PDF Summary:The Snowball, by Alice Schroeder

How did one of the wealthiest people in the world come to be defined not by his riches, but by his reputation for honesty and wisdom? In the field of high finance, Warren Buffett stands alone as a man not driven by appearances, ego, or the quest for an easy dollar. But is his homespun persona as authentic as it seems, and what fuels his relentless pursuit of money while keeping his integrity intact?

In The Snowball, business writer Alice Schroeder seeks to answer these questions, and she does so with full access to Buffett’s life, connections, and personal records. In this guide, we’ll look at Buffett’s roots, his drive for personal independence through wealth, and the values of stewardship and honesty that have governed his actions as a financial titan, while framing his life in historical context and in terms of the impact Buffett has on the world.

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Insurance as a Source of Capital

Buffett describes this process in detail in his 2010 letter to Berkshire Hathaway shareholders. In it, he explains that between the time when an insurance company collects its premiums and the time when it pays out its claims, that money is available for use in investing. During a year in which the total collected in premiums is greater than the total paid out in claims, the excess value is free income that the insurance company’s owners—in this case, Berkshire Hathaway itself—can use to finance other endeavors.

Buffett is careful to state that the insurance industry on a whole doesn’t produce a steady stream of free cash. Berkshire Hathaway’s position is unusual, which he attributes to the excellent managers of the companies in its portfolio. The excess cash funneled into Berkshire Hathaway from its insurance companies grew from $16 million in 1967 to $62 billion in 2009. In Poor Charlie’s Almanack, Buffett’s partner Charles T. Munger points out that Berkshire Hathaway’s stellar returns become harder to repeat as their insurance capital grows—it’s easier to invest millions than it is to find companies where you can invest billions.

Buffett in the ’80s

In 1980, the dismal market of the ’70s finally turned around, and the bets Buffett made with his investments paid off in spades. To simplify the many joint holdings he had with Charlie Munger, Blue Chip Stamps merged with Berkshire Hathaway, so that Buffett and Munger became partners. Schroeder says that neither was interested in liquidating assets for quick gains. In a report to shareholders, Buffett and Munger declared that they wouldn’t sell off any business so long as it made even a little bit of money. The only notable casualty was Berkshire Hathaway’s original textile business, which Buffett eventually had to shut down.

The ’80s were the era of the hostile takeover, with unscrupulous corporate raiders buying up ailing companies, carving them into pieces, and selling off the scraps for easy money. Schroeder writes that Buffett was appalled at the way this process transferred wealth from shareholders (where it belonged) into the hands of greedy managers, brokers, and bankers.

(Shortform note: In The Essays of Warren Buffett, Buffett lambasts the practice of “leveraged buyouts” in which raiders weaken and dismantle corporations for easy gain. He raises the issue of corporate social responsibility—that one of a corporation’s moral functions is to remain fiscally robust enough to protect its employees and stakeholders in times of volatility.)

Buffett’s sense of stewardship was clear in how he shepherded companies through difficult times. He was now a billionaire, and in the ’80s he used his wealth to buy up businesses in order to protect them. He invested huge sums into struggling companies like Coca-Cola, ABC, and the Wall Street investment firm Salomon Brothers. (The latter was Buffett’s first financial stake in Wall Street itself, which Schroeder says he would later regret.) The way Buffett cut deals to save embattled corporations gave him a reputation as a backroom insider, but at least that was better than being seen as a corporate shark.

(Shortform note: Among the well-known corporate raiders of the ’80s were Carl Icahn and Ronald Perelman. Icahn is remembered for his hostile takeover of the airline TWA, from which he made nearly $500 million while saddling the airline with a staggering amount of debt. Perelman, who competed with Buffett for ownership of Salomon Brothers, is best known for his takeover of Revlon. The negative public image of the “hostile takeover king” was solidified by Michael Douglas’s portrayal of the fictional Gordon Gekko in the 1987 movie Wall Street.)

