The Snowball_ Warren Buffett and the Business of Life - Alice Schroeder [74]
It was clear Warren had already immersed himself in the stock market. He talked about a clutch of tiny companies, including Tyer Rubber Company and Sargent & Co., which made locks, and a somewhat larger business, hardware wholesaler Marshall-Wells.11 Listening, Stanback became an instant disciple. He went out straightaway and bought stocks for the first time in his life.
Stanback was the son of a live-wire salesman who had gotten rich peddling envelopes of headache powder and “SnapBack Stimulant Powders”—full of caffeine—from the back seat of a Model T Ford.12 Fred Jr. grew up, analytical and reserved, on Confederate Avenue in the tiny hamlet of Salisbury, North Carolina. He was a born audience for Warren. The two started spending time together—a fast-talking, scrawny-looking kid and a sandy-blond handsome young man with a molasses voice. One day Warren had an idea. He asked Professor Dodd’s permission to cut class to attend the annual meeting of Marshall-Wells. A few months before starting at Columbia, he and Howard had jointly bought twenty-five shares of this stock.
“Marshall-Wells was this wholesale hardware company up in Duluth, Minnesota. That was the first annual meeting I ever attended. They held their meeting in Jersey City, New Jersey, probably so fewer shareholders would attend.”
Warren’s vision of shareholder meetings rose from his conception of the nature of a business. He had recently sold his tenant farm, doubling his money over five years. During the time he had owned it, he and his tenant farmer had shared the profits on the crop. But his tenant didn’t share the profits from selling the land. As the capitalist, Warren put up the money and took the risk, and then he got the gain, if there was any.
Warren thought of all businesses this way. The employees who managed the business shared in the earnings that their labors produced. But they were accountable to their owners, and it was the owners who got the gains as the value of the business increased. Of course, if the employees bought stock themselves, they became owners, too, and partners with the other capitalists. But no matter how much stock they owned, as employees their job required them to report to the owners on how well they had done. Thus, Warren saw a shareholder meeting as a time of accounting for the stewardship of the managers.
This vision was rarely shared by company managements, however.
Warren and his new friend Stanback took the train to Jersey City. Arriving in a drab meeting room on an upper floor of the Corporation Trust Company, they found half a dozen people awaiting a session in which the company planned to shuffle through an agenda of legal obligations in a perfunctory fashion. Paradoxically, management’s indifference and shareholder negligence both worked on Warren’s behalf, for the fewer folks came to the show, the more valuable would be whatever knowledge he could wrest from the company.13
One of those few was Walter Schloss, a thirty-four-year-old man who was working for the pittance of fifty dollars a week as one of four employees of Ben Graham’s company, the Graham-Newman Corporation.14 As the meeting began, Schloss starting asking pointed questions of management. He was a bantamweight, mild-mannered, dark-haired man from a family of New York Jewish immigrants, but he probably struck the Marshall-Wells crowd as abrupt by the standards of Duluth. “They were a little upset,” says Stanback, “that these outsiders were barging in on their meeting. They’d never had anybody come to their meeting before, and they didn’t like that.”15
Warren was immediately taken with Schloss’s approach, and when Schloss identified himself as working for Graham-Newman, he reacted as though at a family reunion. As soon as the meeting