The world according to Warren Buffett

As financial firms collapse and sharemarkets gyrate, commentators and politicians are arguing over the why and what happens next. One man is shrewdly taking action - spending up large, taking keystone investments in flagship companies.

Warren Buffett is the man of the moment, a man in his element.  What makes him tick? Denise McNabb delivers an exclusive advance review of Buffett's first authorised biography.

When each of the Buffett children turned 10 their stockbroker father, Howard, would take them on a trip from their home in Omaha, Nebraska, to the east coast of America.

Young Warren knew exactly where he wanted to visit - the Scott Stamp and Coin Company, the Lionel Train Company, and the New York Stock Exchange.

It was 1940 and memories of the 1929 sharemarket crash were still raw.

On their way to Wall Street, Warren's father decided to drop by one of the city's largest brokerage firms, Goldman Sachs. It had a small office in Omaha but Howard Buffett had never met its boss, Sidney Weinberg. Buffett thinks Weinberg agreed to see his father because he had a child in tow. Weinberg gave them 30 minutes.

 "He was the most famous man on Wall Street,'' Buffett recalls in his just-released biography The Snowball, written by Alice Schroder with his full co-operation and with unfettered access to his files, family and friends.

"As I went out, he [Weinberg] put his arm around me and he said  `What stock do you like, Warren?'

"He'd forgotten it all the next day, but I remembered it forever.''

Two weeks ago, amid the rubble of once-mighty investment banks and the trillion dollar US financial crisis, 78-year-old Warren Buffett's Berkshire Hathaway Inc tipped US$5 billion into Goldman Sachs stock, giving one of the two remaining Wall Street investment banks a credit lifeline. He followed up by  pouring US$3 billion into General Electric.

He also sounded warnings about the dire consequences for the US economy if the Senate didn't accept the White House's US$700 billion bailout of the financial system; "The nation will face its biggest financial meltdown in American history.''

He described the financial collapses resulting from the sub-prime mortgage crisis as "the United States's economic Pearl Harbor.''

He reminded television viewers of the US Government's low cost of borrowing and its staying power for the rescue plan investing in mortgage-related securities (the main cause of the present financial meltdown). Bedrock prices meant it would make money, he said. He just wished he had enough cash to share equally in the bailout.

Buffett also drove home the effect  in the present market of derivatives, which he has described as "financial weapons of mass destruction''.

The snowball of the book's title is an investment metaphor for compounding returns, a method that has made Buffett blindingly wealthy. By Forbes' measure, Buffett's wealth positions him in any of the top four placings of the world's wealthiest, depending on the stock prices of the day. This week he's worth around US$58 billion.

Microsoft founder Bill Gates jockeys for top position on the wealth list and he and Buffett are buddies. Buffett helped Gates and his wife Melinda chose their engagement ring, was guest of honour at their wedding and sometimes shares a game of bridge with them. Theirs is an unlikely pairing given Buffett's long-held disdain for technology stocks. He was a lone wolf railing against the dotcom revolution until the bubble burst.

 The Snowball spans 961 pages . Schroeder, an insurance industry analyst at Morgan Stanley, was commissioned by Buffett to write it after she impressed him with her insight and analysis of Berkshire Hathaway, the company Buffett runs and in which he holds the biggest stake.

In this the first  sanctioned biography of the man, we learn he was no ordinary child. At age 11 he declared he would be a millionaire by the time he was 35. By the time he reached that age he was one  many times over.

"Among the many lessons, some of the best comes simply from observing him. Here is the first: humility disarms,'' says Schroeder.

Her portrait of Buffett's childhood is astonishingly frank and intimate. He adored and respected his father, Howard, a grocer's son who gave up a lowly wage in journalism to become an insurance salesman, then a sharebroker, before entering politics as a senator.

He didn't appear to have the same affection for his mother, who by all accounts was a temperamental and judgmental woman whose mother, grandmother and later sister ended  in mental institutions.

Buffett's obsession with making money permeates the book and every aspect of his life. His fundamental premise is to buy sound stocks that historically have sales that have grown annually, are well run, have durable competitive advantage and will most likely be around in 20 years.

Above all, spend less than you make.

At the core of his business values is the inner scorecard. As he puts it:

"If the world couldn't see your results, would you rather be thought of as the world's greatest investor but in reality have the world's worst record? Or be thought of as the world's worst investor when you were actually the best?''

Buffett's photographic memory for figures and a will to turn any enterprise he could think of into cash started at a very young age. He asked Santa Claus for a book on bonds when he was seven. Be it stamp trading, gathering spit-stained winning tickets at horse races discarded by ignorant punters, installing pin ball machines in barbershops, running racetrack tip sheets, doing paper rounds or flogging used golf balls, if there was a buck (in his mind, always $5 ) to be made, he found it.

His were largely lonely pursuits and as Schroeder reveals, he was a complex personality; introverted, dishevelled, untidy, and as a youth, immature for his age, anti-social and inadequate around girls and later, the women whom he depended on.

He got into Columbia University after failing the entrance test to Harvard (it wanted leaders, not sharemarket whizzes) but at Columbia he fell on his luck when Ben Graham, author of iconic stock market investment book The Intelligent Investor became his tutor and mentor.

Buffett married Susie Thompson, the love of his life for 47 years until she died four years ago. They had three children and although she left the marriage in 1977 in San Francisco to pursue a cabaret singing career, they fronted as a married couple all their life together.

She introduced him to a friend, Astrid Menks, who was his "companion'' for more than 20 years. He married Astrid two years ago.

- © Fairfax NZ News