Jason Zweig Review Of Alice Shroeder's "The Snowball".

Jason Zweig comments on Alice Shroeder's "The Snowball".

• Journey to the Center of Warren Buffett’s Mind
  
  November 14, 2008, 3:43 pm
  
  Not so long ago, investing used to be fun. Now it resembles an Olympic archery practice at which the target is you. Maybe you felt a little safer this Thursday, when the Dow went up 553 points. Well, today it dipped by as much as 352 before closing down 338 points.
  
  If you want to escape the arrows, you can find some refuge by reading the new biography by Alice Schroeder, “The Snowball: Warren Buffett and the Business of Life” (published by Bantam on Sept. 29, the day Congress voted down the first bailout plan and the Dow fell almost 800 points). Although he is lucky in many ways, Mr. Buffett is also the world’s most successful investor because he has worked extraordinarily hard and thought very deeply about his craft.
  
  Mr. Buffett gave Ms. Schroeder thousands of hours of face time, a privilege earlier biographers did not have. In 1995, Roger Loewenstein’s superb book “Buffett: The Making of an American Capitalist” analyzed Mr. Buffett’s rationale for specific investments in illuminating detail, but Ms. Schroeder has been able to delve more deeply into Mr. Buffett’s mind and heart.
  
  The result is riveting and encyclopedic. At 960 pages and 3½ lbs., “The Snowball” hits readers like an avalanche. Some people feel almost buried by the wealth of detail about Mr. Buffett’s family life, but the overall power of the story carries “The Snowball” forward. There is much to be learned from it.
  
  To me, the most striking thing to come out of the book is a clearer sense of Mr. Buffett’s extraordinary emotional detachment. Remember, this is an authorized biography; as Mr. Buffett’s spokesperson put it, “She [Ms. Schroeder] wrote every word, and he did not edit it.”
  
  After years of emotional isolation from the workaholic Mr. Buffett, his wife Susie “stayed up late at night alone, listening to music that transported her to some different place…. She loved…great soul music, like the Temptations, who sang of a world in which it was men who felt all the longing.”
  
  Passages like these are heartbreaking for even a stranger to read. How many of us could bear to let someone else bare our most intimate weaknesses and failures? And yet here we not only see the pain that Mr. Buffett caused his wife, but we know that he has acquiesced in letting us see it.
  
  This detachment, I think, is one of Mr. Buffett’s greatest strengths. He has the ability to hover over his own actions and judgments, as if he were having an out-of-body experience, looking down and evaluating the man who made them as if he were someone else entirely.
  
  In person, Mr. Buffett is as warm and empathetic a person as anyone I have ever met — but he also seems, in Ms. Schroeder’s telling, to be forever observing himself from a distance as well. There is, in her portrait of him, a streak of something at least mildly reminiscent of autism: a photographic memory, an effortless command of complex mental computations, an enduring obsession with collecting and measuring everything imaginable.
  
  This almost-autistic streak in Mr. Buffett exacted a terrible toll on his family as he toiled around the clock for years. Long before it was common, he worked out of a home office, and it is hard to shake the image of him padding through the house in his stocking feet, his face buried in an annual report, oblivious to his own family.
  
  Mr. Buffett’s unparalleled record of investing achievement came at a personal price most of us would never be willing to pay; although he now has a warm relationship with his adult children, his billions were earned only at an incalculable emotional cost in their earlier years.
  
  I shuddered several times as I read Ms. Schroeder’s account of how desperate Mr. Buffett’s family was for his affection. Anyone who thinks beating the market is easy should think twice, based on Mr. Buffett’s own experience.
  
  The Schroeder book makes it clear that in his early years, Mr. Buffett paid a toll so high, in currency so dear, that most investors would not dare to approach the same tollbooth.
  
  Here are the investing ideas that I think the book highlights in new detail:
  
  Discipline. What explains Mr. Buffett’s success? His one-word answer: “focus.” For him, that meant working all hours day and night, memorizing oceans of statistics about hundreds of stocks, and reading corporate financial statements on a family trip to
  
  Mr. Buffett’s uncanny ability to stay one step ahead of the markets comes from five decades of working harder on his homework than anyone else. Can you even name the three toughest competitors of every company whose stock you own?
  