Accumulating People: Finding a Family

Despite Buffett’s longing for independence, he spent his life accumulating friends as much as he spent it making money. Schroeder hints that because of Buffett’s lack of emotional connections in childhood, he spent his adult life forging intense relationships with others. Of the many people drawn to Buffett, several stand out in particular: his wife, Susie Thompson Buffett; his business partner Charles Munger; his close companion Katharine Graham; and tech giant Bill Gates.

Growing up, Buffett was awkward with women, but in 1950 he fell for Susie Thompson. Buffett studied public speaking in the hope of overcoming his awkwardness with women, and when that didn’t work he wooed her parents instead. Schroeder claims that it was Buffett’s vulnerability that finally won Susie over. She had an urge to take care of others, and she wanted to give him the love and support he’d never received as a child. They married in 1952 and had three children: Susan, Howard, and Peter. Buffett and Susie made it a point to raise their children to not take money for granted. Buffett promised to pay for their education, but not to give them the easy trust fund life that other children of the wealthy enjoyed.

(Shortform note: In a 2013 interview with CNN, Buffett said that Susie “helped him grow up” from a time in which he didn’t have a good opinion of himself. In Getting the Love You Want, Harville Hendrix and Helen LaKelly Hunt explain that people unconsciously seek out romantic partners whose traits balance those that are repressed within themselves. However, Hendrix and Hunt also point out that the very characteristics that bring people together—for example, Buffett’s need to be mothered—are the same ones that eventually drive them apart.)

By the ’70s, Susie grew depressed about the state of their marriage, feeling that while she cared for Buffett’s needs, he failed to acknowledge hers. However, she didn’t want a divorce. Instead, she moved to San Francisco and arranged for her friend Astrid Menks to cook and clean for Buffett in Nebraska, taking over Susie’s homemaking duties. Schroeder claims that Susie convinced Buffett this wasn’t a separation, but once it sank in that their marriage was over, Buffett was devastated and blamed himself completely. He and Susie still spoke on a regular basis and appeared together at public functions. Astrid kept a low profile so as not to spoil the public illusion that Buffett and Susie were together.

(Shortform note: Despite Buffett’s public persona as an embodiment of traditional Midwestern values, his continued marriage with Susie was anything but usual. Buffett’s daughter Susan praised her parents’ marital arrangement as something that allowed them both to be happy and pursue the lives they wanted. Unlike the stereotypical marriage of convenience in which couples stay together for the sake of their children or financial stability, Buffett and Susie continued to support and love each other from afar.)

Of all the people in Buffett's ever-growing network, there was one who’d become like a surrogate brother. In 1959, Buffett met Charles Munger, a California lawyer who shared many of his values, including his drive for financial independence. Munger and Buffett clicked right away, and Munger built his own network of partners based on Buffett’s model. After Buffett dissolved his other partnerships, he and Munger became inseparable friends, to the point that they could finish each other’s thoughts.

(Shortform note: More than merely being Warren Buffett’s shadow, Charles Munger is a respected financial giant in his own right. Munger, the author of Poor Charlie’s Almanack, occasionally clashed with Buffett about business decisions, such as whether to invest in Costco or electric car maker BYD. Munger has recently made a name for himself as an outspoken critic of cryptocurrency, using much more colorful language to describe it than Buffett ever would.)

While Buffett’s marriage to Susie was breaking down in the ’70s, he formed an intense emotional bond with Katharine Graham, publisher of The Washington Post. He approached her about investing in her paper, and though she distrusted him at first, she was quickly taken in by his authenticity. Graham introduced Buffett to the ways of high society, while he mentored her on business and public speaking. Schroeder writes that they shared the bond of having been raised by abusive mothers and that they grew so emotionally close that many friends assumed they were having an affair.

(Shortform note: Despite Buffett and Graham’s relationship being described as flirtatious, there’s no evidence that they were anything more than close friends. In her memoir Personal History, Graham downplays Buffett’s role to that of a trusted financial adviser. It may be more accurate to describe them as “work spouses,” close friends who relate over aspects of their careers in ways that their other loved ones cannot. Studies have shown that nearly half the people in the workforce have had such close relationships at one time or another.)

