KING MIDAS

Over 50 years, starting from scratch and using .only common sense and an eye for cheap shares, Warren Buffett has built a $10 billion fortune. Is.he, as many believe, a hero? Or just a tragic obsessive?
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IN THE annals of investing, Warren Buffett stands alone. Starting from scratch, simply by picking stocks and companies for investment, Buffett has amassed one of the epochal fortunes of the 20th century. Over a period of four decades - more than enough to iron out the effects of fortuitous rolls of the dice - Buffett has outperformed the stock market, by a stunning margin and without suffering a single losing year. This is a feat that market savants, Main Street brokers, and academic scholars had long claimed to be impossible. By virtue of this steady, superior compounding, Buffett has acquired a net worth of $9.7bn, and counting.

Buffett has done this in markets bullish and bearish and through economies fat and lean, from the Eisenhower years to Bill Clinton. Over the broad sweep of post-war America, as the major stock averages have advanced by 10 per cent or so a year, Buffett has racked up a compounded annual gain of 28.6 per cent.

The uniqueness of this achievement is more significant in that it has been the fruit of old-fashioned, long-term investing. Wall Street's modern financiers have got rich by exploiting their control of the public's money: their essential trick has been to take in - and sell out - the public at opportune moments. Buffett has shunned this game, as well as the more venal excesses for which Wall Street is famous. In effect, he has rediscovered the art of pure capitalism: a cold-blooded sport, but a fair one.

The public shareholders who invested with Buffett have also got rich, in exactly the same proportion to their capital as Buffett. The numbers are almost inconceivable: if one had invested $10,000 when Buffett began his career, working out of his study in Omaha, Nebraska, in 1956, and had stuck with him throughout, one would have had an investment at the end of 1994 worth $80m.

On Wall Street, his homespun manner has made him a cult figure. Where finance was so forbiddingly complex, Buffett could explain it like a general- store clerk discussing the weather. He has never forgotten that underneath each stock and bond, no matter how arcane, there lies a tangible, ordinary business. Beneath the jargon of Wall Street, he has seemed to unearth a street from small-town America.

In such a complex age, what has been stunning about Buffett has been his applicability. Most of what Buffett did is imitable by the average person. His genius is largely a genius of character - of patience, discipline and rationality. In this sense, Buffett's character and career unfolded as a sort of public tutorial on investing and on American business. He once wrote that he would no more take an investment banker's opinion on whether to do a deal than he would ask a barber whether he needed a haircut. This commonsensical wit has made him an archetype of something larger, and far more basic to the country's past. It has answered to a deeply American need for authentic heroes.

FROM THE START, Warren was cautious beyond his years. When he learnt to walk, it was with his knees bent, as if ensuring that he wouldn't have far to fall. When his mother took him and his sister Doris to church circle meetings, Doris would explore and get lost, but Warren would sit dutifully by her. "Never much trouble as a little child," his mother would write.

Blue-eyed, with a fair complexion and pink cheeks, Warren, the second of three children (and the only son), was intrigued by money. His first possession was a nickel-coated money changer, given to him by his Aunt Alice at Christmas and thereafter proudly strapped to his belt. When he was five, he set up a gum stand on his family's pavement and sold Chiclets to passers-by. After that, he sold lemonade - not on the Buffetts' quiet street, but in front of a neighbour's house, the Russells', where the traffic was heavier.

At an age when few children knew what a business was, Warren would get rolls of ticker tape from his stockbroker father, set them on the floor, and decipher the ticker symbols from his father's Standard & Poor's stock guide. He would search the local golf course for used but marketable golf balls. He would go to the racetrack and scour the sawdusted floors, turning over torn and discarded stubs and often finding a winning ticket that had been erroneously thrown away. In the sweltering Nebraska summers, Warren and his friend Russ Russell would carry golf clubs for the rich gentlemen at the Omaha Country Club and earn $3 for the day. And at dusk, as they rocked on the Russells' front-porch glider in the stillness of the Mid-Western twilight, the parade of Nashes and Studebakers and the clanging of the trolley car would put a thought in Warren's mind. "All that traffic," he would say to Russ's mother, Evelyn. "What a shame you aren't making money from the people going by."

