Thursday, June 25, 2009

Q&A with Alice Schroeder, biographer of financial master Warren Buffett

Sunday, March 22, 2009

By Tim Woods

Tribune-Herald staff writer

Alice Schroeder has written a book that may be the most comprehensive look yet at the life of Warren Buffett, a complex man whose self-made fortune has made him almost a mythic figure in financial circles.

After meeting Buffett, currently the world's second-richest man, in 1998, Schroeder soon became part of Buffett's inner circle, with access to his files, his family and many of his confidants.

Schroeder spoke at McLennan Community College on Thursday night, but took time to sit down with the Tribune-Herald before her talk to discuss the book and Buffett himself.

This is the unabridged transcript of our conversation with Schroeder.

Q You knew Warren Buffett for several years before writing your book, The Snowball. Describe how that relationship developed.

A I was a managing director at Payne Webber when we met, and I followed insurance stocks. His company, Berkshire (Hathaway), acquired a company whose stock I followed. There were no analysts following Berkshire Hathaway at the time and I decided (in 1998) that I would cover Berkshire. I became the only analyst who took the initiative to really cover Berkshire and, in connection with that merger where he bought a company I followed, I met him for two seconds, shook hands with him on a stage. And then, I took a group of investors out to meet him at a shareholder meeting where they were voting on the merger. He called me out of the blue and said, "I'd like to talk to you and make myself accessible the way a management normally would to a Wall Street analyst"— talk about the business, answer phone calls, meet once a year — and he'd never done that before with anybody. He said, "Will you do me a favor and be that person?"

He needed somebody to explain Berkshire to investors because it had gotten so big and complicated and it was a big insurance company, in effect, and insurance is a weird, complicated industry.

So, for five years, I would go meet with him, we'd talk on the phone and I started to get to know him in a business sense, but he was still that guy you see on TV, that mythic figure.

In 2003, a writer called me and said we should collaborate on a book about Warren. I listened to the idea, didn't love it, but it put the idea in my head of a book. And the idea for The Snowball came to me. I thought Warren should write it. I called him and suggested that he write it, and he explained that he did not want to write a book. He said, "I don't have time, I want to play bridge, blah, blah, blah. Who do you think should write it, Alice?"

He kind of put me on the spot. I knew that he wanted me to write a book about something and it dawned on me that this must be the only topic he could think was important enough for me to write a book about: him.

I realized with hindsight that that was absolutely true and so I ended up going on a leave of absence in June 2003 to write this book and spent six years doing it. I interviewed about 250 people in addition to him. I spent about 2,000 hours with him.

There had been about 36 or so other books published by that time that had his name at least in the title. Some of them didn't have much to do with him, but his name sells books. He had never done an interview with any of the authors before. He had eaten lunch with one, exchanged a letter or two, but he had never done an interview. So, this was going to be the book that he was not going to write himself. I got to go through his files, talk to his family, and he said to me from the beginning, "This is your book, I want you to have full editorial control, I'm not involved with any of the writing." Of course I wouldn't have done it under any other circumstances.

He said that whenever my version is different from anybody else's, use the less flattering version, and that liberated me to write it the way it should be written.

For five years, I worked on this and he had no idea what I was doing, except what transpired in my interviews with him, and I think he showed a lot of restraint in being so hands-off.

When he first read the book, his initial reaction was very favorable. He said it was wonderfully written and he thought it was a great book. Then, after it was published, things changed and it's really very awkward between us now. Very awkward. And he hasn't actually told me why, but I think that if you see yourself described in print as someone else sees you, it's probably different than your own internal narrative of your life.

One of his friends wrote me a letter and said that it was a phenomenal book and that I had undressed Warren and taken off a layer of skin, besides.

Q What about the book do you think has affected your relationship with Buffett?

A I can't tell you what happened in his mind, because I don't know. He hasn't told me and I can't speculate. That would be unfair. But, clearly, when the public read the book, it affected his opinion, because when he read it, it was fine. We had friendly conversations on the phone right up until the week it was published, and then, boom, we haven't spoken since.

Q How would you describe Buffett? I've heard he doesn't carry a cell phone or a computer. Is that true?

A He has a cell phone, but he doesn't use it very much. He doesn't have a laptop, he doesn't have a computer in his office. There are many aspects to his personality. It's almost like he's several different people.

There's that grandfatherly wise man you see on TV. There is this tough, icy businessman that I called "the great white shark" inThe Snowball. You would not want to be on the other side of a deal with him, trying to negotiate with him. Then, there's this little kid that needs taking care of and that manages to pull everybody in to protect him. Everybody in his world is his protector.

Then, he has a very showoff side that's like P.T. Barnum and he likes to dress up like Elvis and sing and play the ukelele and put on shows and he's a great theatrical personality. And then he's very sensitive to criticism and there's a part of him that's also childlike and vulnerable, but in a different way, in that he cannot tolerate anything that would make him feel unworthy. That's because his mother abused him and his sister emotionally for years and told them that they were literally worthless and didn't deserve to exist.

As Warren put it, by the time he was 3 years old he was broken and couldn't be put back together. That might have something to do with his reaction to the book. He's sensitive in a way that is very hard to describe.

Q What are some of the best stories you can share from the book?