  Self-confidence. From his father, an iconoclastic politician, Mr. Buffett inherited what he calls the knack of keeping an “inner scorecard,” rather than an “outer scorecard.” He does not care whether other people agree with him. He cares only whether his decisions make sense to him, based on his own rigorous research. Do you invest based on what “everybody knows” is “true,” or do you analyze all the evidence yourself?
  
  Self-control. Mr. Buffett does not let the emotions of millions of strangers — the collective greed and fear of the markets — determine his own mood. When he feels his blood pressure rising or his nerves on edge, he calms himself down by gazing at snapshots of his kids or playing a game of bridge with his friends. Mr. Buffett restores his sense of self-control by refusing to dwell on the things he cannot control. Are you staring at every scarlet downtick on the Dow?
  
  Inversion. Mr. Buffett most likes to buy stocks not when they are going up, but when they are going down. In 1969, during a raging bull market, he shut down his original investment partnership. Then, in 1974, when stocks (and market sentiment) hit rock bottom, Mr. Buffett bought with such abandon that he felt “like an oversexed guy in a harem.” Again, in 1999, as investors went gaga for technology stocks, Mr. Buffett sat on his hands. In the miserable market of 2008, he is buying again (although sometimes on “sweetheart” terms not available to you and me). Are you tempted to stand aside from stocks until after they go up?
  
  The long view. From a very young age, Mr. Buffett developed the remarkable habit of regarding a dollar spent today as a small fortune he would not have in the future: “Do I really want to spend $300,000 for this haircut?” He felt that any money he could not invest was money that would never grow — and that he would thus incur a huge future price for any present spending. If you are among the many people cutting back your 401(k) contributions because the market has cratered, have you thought about the cumulative future costs of that decision?
  
  Rigid versatility. Throughout his career, Mr. Buffett has been tactically flexible but strategically inflexible. His core principles have never varied one iota: Buy only what he understands, never overpay, always put safety first, be patient. But Mr. Buffett is as stretchy as Plastic Man when it comes to implementation. He will buy silver ingots, or municipal bonds, or a privately held company that manufactures both bricks and cowboy boots — whatever is on sale at the right terms. Now that virtually every investment on earth is down between 10% and 60%, is cash the only thing that interests you?

Source: http://blogs.wsj.com/wallet/2008/11/14/journey-to-the-center-of-warren-buffetts-mind/

Warren Buffett Buys Stocks, The Snowball Chapter 2 and J. Kyle Bass

So some of the legends are stating publicly that they are buying US stocks: John Neff Is Buying Again And Shares What He Buys! and Warren Buffett Puts His Money Where His Mouth Is

I indeed had a wide smile on my face when I posted Warren's Buy American, I Am ( Warren Buffett Puts His Money Where His Mouth Is ) for I had just finished the 2nd Chapter of The Snowball: Warren Buffett And The Business of Life.

I for one did not know the events stated in Chapter 2. I was rather surprised to read that Warren E. Buffett had actually made a stock prediction back in 1999 in Sun Valley and again, I am utterly impressed with Alice style of writing. For once, this did not seem as if I was reading yet another investment book but it was as if I was reading a poetic history of a legendary man but yet in it, it contained the best ever lesson on the stock market and mind you, I have only just finished Chapter 2.

Now I cannot reproduce everything from the book here.. but the following are some of the passages I loved in that Chapter.

• The audience, full of technology gurus who were changing the world while getting rich off the great bull market, sat silent. They were perched atop portfolios that were jam-packed with stocks trading at extravagant valuations. They felt terrific about that. It was a new paradigm, this dawning of the Internet age. Their attitude was that Buffett had no right to call them greedy. Warren — who’d hoarded his money for years and given very little away, who was so cheap his license plate said “Thrifty,” who spent most of his time thinking about how to make money, who had blown the technology boom and missed the boat — was spitting in their champagne.
  