Warren's first years were difficult ones for the family. Two weeks before his first birthday, his father, who worked as a securities salesman with Union Street Bank, returned from work with the news that his bank had closed. By the time that Warren began school, however, his father's fortunes were improving. Howard Buffett began a new brokerage business, and the Buffetts moved to a more spacious home. The bad times in the Buffett home were not discussed; they were banished. But they deeply affected Warren. He emerged from those first hard years with an absolute drive to become very, very rich. He thought about it before he was five years old. And from that time on, he scarcely stopped thinking of it.

BY 1943, the Buffetts were living in Washington, and 13-year-old Warren's life was revolving around his job as a delivery boy for the Washington Post. His father had told him that he must improve his grades at school or give up his paper route, but Warren, far from relinquishing the route, expanded it. He procured a route with the Times-Herald, the Post's competitor, covering the same territory as he had with the Post. As Buffett would recall, if a subscriber cancelled one paper and wanted the other, "there was my shining face the next day". Soon Warren had five delivery routes, and close to 500 papers to deliver each morning.

Warren's crown jewel was the Westchester Apartments, a cluster of red- brick, eight-storey high-rises on Cathedral Avenue. He quickly developed an assembly-line approach that was worthy of the young Henry Ford. He would drop off half of the papers for each building on the eighth-floor lift landing and half on the fourth floor. Then he would run through the building on foot, floor by floor, sliding the papers in front of each apartment. On collection day, he left an envelope at the front desk, sparing himself from having to go door-to-door.

Figuring that he could increase his profits by adding to his product line, Warren peddled magazines at the apartments, too. In short, he had turned his paper routes into a business. He was earning $175 a month - what many a young man was earning as a full-time wage - and saving every dime. In 1945, when he was still only 14, he took $1,200 of his profits and invested it in 40 acres of Nebraska farmland.

By his senior year at school, Warren was spending much of his time playing pinball with his friend Donald Danly, who had bought a used pinball machine for $25. The machine often broke, and, as Danly tinkered with it, Warren took note of his friend's mechanical skill. Warren had an idea: why not put the machine in the barber's shop on Wisconsin Avenue and rent it out?

Warren approached the barber, who agreed to a 50:50 split. At the end of the first day, they found $14 in the machine. Within a month or so, Warren and Danly had machines in three barber's shops. Prospering, they expanded to seven. Warren - living a real-life fantasy - thought of a name, the Wilson Coin Operated Machine Company. "Eventually we were making $50 a week," he recalled. "I hadn't dreamed life could be so good."

By July 1950, from all his ventures combined, Buffett had saved $9,800. That small grubstake would be the source of every dollar that Buffett would ever earn.

LATER that year, Buffett arrived at Columbia University, in New York, where he became one of 20 students taught by the legendary Ben Graham, whose approach to investment became the basis of much of Buffett's subsequent career. Many of Graham's ideas had been published the previous year, in The Intelligent Investor, which boiled his philosophy down to three words - margin of safety. An investor, he said, ought to insist on a gap - a big gap - between the price he was willing to pay and his estimate of what a stock was worth. This was identical to leaving room for error in driving a car. If the margin was great enough, the investor ought to be safe. But what if he was not? Suppose, that is, that the stock kept dropping. Assuming that nothing about the business had changed, Graham said, the investor should pay no heed to the ticker tape, no matter how grim its tidings. Indeed, an investor who became unduly discouraged by a market drop and who allowed himself to be stampeded into selling at a poor price was "perversely transforming his basic advantage into a basic disadvantage".

Graham's accent was on cheap stocks - "cigar butts", or stocks that one could pick up almost for free, like spent cigars, and that might have a couple of valuable "puffs" left in them. One of the assignments he gave his students that year was to research the performance of shares trading for less than $5. To Buffett, these ideas were the Rosetta stone. He had already run the gamut of speculative technique; he had done stock tips, Magee charts - one system after another in the name of keeping up with the trend. But here was an approach to investing that required only sweet independence. Buffett experienced it as a revelation, "like Paul on the road to Damascus". Quite simply, he had found his idol.

He tried to live up to him, as Jack Alexander, a classmate, recalls: "Warren was probably the youngest person in the class - definitely the precocious pupil. He had all the answers, he was raising his hand, he was leading the discussions. He had tremendous enthusiasm. He always had more to say than anyone else."