A I'll give you two. On the business side, Warren didn't do it alone. So, the book details the battles that he had to get control of some of the companies that he ended up buying. And his friends and how he went through these long, strategic battles that were really very funny, but also very intense.

So, you can learn a lot from them, but they're also really revealing. He was not somebody sitting in a room investing. He was conducting wars, and that's something that people don't know.

On the personal side, he had a really complicated life. In effect, he had two wives for 27 years, from 1977 until 2004 (when his wife, Susan, died). That was perfectly open, but he was someone who had a very, very strange personal life and the story of the breakdown of his marriage and his relationship with Katharine Graham, the publisher of the Washington Post, and his complicated relationships with women in general, is very dishy.

Women have loved this book because it is juicy, juicy, juicy.

Q Buffett has said he will, over time, give away 85 percent of his fortune, tallied at about $62 billion in 2008, though it's taken a hit since then. Describe Buffett's philanthropic philosophy and describe as best you can just how much 85 percent of his fortune is.

A He's very tight-fisted with his own family. I think it was Charles Dickens who called it "telescope philanthropy," in that he has a love of mankind and so he's become very generous towards mankind in general. But, with his own family, (Buffett) is still very tight-fisted.

If you went up to him and said, "Here's a needy person who has cancer and can't pay their medical bills," he could not give them the money. His sister, Doris, does that. The Sunshine Lady Foundation, which she runs, people who've had bad luck but not bad choices, she saves their lives, literally. But Warren cannot do one-on-one.

In the order of the magnitude of his money, imagine having a million dollars, and a billion is a thousand of those. He's down about $25 billion, so his net worth is like $35 billion. So, imagine having 35,000 piles with a million dollars in each pile. Imagine that. You'd love to have a million dollars, well, imagine having 35,000 piles.

He said to me, "You don't ever want to depend on the kindness of strangers in the financial world. You always want to have plenty of money around. You don't ever want to come up with a billion dollars tomorrow, if somebody asked you for it."

And then he said, "Well, $1 billion I could, but (not) any significant amount."

He does not consider $1 billion a significant amount of money. A thousand million dollars.

Q Benjamin Graham was one of Buffett's mentors. He was known to be very cautious in investing. Was that something that rubbed off on Buffett, or is Buffett more of a freewheeler?

A Warren was born, or at least by the time he was 2, he was already like this — cautious. I believe that's why he was attracted to Graham, is because he was cautious, like Graham. When he was a child, (Buffett) walked with his knees close to the ground, he crouched when he walked. He was somebody who counted every penny from the time he was 6 years old, and he had this streak of caution that his sisters commented on from birth.

Q How has your experience with Buffett changed or shaped your way of thinking, both financially and personally?

A Big topic. Yes, it has. This would be a separate interview if we had the time. I'll just say that he prods people that he is friends with to lift their aspirations and expecations of themselves. He did that for me. At the same time, when you're around him, you see how hard he works and you realize that you should not be out there trying to invest by yourself. You should buy an index fund.

All of these books that say you can get rich by investing like Warren Buffett, it's a bunch of baloney. You can't do it. He's not only brilliant, but he works like a demon from morning until night and he's been doing that for 70 years. So, when you see him and you're around him, you realize the futility of trying to replicate his achievement. It can't be done. But, at the same time, he lifts your aspirations in many other areas, including being extremely good at whatever it is you are good at. He made me far more focused in my career. He convinced me I could write. I didn't know I could write.

He also eased me out of a bad marriage that needed to be done and I was in denial about it. He helped me understand how you should be treated, and he has a way of treating people that is very respectful and of conveying how people should behave toward each other and that criticism is very harmful. He never treats people how his mother treated him. And this is a philosophy. When you're around him a lot, he'll help you understand if there is anyone in your life who is treating you even remotely like his mother treated him.

I have since remarried, by the way, and I insisted that he have approval rights over my new husband.

Q Buffett was mentioned as a possible candidate for secretary of the Treasury. Why wasn't he interested?

A He doesn't want a desk job. He likes doing what he does, which is running Berkshire Hathaway. He spends his time however he wants, which is basically coming in in the morning and reads his newspapers and talks on the phone. But if you're the secretary of the Treasury, you are scheduled by the minute, you've got to show up for nonstop meetings, and he would never subject himself to that.

Plus, just answering a phone call every now and then with a piece of advice is the best use of his time, instead of sitting in meetings all day long.

He also wouldn't subject himself to the scrutiny. Look what Tim Geithner is going through. Warren wouldn't subject himself to that, he couldn't take the criticism.

Q You said your relationship with Buffett is strained since the book came out. Hearing you talk, though, it's clear you have great affection or respect for the man. Do you hope that the relationship is repaired someday?

A When I wrote the book, I thought there was a good possibility that this could happen. I understand how sensitive to criticism he is. My responsibility was to write for the readers of the book, not to write a book that would please him. So, I knew this might happen and I chose to take this risk. I knew that there was a good chance that he might never speak to me again.

Q Are you hopeful that he does?

A Warren's a wonderful person. I see his flaws. I see his greatness. Of course I would enjoy having a relationship with him again, but I made the choice that I made for a reason and that was what was important to me. But I don't think it will happen, and I guess I kind of expected this, so it's OK. Just because this has happened doesn't change my view of him.