  Buffett continued. There were only three ways the stock market could keep rising at ten percent or more a year. One was if interest rates fell and remained below historic levels. The second was if the share of the economy that went to investors, as opposed to employees and government and other things, rose above its already historically high level. Or, he said, the economy could start growing faster than normal. He called it “wishful thinking” to use optimistic assumptions like these.
  
  Some people, he said, were not thinking that the whole market would flourish. They just believed they could pick the winners from the rest. Swinging his arms like an orchestra conductor, he succeeded in putting up another slide while explaining that, although innovation might lift the world out of poverty, people who invest in innovation historically have not been glad afterward.

And..

• Another light chuckle. Some were getting tired of these musty old examples. But out of respect, they let Buffett get on with it.
  
  Now he was talking about their businesses. “It’s wonderful to promote new industries, because they are very promotable. It’s very hard to promote investment in a mundane product. It’s much easier to promote an esoteric product, even particularly one with losses, because there’s no quantitative guideline.” This was goring the audience directly, where it hurt. “But people will keep coming back to invest, you know. It reminds me a little of that story of the oil prospector who died and went to heaven. And St. Peter said, ‘Well, I checked you out, and you meet all of the qualifications. But there’s one problem.’ He said, ‘We have some tough zoning laws up here, and we keep all of the oil prospectors over in that pen. And as you can see, it is absolutely chock-full. There is no room for you.’
  
  “And the prospector said, ‘Do you mind if I just say four words?’
  
  “St. Peter said, ‘No harm in that.’
  
  “So the prospector cupped his hands and yells out, ‘Oil discovered in hell!’
  
  “And of course, the lock comes off the cage and all of the oil prospectors start heading right straight down.
  
  “St. Peter said, ‘That’s a pretty slick trick. So,’ he says, ‘go on in, make yourself at home. All the room in the world.’
  
  “The prospector paused for a minute, then said, ‘No, I think I’ll go along with the rest of the boys. There might be some truth to that rumor after all.’
  
  “Well, that’s the way people feel with stocks. It’s very easy to believe that there’s some truth to that rumor after all.”
  
  This got a mild laugh for a half second, which choked off as soon as the audience caught on to Buffett’s point, which was that, like the prospectors, they might be mindless enough to follow rumors and drill for oil in hell.
  
  He closed by returning to the proverbial bird in the bush. There was no new paradigm, he said. Ultimately, the value of the stock market could only reflect the output of the economy.

lastly...

• He had worked his way back around to the same subject: that one couldn’t extrapolate from the past few years of accelerating stock prices. “Now, is there anyone I haven’t insulted?” He paused. The question was rhetorical; nobody raised a hand.
  
  “Thank you,” he said, and ended.
  
  “Praise by name, criticize by category” was Buffett’s rule. The speech was meant to be provocative, not off-putting — for he cared a great deal what they thought of him. He had named no culprits, and he assumed they would get over his jokes. His argument was so powerful, almost unassailable, that he thought even those who didn’t like its message must acknowledge its force. And whatever unease the audience felt was not expressed aloud. He answered questions until the session ended. People began to stand, awarding him an ovation. No matter how they saw it — a masterful exposition on how to think about investing or the last roar of an old lion — the speech was by any standard a tour de force.
  
  Buffett had stayed on top for forty-four years in a business where five years of good performance was a meaningful accomplishment. Still, as the record lengthened, the question always loomed: When would he falter? Would he declare an end to his reign, or would some seismic shift dethrone him? Now, it seemed to some, the time had come. It may have taken an invention as significant as the personal computer, coupled with a technology as pervasive as the Internet, to topple him, but he’d apparently overlooked information that was freely available and rejected the reality of the approaching millennium. As they muttered a polite “wonderful speech, Warren,” the young lions prowled, restive. And so, even in the ladies’ room at the break, sarcastic remarks were heard from the Silicon Valley wives.
  