Oddly, though, when Buffett graduated, in 1951, both Graham and his father advised him not to go into stocks. Each lived in fear of another Depression. Graham pointed out that the Dow Jones index had traded below 200 at some point in every year, save the present one. Why not postpone going to Wall Street until after the next crash, his heroes counselled, and meanwhile get a safe job with someone like Procter & Gamble?

It was awful advice - violating Graham's tenet of not trying to forecast markets. The Dow, in fact, never went under 200 again. "I had about ten thousand bucks," Buffett noted later. "If I'd taken their advice I'd probably still have about ten thousand bucks."

THE WALL STREET which greeted Buffett in 1954 was in a time warp. The old men who ran it had the post-Depression mentality of fearing a second visitation. The younger men had never arrived. Graham-Newman, Ben Graham's firm, was located in the Chanin Building, on 42nd Street. It had a stock ticker sitting beneath a glass bubble, making a perpetual clicking. Buffett, one of half a dozen employees, wore a gray cloth jacket, like the others, and spent his time as they did, perusing the Standard & Poor's stock guide for companies. Graham-Newman, a mutual fund, bought stocks according to a few select techniques. Graham's favourite was to hunt for stocks that traded at one-third less than their net working capital - in other words, stocks that were insanely cheap. When Buffett or another associate found such a stock, he would take it to Graham. And Graham would decide on the spot whether to buy it. It wasn't a matter of persuading Graham. A stock either met his criteria or it didn't. He did it by the numbers.

Buffett's trouble was that he could find more stocks than he could sell. He went through the S&P guide like a buzz saw. He seemed to be bursting to replicate Graham's entire oeuvre.

Once, a broker in Philadelphia offered him an obscure insurance stock known as Home Protective, at 15 a share. There was no published material on it, and hence no way of valuing it. But Buffett went to the state insurance office, in Harrisburg, and dug up some numbers. What he saw convinced him that Home Protective was a steal. However, Jerry Newman (Graham's partner) rejected it. So Buffett and another employee bought it for their own accounts. A bit later, Home Protective went winging up to 70.

In 1956, Graham retired. Graham-Newman's record had been very good, but not spectacular. Between 1945 and 1956 it had earned 17.4 per cent per year, matching the Standard & Poor's 500. But Buffett, quietly investing on his own, had done better. Since leaving college in 1950, he had boosted his personal capital from $9,800 to $140,000. And now that he had a kitty, he was eager to go "home" - to Omaha.

In the spring of 1956, he and his wife Susie (an Omaha girl whom he had married in 1952) rented a house on Underwood Avenue, two blocks from his grandfather's grocery. This time, Buffett had no thought of working for anyone else. On 1 May - virtually as he arrived in Omaha - he organised a pool for family and friends. Seven limited partners - sister Doris and her husband, Aunt Alice, Doc Thompson, his ex-roommate Chuck Peterson and his mother, and Dan Monen, his lawyer - put up $105,000. Buffett, the general partner, put in $100. It was a minuscule sum, but Buffett was running money not for his father or for Ben Graham, but for a partnership of his own: Buffett Associates Ltd.

AT THE AGE of 26, Buffett was troubled by a seemingly bizarre concern. As he wrote to a friend, Jerry Orans, he was afraid that his estate would eventually be so big that the money might spoil his children. (Susie would soon be expecting their third child.) He couldn't figure out "the logical thing to do with the dough".

"This is no problem now but viewing things optimistically it may become one and my thinking produces no results. I am sure I don't want to leave a barrel of money to my kids, unless I do it at an elderly age when I have time to see what the tree has produced. However, how much to leave them, what to do with the balance, etc, bothers me considerably."

Another young man fretting over his unearned millions might be worthy of a snicker, yet in Buffett there was no hint of bravado. He knew, as much as anyone can, that he would be rich - not just successful, but rich enough to have trouble figuring out what to do with it all.

