The Snowball_ Warren Buffett and the Business of Life - Alice Schroeder [96]
Meanwhile, Warren was working like a woodpecker in April to make money for himself. He was going to be taking care of a family soon, which would divide his income into two streams. Part of what he made—his stream—would go back into the mill and continue to grow. And part he would spend for him and Susie to live, a significant change in his circumstances. Until now, he had been able to pare his expenses by living in the maid’s room at Columbia, eating cheese sandwiches, and taking his dates to lectures or playing the ukulele for them instead of escorting them to the posh “21” Club. Now that he was back in Nebraska, he was able to cut his costs even further by living in his parents’ house, even though it meant occasional contact with Leila when they came back from Washington.
He had never needed motivation to try to work his capital as hard as possible, and now he sat in the office at Buffett-Falk with his feet on his desk, searching systematically through the Graham and Dodd book for more ideas.10 He found a stock, Philadelphia and Reading Coal & Iron Company, a company that mined anthracite coal. It looked cheap because it was selling for $19 and a fraction, but had about $8 a share worth of culm banks.*14 Warren would happily spend hours figuring out how much coal mines and culm banks were worth in order to make a rational decision about a stock. He bought Philadelphia and Reading Coal & Iron shares himself and sold them to his aunt Alice and Chuck Peterson. When the stock immediately dropped to $9 a share, he saw that as a reason to buy even more.
He bought a textile company called Cleveland Worsted Mills. It had current assets*15 of $146 per share, and the stock was selling for less than that. He felt the price did not reflect the value of “several well-equipped mills.”
Warren wrote a short report on the stock. He liked the fact that the company was paying out a lot of what it earned to shareholders—giving them a bird in the hand. “The $8 dividend provides a well-protected 7% yield on the current price of approximately $115,” the report noted.11 He wrote “well-protected” because he thought Cleveland Worsted Mills had enough earnings to cover its dividend. That proved less than prescient.
“I called it Cleveland’s Worst Mill after they cut off paying the dividend.” Warren was so mad that he decided to spend some money to find out what was wrong. “I went to an annual meeting of Cleveland’s Worst Mill, and I flew all the way to Cleveland. I got there about five minutes late, and the meeting had been adjourned. And here I was, this kid from Omaha, twenty-two years old, with my own money in the stock. The chairman said, ‘Sorry, too late.’ But then their sales agent, who was on the board of directors, actually took pity on me, and so he got me off on the side and talked to me and answered some questions.” The answers, however, changed nothing. Warren felt awful; he had gotten other people to buy Cleveland’s Worst Mill too.
There was nothing he hated more than selling people investments that lost them money. He couldn’t stand disappointing people. This was what it had been like back in the sixth grade when the Cities Service Preferred stock he’d gotten Doris to invest in was clobbered. She hadn’t hesitated to “remind” him about it, and he’d felt responsible. Now, he would do anything to avoid the feeling of letting someone down.
Warren began looking for any way to make himself less dependent on the job he was starting to hate. He had always enjoyed owning businesses, and decided to buy a gas station with a friend from the National Guard, Jim Schaeffer. They bought a Sinclair station that was next to a Texaco station “that consistently out-sold us, which drove us crazy.” Warren and his brother-in-law Truman Wood, who had married Doris, even worked at the station themselves on weekends. They washed windshields “with a smile”—despite Warren’s aversion to manual labor—and did everything they could to attract new customers, but instead drivers continued to pull in to the Texaco station across the street. Its owner