14 Life Lessons From “The Snowball”

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The Snowball Lessons

1️⃣ Be Good with Numbers

When Warren Buffett was a kid, he really liked numbers. Born in 1930 in Omaha, Nebraska, just after a big stock market crash, his family did okay, but his home life was tough.

His mom, Leila, had a temper and often targeted his older sister Doris.

To escape from the challenges at home, Warren found comfort in numbers, odds, and percentages.

He enjoyed school not just because it taught him math but also because it got him away from home.

After school, he and his friend Russ had a quirky hobby – they’d jot down license plate numbers, thinking they could help catch bank robbers.

Warren also liked hanging out at his dad’s office on weekends, where he’d happily write stock prices on a big chalkboard.

His family noticed his love for numbers. At eight, his grandpa gave him a baseball statistics book, which he loved memorizing.

His aunt Alice fueled his interest even more by giving him a book on the card game bridge, sparking a lifelong obsession.

So, as a kid, Warren found joy and comfort in the world of numbers, a reliable escape from the challenges at home with his unpredictable mother.

👉 Discover More:

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• These Are the Top 10 Warren Buffett Stocks
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2️⃣ Save and Invest Early

Warren Buffett wasn’t just into numbers; he was also keen on making money – and he started early.

At nine, he was already selling gum and Coke to neighbors. By ten, he stumbled upon a book at the library titled “One Thousand Ways to Make $1,000,” sparking his ambition to be a millionaire by 35.

At eleven, he had $120 saved up, a big deal in 1941. What did he do? He made his first investment, buying six shares of Cities Service Preferred, splitting them with his sister Doris.

High school didn’t slow him down; he sold golf balls, rented pinball machines to barber shops, and hit a jackpot delivering newspapers in Washington, DC.

He had routes with apartments where US senators lived, making him a motivated paperboy.

Guess what? His monthly earnings hit around $175, more than most teachers at his school.

By fourteen, he filed his first tax return, cleverly citing his watch and bike as deductions, and paid $7.00 in total. Now, that’s some serious early hustle!

3️⃣ Invest in Stocks

Buffett’s journey into the stock market’s secrets began in college, where his interest in money and numbers earned him the label “Future Stockbroker” in the high school yearbook.

Choosing to study accounting and business at the University of Nebraska, Buffett’s college life revealed he was a bit messy. His roommate, annoyed by the clutter, moved out after the first year.

But what frustrated him even more was Buffett’s knack for memorizing entire sections of textbooks and reciting them verbatim.

Despite his ease with college, Buffett faced rejection when applying to Harvard Business School.

However, this turned out to be a stroke of luck. Columbia University accepted him, where he studied under Benjamin Graham, author of “Intelligent Investor,” a book Buffett loved.

Graham, along with another influential teacher, David Dodd, taught Buffett crucial lessons and investment strategies.

One key lesson was investigating a company thoroughly to determine its intrinsic value (how much it’s genuinely worth) versus its perceived value (current stock market price).

If a company’s intrinsic value is way higher than its perceived value, it might be what Graham called a “cigar butt” – an undervalued business worth investing in.

Graham’s success rested on the idea that perceived value could rise to meet intrinsic value over time.

4️⃣ Be Your Own Boss

Buffett’s journey took a personal turn after college. Despite being awkward around girls, he enrolled in a public speaking class to boost his confidence.

There, he wanted to impress a young woman named Susie Thompson.

Despite initial awkwardness and a nervous demeanor, Susie saw past Buffett’s posturing and fell in love with his charming vulnerability.

They got married in 1952, and Buffett juggled teaching classes with working at his dad’s investment firm.

In 1953, their first child, Susie Alice Buffett, was born. That same year, Buffett landed a dream job at Ben Graham’s investment firm, Graham-Newman.

Despite becoming a rising star, Buffett realized he hated being a stockbroker because he couldn’t handle the idea of making the wrong investment and losing people’s money.

After the birth of their second child, Howie Graham Buffett, Warren made a move to become his own boss.

In 1956, he launched Buffett Associates, Ltd. The unique partnership included only friends and relatives, with straightforward rules for every investment to manage expectations.

Buffett’s reputation got a significant boost from his mentor Ben Graham, who recommended him to clients as a reliable person to invest their money with when Graham decided to retire and close his firm.

👉 Discover More:

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• Meet Benjamin Graham (Buffett’s Mentor)
• Top 5 Legendary Money Managers of All Time (Besides Buffett)

5️⃣ Stick to Your Philosophy

Buffett’s success story continued with a unique philosophy that proved highly effective.

In his first year as his own boss, Buffett initiated eight partnerships with different groups of friends, ranging from $50,000 to $120,000 in investments.