Others shared his confidence, and beat a path to his door. In the summer of 1957, Buffett got a call from Edwin Davis, a prominent Omaha urologist. They had never met, but one of Davis's patients had known Buffett in New York and had suggested that Davis call him. Though sceptical about investing with a greenhorn, Davis agreed to have a look. This was an important moment for Buffett. Dr Davis could give him capital and, what was more, cachet. If he could sign up the Davises, he would not be investing merely for his parents and Aunt Alice; he would have his foot in the door as a professional.

But Buffett did not have the air of someone trying to please. Indeed, some of his pitch was calculated to set the Davises on notice. He warned them that he would disclose nothing about where their money was invested. He would give them a yearly summary of results, nothing more.

Also, Buffett would be "open for business" only one day a year. On 31 December, the Davises could add or withdraw capital. Otherwise, the money would be Buffett's to play with (which he would do, he assured them, according to Graham's principles) and his alone. He presented this evenly, without any edge, but the message was clear. Badly as Buffett wanted the Davises' capital, he didn't want it on any terms but his.

Then he offered the terms. The Davises, as limited partners, would get all of the profits that Buffett could earn up to 4 per cent. They would share any remaining profits - 75 per cent to the Davises and 25 per cent to Buffett. Thus, Buffett was not asking the Davises to gamble alone; his money would be on the same horse. If his results were mediocre or worse, Buffett would get no salary, no fee - nothing. According to Lee Seemann, the doctor's son-in-law, "The whole thing was laid right out. We liked that. You knew where you stood with him." Edwin Davis put up $100,000.

By the end of the year, Buffett was running five small partnerships, totalling in the range of $500,000. For the year, Buffett's first, his portfolios gained 10 per cent, easily topping the Dow Industrials, which suffered an 8 per cent drop.

Around town, Buffett's fast start, coupled with his unusual gumption, was raising eyebrows. There was a luncheon at the Blackstone, a big hotel in Omaha, at which, as one of Buffett's investors recalled, "everybody was talking about Warren Buffett. Bob Storz was there. He was one of the biggest wheels in Omaha. He said that young man will be broke - it's just a new idea and you'll lose your money in less than a year."

IT WAS enormously important to Buffett that his partners see him as trustworthy. He and Susie put more than 90 per cent of their personal money in with the partners', as did Bill Scott, Buffett's assistant. "So we are all eating our own cooking," Buffett assured them.

Buffett made no attempt to predict his results, but he was obsessed with the notion that his partners should judge him fairly - meaning unemotionally and according to a neutral, arithmetic scale. His own goal, stated at the outset, was to beat the Dow by an average of 10 points a year. On this topic, he took readers of his increasingly discursive bi-annual newsletters deeper. The Dow, he noted, was an unmanaged group of 30 stocks. Yet most of the pros couldn't match it. Why was it, he wondered, that "the high priests of Wall Street", with their brains, training, and high pay, couldn't top a portfolio managed by no brains at all? He found a culprit in the tendency of managers to confuse a conservative (ie, reasonably priced) portfolio with one that was merely conventional. It was a subtle distinction, and bears reflection. The common approach of owning a bag full of popular stocks - AT&T, General Electric, IBM, and so forth regardless of price - qualified as the latter, but surely not as the former. Buffett blamed the committee process and group-think that was prevalent on Wall Street. "My perhaps jaundiced view is that it is close to impossible for outstanding investment management to come from a group of any size... We derive no comfort because important people, vocal people, or great numbers of people agree with us. Nor do we derive comfort if they don't."

Buffett's portfolio was decidedly unconventional. He was bolder than Graham: more willing to load up on a stock or ride a winner. He was also beginning to think differently - that is, to think in qualitative terms, as well as in the merely numerical terms that had appealed to Graham. When Buffett looked at a stock, he was beginning to see not just a frozen snapshot of assets, but a live, ongoing business with a unique set of dynamics and potential. In 1964, when a crisis of confidence had sent its share price tumbling from 60 to 35, he invested heavily in the still youthful American Express company; two years earlier, he had begun to build a stake in Berkshire Hathaway, a struggling but capital-rich clothing manufacturer whose working capital per share was more than double its share price. With big bets on these and two or three others, the lion's share of the pool was in just five stocks. Ideally, Buffett would have preferred to spread his assets, provided that he could have found, say, 50 stocks that were equally "superior". But in the real world he found that he had to work extremely hard to find just a few. He ridiculed the fund managers who took the opposite tack - which is to say, most of those working on Wall Street. Diversification had become an article of faith; fund managers were stuffing their portfolios with hundreds of different stocks. Buffett doubted that they could intelligently select so many securities any more than a sheikh could get to "know" a harem of 100 girls.