  It was not just that Buffett was wrong, as some felt, but that even if he were eventually proved right — as others suspected he would be — his dour prediction of the investing future contrasted so sharply with Buffett’s own legendary past. For in his early glory days, stocks were cheap, and Buffett had scooped them up in handfuls, almost alone in noticing the golden apples lying untouched on the path. As the years passed, barriers grew up that made it harder to invest, to get an edge, to figure out what others didn’t know. So who was Buffett to preach at them, now that it was their turn? Who was he to say that they shouldn’t make money while they could off this wonderful market?
  
  Throughout the rest of the lazy afternoon, Herbert Allen’s guests played one last game of tennis or golf or headed to the Duck Pond Lawn for a leisurely chat. Buffett spent his afternoon with old friends, who congratulated him on his triumph of a speech. He believed he had done a convincing job of swaying the audience. He had not given a speech full of such commanding evidence simply to go on the record.
  
  Buffett, who wanted to be liked, had registered the standing ovation, not the mutterings. But the less flattering version was how many were not convinced. They believed that Buffett was rationalizing having missed the technology boom, and they were startled to see him make such specific predictions, prophecies that surely would turn out to be wrong. Beyond his earshot, the rumbling went on: “Good ol’ Warren. He missed the boat. How could he miss the tech boat? He’s a friend of Bill Gates."
  
  A few miles away at the River Run Lodge later that evening, with the guests at the closing dinner again arranged according to some invisible plan, Herbert Allen finally spoke, thanking various people and reflecting on the week. Then Susie Buffett took the stage beside the windows that overlooked the pebbly Big Wood River and once again sang the old standards. Later the guests returned to the Sun Valley Lodge terrace, where Olympic skaters axeled and arabesqued in the Saturday night ice show.
  
  By the time fireworks exploded across the sky at evening’s end, Sun Valley ’99 had been declared another glorious five-day extravaganza. Yet what most people would remember was not the rafting or the skaters; it was Buffett’s talk about the stock market — the first forecast he had made in exactly thirty years.

And that was Warren's first forecast which he warned about the insane valuations in the tech stocks and now almost 10 years later he's sending a powerful message that he's putting His Money Where His Mouth Is and buy American Stocks, He Is!

Now here's a differing viewpoint from someone who deserves to he heard and he is J. Kyle Bass.

Say who? Just who is J. Kyle Bass?

Well back in Dec 19th 2007. Published on Bloomberg: Bass Shorted `God I Hope You're Wrong' Wall Street

• Dec. 19 (Bloomberg) -- J. Kyle Bass, a hedge fund manager from Dallas, strode into a New York conference room in August 2006 to pitch his theory about a looming housing market meltdown to senior executives of a Wall Street investment bank.
  
  Home prices had been on a five-year tear, rising more than 10 percent annually. Bass conceived a hedge fund that bet on a crash for residential real estate by trading securities based on subprime mortgages to the least credit-worthy borrowers. The investment bank, which Bass declines to identify, owned billions of dollars in mortgage-backed securities.
  
  ``Interesting presentation,'' Bass says the firm's chief risk officer said into his ear, his arm draped across Bass's shoulders. ``God, I hope you're wrong.''
  
  Within six months, Bass was right. Delinquencies of home loans made to people with poor credit reached record levels, and prices for the securities backed by these subprime mortgages plunged. The world's biggest financial institutions would write off more than $80 billion in subprime losses, while Bass, his allies and a handful of Wall Street proprietary trading desks racked up billions in profits.
  
  Bass and investors like him saw opportunity in a range of new investment tools that banks created to sell subprime securities worldwide. These included mortgage bond derivatives, contracts whose values are derived from packages of home loans and are used to hedge risk or for speculation. The vehicles allowed hedge funds like Bass's to bet against particular pools of mortgages. (do read the rest here )

Anyway J. Kyle Bass has written a report and you can download it here: here

Here are the first two passages.

• What’s Next?
  
