When F Scott Fitzgerald observed that “the very rich are different from you
and me”, the novelist was clearly not thinking of people like Warren
Buffett. Proclaimed the world’s richest man last week, the American
investment strategist eats at his local grill and drives to work from the
modest home that he bought in unfashionable Omaha, Nebraska, in 1958, which
is today valued at about £350,000.
Such is the frugality of the 77-year-old “sage of Omaha”, whose wealth
increased by £5 billion last year to £31 billion, that when he married in
2006 he bought a discount ring from his own jewellery company. He has vowed
to pass on only a small chunk of his fortune to his children, Susie, Howard
and Peter. He wants them to have “enough to do anything but not to do
nothing”.
His advice has enriched more investors than anyone else in history, but
Buffett pays himself a mere £50,000 a year and prefers such ordinary fare as
steaks and hamburgers, washed down with Cherry Coke. Not for him the bright
lights of New York, even though he owns a private jet, his one extravagance:
“I have everything I need and am very comfortable right here at home in
Omaha. I feel sorry for people who are consumed by possessions.”
Known for his wry homilies, Buffett has bet his house in jest against that of
his friend and bridge partner Bill Gates, the Microsoft co-founder now
relegated from first to third place in the zillionaire stakes, according to
Forbes magazine. They used to meet for games at a Holiday Inn near Buffett’s
home, but of late they play online - Buffett’s only concession to newfangled
technology - under the user names “T-bone” (Buffett) and “Challenger X”.
Buffett’s ranking may seem puzzling, given that in 2006 he announced he was
donating his fortune to charity, with about £15 billion going to the Bill
and Melinda Gates Foundation, dedicated to combating Aids, tuberculosis and
malaria. The donations are in instalments - the latest for £880m - but
Buffett just gets richer.
This act of philanthropy was an indirect consequence of Buffett’s unorthodox
role as a husband and lover. In 1952 he married Susan Thompson, a former
cabaret singer who, after raising their children, announced in 1977 that she
was leaving Omaha to pursue her singing career in San Francisco. They
remained married and on good terms, holidaying together and helping
charitable groups.
Buffett had always expected that Susan would inherit his wealth and pass it to
charitable causes, he explained later: “When we got married, I told Susie I
was going to be rich . . . [not] because of any special virtues of mine, but
simply because I was wired at birth to allocate capital.” Susie was less
than thrilled by this prospect: “But we were totally in sync about what to
do with it - and that was to give it back to society.”
In 1978 Susan introduced her husband to Astrid Menks, a Latvian working as a
waitress in a restaurant, who soon moved in with him. Buffett sent out
Christmas cards signed “Warren, Susie and Astrid”.
Two years after Susan died from a stroke in 2004, Buffett married Astrid, then
60. “Astrid loves him and takes care of him,” his daughter Susie said. “If
Warren didn’t have a cent she’d still be with him.”
Just before their wedding, he revealed his plan to release his ever-growing
riches to charitable causes for decades to come.
Buffett likes to make wealth-generation sound simple. He once summed it up
thus: “Rule No 1: never lose money. Rule No 2: never forget rule No 1.” His
prescience is world-renowned: he refused to buy stocks in the booming 1960s,
only to strike gold in the plummeting 1970s. He walked away from the dotcom
boom in the 1990s, sticking with boring blue-chips such as Gillette,
Coca-Cola and American Express. He always came up smelling of greenbacks.
He is one of the most respected voices in financial America, embodying Midwest
virtues of probity, modesty and common sense, so his recent warning that
America was in recession stirred panic. His utterances attract 20,000
acolytes to the annual meeting of his business empire, dubbed the “Woodstock
of capitalism”.
A journalist who attended recalled: “He was amiable, chatty, and spoke for
four hours off the top of his head. He is what he seems: a modest and
ferociously bright man to whom money is an intellectual pursuit, not
something to spend.”
Buffett is a Democrat who has funded the pro-choice group Planned Parenthood
and has raised money for both Hillary Clinton and Barack Obama, rivals for
the party’s presidential nomination, without endorsing either. He would be
happy whichever won, he said. Yet he remains a close friend of Arnold
Schwarzenegger, California’s Republican governor, whom he served as an
economic adviser in 2003.
If anything gives him sleepless nights, it is the certainty that a nuclear
holocaust will wipe out the planet. “It is the ultimate depressing thing. It
will happen, it’s inevitable,” he said, reasoning that as the number of “bad
guys” increases, so do the odds of one obtaining an atom bomb.
He was born in 1930 in a house in Omaha on the banks of the Missouri River,
the son of Leila and Howard, a Republican stockbroker elected to Congress on
a platform described as “to the right of God”. His grandfather ran the
family’s grocery store dating from 1869, where Buffett’s fortune began.
“My grandfather would sell me Wrigley’s chewing gum and I would go door to
door around my neighbourhood selling it,” he recalled. “He also sold me a
six-pack of Coca-Cola for a quarter [25c] and I would sell it for a nickel
[5c] each, so I made a small profit.” He supplemented his earnings by
selling lost golf balls. When the family moved to Washington, the
12-year-old Warren took on five paper rounds, using his access to customers
to sell them magazine subscriptions.
By the following year he was making £80 a month, an incredible sum in the
1940s. Through shrewd investment, at the age of 14 he saved the £400 needed
to buy 40 acres of local farmland, which he rented out. His first dabble in
the stock market earned him a $2 profit before the shares shot up, teaching
him that patience pays off.
After a first degree at the University of Nebraska Lincoln, he went to
Columbia Business School in New York, where he fell under the spell of
Benjamin Graham, an investment guru who awarded Buffett the only A+ grade he
ever bestowed.
Buffett worked for his mentor after graduation but outgrew him, according to
Roger Lowenstein, Buffett’s biographer: “Graham would amaze the staff with
his ability to scan a page with columns of figures and pick out an error.
But Buffett was faster at it.”
His strategy was to search for “cigar butt” companies, no longer of interest
to the market and thus undervalued, but which still had “a few puffs” left
in them.
In 1962 he spotted a run-down Massachusetts textile firm, Berkshire Hathaway,
which he bought and transformed into an insurance company. His empire now
extends to sweet shops and Fruit of the Loom clothing. He has shares in The
Washington Post, Tesco and a controlling stake in CE Electric, which
supplies energy to 3.7m English homes.
He denounced the “outright crookedness” of Enron, the collapsed American
conglomerate, and the dubious methods used by corporations to calculate
pension charges and stock option costs: “CEOs will be respected and believed
. . . only when they deserve to be. They should quit talking about some bad
apples and reflect instead on their own behaviour.”
This rigour extends to his family dealings, notably his past stinginess with
his children. On one occasion his daughter Susie needed $20 to get her car
out of an airport car park, but Buffett made her write a cheque to him
first. He doesn’t spare himself either: “Only my clothes are more expensive
now, but they look cheap when I put them on.”
Buffett has critics, drawing flak over his profits from PetroChina, the oil
company with links to Sudan’s government. His recent offer to stand behind
America’s municipal bond payments, issued by local councils, was seen as a
self-serving gesture – only one such bond on average has gone into default
over the past 40 years.
To most Americans, however, Buffett is a national treasure. But as he put it:
“You only learn who has been swimming naked when the tide goes out.”