After finding a brother in Charles Munger and a work spouse in Katharine Graham, Buffett met Bill Gates, a young man like-minded enough to carry his legacy as an intellectual son. He met Gates in 1991, and though Buffett was leery of tech companies, he connected with Gates’s intensity of focus. They shared many ideas on business, and Buffett saw Gates as someone he could mentor. Beyond that, says Schroeder, Buffett was impressed by the efficiency of Gates’s charitable foundation. Buffett needed somewhere to channel his money after his death, and in Gates he found someone he trusted to be the steward of his wealth.

(Shortform note: Reflecting on their friendship, Bill Gates said in 2019 that he still looks on Buffett as a father figure, often asking himself when facing difficulties, “What would Warren do?” For Buffett’s 92nd birthday in 2022, Gates posted a series of photos on Instagram to commemorate their time together. The Wall Street Journal did the same, highlighting their joint commitment to philanthropy.)

Personal Loss

The inevitable tragedy of Buffett’s long life was that of outliving the people he loved. In 2001, Katharine Graham collapsed and later died from an injury to her head. Susie, still acting as Buffett’s emotional caretaker, helped him through his period of grief. However, two years later, Susie herself was diagnosed with oral cancer. For the first time, it was Buffett’s job to take care of her, and Schroeder writes that the emotional shock was nearly more than Buffett could bear.

Nevertheless, Buffett supported his wife through her painful recovery. When Susie passed away in 2004, Buffett mourned her in seclusion for months. However, Schroeder notes that once Buffett eased back into his daily life, he began to shoulder more of his family and friends’ emotional needs. In 2006, Buffett married his longtime caregiver Astrid Menks, at last making their relationship public.

Buffett and Mortality

There are many different types of grief, and Graham’s and Susie’s deaths three years apart affected Buffett in different ways. Graham’s unexpected death came as a traumatic loss that brought with it a double dose of grief—that of the loss itself, and that of its unexpected nature. Susie’s was different in that her illness brought with it a sense of anticipatory grief—that in which someone mourns a loved one’s suffering before they’re even gone.

While Buffett was unprepared for the passing of his loved ones, he now says he’s at peace with the thought of his own mortality. And while many of his investors are worried about what will happen to his brand after his death, Buffett is confident that Berkshire Hathaway will be able to carry on without him.

Accumulating Influence: Leading by Example

Just as Buffett’s wealth grew throughout his life, so did his reputation. And just like his wealth, his reputation was built through slow perseverance and integrity. Buffett’s growing influence gave him a path to push for change through political activism and his role as a publisher, and (once people saw him as a titan of the Market) to advocate for equitable fiscal policies.

By the ’60s, Buffetts’ net worth had risen so high that Susie suggested that he should shift his focus from making money and start giving back to the community. In particular, Susie was a civil rights proponent, while Buffett (like his father before him) was intent on preventing another World War. However, Schroeder argues that Buffett saw himself as an “idea man,” rather than an active philanthropist. Making money was his gift, and his intent was to do so, earning as much as he could in his life before giving it all away at the end.

(Shortform note: Susie Buffett’s philanthropic activism is a trait she’d pass on to her daughter, Susan Alice Buffett, founder of the Sherwood Foundation, which funds social justice programs in Nebraska. Susan recalls going with her mother to take part in community service activities, stating that the elder Susie Buffett was more than just a “checkbook philanthropist.” In 2020, Susan Buffett carried on her mother’s legacy by playing an active role in revitalizing North Omaha, a historically underserved, low-income community.)

Nevertheless, Buffett and Susie both became active in politics and civil rights issues. While Susie worked heavily with the African American community, Buffett took personal steps against the antisemitism prevalent in Omaha’s elite. Despite his father’s staunch Republican leanings, Buffett became involved with the Democratic Party, actively supporting candidates in the 1972 election. Schroeder says Buffett’s interest in politics waned, but the election taught him the power of the press, which he’d employ through the newspaper he owned.

Warren Buffett’s Politics

Buffett’s association with the Democratic Party didn’t end after the ’72 election. His public political involvement reignited when Buffett and Bill Gates came out in opposition to President Bush’s estate tax cut, an issue that he brought back to the forefront in 2012, in conjunction with former President Jimmy Carter.

