Becoming Berkshire: 1930-1949 An Oracle is Born
Issue 1| 1930-1949—This issue introduces our main character, Warren Buffett, as we gain insight into the person who would later become the Oracle of Omaha.
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I started Becoming Berkshire over a year ago; this was the first issue released. Given the much larger base of subscribers, I decided to rerelease my earliest issues.
Warren Edward Buffett was born on August 30th, 1930, nearly ten months after the infamous Black Tuesday Wall Street crash, where the market dropped $14 billion in a single day. The 1930s in the United States began with a historic low: more than 15 million Americans—fully one-quarter of all wage-earning workers—were unemployed. President Herbert Hoover did not do much to alleviate the crisis: Patience and self-reliance, he argued, were all Americans needed to get them through this "passing incident in our national lives." The Dow Jones Industrial Average Index ('"Dow Jones"), often seen as a critical measure of broader economic health, opened at 244.30 in 1930 and fell 33.77% to 157.51 by year-end.
From an early age, son of Howard and Leila Stahl Buffett, Warren was fascinated with collecting, counting, and memorizing. He would record the license plate numbers of passing cars, calculate the life span of Hymm composers and horse racing odds, and memorize baseball statistics and city populations. However, Warren’s most immense love was money. At ten years of age, Warren announced he would be a millionaire at age 35 ($20 million in 2023), an outlandish statement from a kid who grew up during the Great Depression.
For the Love of Money
Ages Six-Ten (1936-1940)
One of his earliest prized possessions was a nickel-coated money changer that he would strap to his belt while he sold Chicklets and lemonade.
“I had this little green tray… It had containers for five different brands of gums. I would buy packs of gum from my grandfather and go door to door in the neighborhood selling this stuff."1 If a customer wanted only one stick of gum out of the pack of five, he would refuse. “We don’t break up packs of gum — I mean, I’ve got my principles. I still, to this day, remember Mrs. Macoubrie saying she wanted one stick. They were a nickel and she wanted to spend a penny with me.” 2
However, Warren would sell individual cans of Coca-Cola door-to-door on summer nights. Soda pop was more profitable than chewing gum: He netted a nickel for every six bottles and stuffed these coins proudly into the nickel-coated money changer on his belt.3At age 9, he was selling used golf balls at the local golf course, and at age 10, he was selling peanuts and popcorn at the University of Omaha Football games.
Warren’s father, who started a stock brokerage during the Depression, took Warren to the New York Stock Exchange at age 10, where they met and talked with Syndey Wienberg, partner of Goldman Sachs, for about 30 minutes. The story is recounted in Alice Schroeder's noted biography of Buffett, Snowball. Schroeder writes that then Weinberg put his arm around Buffett and asked him what stock he liked.
"He'd forgotten it all the next day," Buffett says in the book, "but I remembered it forever." As fate may have it, Buffett would later repay the kindness in 2008, when he purchased $5 billion of preferred stock in Goldman Sachs during the height of the financial crisis. Also, I would be remiss not to mention the illustrative career of Mr. Winberg from janitor assistant at age 16 to Partner at Goldman Sachs.
From there, Warren had lunch at the stock exchange with his father and a fellow named At Mol.
"At lunch, a guy came along with a tray that had all these different kinds of tobacco leaves on it. He made up a cigar for Mr. Mol, who picked out the leaves he wanted. And I thought. This is it. It doesn't get any better than this. A custom-made cigar."4
Warren, a child of the depression, was shocked that one would pay a man for such a frivolous task. "The Stock Exchange must pour forth streams of money: reivers, fountains, cascades, torrents of money, enough to hire a man for pure frippery of rolling cigars - handmade, custom-made cigars."5 It was then that Buffett knew that the stock market would make him rich. And Warren needed to be rich to achieve his goal of not having a boss.
"It could make me independent. Then I could do what I wanted to do with my life. And the biggest thing I wanted to do was work for myself. I didn't want other people directing me. The Idea of doing what I wanted to do every day was important to me."
"I'm not a businessman; I'm a business, man."
Age 11-15 (1941-1947)
By 1942, Warren invested his life savings and his sisters’ money into his first stock, Cities Service Preferred. He purchased three shares at $38 per share. The stock immediately plunged to $27 a share. Subsequently, it rose to $40, and Warren sold it for a net profit of $5 per share. However, the stock would climb to $202 a share.
Warren learned two lessons from his first investment in securities.