"Anyone owning such numbers of securities... is following what I call the Noah School of Investing - two of everything. Such investors should be piloting arks."

IN MOST YEARS, most money managers do not even match the Dow Jones Industrial Average. The Buffett partnerships left it in the dust. After five years, by 1961, the Dow showed a cumulative gain of 74.3 per cent. Buffett's portfolios were up 251 per cent. By 1966, Buffett's record was off the charts. Over 10 years, the Dow's cumulative gain had edged up to 122.9 per cent. Buffett's partnerships were up 1,156 per cent.

Word of Buffett's success spread quickly in his home town. Acquaintances would amble over to him at Ross's Steak House and ask, with studied casualness, if he had any tips. Buffett, with perfect geniality, would advise them to take a pencil, shut their eyes, and point it to the stock tables.

But Buffett scarcely thought about spending his growing wealth on material comforts. That wasn't why he wanted it. The money was a proof: a scorecard for his favourite game.

He did ask Susie to upgrade his Volkswagen, explaining that it looked bad when he picked up visitors at the airport. But he didn't have the slightest interest in it.

"What kind of car?" Susie asked.

"Any car. I don't care what kind." (She got him a wide-framed Cadillac.)

Paradoxically, Susie protected an air of disinterest in having money but was a virtuoso shopper. She dropped $15,000 on a home refurnishing, which "just about killed Warren", according to Bob Billig, one of his golfing friends. Buffett griped to Billig, "Do you know how much that is if you compound it over 20 years?"

Beneath his becoming lack of acquisitiveness, Buffett had a certain obsession. In his mind, every dime had the potential to become a fortune; and, when a nickel today could become so much more tomorrow, spending it drove him mad. He didn't even buy life insurance, figuring that he could compound the premiums faster than an insurance company. Buffett said of himself that he was "working [his] way up to cheap".

Buffett was enormously dependent on Susie. She paid the bills, took care of the kids, ran their lives. Whatever was outside his range, Susie handled.

Susie seemed to have been put together from all the emotional material that Warren did not have. She took an unusual interest in reaching out to other people - a deep interest. Instinctively empathetic, she had a soothing way of drawing people out, especially at a level of feelings. Faith Stewart-Gordon, a sorority sister and later proprietress of New York's Russian Tea Room, said: "Susie had this otherworldly side. We took the same philosophy course. After, she sent me this book on Zen Buddhism. She was always trying to get past the mundane and get to the big issues. She'd look into my eyes and say, 'How are you?' When Susie said that, she meant: 'How are you doing in life? How is your soul?' "

The Buffett house was like a storm centre with Warren at its eye. The house was a hub of comings and goings: friends, relations, lonely-hearts talking to Susie. Susie herself went around the house singing. The kids would climb from the attic on to the Dutch gambrel roof, or go trooping into the family room. And Warren was just up there, buried in his work. He would dart out of his study just long enough to grab a Pepsi with syrupy cherry flavouring or to entreat his wife to calm the kids.

His abstractedness was a running joke. Once he came downstairs and asked what had happened to the greenback wallpaper in the study. Susie had changed it a couple of years before.

Susie tolerated him perhaps because Warren, in his absent-minded way, was unfailingly good-natured. As she said to her sister, "You can't get mad at someone who is so funny." Moreover, she, and even the children, understood that Warren was on a sort of spiritual mission that diverted him from the more routine aspects of family living. They referred to his office, only half-jokingly, as the "temple". His work was a ''canvas" - a work of art. Susie, referring to Buffett's maestro-like self-absorption, once remarked to Marshall Weinberg, their Manhattan stockbroker chum: "Let's face it - I'm married to Arthur Rubinstein." Weinberg, a music lover, knew full well. In 1965, after Weinberg had returned from a trip to Egypt, Warren and Susie visited him at his Manhattan apartment. Few Americans had been to Egypt in those days, and Weinberg, who was so often impressed with Buffett, was eager to show his genius friend his slides of the pyramids.

