The Snowball_ Warren Buffett and the Business of Life - Alice Schroeder [327]
When the avalanche survivors were dug out of the snow, however, Warren’s sister Doris—now living in Fredericksburg, Virginia, the town she had fallen in love with when the family followed Howard to Congress—turned out to be one of the many people who had been “selling” the insurance. She had sold what were called “naked puts,” a type of derivative peddled by a Falls Church, Virginia, broker. Naked puts were promises to cover somebody else’s losses if the market fell—“naked” because they were unclothed by collateral and thus unprotected against loss.12 The broker had emphasized that the naked puts would provide Doris with a steady stream of income, which she needed. It is hard to imagine that the broker gave her any kind of realistic description of the risk she was taking, especially using a scary term like “naked put.” Doris was unsophisticated about investing but highly intelligent, with a hard-nosed common sense. She had not talked to Warren about the investment, however. He was famous for recommending only extremely safe, low-return investments, like Treasury or municipal bonds, especially when counseling divorced women. These were investments that he would never make himself. Doris had trusted him enough to become one of his first partners; she trusted him implicitly when it came to investing for Berkshire. But that long-ago childhood episode when Cities Service Preferred went down after he bought it for himself and Doris might have loomed large in both their minds, had she asked him for advice. She didn’t ask.
Now, acting on her own, Doris had incurred losses so large that they wiped out her Berkshire stock and threatened her with bankruptcy. Compounding her desperation, she had recommended the broker to some of her friends and felt responsible for the money they had lost as well.
Doris romanticized her brother, viewed him as a protective figure, and kept a little shrine to him, featuring miniature golf clubs, Pepsi bottles, and other symbolic accoutrements of his life. But when she had a problem, instead of going to Warren, she called Susie as a go-between, as everyone in the family did. By this time Doris had been married and divorced three times. She felt she had rushed into her first marriage out of insecurity; her second had failed in part because she had felt coerced into it and thus hadn’t fought hard enough to save it. Her third marriage, to a college professor in Denver, had been a terrible misjudgment. By now, Doris had experienced a great deal of mistreatment in her life, but rather than letting it cow her, she fought back. This time, however, she didn’t know what to do.
“You don’t ever need to worry,” Susie had told her about her brother after her third divorce. “He’ll always take care of you.”
After she confessed to Susie what she had done and asked for help, Warren called her early on a Saturday morning. He said that if he gave her the money to pay her creditors, it would only help the businesses to whom she owed money—the counterparties whom she had insured. His logic was that they were speculators; therefore he would not bail them out. As she realized that this meant he was not going to help her, she broke out in a cold sweat and her legs started shaking. She was sure this meant that her brother despised her. He felt, however, that his decision was simply rational.
“I could have given a couple million dollars to her creditors if I’d wanted. But, you know, the hell with them. I mean, this broker woman who sold this stuff to Doris—she’d busted everybody in that particular branch.”
Doris hoped that Susie would save her. Susie had so much money of her own, and Warren gave her so much money, most of which she gave away. However, just as Susie had not given money to Billy Rogers for a down payment on a house, she did nothing now to help Doris financially.
The story hit the Washington Post that the sister of “a highly successful investor” had done something extremely dumb. Damaging Warren’s reputation