Before starting each partnership, Buffett laid out his philosophy.

He focused on investing in undervalued stocks, where earnings were reinvested in the same stocks – like rolling a snowball down a hill, growing bigger over time.

Unlike some investors, he emphasized patience, avoiding cashing out when a stock hit a certain number.

This patient approach paid off: by the end of 1956, his partnerships beat the market by 4%; by the end of 1957, it was 10%, and by 1960, an impressive 29%. The snowball was rolling.

By the early 1960s, Buffett was managing over a million dollars. Despite the market’s upward swing, he stuck to his strategy, searching for undervalued companies and buying significant stock.

He often secured a seat on the board to ensure wise use of investors’ money.

Managing millions, Buffett still did his own paperwork until 1962 when he streamlined operations, dissolving individual partnerships into a single entity: Buffett Partnership, Ltd.

Buffett’s success wasn’t confined to Omaha; he gained recognition on Wall Street, standing out as one of the few major players outside New York City.

Despite skeptics predicting his failure, Buffett’s strategic approach and patient consistency were making waves in the financial world.

6️⃣ Buy Entire Businesses When You Can

In the mid-1960s, Buffett’s partnership reached a point where he started buying entire businesses.

Charlie Munger, a Californian lawyer and part-time investor, recognized Buffett’s talents early on.

Their friendship, forged over a long lunch in 1959, eventually turned into a fruitful business partnership.

Munger’s insights expanded Buffett’s horizons, showing that you could move beyond the safe but limited world of “cigar butt” stocks.

A significant turning point came in 1963 when Buffett, following his routine of scouring newspapers, discovered a soybean scandal involving American Express.

Despite the temporary hit to the company’s stocks, Buffett believed in its resilience.

In January 1964, as prices hit rock bottom, Buffett gradually invested $3 million in American Express, increasing it to $13 million by 1966.

True to his prediction, American Express bounced back, bringing unprecedented rewards to the partnership.

With this success, Buffett began buying entire businesses, starting with the iconic Berkshire Hathaway.

Research revealed its intrinsic value was $22 million, while it was selling at only $7.50 per share.

In 1965, after negotiations, Buffett gained controlling interest by purchasing 49 percent of the company at a little over $11 per share.

That same year, thanks largely to the American Express investment, Warren and Susie earned an additional $2.5 million, surpassing Buffett’s goal of becoming a millionaire by age 35.

This marked a significant milestone in Buffett’s journey.

7️⃣ Never Buy Stocks You Don’t Understand

As Buffett delved into larger business purchases, he encountered more significant challenges and crafted new rules to guide his investments.

Although Buffett is now closely tied to Berkshire Hathaway, his involvement with the company turned out to be regrettable due to its numerous problems.

Despite difficulties, Buffett stuck to his philosophy of not cutting losses, a principle he followed since his 1958 purchase of Dempster Mill Manufacturing in Nebraska, which ultimately went bankrupt.

Determined to avoid a repeat, Buffett wanted the right leadership for Berkshire Hathaway and faced challenges, including rising textile costs and outdated machinery.

Reluctant to inject more capital without a promising return, Berkshire Hathaway continued as a textile manufacturer.

But Buffett sustained it by consistently purchasing winning stocks under its name, forming one of the world’s best stock portfolios.

Amid Berkshire Hathaway’s challenges, Buffett thrived. His investment partnership’s success led him to close doors to new members and tighten investment rules.

With the emergence of more tech companies in the late 1960s, he set a new rule: never buy stock in a company he didn’t fully understand.

Buffett preferred “easy, safe, profitable, and pleasant” investments, leading to another rule: avoid businesses with “human problems” like impending layoffs, plant closings, or a history of executive-labor union conflicts.

These rules became crucial in shaping Buffett’s investment strategies during this period.

8️⃣ Pick Good Managers

As the partnership dissolved, the Buffetts ventured into more personal and separate endeavors.

Despite becoming a millionaire, Buffett maintained a notably shabby appearance, emphasizing the importance of reliable management in his businesses.

When acquiring companies like the Baltimore department store Hochschild-Kohn and Associated Cotton Shops, the key factor for Buffett was the people behind the scenes.

He sat down with managers, ensuring they were trustworthy and enthusiastic individuals.

Buffett’s attention also turned to an Omaha insurance business, National Indemnity. Meeting the manager, Jack Ringwalt, whom Buffett recognized as great, convinced him to make the purchase.

By the end of 1966, the partnership was thriving, outperforming the market by 36%.

Buffett considered these business managers and his investment partners as family.

As the 1960s concluded, Buffett started offering to buy out his partners, aiming to wind down the partnership and focus on personal endeavors.