Buffett said easily, "I have a better idea. Why don't you show the slides to Susie and I'll go into your bedroom and read an annual report?"

IN 1968, the bull market was in a spasmodic death rattle. Wall Street was recommending the popular stocks regardless of price. Merrill Lynch liked International Business Machines at 39 times earnings. Bache & Co was pushing Xerox at 50 times. Blair & Co was touting Avon Products at 56 times. At that level of earnings, it would take a buyer of all of Avon half a century to get his money out. Could it possibly be "worth" that much? A fund manager, echoing the prevailing thinking, declared that a stock was worth whatever people think it's worth at the particular time. Every college endowment, he noted, felt it had "to own IBM and Polaroid and Xerox and everything else. So... I think they will do well." Buffett reminded partners of a seemingly lost distinction: "Price is what you pay, value is what you get."

That year, Buffett Partnership clocked a gain of $40m, or 59 per cent. Its assets swelled to $104m. Buffett had had his best year, beating the Dow by 50 points. He said the result "should be treated as a freak - like picking up 13 spades in a bridge game."

It no longer mattered, though. In May 1969, weary of jeremiads and wary of jeopardising past profits, Buffett did a remarkable thing. He quit. He stunned his partners with the news that he was liquidating Buffett Partnership. Finally, and irreversibly, he had despaired of finding stocks. And now, at the height of a bull market, he was getting out. "I am not attuned to this market environment, and I don't want to spoil a decent record by trying to play a game I don't understand just so I can go out a hero."

The courage that lay behind this decision may be measured by its uniqueness. On Wall Street, people did not fold up and return the money - not at the top, not after their best year. It simply wasn't done. Buffett had plenty of options. He could simply have sold his stocks, put his assets in cash, and waited for opportunities. But every partner was looking to him to perform, and he felt an inescapable pressure to lead the league each year. Since 1967 he had tried to work less compulsively, but as long as he was "on stage", it wasn't possible.

The decision soon began to look shrewd. The Dow had hovered close to 1,000 until May. In June, it dipped below 900. One by one, the high-fliers crashed. Litton Industries - hallmark of the conglomerate era - fell 70 per cent from its peak; Ling Temco-Vought, another, plunged from 160 to 25. Wall Street brokerages closed their doors. The stock exchange slogan "Own your share in American business" was dropped without explanation. Performance funds were routed.

Buffett eked out a seven per cent gain in 1969, the partnership's final year. It was an off year, but it topped the Dow by 18 percentage points. The long-prophesied down year had never come. He had made a profit and beaten the benchmark in every season.

Had an investor put $10,000 in the Dow in 1957, his total profit over 13 years would have amounted to $15,260. The same grubstake, if invested in the partnership, would have produced a profit - after deducting Buffett's share - of $150,270. In the world of investing, there had never been anything like it.

BUFFETT told the Omaha World-Herald that he hoped to spend the bulk of his time working "in any intelligent and effective way possible" on human problems. In another interview, he said he wanted to pursue interests aside from making money. But ceasing to make money proved easier said than done.

It wasn't that he didn't pursue other interests. Encouraged by Susie, he used their private trust, the Buffett Foundation, to provide more than 50 scholarships a year for black college students. He led a successful campaign to persuade a Waspish eating haunt called the Omaha Club to drop its bar on Jewish members. And he invested money and time in a new social project, the Community Bank of Nebraska. But the lack of a yardstick, together with the mounting bad loans, discouraged him. "In investment you can measure results," he told a reporter. "With some of this other stuff, you don't know in the end if you've won or lost."

Profit-making, meanwhile, proved a hard habit to break. On the dissolution of the Buffett Partnership, Buffett personally became the owner of 29 per cent of Berkshire Hathaway's stock. He installed himself as chairman and began to transform the business, reinventing it less as a textile manufacturer than as a new finance company. In 1970, Berkshire's profits from textiles were a laughable $45,000. Meanwhile, it earned $2.1m from insurance and $2.6m from banking (both of which, at the start of the year, were working with roughly the same amount of capital as the textiles). Buffett was back in business.