In 2016, Buffett supported Hillary Clinton’s presidential bid and contributed heavily to the Democracy Alliance via the Susan Thompson Buffett Foundation. In 2019, he gave nearly $250 million to the Democratic Congressional Campaign Committee, though he didn’t endorse or donate at all to President Biden’s election campaign, instead hinting at his personal approval of Mike Bloomberg’s candidacy.

One way he employed the power of the press was by commissioning The Omaha Sun to do an investigation into Boys Town, a Catholic-run shelter for homeless boys in Omaha. Buffett did some of the investigating himself, looking into Boys Town's tax returns, and discovered that the shelter was taking in millions of dollars in donations every year with no plan for what to do with the money. Schroeder says that to Buffett, this was an unforgivable failure of stewardship. The Omaha Sun broke the story in 1972 and won the Pulitzer for investigative journalism.

(Shortform note: The Omaha Sun’s article on Boys Town wouldn’t be the last link between Buffett and Omaha’s famous shelter for children. In 2018, one of Berkshire Hathaway’s insurance companies, Applied Underwriters, acquired 500 acres of land west of Omaha, 60% of which had previously been owned by Boys Town. A sizable chunk of the Boys Town property was slated to become an office park for the Buffett-owned company, with the rest to be developed for retail and residential development.)

Buffett and the Market

Civil rights, politics, and the media weren’t the only forums where Buffett had sway. Buffett’s influence on the market grew such that by the end of the ’80s, the SEC gave him permission not to disclose his trades for a year. Schroeder writes that the mere fact of Buffett investing in a company would push its value higher, with the common wisdom being that if Warren Buffett was buying a stock, that stock must be underpriced. On several occasions, companies used this to their advantage. The fact that Buffett never engaged in hostile takeovers made him attractive as a buyer, and public knowledge of his investments could halt a company’s downward slide.

(Shortform note: Other investors have referred to this influence as the Warren Buffett Effect. Modern examples of this effect in action include TV host Jim Cramer’s push to invest in banking stocks in response to Buffett’s increased shares in Bank of America. In 2020, United Airlines blamed the failure of a bond offering on Berkshire Hathaway divesting its airline stocks, a case of the Buffett Effect working in the negative direction.)

In the 2000s, Buffett started cashing in on his influence to speak out on fiscal topics and influence public policy. He argued against repealing the estate tax because of his disdain for inherited wealth, and he pushed for campaign finance reform because he was against money buying power. Schroeder says he fought against the practice of using stock options as a form of compensation, which let CEOs’ pay soar beyond their publicly listed earnings.

In the latter instance, accounting rules changed so that CEO salaries were accurately reported, revealing the staggering disparity in pay between executives and workers. Buffett’s actions made him a hero to many, except those among the elite who saw him as a traitor to his class. Buffett didn’t care. As devoted as he was to the pursuit of wealth, Schroeder says that his integrity was even more important.

Stock Options as CEO Compensation

In Lawrence A. Cunningham’s introduction to The Essays of Warren Buffett, he explains that Buffett’s view on stock options is more nuanced than Schroeder suggests. Buffett says that awarding CEO stock options was originally done with the best intentions—that of aligning management’s interests with those of a company’s shareholders. However, Buffett argues that in practice stock options allow CEOs to earn money simply by holding onto them, instead of by making the best use of a company’s capital.

Today, many corporations still award stock options as a way to boost CEO compensation, despite the fact that there’s no correlation between CEO pay and a company’s prosperity. A 2021 study by Harvard Business Review showed that stock options are only effective in situations where CEOs might otherwise misuse company resources for personal gain.

Buffett In Crisis: The Strength of Integrity

More than any other financial giant, Buffett was characterized by his simple honesty. While his integrity wasn’t a shield against every storm in life, it often provided a guiding star for himself and those around him. Buffett’s integrity enabled him to salvage the Salomon Brothers investment firm and let him speak out as a voice of reason during the 2008 financial crisis.

