The Snowball_ Warren Buffett and the Business of Life - Alice Schroeder [235]
Still, Buffett did own forty-three percent of Diversified, so its purchases of Berkshire had added almost five percent to his personal ownership. Buying through Diversified was particularly attractive in that it tended not to ratchet up Berkshire’s stock price. Hardly anybody was paying attention.49
But why did he want it at all?
“Berkshire was not worth more than forty bucks as a business. You couldn’t have sold the textile mills and insurance business for more. And half the money was in a lousy business, I mean a really lousy business: twenty bucks a share of the forty bucks. And I didn’t know what I was going to do, I literally didn’t. I mean, I was rich enough already. But in effect, I was betting that I could do something. I was betting on myself. And though it sounds egotistical, anybody who might have thought it was worth more than forty bucks was purely paying for me. Because the company was not worth that.”
He didn’t know what he was going to do, except invest. Verne McKenzie, who had returned from New Bedford to become Berkshire’s controller, thought that to Buffett, it simply “looked like an interesting game. All he was doing was solidifying his control.” That he was, and doing so in the manner in which he always approached investing—as a collector, one who bought in secrecy to avoid tipping off other bargain hunters. But as the chairman of Berkshire Hathaway and Diversified, he was once again mostly buying from sellers who had been his former partners. Although perfectly legal, it was not exactly sporting conduct. But their willingness to sell, in his mind, ended his special obligation to them.
Buffett had also been buying Blue Chip Stamps all along, though so far, Blue Chip had remained primarily Munger’s province. It owned the best of the businesses, however, namely See’s. Now Buffett began to pursue Blue Chip stock like a great white shark after a well-fed seal. Since he had far greater financial resources, Buffett’s ownership percentage of Blue Chip quickly surpassed the combined interest of his partners in that stock, Munger and Rick Guerin—Munger’s associate from the Pacific Coast Stock Exchange, who now ran an investment partnership of his own.
Buffett bought Blue Chip wherever he could get it. He bought from Blue Chip’s management and from other directors. One of these, Z. Wayne Griffin, asked $10.25 to Buffett’s bid of $10. Reaching an impasse on the phone, Buffett recalls that Griffin suggested they flip a coin. He was taken aback by Griffin’s willingness to do this, sight unseen. From that fact alone, Buffett realized not only that Griffin trusted him, but that he had already Buffetted himself. Griffin called it heads. Obviously, if he made such a bet, he was willing to take the ten bucks, which he did.
Buffett’s accumulation of all these stocks, however, differed from his buying in the era of cheap cigar butts. Two large question marks hung over Blue Chip, Diversified, and Berkshire. As Buffett solidified control, all that money pouring in to both Berkshire and Diversified from the insurance business would have to be put to good use. And the bet on Blue Chip’s legal problems would have to work out.
By year-end 1973, Blue Chip had settled eleven lawsuits.50 All that remained was the Justice Department’s ruling that it divest one-third of its business. That would not be easy because “the President’s freeze on food prices is another knee in the groin for us,” Don Koeppel wrote. “The grocers are screaming, predicting huge losses, bankruptcy in some cases.”51 Inflation had run rampant, President Nixon had frozen prices on commodities to try to halt it, and commerce had entered a new era of trying to match rising costs to frozen consumer prices.
The stamp business was dead, but