BY 1985, there were 50 Buffett-made millionaires in Omaha and hundreds elsewhere around the United States. But Buffett himself had made the Forbes list of billionaires. The Seventies and Eighties had proved even more profitable than the Sixties. Working mainly through Berkshire Hathaway, he had continued his policy of assessing the real value of businesses and investing in those which seemed "cheap" - but on an increasingly spectacular and sophisticated scale.

Time and again, his judgement turned out to be inspired. He had helped Kay Graham (with whom he formed an intimate friendship) to turn around the Washington Post; he had helped Capital Cities to finance its spectacular take-over of ABC (at $3.5bn, then the biggest merger ever). Soon he would be investing in Coca-Cola, in Gillette, or rescuing the scandal-ridden Salomon Brothers. He seemed as infallible in the information age of junk bonds and leveraged buy-outs as he had been in the simpler days of his early investments.

When Buffett showed up at Columbia Business School to speak on investing, 200 fans were turned away. Forbes called him a "folk hero". There was a dog in Kansas City named Warren and another in New York answering to "Buffy". Christopher Stavrou, a money manager, christened his son Alexander Warren. Then there was Douglas Strang, an Omaha stockbroker who idolised Buffett but had never met him. When his wife, Marsha, went into labour, Douglas reached for a copy of The Money Masters and read aloud to her from the chapter about Buffett, as though his wisdom might explain the cosmic mysteries of their daughter's birth.

By 1986, Berkshire had broken $3,000 a share. In the 21 years that Buffett had been turning the veritable dross of a textile mill into gold, the stock had multiplied 167 times; meanwhile, the Dow had merely doubled. On Wall Street, Buffett was regarded with awe. Headline writers dubbed him a "Midas", a "wizard", the "oracle of Omaha".

Though in the public spotlight, Buffett was standing guard over a still uncommonly private life. Unlike the modern chief executive, he did not block out his time in advance, preferring to keep it unencumbered. When Bill Graham (a son of Kay) asked when he might stop by, Buffett replied, "Come any time. I don't have a schedule." Richard Simmons, president of the Washington Post Co, was amazed by the quiet in Buffett's emerald-green inner sanctum, which was sparely outfitted with miniature sculptures of bulls and bears, an antique Edison stock ticker under a glass dome, family pictures (and one of Ben Graham), and a dusty plaid couch. He did not have a calculator, a stock terminal, or a computer. "I am a computer," he told an interviewer. When Buffett was in his office, Simmons said, "Nothing seems to happen, except Bill Scott [Buffett's trader] pokes his head in to say, '$10 million at 1251/8; yes or no?' The phone doesn't ring much. Buffett has so much more time than the average CEO." His day was a stream of unstructured hours and cherry colas. He would sit at the redwood horseshoe desk and read for hours, joined to the world by a telephone (which he answered himself) and three private lines: to Salomon Brothers, Smith Barney, and Goldman Sachs.

Buffett was a billionaire who drove his own car, did his own taxes, and still lived in a home he had bought in 1958 for $31,500. He seemed to answer to a deeply rooted, distinctly American mythology, in which decency and common sense triumphed over cosmopolitan guile, and in which an idealised past held firm against a rootless and too hurriedly changing present.

Buffett reached his psychic peak at the annual meetings of Berkshire Hathaway. In the early years in Omaha, only a handful of shareholders had attended these meetings, which had been held in the cafeteria of its National Indemnity subsidiary. As a trickle of holders began to come from out of town, Buffett switched the meetings to a hotel, the Red Lion. Then the trickle became a tide. In 1986, Buffett rented the mausoleum-shaped pink-marble Joslyn Art Museum. Shareholders, clutching copies of his reports, descended on Omaha like birds of spring - Buffett groupies, money men, Graham disciples, New York bankers, retirees now rich and young investors aspiring to be rich. While most annual meetings attract virtually no one (because most are a waste of time), attendance at Berkshire's was 450.

