The Snowball_ Warren Buffett and the Business of Life - Alice Schroeder [201]
But he refused to act as what he considered to be a fiduciary if he could not perform to his high standards. “Basically, if I’m the guarantor, I just can’t do it, knowing how hard it was on me once,” he says, harkening back to what he had felt at age eleven when Cities Service Preferred had disappointed his sister.
He continued working on the partnership dissolution over Christmas in Laguna Beach. He had bought his Christmas gifts with his usual efficiency. As with most things, he had a system: He went to Topps, the best dress shop in Omaha, and gave them a list of the different sizes for all the women in his life.
“I would go over, and they’d wheel out the dresses. I’d make a variety of decisions and buy presents for my sisters, Susie, Gladys, and so forth. I kind of enjoyed it. Bertie’s more conservative, so I’d move her up a notch in style, and she’d accept it from me but nobody else.
“You know, clothing holds its value better than jewelry.”
On December 26, after the exchange of Christmas gifts, he sent the partners another long letter, going out of his way to answer at length a number of their questions.8 A few of the partners had been challenging him. They were deciding whether to hold the Berkshire stock. If it was such a lousy business, why not get rid of the Berkshire Hathaway textile mill?
“I have no desire to trade severe human dislocations for a few percentage points additional return per annum,” he wrote, echoing what he had said to them in his letter of January 1969. But since the whole point of his business was to eke out a few additional percentage points per annum, this kind of rationalization would have been unthinkable earlier in his career.
What is Sun Newspapers? they asked. It’s worth a buck a share, he replied, kind of skipping the rest of the economics. Then he added some famous last words. “We have no particular plans to expand in the communication field,” he wrote.9
Why didn’t you register the Berkshire Hathaway and Diversified stock so that it could be freely traded? Berkshire was so closely held that it traded “by appointment”—which made it hard for anyone to know what the stock was actually worth. Diversified did not trade at all.
A long, complicated explanation followed, in which Buffett argued that a freely traded and liquid public market for these stocks would be less efficient and less fair and “the more sophisticated partners might have an important edge over the less sophisticated partners.” And it was certainly true that the more naive of his departing partners would be kept from the clutches of the manic-depressive Mr. Market, who might at times have valued the stock at a severely discounted price. It lowered the odds that a pack of brokers would talk them into selling just to buy IBM or AT&T. But it also meant that Buffett was limiting his partners’ options—making it harder for them to buy and harder for them to sell—and, if they did sell, making it more likely that they would sell to him.
As general partner of the partnership, he was used to having total control of these two companies. Letting go and giving up control to the anonymous Mr. Market—he just couldn’t do it. Moreover, as soon as he handed these stocks to his departing partners, for the first time his own self-interest and theirs might be at odds. This complicated rationale to justify keeping the stocks unregistered danced a little do-si-do around the fact that Buffett was the most sophisticated partner of all. It was he who would have the most important edge over his former partners. No matter how honest his intentions, the decision widened the potential conflict between his interests and