In 1991, Buffett’s integrity went on the line when Salomon Brothers (which Buffett had rescued in 1986) was caught violating regulations on bidding for government bonds. When it came out that Salomon’s CEO hadn’t reported the misdealings to the Federal Reserve or to the company’s board, the government threatened to cut off Salomon completely, effectively killing the business. Salomon’s management resigned as nearly $150 billion in short-term debt came due. Schroeder recounts that as the most respected investor, Buffett found himself thrust into the role of temporary chairman of the board.

By taking charge of a firm mired in scandal, Buffett risked his hard-won reputation. However, he feared that if Salomon defaulted on its debts, a global financial crisis would ensue. Schroeder says that Buffett begged the government to allow the firm to keep trading in bonds. In return, Buffett instituted a policy of absolute transparency toward the regulators investigating Salomon’s wrongdoing, waiving attorney/client privilege for the company. When Buffett testified to Congress, he took a hardline stance in favor of total honesty and corporate accountability, which prevented Salomon’s total collapse and painted Buffett as a hero in the eyes of many.

(Shortform note: By completely opening Salomon’s doors to regulators, Buffett instituted a policy of transparency that was unheard of at the time and is still rare today. However, unfiltered honesty has modern proponents in the business world. In Principles: Life and Work, Bridgewater founder Ray Dalio espouses his company’s policy of extreme transparency. In Radical Candor, Kim Scott says that organizational cultures based on openness rely on building trust between management and workers while challenging each other with honest criticism.)

The Rise and Fall of Salomon Brothers

Founded in 1910, Salomon Brothers came to prominence years later as a dealer in government securities when the US began to issue bonds in large numbers to finance its entry into World War I. Because Salomon didn’t trade heavily in stocks, it weathered the crash of 1929 better than most other firms. In 1975, Salomon was the primary dealer in bonds for the Municipal Assistance Corporation that was formed to rescue New York City from bankruptcy.

When testifying before Congress in the midst of the Salomon scandal, Buffett expressed his belief that reforms to the brokerage would make it the industry leader in corporate compliance to government regulation. In Nightmare on Wall Street, Martin Mayer argued that Salomon’s misdealings weren’t merely the result of a few bad actors, but were symptomatic of the lax financial regulatory system that prevailed during the 1980s. Salomon’s fortunes briefly rallied in the years immediately after the scandal, but it never regained its prominent position and was later absorbed into Citigroup.

The Collapse of 2008

The global crisis that Buffett feared did come to pass, and while Buffett’s fiscal conservatism protected the wealth of his investors, his status as the richest man in the world put him in a position where his leadership and integrity would be needed to help rescue a market in freefall.

Low interest rates in the early 2000s led to a boom in the housing market, as lenders pushed buyers into taking on debt, then used financial derivatives to spread the risk. These derivatives gave lenders a false sense of security, but Schroder states that in 2002, Buffett called derivatives “time bombs.” In 2007, home loans began to fail, triggering a meltdown in 2008 with the fall of the investment bank Bear Stearns and the federal mortgage companies Fannie Mae and Freddie Mac.

(Shortform note: Financial derivatives are notoriously difficult to explain in layman’s terms. A derivative is a financial product whose value isn’t based on an individual stock, bond, or other financial instrument, but on how that instrument performs over time. In short, a derivative is a bet between two parties on how well a segment of the market will perform. In addition to being complex and hard to understand, derivatives are vulnerable to the market’s emotional volatility because, unlike stocks or bonds, none of a derivative’s value is directly based on any tangible asset.)

Buffett kept a sharp eye on the situation. He declined to bail out Bear Stearns, which Schroeder argues would have been tantamount to throwing money away. As other banks fell like dominos, he did step in to help Goldman Sachs. When Congress refused to pass President George W. Bush’s $700 billion bailout, Buffett appeared on national television and urged them to change their minds. Congress did (although probably not because of Buffett), and his voice became a staple on many news outlets, with his call for rationality and responsible fiscal behavior.

(Shortform note: A detail of the crisis not mentioned by Schroeder but revealed in the HBO documentary Panic: The Untold Story of the 2008 Financial Crisis is that Buffett reached out directly to Treasury Secretary Hank Paulson. Buffett suggested that instead of merely using the newly passed $700 billion Troubled Asset Relief Program to buy up failing loans from banks, the government should invest directly in the banks themselves. The eventual bailouts the Treasury Department enacted were structured along the lines of Buffett’s own deal to save Goldman Sachs.)