WHEN BUFFETT DIES it is likely that his bequest will dwarf the legacies of Carnegie, Ford, Rockefeller, and all that have gone before him. The Buffett Foundation will probably find itself with the largest endowment in the country (the Ford Foundation, the biggest, has assets of $7bn). At 64, though, Buffett is in excellent health, even though he seems to have slept through the dietary revolution of the professional classes. It is not uncommon for him to greet the morning with a bowl of peanuts and Cherry Coke. During a SuperBowl weekend organised by Tom Murphy, chief executive of Capital Cities, Buffett ordered vanilla ice-cream and chocolate sauce for breakfast. When his friends started kidding him about his health, he responded sarcastically: "What I want people to say when they pass my casket is - 'Boy, was he old!' "

Though still absorbed in his work, Buffett has become a tad less intense with his success. His children say he is more relaxed than in years back; his son Peter says that he is no longer aware of the clock ticking in his father's head. Some of this may be attributable to Astrid Menks (the Omaha friend who moved in, partly at Susie's prompting, to comfort a distraught Buffett after Susie moved out in 1977 - and stayed). Buffett has grown highly comfortable with her. He thinks that he has helped her self-esteem, and no doubt draws pleasure from a sense of reciprocity. When Buffett and Astrid go out, Buffett looks like any Omaha gentleman and his wife, sometimes draping an affectionate arm around her. Astrid has a sense of humour about her role and has told one of Buffett's relations that living with Warren is "the best job" she has had. Joe Rosenfield, Buffett's octogenarian friend, says, "Astrid is what he needs now. He can go off and leave her and she doesn't mind. She's a free spirit - a girl of quality."

For all that, Warren is deeply attached to Susie, with whom he reunites in one corner or another (such as in Paris for a board meeting of Coca-Cola) every month or so. Warren also has a sense of humour about the arrangement; he told a friend that he couldn't divorce Susie because she is too rich.

Recently, Buffett has somewhat loosened his purse strings. He spent $1.25m of his own money for a 25 per cent interest in Omaha's minor league baseball team - effectively an act of charity to keep the team in town. He also spends a bit more personally, such as on his travel and on his pricey suits, though the latter seem to develop rumples even in his closet. But in relative terms, his spending (as well as his philanthropy) remains a flyspeck.

In Omaha, Buffett has become a curiosity. People drive by Farnam Street very slowly, sometimes slowing to a stop, gaping with wonderment at the incongruously modest house. Buffett can see them from his kitchen, where he might be scooping out some ice-cream, or grabbing a Cherry Coke to take to his "pit", to settle in with papers and annual reports. He and Astrid are alone in the house. Buffett has no flunkies or hangers-on, and the two of them have no butlers or household staff - only a maid who comes every other week. Astrid still prowls the stores for bargains, and loads up her station wagon with Cherry Coke if there is a special offer.

Buffett does enjoy being a billionaire, but in offbeat ways. He loves seeing the same faces - people he has known for years, people he has made rich beyond all dreams, people such as the humble Doc Angle, for whom he made more than $15m. And, as he once put it, though money cannot change your health or how many people love you, it lets you be in "more interesting environments". Buffett has developed an intriguing friendship with Bill Gates, his junior by 26 years and his financial rival. Garry Kasparov, the world chess champion, who has an interest in developing capitalism in Russia, has called on Buffett in Omaha. The end of summer 1994 found Buffett on Martha's Vineyard, golfing with Bill Clinton, after which he and the President had a quiet dinner at Kay Graham's.

Buffett finds a receptive audience when he wants to distill the Zen of Warren Buffett. He goes around quite often now, at college campuses, at his companies, even in smaller, informal groups, launching into his liturgy, answering questions, retelling his stories - which are concise and to the point, yet so easy on the ear that one imagines the speaker to be sitting back in his rocker on a lazy summer's afternoon.

Once, when Buffett was speaking off-the-cuff to a group at Cap Cities, he was asked what techniques he recommended to managers. He launched into a tale about a stranger in a small town. The fellow wanted to get acquainted with folks, so he went over to the village square and saw an old-timer with "kind of a mean-looking German shepherd". Buffett continued: "He looked at the dog a little tentatively and he said, 'Does your dog bite?' The old-timer said, 'Nope.' So the stranger reached down to pet him and the dog lunged at him and practically took off his arm, and the stranger turned to the old-timer and said, 'I thought you said your dog doesn't bite.' The guy says, 'Ain't my dog.' "

The moral for managers: it's important to ask the right question.

! Adapted from 'Buffett: The Making of an American Capitalist', by Roger Lowenstein (Weidenfeld & Nicolson, pounds 20).

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