The Snowball_ Warren Buffett and the Business of Life - Alice Schroeder [186]
They didn’t. Only Roy Tolles got more than half. By answering everything “true” except a couple that he knew for certain were not, he scored eleven out of twenty. The “little exam” turned out to be one of Graham’s teaching tricks, designed to show that even an easy-looking game can be rigged. Buffett would later have a saying: Knowing that a clever guy is stacking the deck is not necessarily protection.
During the rest of the meeting, Graham tolerated the discussions of stock promotion, manufactured performance, phony accounting, institutional speculation, and the “chain-letter acquisition syndrome” with bemusement.8 But he was no longer engaged; instead, he wanted to tell riddles and joined with enthusiasm in brainteasers and word and numbers games.
Buffett, however, was as much engaged as ever, notwithstanding the tenor of his letter to his partners in October 1967, when he wrote that from now on he would limit himself to activities that were “easy, safe, profitable, and pleasant.” When he returned to Omaha from San Diego he focused intensely on the problems of the partnership. He needed to let the partners know that all was not well at some of the businesses they owned and in his next two letters dropped subtle hints. After having described the travails of textiles eloquently in 1967, he made no further mention of the business in 1968, although the prospects and results of the Berkshire mills had not improved. Earnings at DRC were falling because of Hochschild-Kohn.9 Still, Buffett did not take the logical next step, which would have been to sell Berkshire Hathaway and Hochschild-Kohn.
Here, his commercial instincts chafed against some of his other traits: the urge to collect, the need to be liked, the preoccupation with avoiding confrontation after the Dempster windmill war. In an intricate minuet of rationalization, he explained his thinking in his January 1968 letter to the partners: “When I am dealing with people I like in businesses I find stimulating (what business isn’t?), and achieving worthwhile overall returns on capital employed (say, ten to twelve percent), it seems foolish to rush from situation to situation to earn a few more percentage points. It also does not seem sensible to me to trade known pleasant personal relationships with high-grade people, at a decent rate of return, for possible irritation, aggravation, or worse at potentially higher returns.”10
Some of the growing crowd of Buffett-watchers may have read these words with surprise. Measuring by “overall” returns allowed for some businesses to do considerably worse than the average. To witness Buffett—who squeezed the last tenth of a percentage point from a buck like a miser gripping a toothpaste tube—dismissively waving away “a few more percentage points” was astonishing.
Yet his performance stopped complaints, for even as he lowered expectations, he continued to surpass himself. Despite the deadweights, the partnership had averaged more than a thirty-one percent return over the dozen years of its existence, while the Dow had produced nine percent. The margin of safety Buffett always insisted on had skewed the odds sharply in his favor.11 Along with his talent for investing, its cumulative impact on his batting average meant that $1,000 put in the Dow was now worth $2,857, whereas he had turned it into nearly ten times that, $27,106. Buffett’s partners by now trusted him to always deliver more than he promised. He manifested predictability and certainty in 1968, the tumultuous year in which students would take over and close Columbia University, flower-child demonstrations would turn militant, and activists would nominate a pig for President.12
But by mid-1968, Buffett had made a decision to try to jettison the intractable Berkshire Hathaway—a business that was neither easy, safe, profitable, nor pleasant—and its unlucky textile workers. He offered to sell