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By Root 3495 0

Buffett, the implacable acquirer, had his stock. After this series of trading gyrations, Blue Chip had Wattled its way into the set of Russian dolls. “It was the same principle,” Buffett says. Including all the pockets in which he had bought shares indirectly, he owned more than forty percent of Berkshire and more than twenty-five percent of Blue Chip Stamps. Even though these stocks traded at depressed prices, he could fund more deals and buy more stocks because all of the dolls had their own self-charging batteries, “float,” cash that could be invested in advance of paying claims. This innovation dramatically improved the deal.

The operating businesses themselves had also improved since the dismal days of windmills and fire maps. Along with See’s, Berkshire owned not only the whopping float-generator National Indemnity but also a clutch of little insurance companies that Buffett hoped would eventually turn into small power-houses, even though he was struggling to whip them into shape. Meanwhile, the deadweight of Hochschild-Kohn had disappeared and Buffett kept shrinking the textile mills.

But in the bigger picture, what Berkshire, Diversified, and Blue Chip really possessed were two things. The first was the homeostatic business model—the idea of grafting float onto a holding company so that it could respond internally to the changing environment. The second was the power of compounding, as float and investments doubled and redoubled over time.

The novelty and strength of Buffett’s model cannot be overstated. Nothing else like it existed, or would for years to come. “That was the golden period of textbook capital allocation,” he says.

The timing was stupendous. Capital from the insurance companies was pouring into Berkshire and DRC at the same time that the market was collapsing, the environment that Buffett liked best. While he had not yet decided exactly what to do with the collective enterprise he had built by the end of 1974, of two things he was certain. One was the business model’s power, and the other his skill in using it. Above all, he had confidence in himself.

“Always,” he says. “Always.”

39

The Giant

Omaha and Los Angeles • 1973–1976

Howard Buffett was one of those rare people who prospered in the aftermath of the 1929 stock market crash. Now his son’s star was rising during the second great crash of the century.1 But the world had changed; stardom, even in business, now meant fame. Buffett had closed his partnership during a media explosion in the United States in which cable had transformed television, newspaper companies were going public, and advertising was still in a golden age of selling to a monolithic audience in which virtually the whole nation sat down together on Tuesday nights and watched Happy Days.

Buffett had entered the media world as an investor drawn to the business by a natural affinity. But as he embarked on a new, post-partnership phase of life, through the publicity he got from the Forbes story in 1969 and then from the Supermoney profile, he began to enjoy the fruit of the discreet use of profile-raising press. Now he was a subject of media interest, not just a media investor; and no less a personage than Katharine Graham was paying him attention and taking him seriously, which had brought him into the orbit of one of the most important newspapers in the United States.

As was her habit with powerful men, Graham reached out to him for help. Buffett needed little encouragement.

“The first time she was going to speak to the New York Society of Security Analysts, I went over there to her apartment in New York on a Sunday morning to help her write her speech. She was a basket case. She was terrified that all these men were going to be there and she was going to have to stand up in front of them. Public speaking was something that was very hard for her always. The funny thing is, she had a great sense of humor, she was smart, but she tended to freeze in front of a crowd. Particularly if she thought they were going to question her about numbers.”

As Robert Redford had