Do not overly fixate on the price you have paid for the stock.
Do not rush to grab a small profit.
Cities Service Natural Gas would later be acquired by Occidental Petroleum in 1982. The same company, Berkshire Hathaway, would later take a $5.1 billion stake 80 years after he sold the stock. (You can’t make this shit up).
In 1943, Warren worked at his Grandpa's Grocery store, Buffett & Sons. Ernest Buffett6, a stern man who believed in "work, work, plenty of work," let Warren live with him for the summer while his family lived in Washington for Howard's first Congressional term.7 Warren did not enjoy his time at the grocery. "I may have been the lowest-paid person ever working in the grocery business. I didn't learn anything- except that I didn't like hard work." 8 Warren always thought that "Manual Labor is for the birds."
Back at Washington, Warren found himself a paper route delivering The Washington Post and Times Herald. Warren would wake up at 4:30 in the morning to deliver copies of The Washington Post, and he challenged himself to find ways to serve each of his five buildings faster. Then he found ways to track when the houses along his route had magazine subscriptions expiring and sold new subscriptions on the side, along with calendars.“I liked to work by myself, where I could spend my time thinking about things I wanted to think about.” Warren would later invest in the Washington Post and sit on the Board.
When he wasn’t delivering newspapers, Warren was committing petty larceny at Sears Roebuck (yes, you read that correctly).
“We’d just steal the place blind. We’d steal stuff for which we had no use. We’d steal golf bags and golf clubs. I would walk out of the lower level where the sporting goods were up the stairway to the street, carrying a golf bag and golf clubs, and the clubs were stolen, and so was the bag. I stole hundreds of golf balls.”9
While Warren states that he did not sell the golf balls, he coincidently started his first business, Buffett's Used Golf Balls, in high school. Berkshire would later take a $70 million stake in Seriage Sears Real Estate in 2015. 10
At the end of 1944, 14-year-old Warren had made more than $592.50 ($10,000 in 2023) in annual income, and the IRS rules at the time required a return be filed. He paid $7 in taxes after deducting watch repair at $10 and miscellaneous bicycle costs, adding up to $35. Warren's net worth at this time was around $1,000 ($16,500 in 2023 dollars).
At the age of 15, a sophomore at Woodrow Wilson High School, his net worth was $2,000 ($33,000 in 2023). Warren purchased a 40-acre farm in Nebraska, dividing the profits 50/50 with a tenant farmer who lived on the land.
Warren started several ventures in high school, from Buffett’s Used Golf Balls to Buffett’s Approval Business and Buffett Showroom Shine. Still, Mr. Wilson’s Coin Operated Machine Company was his most profitable during his adolescence. The business involved setting up used pinball machines in barber shops.
I bought this old pinball machine for 25 bucks, and we can have a partnership. Your part of the deal is to fix it up. And lookit, we’ll tell Frank Erico, the barber, ‘We represent Wilson’s Coin-Operated Machine Company, and we have a proposition from Mr. Wilson. It’s at no risk to you. Let’s put this nickel machine in the back; Mr. Erico and your customers can play while they wait. And we’ll split the money.”
After the first day, the machine brought in $4, and after a week, the machine brought in $50, and Warren and his partner took their share ($25) to purchase a second pinball machine. However, the mob controlled the pinball machine business then, so Warren had to be selective with its locations. Warren and his partners sold the business for $1,200 ($20,000 in 2023) before heading to college.
Warren graduated high school in June 1947 at 16 with a net worth of around $5,500 ($84,000 in 2023). He ranked 16 out of 374 students, and his yearbook picture read, "likes math, future stockbroker." The Dow Jones ended the year at 181.16, up 2.23% from the prior year.
Schroeder, Alice. The Snowball: Warren Buffett and the Business of Life, 2008, pp. 55.
(Schroeder 56).
(Schroeder 58).
(Schroeder 59).
(Schroeder 59).
Earnest Buffett was writing but never published “How to Run a Grocery Store and a Few Things I Have Learned About Fishing.” Damn shame.
In 1942 he ran for the U.S. House of Representatives in the Nebraska district in which Omaha was located. In that election, Buffett was seen as "a Republican sacrificial lamb in Nebraska's second district when FDR was a popular wartime leader." Nevertheless, he went on to win the Republican nomination in the primary and then the subsequent general election.
(Schroeder 71).
(Schroeder 81).
Seritage Growth Properties is a real estate investment trust that emerged from the Sears bankruptcy.