain events, facts, memories, and even people appeared to vanish. Painful memories were the first to be flushed. The water went somewhere, and along with it might go context, nuance, and perspective, but what mattered was that it was gone. The bathtub memory's efficiency freed up enormous amounts of space for the new and the productive. At times, however, disturbing thoughts did bubble up from somewhere, as when he expressed concern for other people: for example, several friends who cared for mentally ill wives. Buffett thought of the bathtub memory as a helper that allowed him to "look forward," rather than "looking backward" all the time like his mother. And it allowed him, at the age of twenty-six, to ruminate in depth on business to the exclusion of almost everything else-in pursuit of his goal of becoming a millionaire.

The fastest way to that goal was to raise more money to manage. In August, he went back to New York to attend the final shareholders' meeting of the Graham-Newman Corporation. Everyone important on Wall Street seemed to be present at Graham-Newman's wake. Investor Lou Green, his head wreathed in clouds of foul-smelling smoke from an enormous stogie, towered over them from his six-foot-four height.16 He accused Graham of making a big mistake. Why had Graham and Newman not developed talent? he asked. "They'd been working here for thirty years building up this business," he declared to everyone standing nearby. "And all they would have had to run it was this kid named Warren Buffett. He's the best they could come up with. And who'd want to ride with him?"17 Warren's long-ago mistake of telling Lou Green that he bought Marshall-Wells "because Ben Graham bought it" had now come back to dilute Graham's endorsement of him in front of an important audience, with unknowable consequences. Yet Graham's imprimatur had already paid him one important dividend. Homer Dodge, a Harvard-educated physics professor who was the president of Norwich University in Northfield, Vermont, until 1951, and a long-time investor in Graham-Newman, had gone to Graham and asked him what he should do with his money now that Graham-Newman was shutting down. "And Ben said, 'Well, I've got this fellow who used to work with us that might be a possibility.'"

So one hot Midwestern day that July, Dodge had stopped in Omaha on his way to a vacation out west, a blue canoe strapped to the roof of his woody wagon. "He talked to me for a while and said, 'Would you handle my money?' And I set up a separate partnership for him."

Dodge gave him $120,000 to manage in the Buffett Fund, Ltd., on September 1, 1956.18 That was more money than the original Buffett Associates partnership-an enormous step*19 that made Warren a professional money manager, not just a former stockbroker running a little money for his family and friends. Now he had invested for someone recommended by Ben Graham.19 "Later in the year, a friend of mine, John Cleary, who used to be my dad's secretary in Congress, saw in a legal notice that I'd formed this partnership and asked me what it was. I told him about it, and he said, 'Well, how about doing it with me?' So we formed something called B-C, Ltd. That was the third partnership. He put in fifty-five thousand dollars."20 With the formation of the B-C partnership on October 1, 1956, Warren was now managing more than half a million dollars, including his own money, which was not in any of the partnerships. He operated out of a tiny study at home that could be entered only by passing through the bedroom. He worked odd hours, a night owl like Susie, reading annual reports in his pajamas, drinking Pepsi-Cola and eating Kitty Clover potato chips, enjoying the freedom and solitude. He pored over the Moody's Manuals looking for ideas, absorbing statistics on company after company. During the day, he went to the library and read newspapers and industry trade magazines. As with his boyhood paper route, he took care to handle everything of value personally, a pleasure in and of itself. He typed his own letters on an IBM typewriter, carefully lining up his letterhead sheet on the carriage. To make copies he slid sheets of blue carbon paper and tissue-thin onionskin behind the first page. He did all his own filing. He did the bookkeeping himself and prepared his own tax returns. With its numbers, accuracy, and the measuring of results, the recordkeeping aspect of the job pleased him.

Every stock certificate was delivered directly to him, made out in the partnerships' names, rather than left on deposit with a broker as was the usual practice. When they arrived, he carried them-smooth cream-colored diplomas in investing, engraved with finely etched drawings of railroads and bald eagles, sea beasts and toga-clad women-down to the Omaha National Bank in his own hands and placed them in a safety deposit box. Whenever he sold a stock, he went to the bank, riffled through the collection of certificates, and mailed off the correct ones from the post office on 38th Street. The bank would call to let him know when a dividend check came in to be deposited, and he would go there, examine the check, and endorse it personally.

He tied up the family's single telephone line with his daily calls to the handful of brokers he used. His expenses were as close to zero as he could get. He listed them by hand on a lined sheet of yellow paper: 31 for postage, $15.32 for a Moody's Manual, $4.00 for the Oil & Gas Journal, $3.08 for telephone calls.21 Except for more meticulous accounting and a great deal more thought, he ran the business much as though he were just anybody trading stocks through a broker for a personal account.

At the end of 1956, Warren wrote a letter to the partners outlining the partnership's results at year-end. He reported that it had earned a total income of slightly more than $4,500, beating the market by about four percent.22 By then, Dan Monen, his lawyer, had withdrawn from the first partnership, with Doc Thompson buying out his share. Monen had joined Warren on a personal side project that he had been pursuing for some time: buying the stock of an Omaha-based insurer, National American Fire Insurance. This company's worthless stock had been sold to farmers all over Nebraska in 1919 by unscrupulous promoters in exchange for the Liberty Bonds issued during World War I.23 Since then, its certificates had lain crumbling in drawers, while their owners gradually lost hope of ever seeing their money again.