Susie, Buffett’s wife, hoped for his retirement or at least more time with their growing kids. She pursued a singing career and engaged in social issues, attending civil-rights and anti-war protests.

Even Warren, usually avoiding politics, got involved, becoming the treasurer for Nebraskan office for Democratic presidential candidate Eugene McCarthy in 1967.

This move was influenced by the death of his Republican father, freeing Buffett to express his own political views.

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9️⃣ Go After your Dreams

In the 1970s, Buffett fulfilled a childhood dream by entering the newspaper business.

Reflecting on his days delivering newspapers in Washington, DC, Buffett had always dreamed of owning his own paper.

In 1969, after earning $16 million, he realized this dream by purchasing a controlling interest in the Omaha Sun.

Buffett’s entry into the newspaper business took an unexpected turn in 1972 when the Omaha Sun published an investigative article on Boys Town, a local shelter.

With Buffett’s support, the article exposed mismanagement, earning the Sun the Pulitzer Prize for outstanding regional journalism.

The story went national and prompted reforms in how non-profit organizations were operated.

Buoyed by this success, Buffett turned his attention to a national newspaper, the prestigious Washington Post.

By the summer of 1973, he owned over 5 percent of the Post and developed a close relationship with its publisher, Kay Graham.

In 1974, Buffett joined the newspaper’s board and navigated the social intricacies of Graham’s lavish dinner parties, mingling with famous guests and dignitaries from around the world.

🔟 Challenges Are Inevitable

Buffett faced early challenges, including a stressful SEC investigation related to his involvement with troubled companies.

In 1968, Charlie Munger noticed Blue Chip Stamps, a company dealing in trading stamps, popular in the era.

However, as societal views shifted with the women’s liberation movement in the 1970s, trading stamps became outdated.

Much like Berkshire Hathaway, Blue Chip was sustained by Buffett and Munger buying winning stocks under its name.

To assist Blue Chip, Munger purchased 8 percent of Wesco, an undervalued savings and loan company.

Despite Santa Barbara Financial Company’s desire to merge with Wesco, Buffett, viewing SBFC as overvalued, convinced Wesco’s founding family to call off the merger.

This decision led to a drop in Wesco’s stock, prompting Buffett and Munger to offer to buy their majority stake at $17 per share.

However, Santa Barbara Financial filed a complaint with the SEC, alleging that Buffett and Munger overpaid Wesco to thwart the merger.

In 1974, the SEC initiated an investigation into their complex network of over 30 companies, causing significant anxiety for Buffett.

Despite the intricate structure raising suspicions, the SEC ultimately issued only one warning for a disclosure violation in Blue Chip’s past, with no individuals named.

This experience highlighted the challenges associated with Buffett’s early ventures and the potential impact on his reputation.

1️⃣1️⃣ Be Prepared for Legal Battles Too

Buffett encountered challenges in his marriage and faced a legal battle involving two newspapers.

Warren Buffett’s close relationship with Kay Graham, the Washington Post’s publisher, initially unsettled his wife, Susie.

Although Susie found her own romance, she remained supportive of Buffett.

In 1977, with their children out of the house, Susie decided to make a radical change and moved to San Francisco.

Despite Buffett’s messy habits and strong dedication to business, Susie still cared for him. She hired Astrid, a nightclub acquaintance, to look after Buffett, shocking everyone when Astrid moved in.

Amidst these personal changes, a legal battle unfolded in the late 1970s.

Buffett and Munger had acquired the Buffalo Evening News, planning to introduce a weekend edition with free initial issues and a discount price.

However, the competition, Buffalo’s Courier-Express, filed a lawsuit alleging unfair practices.

The judge ruled in favor of Courier-Express, deeming the offer unlawful and requiring weekly subscription renewals.

Buffett appealed, ultimately winning in 1981, but not before the paper incurred significant losses. This legal struggle added to the challenges Buffett faced during this period.

1️⃣2️⃣ Suspect Trouble Early On

Buffett’s loyalty led him to Salomon Brothers, facing one of his most challenging tests.

While Warren Buffett is closely associated with GEICO today, his connection began back in college when he recommended the auto insurance company’s stock to clients during his time at his father’s old firm.

In the 1970s, when GEICO faced a crisis, Buffett joined its board in 1976 to help it recover from bankruptcy by revitalizing its management.

During this time, John Gutfreund, an executive at Salomon Brothers, played a crucial role in helping Buffett raise funds for GEICO.

In 1986, when Salomon Brothers faced troubles of its own, Gutfreund turned to Buffett for assistance.

