Alice Schroeder Talks Buffett, Berkshire, and The Snowball || Q&A Transcript (2008)
"Warren is not a gambler," said Schroeder. "He’s a handicapper."
For more than five years, Alice Schroeder had a front-row seat to Warren Buffett’s life and career. (As well as unprecedented access to his personal and professional files and network of family, friends, and associates.) This painstaking research culminated in The Snowball — which many consider to be the definitive Buffett biography.
On October 16, 2008 — a little over two weeks after The Snowball hit store shelves — Schroeder spoke at Microsoft Research about her experiences writing the book and what she learned from such a close study of the greatest investor of all time.
Schroeder talked for about 25 minutes before taking questions from the crowd for another half-hour (including a rapid-fire lightning round at the end). Enjoy!
Alice Schroeder: What I’d like to do today is talk a little bit about the journey that brought me to writing this book. I know many of you will have questions about the two men and the minds of the people who came together to create the largest foundation in history and the one that will change the world. I will answer all the questions that you want about that, [but] I’m not going to talk so much about the gift in my presentation because it’s a speech topic in and of itself.
I’ll answer as many questions as you want, but what I’d like to do is more talk about Warren Buffett and a little bit about Bill Gates and the two of them and my journey to write this book. To help you understand, a little bit as a prelude, to see why Warren Buffett is the unusual person that he is and the story of the writing of this book and that might help introduce a little bit of the subject of how he came around to the decision to give the money to the Gates Foundation.1
I first met Warren in 1998 when I was an analyst at PaineWebber. It was just at the beginning of the period when the internet bubble began to really take off. At that time, I was an analyst following insurance stocks and Berkshire Hathaway had become mostly an insurance company by following the path of acquiring companies. It had just bought General Reinsurance, which was a very large company.2 And I was the only analyst on Wall Street who followed the stock.3
Warren decided that he would talk to one analyst on the Street and, because he had gotten interested in my research and I was the only person following the stock, I ended up getting to go out to Omaha and see him about once a year and I talked to him on the phone whenever I wanted. I ended up becoming a fairly close observer to what was happening to him during this period of time.
At the time, the business press was harshly critical of him. Somebody said that the technology investors had made a chimpanzee out of Warren Buffett. Some of the things that were being said about him were really, really pejorative. He was following the tried-and-true investment methods that he always has and he never came out in public [to defend himself]. He never commented on it. He always just continued to do what he’s always done — which is the value investing philosophy.
I asked him one time how he felt about this barrage of criticism that he was receiving in the press. This was the first time that I got any kind of insight into the personality of Warren — what he was like — because, up until then, I had only known him as an investor and a businessman. When I asked him how did he feel about this siege of criticism, he said, “It never gets better. It always hurts just as much as the first time.”
Despite having heard — over and over and over — these things, it’s really remarkable that he could withstand this [and] that he could not change his investing style at all. And yet it was clear that he found the personal criticism intensely painful and was very, very sensitive to it.
During that time, he went out to Sun Valley in July of 1999 and he gave a speech that might have been the most remarkable of his career. I opened the book with that speech in Chapter 2, which is called “Sun Valley”. The Sun Valley conference is a group of media people who meet in the mountains every year in Sun Valley, Idaho. It’s the Allen & Co. conference. It’s a very exclusive event of high-level people. Bill Gates goes to it. Warren always goes to it. And they have presentations.
How many of you have heard of it? Have any of you heard of Sun Valley?
It’s partly social. They also have presentations in the mornings — and the media reporters are not allowed to attend these events. So people get up at the podium and they say things that they would not normally say in front of the press.
In this case, Warren gave a speech in which he talked about the stock market. He gave the history of technology — from the advent of automobiles to the airplane — forward. He talked about periods during which the stock market had performed badly for as long as 17 years at a time.
In effect, he was prophetic. He made a lot of jokes and he kidded around and he wasn’t personal about it, but he talked to a room full of people, many of whom had internet startup companies — a number of which are no longer with us — and he told them that the valuations of the internet stocks at the time were not credible and that the investors were likely to be very disappointed. He predicted that, over the next couple of decades, he could foresee that the stock market would return no more than 6% a year.
At the time, a PaineWebber study of investors showed that the typical investor was expecting something like 20% returns. So that [6%] was considered to be a dreadful number. People were very upset. He was ridiculed for this. People in the room were snickering. One person told me that, in the ladies room at the break, women were making fun of him. The Silicon Valley wives were, “Oh, he’s just such a has-been.”
Warren, himself, didn’t really register that. It was a brilliant speech and it ended up becoming an article in Fortune4 — and, perhaps, one of the most prophetic things he’s ever done. You may have read the Wall Street Journal some months ago when it called the last decade “a lost decade” in the stock market. It’s been more than 10 years now and you all know what’s happening in the market right now with the financial panic.
Since Warren made that speech, the market has actually gone backwards. He took a considerable risk, in some sense, to make that prediction. He put his reputation on the line — and he knew he was doing that. This is somebody who is a teacher and he wants the world to listen to what he has to say — so, by going out and making that prediction, he was risking his ability to come out and have himself listened to again.
He’s never made a prediction about the stock market since he was in his thirties. It had been almost 50 years since he had made a prediction about the stock market — and he finally did it in that speech. It was an extraordinary event.
When I was working on The Snowball, the first time I interviewed Bill Gates, I came out here and we sat down in his office and he told me about the experience of witnessing that speech. The main thing that he remembered — other than what an incredible speech it was — was how nervous he was because Warren had decided to click his own Powerpoint slides. (Laughs)
Warren, as you probably know, is not that savvy with technology when it comes to dealing with it on a personal level. He had never done Powerpoint before. He did have slides and he managed to get through it without any terrible mishaps and the slides did match what he was saying. But Bill said he was holding his breath in the audience every time Warren clicked a slide, hoping that nothing blew up or nothing terrible happened. That was one of the funnier moments of my interviews.
Fast forward to 2003 and, at that point, the market had gone through 9/11. Warren had come out after 9/11 and he had tried to tell the country that if the market declined enough, he would buy stocks.5 You’d had the Enron situation in which company after company had scandals. The market had gone down, the market had gone up, but it had mostly been in an uptrend.
By 2003, I ended up speaking to Warren about the fact that I thought he should write a book that ended up becoming The Snowball, which would be a comprehensive story of his life and the unusual person that he has become. He turned around the question on me and I ended up volunteering to do it and he offered to cooperate with me.
Cooperation meant that he would do interviews with me. I would be able to talk to his friends and his family. I would be able to see his correspondence and go through his files. It meant that the book could be a major project that would be the one time that somebody could really write a seminal book about Warren Buffett.6
At the time, I already knew that it would be a very important book. Since then, he has only become a more and more important figure in the world. But, at the time, I thought this is something that really needs to be done. So, in May 2003, I went on a leave of absence from Morgan Stanley where I was a managing director at the time and I started to work on this book.
I knew Warren then still mostly as a businessman. For example, I hadn’t heard the Sun Valley story — I had just read the speech in the magazine. I still knew he was very sensitive to criticism, but I didn’t know him that well as a person.
When I showed up in his office the very first week to work on the book, the first thing he did was he opened his desk and he pulled out a set of dice. Three dice. And the dice had all these odd numbers on them — 17, 21, 3, 5 — and they had multiple sides. He said, “You pick one and then I’ll pick one and we’ll roll them and we’ll see who wins.” The numbers didn’t follow any sequence, but he said, “Study the numbers and then you can pick. Take as long as you’d like.”