Buffett the Teacher: Paying Wisdom Forward

Though Buffett grew to be a public figure later in life, he’d always been eager to speak out on issues close to his heart. When it came to business in particular, Buffett relished the role of educator and would expound at length to anyone who would listen. As his experience and influence grew, so did his platforms to teach other people, the ideas about business and life he could offer, and the financial power he was able to wield in order to lead by example.

His primary venue for teaching was his annual Berkshire Hathaway shareholder meeting, at which he would lecture and answer questions about why he made investments and how he viewed the market. According to Schroeder, by the end of the ’90s, over 10,000 people would attend to hear him speak. His favorite audience was college students, who he saw as being more flexible and receptive. What he wanted most was for people to learn and put into practice the principles and ideals he believed in.

(Shortform note: Video highlights of Berkshire Hathaway’s shareholder meetings are now freely available online. Attendance is limited to shareholders only, which at approximately $500,000 per share is a very expensive ticket to buy. When asked for investment advice at the 2022 shareholder meeting, Buffett answered that personal growth is the best investment anyone can make. In particular, he references Dale Carnegie’s public speaking course that helped him overcome his awkwardness in his youth and helped him grow into the teacher that he is today.)

In the realm of finance, his words echoed those of Benjamin Graham—that every stock has an intrinsic value, despite the short-term mood of the market. Likewise, Buffett taught that a person’s life had an intrinsic value, regardless of others’ opinions. He argued that people like himself were born into privilege, and it was their duty to aid those who weren’t. As Schroeder relates, Buffett taught that success wasn’t measured by wealth but by how much love was in a person’s life and what positive impact they left on the world.

In the latter case, Buffett taught by dramatic example, upending the ego-driven culture of rich philanthropy. In 2006, Buffett revealed his plan to give away $37 billion—the largest charitable gift in history. Most would go to the Bill and Melinda Gates Foundation, which he trusted to make the best use of his funds. The rest went to his children’s foundations and one in Susie’s name. Schroeder writes that Warren Buffett would leave nothing in his own name behind—no buildings, endowments, or grand memorials—except for the record of a life well spent.

The Giving Pledge

In 2010, Warren Buffett joined with Bill and Melinda Gates to challenge the richest people in the world to give the vast majority of their wealth to charity, either during their life or as bequests through their estates. In addition to encouraging the wealthy to give more, the Giving Pledge urges people to plan their philanthropy better and sooner. From 40 original signatories in 2010, the Giving Pledge has now been taken by over 200 billionaires.

One difficulty faced by the billionaires on the list is that their fortunes are growing too fast for their charitable giving to keep up. A biennial report from the Institute for Policy Studies suggests that the growing wealth disparity between the rich and the poor leads to fewer small donations, consolidating control of nonprofit organizations into the hands of the wealthy elite.

The Snowball Rolls On

In the wake of the 2008 financial crisis, 2009 proved to be the worst year on record for Buffett’s investments, which fell in value by nearly 10%. In 2011, Buffett broke from his policy of never investing in technology stocks to buy $10 billion in shares in IBM, which he would later sell at a loss. In 2016, he invested heavily in Apple, impressed by its profitability and leadership.

More than a decade after the publication of The Snowball, Warren Buffett’s net worth climbed to over $100 billion, despite his regular enormous gifts to various charitable foundations. Though Buffett resigned from the Gates Foundation board in 2021, which some media outlets characterized as Buffett trying to distance himself from Gates, Buffett pointed out that he was resigning from all corporate boards other than Berkshire Hathaway’s, and that his philanthropic goals remained in line with those of the Gates Foundation.

To silence worries about his own succession, Buffett named Greg Abel to be his eventual replacement as Berkshire Hathaway’s CEO. Now in his 90s, Buffett still lives in Omaha, Nebraska, in the house he bought for his family in 1958, along with his wife, Astrid Menks.