  It is the "what’s next" that scares us the most. There is no doubt that many books will be written chronicling the times we are living through today. When we wrote to you in July 2007, we really meant "feet first"! The common denominator of everything that has gone wrong so far has been reckless amounts of leverage. The system both nationally and globally is still trying to de-lever as fast as possible, the problem is that everyone is being forced to do it at the same time. 3-month LIBOR is off the charts - not as many believe, because banks don't trust each other - but because THERE IS NO MONEY LEFT FOR THEM TO LEND TO EACH OTHER. We have argued for years now that there is not enough money at the bottom of the levered pyramid scheme the world has put together. In the U.S. alone, with Lehman, AIG, Bear Stearns, Fannie, Freddie, WaMu, IndyMac, Countrywide, and the rest of the companies that have failed to date (any many more "on deck"), there are $8 TRILLLION of assets already in receivership, conservatorship, liquidation, or "parked" with a big brother. Do you think the Government will be successful in purchasing illiquid assets off of the balance sheets of troubled companies? The odds (and the assets) are against them. Even if the Government invests equity to fill the "hole" that is created upon the sale of these assets, it leaves the same nefarious management teams in place to continue the problem by taking the money and levering it up again. The only way to solve this problem is to go THROUGH IT. We know it isn't politically popular or even popular on Wall St, but the fact is that the U.S. and the world need a Darwinian flush to rebuild our foundations and become even stronger on the backside of this mess.
  
  $700 Billion is Not Enough
  
  Let's do some quick math. We realize that there are many moving targets, but we must attempt to put things into perspective for those of you at home. To date, some $550 Billion has been written down by the world's financial institutions. In the United States alone, there is $10 TRILLION of "Prime" mortgage debt, $1.5 TRILLION of Alt-A mortgage debt, and $1.2 TRILLION of Subprime mortgage debt. Based on our assumptions, we believe we will see cumulative losses of AT LEAST 25% in Subprime, 20% in Alt-A, and 5% in Prime. Our expected default rates and severities imply that over $2.2 TRILLION of defaulted mortgage loans would result in AT LEAST $1.1 TRILLION of REAL LOSSES in mortgages IN THE U.S. ALONE. For those of you that want to talk implied roll rates, defaults, and loss severities, just give us a call. We review almost all securitization data each month. Many other countries around the world have actually lent even more aggressively than the U.S. Australia, for example, has lent on home values at 9 times median income! Historically, 3.5X is the number that actually allows borrowers to afford to pay (fathom that). The math for the rest of the world is pretty scary.

The Snowball: Chapter 1 - The Less Flattering Version

Got my copy of The Snowball: Warren Buffett And The Business of Life

I have read the first few pages of the book and I have to say it out loud that I am totally impressed and I can understand why Warren Buffett has chosen Alice Schroeder to do the massive task of telling his incredible story.

Let me reproduce here just the last few passages of the very short Chapter 1 of the book and you can see how Alice writing style really reflects Warren.

• He leaps out of his chair to bring home the thought, crossing the room in a couple of strides. Landing on a mustardy-gold brocade armchair, he leans forward, more like a teenager bragging about his first romance than a seventy-two-year-old financier. How to interpret the story, who else to interview, what to write: The book is up to me. He talks at length about human nature and memory’s frailty, then says, ‘Whenever your version is different from somebody else’s, Alice, use the less flattering version.’
  
  Among the many lessons, some of the best come simply from observing him. Here is the first: Humility disarms.
  
  In the end, there won’t be too many reasons to choose the less flattering version – but when I do, human nature, not memory’s frailty, is usually why.
  

I Have Ordered My Copy: The Snowball: Warren Buffett And The Business of Life

"Life is like a snowball. The really important thing is finding wet snow and a really long hill."

That's where former Morgan Stanley insurance analyst Alice Schroeder got the idea for the title for her book on Warren Book. It's called The Snowball: Warren Buffett and the Business of Life .

Here is the editorial review on Amazon.

• Product Description
  Here is THE book recounting the life and times of one of the most respected men in the world, Warren Buffett. The legendary Omaha investor has never written a memoir, but now he has allowed one writer, Alice Schroeder, unprecedented access to explore directly with him and with those closest to him his work, opinions, struggles, triumphs, follies, and wisdom. The result is the personally revealing and complete biography of the man known everywhere as “The Oracle of Omaha.”
  
