The Snowball_ Warren Buffett and the Business of Life - Alice Schroeder [234]
Warren’s conception of his marriage had never changed, even though the marriage itself was changing inexorably. When he was home, Susie still seemed just as devoted to him as ever. He saw how active and busy she was and wanted her to be fulfilled, as long as she continued to take care of him—which he assumed was fulfilling to her. As far as he knew, the balancing act that had always worked for them still did.
The “retired” Warren was investing at full throttle ahead in late 1973, in the midst of a market swoon. Between Cap Cities and the Washington Post and his growing friendship with Kay Graham, his interest in media over the past few years had permutated into a deep understanding of the subject at all levels. One night at dinner in Laguna Beach, he and Carol Loomis started strafing Buffett’s friend Dick Holland, who worked in advertising, with questions about the advertising business. “Whenever he did that,” Holland recalls, “I always knew something was cooking.” The four of them talked business while Susie and Mary Holland, in purdah, entertained themselves. Sure enough, as a secondary way to play media, Buffett got on the phone to his trader and plunked down almost $3 million for the stocks of advertising agencies Interpublic, J. Walter Thompson, and Ogilvy & Mather, stocks so distressed he paid less than three times their earnings.
While he was buying, however, most of the stocks that Buffett had accumulated were faltering. As 1974 began, stocks for which he had paid $50 million had lost a quarter of their value. Berkshire, too, started to slide, down to $64 per share. Some of the former partners who had kept the stock began to worry about whether they had made a mistake.
Buffett saw it just the opposite way. He wanted to buy more Berkshire and Blue Chip. But “I’d run out of gas. I had used all the $16 million of cash I got out of the partnership to buy stock in Berkshire and Blue Chip. So all of a sudden I woke up one day and had no money at all. I was getting $50,000 a year salary from Berkshire Hathaway and some fees from FMC.43 But I had to start my personal net worth over again from zero.”
He was now very, very rich but cash-poor. The companies he controlled, especially Berkshire Hathaway, had cash to buy stocks, however. To move some of Berkshire’s money to Diversified, Buffett set up a reinsurance company—a company that insures other insurers44—in Diversified. This company, Reinsurance Corp. of Nebraska, agreed to take part of National Indemnity’s business, receiving premiums and covering losses. Because National Indemnity was so profitable and generated so much “float”—premiums paid ahead of claims, i.e., cash—sending part of its business to Diversified was like sending a pipeline into a river of money. As time passed, it would give Diversified millions more dollars to invest.45
Buffett began to buy stocks for Diversified. Principally he followed the Wattles model and bought stock in Blue Chip and Berkshire Hathaway. Soon, Diversified owned ten percent of Berkshire. It was almost as though Berkshire was buying back its own stock—but not quite. Diversified’s owners and Berkshire’s weren’t the same. Buffett still forbade his friends to buy Berkshire—whereas he, Munger, and Gottesman were partners in Diversified.46
At the time, even though the three did each other business favors and swapped stock ideas on occasion, their interests didn’t necessarily align. Asked later under oath if he was Buffett’s “alter ego,” Munger said no. He acknowledged similar mannerisms and ways of speech. But “I’ve never chosen a role of being a junior partner,” he said. “I like the idea of having a sphere of activity” of my own.47 On one occasion, Munger said, he had found a block of Blue Chip stock that he and Gottesman