Warren had discovered National American while working at Buffett-Falk, flipping through the Moody's Manual.24 The company was headquartered only a block away from his father's office. William Ahmanson, a prominent Omaha insurance agent, had originally been sucked into it unawares, set up as a local front man for what had started out as a fraud. But the Ahmanson family had gradually turned it into a legitimate company. Now, Howard Ahmanson, William's son, was feeding top-drawer insurance business into National American through Home Savings of America, a company he had founded in California, which was becoming one of the largest and most successful savings-and-loan companies in the United States.25 The defrauded farmers had no idea that their moldering paper was now worth something. Howard had been quietly buying the stock back from them on the cheap for years through his younger brother Hayden, who ran National American. By now the Ahmansons owned seventy percent of the company.

Warren admired Howard Ahmanson. "Nobody else was quite as audacious at managing capital as Howard Ahmanson. He was very shrewd in a lot of ways. Formerly, a lot of people came in to Home Savings and paid their mortgages in person. Howard put the mortgage at the farthest branch away from where you lived so that you paid by mail and didn't spend half an hour of one of his guys' time telling them about your kids. Everybody else had been to see It's a Wonderful Life and felt that you should do this Jimmy Stewart stuff, but Howard didn't want to see his customers. His operating costs were way under anybody else's."

National American was earning $29 per share, and Howard's brother Hayden was buying its stock for around $30 per share. Thus, as with the rarest and most attractive of the cheap stocks that Warren stalked, the Ahmansons could pay virtually the entire cost of buying a share of stock out of one year's profits from that single share. National American was the cheapest stock Warren had ever seen-except for Western Insurance. And it was a nice little company, too, not a soggy cigar butt.

"I tried to buy the stock for a long time. But none of it was getting to me, because there was a security dealer in town and Hayden had given this guy the shareholders list. This stockbroker-he regarded me as a punk kid. But he had the list. And I didn't have the list. So he was buying the stock at thirty for Hayden's account."

Cash on the barrel from Hayden Ahmanson sounded good to some of the farmers compared to their worthless certificates. Though they had paid around $100 per share many years before and were only receiving $30, many of them had gradually convinced themselves that they were better off without the stock.

Warren was determined. "I looked it up in some insurance book or something. If you went back to the twenties you could see who were the directors. They made some of these bigger stockholders the directors from the towns they worked the hardest for sales. There was a town called Ewing, Nebraska, which has got no population at all. But somebody sold a lot of stock out there. And that's how they probably got the local banker on the board thirty-five years earlier."

So Dan Monen, Warren's partner and proxy, went off to the countryside carrying wads of Warren's money and some of his own. He cruised around the state in a red-and-white Chevrolet, showing up in rural county courthouses and banks, casually asking who might own shares of National American.26 He sat on front porches, drinking iced tea, eating pie with farmers and their wives, and offering cash for their stock certificates.27 "I didn't want Howard to know because I was topping his price. He had been picking it off at thirty bucks, and I'd had to raise the price some. The shareholders had been listening for probably ten years at thirty bucks, so it was the first time the price moved."

The first year Warren paid $35 each for five shares of the stock. The farmers' ears pricked up. Now they realized that buyers were competing for the stock; they began to think maybe they weren't better off without it. The price had to keep moving up. "Finally, toward the end, I paid a hundred. That was the magic number, because it was what they'd paid in the first place. A hundred bucks, I knew, would bring out all the stock. And sure enough, one guy came in when Dan Monen was doing this and he said, 'We bought this like sheep, and we're selling it like sheep.'"28 That they were. Many had sold at less than three times the $29 a year the company was earning. Monen eventually accumulated two thousand shares, ten percent of National American's stock. Warren kept it in the original shareholders' names, with a power of attorney attached that gave him control, rather than transferring it into his name. "That would have tipped Howard off to the fact that I was out there competing with him. He didn't know. Or, if he did, he had insufficient information. I just kept collecting shares. Then, the day I walked into Hayden's office, I plopped them all down and said I wanted to transfer them to my name. And he said, 'My brother's going to kill me.' But in the end, he transferred the stock."29 The brainstorm behind Warren's National American coup had been more than just the price. He had learned the value of gathering as much as possible of something scarce. From license plates to nuns' fingerprints to coins and stamps, to the Union Street Railway, and National American, he had always thought this way, a born collector.30 Alas, this voracious instinct could steer him awry on occasion. Tom Knapp, who had gone to work for a small broker, Tweedy, Browne and Reilly, after helping Jerry Newman close down the remnants of Graham-Newman, came out to visit Warren and to go hear Ben Graham give a speech in Beloit, Wisconsin. Driving through the Iowa cornfields on the way, Knapp mentioned that the U.S. government was about to take the four-cent Blue Eagle stamp out of circulation. The cash register dinged! in Warren's head. "Let's stop at a few post offices and see if they have any four-cent stamps," he said on the way back. Knapp went into the first post office and returned to say that it had twenty-eight stamps. "Go buy them," said Buffett. They talked about it some more and decided to write to post offices after they returned home, to offer to buy their stamp inventory. The stamps started coming in a few thousand at a time. Then Denver replied and said they had twenty pads. A pad is a hundred sheets of a hundred stamps. That meant Denver had two hundred thousand stamps.

"We might as well control the issue," Warren said. They spent $8,000 and bought the pads.