  Although the media track him constantly, Buffett himself has never told his full life story. His reality is private, especially by celebrity standards. Indeed, while the homespun persona that the public sees is true as far as it goes, it goes only so far. Warren Buffett is an array of paradoxes. He set out to prove that nice guys can finish first. Over the years he treated his investors as partners, acted as their steward, and championed honesty as an investor, CEO, board member, essayist, and speaker. At the same time he became the world’s richest man, all from the modest Omaha headquarters of his company Berkshire Hathaway. None of this fits the term “simple.”
  
  When Alice Schroeder met Warren Buffett she was an insurance industry analyst and a gifted writer known for her keen perception and business acumen. Her writings on finance impressed him, and as she came to know him she realized that while much had been written on the subject of his investing style, no one had moved beyond that to explore his larger philosophy, which is bound up in a complex personality and the details of his life. Out of this came his decision to cooperate with her on the book about himself that he would never write.
  
  Never before has Buffett spent countless hours responding to a writer’s questions, talking, giving complete access to his wife, children, friends, and business associates—opening his files, recalling his childhood. It was an act of courage, as The Snowball makes immensely clear. Being human, his own life, like most lives, has been a mix of strengths and frailties. Yet notable though his wealth may be, Buffett’s legacy will not be his ranking on the scorecard of wealth; it will be his principles and ideas that have enriched people’s lives. This book tells you why Warren Buffett is the most fascinating American success story of our time.
  
  About the Author
  Author Alice Schroeder was a noted insurance industry analyst and writer who was a managing director at Morgan Stanley. She first met Warren Buffett when she published research on Berkshire Hathaway; her grasp of the subject and insight so impressed him that he offered her access to his files and to himself. Their friendship and mutual respect make her ideally positioned to write the The Snowball.
  
  Ms. Schroeder was born in Texas, and she earned an undergraduate degree and her MBA at the University of Texas at Austin before moving east to work in finance. She is a former CPA and lives in Connecticut with her husband.

And here is an article from Reuters, Authorized Warren Buffett biography due September 29

• NEW YORK (Reuters) - The long-awaited authorized biography of billionaire investor Warren Buffett, the first written with his cooperation, is scheduled for release on September 29, the publisher said on Monday.
  
  The 976-page book is being written by former Morgan Stanley (NYSE:MS - News) insurance analyst Alice Schroeder, and is titled "The Snowball: Warren Buffett and the Business of Life," publisher Bantam Dell Publishing Group said.
  
  Schroeder first met Buffett while working as an analyst, and covered Buffett's insurance and investment company, Berkshire Hathaway Inc (NYSE:BRK-A - News; NYSE:BRK-B - News).
  
  According to the publisher, Schroeder has spent "thousands of hours" with Buffett, talking about his life and career, and winning broad access to his files and friends.
  
  The book had been scheduled for a May release in conjunction with Berkshire's annual shareholder meeting, but was delayed.
  
  Its title comes from a reported comment by Buffett: "Life is like a snowball. The really important thing is finding wet snow and a really long hill."
  
  Schroeder's book earlier had the title "The Snowball: How Warren Buffett Collected Friends, Wisdom and Wealth."
  
  Buffett has transformed Omaha, Nebraska-based Berkshire since 1965 into a roughly $179 billion conglomerate with at least 76 companies selling such things as car insurance, ice cream, paint and underwear, and investing in stocks.
  
  Forbes magazine in March called Buffett the world's richest person, worth about $62 billion. Buffett is giving away most of his wealth to the Bill & Melinda Gates Foundation and four family charities.
  
  Bantam Dell, a division of Bertelsmann AG (BERT.UL) unit Random House Inc, said the biography's cover price is $35, a tiny fraction of the cost of buying one Berkshire share. In afternoon trading, Berkshire's Class A shares were up $2,350 at $118,100, while its Class B shares were up $87 at $3,935.

I have just made my pre-order of this copy from Amazon!