The Snowball_ Warren Buffett and the Business of Life - Alice Schroeder [138]
Three more people went into Underwood. Waiting for a cab in the rain after attending one of Ben Graham’s lectures in New York, Warren met Frank Matthews Jr., son of the former Secretary of the Navy before whom Vanita Mae Brown had once claimed to be married to Warren—Matthews became a partner.28 Warren set up Ann Investments, his ninth partnership, for a member of another prominent Omaha family, Elizabeth Storz. He put Mattie Topp, who owned the fanciest dress shop in town, along with her two daughters and sons-in-law and $250,000, into the tenth, Buffett-TD.
Legally, he could take on only a hundred partners without having to register with the SEC as an investment adviser. As the partnerships burgeoned, he started encouraging people to team up informally and come in as a single partner. Eventually he would put people into pools, combining their money himself.29 He later described the tactic as questionable—but it worked. His compulsion to get more money, to make more money, drove him on. Warren was on fire, shuttling back and forth to New York at a frantic pace. He began to suffer from stress-related back pain. It often worsened when he was on an airplane, and he tried all sorts of things to alleviate it—everything but staying home.
By now his name was passed along like a secret. Invest with Warren Buffett to get rich. But the routine had changed. By 1960 it took at least $8,000 to get in the door. And he no longer asked people to invest with him. They had to bring it up. It had to be their idea. People not only would have no inkling what he was doing, they had to put themselves in this position.*20 It converted them into enthusiasts for Buffett, and reduced the odds of their complaining about anything he did. Instead of asking a favor, he was granting one; people felt indebted to him for taking their money. Making people ask put him psychologically in charge. He would come to use this technique often, in many contexts, for the rest of his life. Along with getting him what he wanted, it seemed to soothe his persisting fears of being responsible for other people’s fates.
Though his insecurity was rampant as ever, his success and Susie’s care and tutoring had given him a bit of polish and flair. He was starting to appear powerful, not vulnerable. Plenty of people were happy to ask him to invest for them. Buffett formed the eleventh and last of his partnerships, Buffett-Holland, on May 16, 1961, for Dick and Mary Holland, friends he had met through his lawyer and partner Dan Monen. When Dick Holland decided to invest in the partnership, members of his family pressured him not to do it. Buffett’s abilities were apparent to him, Holland says, even though in Omaha people were still “laughing up their sleeves” at Warren’s ambitions.30 Yet in 1959 the partnerships had outperformed the market by six percent. In 1960 they leaped to nearly $1.9 million in assets by beating the market by twenty-nine percent. Even more impressive than any single year’s profits was the compounding power of repeated growth. A thousand dollars invested in Buffett Fund, the second partnership, was now worth $2,407 four years later. Invested in the Dow Jones Industrial Average, it would have been worth just $1,426.31 More important, he accomplished this higher return while taking less risk than the market as a whole.
And Buffett’s fees, reinvested, had by the end of 1960 earned him $243,494. More than thirteen percent of the partnerships’ assets now belonged to him alone. Yet even as his share of the partnerships increased, he had made the partners so much money that they were no longer simply happy; many regarded him with awe.
Bill Angle, his partner in Emdee, was foremost among them. He Tom-Sawyered himself into becoming Warren’s “partner” in building a gigantic model train set with an