The Snowball is a great biography of Warren Buffett and the rise of Berkshire Hathaway stretching more than 800 pages. It shows not just his financial successes and how he became the richest person in the world, but it also looks at his early life and how a boy from Nebraska could become so influential on Wall Street. On top of that, The Snowball is also packed with quotes and stories from Buffett and Charlie Munger that show their philosophy on finance and investing.
Book Summary & Notes
“In the short run, the market is a voting machine. In the long run, it’s a weighing machine.” – Warren Buffett
“There were two thousand auto companies: the most important invention, probably, of the first half of the twentieth century. It had enormous impact on people’s lives. If you had seen at the time of the first cars how this country would develop in connection with autos, you would have said, ‘This is the place I must be.’ But of the two thousand companies, as of a few years ago, only three car companies survived. And, at one time or another, all three were selling for less than book value, which is the amount of money that had been put into the companies and left there. So autos had an enormous impact on America, but in the opposite direction on investors.” – Warren Buffett
“From [Benjamin] Graham’s class, Warren took away three main principles:
- A stock is a right to own a little piece of a business. A stock is worth a certain fraction of what you would be willing to pay for the whole business.
- Use a margin of safety. Investing is built on estimates and uncertainty. A wide margin of safety ensures that the effects of good decisions are not wiped out by errors. The way to advance, above all, is by not retreating.
- Mr. Market is your servant, not your master. Graham postulated a moody character called Mr. Market, who offers to buy and sell stocks every day, often at prices that don’t make sense. Mr Market’s moods should not influence your view of price. However, from time to time he does offer the chance to buy low and sell high.”
“You should never, when facing some unbelievable tragedy, let one tragedy increase into two or three through your failure of will.” – Charlie Munger
“[Charlie] Munger’s mental habit of setting low expectations was well established. He equated this with the route to happiness, since he felt that high expectations led to fault-finding. Low expectations made it harder to be disappointed. Paradoxically, however, they could also confound success.”
“I had a considerable passion to get rich,” Munger said. “Not because I wanted Ferraris – I wanted the independence. I desperately wanted it. I thought it was undignified to have to send invoices to other people. I don’t know where I get that notion from, but I had it.”
“[Warren Buffett] laid out two new restrictions that would make it even harder for him to invest. These personal preferences now became part of the official canon.
- We will not go into businesses where technology which is way over my head is crucial to the investment decision. I know about as much about semi-conductors or integrated circuits as I do of the mating habits of the chrzaszcz.
- [W]e will not seek out activity in investments operations, even if offering splendid profit expectations, where major human problems appear to have a substantial chance of developing.”
“Time is the friend of the wonderful business, the enemy of the mediocre… It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price. Charlie understood this early; I was a slow learner. But now, when buying companies or common stocks, we look for first-class businesses accompanied by first-class managements. That leads right into a related lesson: Good jockeys will do well on good horses but not on broken-down nags.”
“Buffett’s hunt for things to buy had become more ambitious, free of the cigar butts and lawsuits of the decades before. The great engine of compounding worked as a servant on his behalf, at exponential speed and under the gathering approval of a public gaze. The method was the same: Estimate an investment’s intrinsic value, handicap its risk, buy using margin of safety, concentrate, stay in the circle of competence, let it roll as compounding did the work. Anyone could understand these simple ideas, but even though Buffett made the process look effortless, the technique and discipline underlying it involved an enormous amount of work for him and his employees.”
“Years earlier Buffett had said he gave his kids a few thousand dollars for Christmas each year and told them to expect half a million dollars when he died. That, he thought, was “enough money so that they would feel they could do anything, but not so much that they could do nothing.”
Buffett on Salomon: “Lose money for the firm, and I will be understanding. Lose a shred of reputation for the firm, and I will be ruthless.”
Buffett’s ‘front-page test’: “I want employees to ask themselves whether they are willing to have any contemplated act appear the next day on the front page of their local paper, to be ready by their spouses, children, and friends, with the reporting done by an informed and critical reporter.”
“By the early 1990s, the Bloomberg terminal was becoming ubiquitous. The Bloomberg saleswoman had called Berkshire Hathaway for three years in a row. “Nope” was the answer every time. Buffett felt that following the market minute by minute by computer was not the way to invest.”
“Buffett’s sayings: Rule number one, don’t lose money. Rule number two, don’t forget rule number one. Rule number three, don’t go in debt.”
“Munger’s favorite construct was to invoke Carl Jacobi: “Invert, always invert.” Turn a situation or problem upside down. Look at it backward. What’s in it for the other guy? What happens if all our plans go wrong? Where don’t we want to go, and how do you get there? Instead of looking for success, make a list of how to fail instead – through sloth, envy, resentment, self-pity, entitlement, all the mental habits of self-defeat. Avoid these qualities and you will succeed. Tell me where I’m going to die, that is, so I don’t go there.”
“Stocks are the things to own over time. Productivity will increase and stocks will increase with it. There are only a few things you can do wrong. One is to buy or sell at the wrong time. Paying high fees is the other way to get killed. The best way to avoid both of these is to buy a low-cost index fund, and buy it over time. Be greedy when others are fearful, and fearful when others are greedy, but don’t think you can outsmart the market.” – Warren Buffett
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