Despite his disapproval of the Wall Street practices involving hostile takeovers and excessive debt, Buffett agreed to join Salomon Brothers‘ board.

Buffett’s reputation for stability and reliability was an asset for any company, signaling strength and resilience against takeovers. Little did Buffett anticipate the challenges ahead.

In 1991, Salomon Brothers was embroiled in a scandal when an employee named Paul Mozer was caught breaking federal laws by illegally bidding in government auctions.

Management had prior knowledge but failed to act.

Buffett, serving as interim CEO, implemented reforms, arranged new leadership, and used his connections to successfully prevent the Treasury Department from barring Salomon Brothers from future auctions.

This period marked one of Buffett’s most trying tests as a loyal friend and board member.

1️⃣3️⃣ Good Friends Are Important

Buffett’s success continued without technology investments, despite an eye-opening friendship with Bill Gates.

In the 1990s, when technology stocks were the craze, Warren Buffett’s reputation faced scrutiny for not diving into the NASDAQ frenzy.

Despite criticisms of being behind the times, Buffett remained unfazed, as his financial standing soared.

Between 1978 and 1991, his net worth skyrocketed from $89 million to $3.8 billion, and Berkshire Hathaway’s stock, under his leadership since 1986, reached impressive heights, trading at over $10,000 per share.

Buffett’s steadfast approach demonstrated that one could remain relevant and prosperous without delving into the volatile world of tech stocks.

He maintained that tech stocks tended to make investors unhappy in the long run.

While largely avoiding technology investments, Buffett did make a modest exception.

His friendship with Bill Gates, initiated during a chance meeting at a Fourth of July party in 1991, led to an enduring connection.

Gates, attending Buffett’s annual shareholder meetings, eventually prompted Buffett to invest in Microsoft, acquiring 100 shares.

Their friendship extended beyond business, with regular bridge games alongside Charlie Munger and Kay Graham.

Throughout the 1990s and 2000s, both Buffett and Gates competed for the title of the world’s richest person. However, their bond went beyond financial success.

A trip to China with Gates provided Buffett with a profound realization of the privileges he enjoyed, having been born in Omaha.

Recognizing the advantages he had over many in the world, Buffett’s humble and thankful attitude toward life deepened.

1️⃣4️⃣ Be Grateful

In the 2000s, personal losses prompted Buffett to reevaluate life’s priorities.

As the early 2000s unfolded, Buffett’s predictions about the disappointments of internet companies were proven true.

Once-dismissive publications now hailed him as a prophet. However, these accolades offered little solace in 2001 when his close friend and companion of 30 years, Kay Graham, passed away.

Buffett, deeply devastated, took weeks to cope with the loss.

Soon after, on September 11, 2001, the tragic events further intensified Buffett’s sense of the uncertainty of life.

Learning from these experiences, he shifted his investment focus to companies that offered a semblance of certainty, such as Fruit of the Loom, farm equipment manufacturers, and children’s clothing companies.

Another period of reassessment loomed in 2003 when Susie, despite their separated living arrangements, was diagnosed with stage 3 oral cancer.

Despite the emotional toll, Buffett recognized the importance of caring for Susie during this challenging time.

Tragically, Susie passed away in 2004, leaving Buffett heartbroken and initially withdrawn.

Emerging from this period of grief, Buffett gained a deeper understanding of his own emotions and a renewed desire to be closer to his children.

He reflected on the secret to a fulfilling life: “to be loved by as many people as possible among those you want to have love you.”

With a clearer perspective on life, Buffett decided on a significant philanthropic gesture.

In 2006, he pledged 85 percent of Berkshire Hathaway, valued at $36 billion, to the Bill & Melinda Gates Foundation.

Additionally, he allocated six billion dollars among Susie’s charitable foundation and other foundations established for his children.

This marked a profound shift in Buffett’s priorities and a commitment to making a positive impact on the world.

The Snowball Review

The core message from Warren Buffett’s life is encapsulated in his unwavering commitment to the principle of “rolling his snowball.”

This approach involves continuous investment and reinvestment of earnings, emphasizing a straightforward but meticulous method for selecting stocks.

Buffett’s success was not driven by chasing business trends or technology; instead, he prioritized understanding the human element within businesses.

Adopt Buffett’s “20 Punches” investment philosophy. Imagine having only 20 opportunities to invest in your lifetime, with each investment punch representing a chance.

By adopting this mindset, you become more discerning and deliberate in your investment choices, focusing on quality and long-term value.

This disciplined approach can lead to more strategic and thoughtful investment decisions.

The Snowball Quotes

🔥 Daily Inspiration 🔥

A little thought and a little kindness are often worth more than a great deal of money.

— John Ruskin