The NotMakingThisUp Interview with Alice Schroeder

JM: First of all, Alice, congratulations on having written a book—that isn’t easy. Second, congratulations on the book being successful enough to warrant a paperback—that isn’t as common as it used to be.

AS: Thank you very much. And congratulations on your very successful book.

JM: Thanks. What was the worst part—not the hardest, but the worst—about writing the book in the first place?

I never reread The Snowball if I can help it. The fear monster glares at me from its captivity inside the book. Better to just shut the covers and leave it there.

JM: Understood. What was the best part of writing “The Snowball”?

I learned to write narrative nonfiction. Some days the words well up inside you and you know they are coming from somewhere outside yourself. To experience that sense of grace is why writers write. This experience changed my life in so many ways that I can’t recount them in a paragraph.

AS: According to both my agent and editor, every writer sees the flaws in their book, real and imagined, as soon as they open the covers. And it’s true.

JM: You bet. Now, the new, paperback version of “Snowball” is shorter, but I honestly couldn’t identify major chunks that you removed—and that is no easy feat. What did you remove and who decided what to take out?

AS: I did the cutting myself, which was essential, and removed words, phrases, and sentences to condense stories when possible rather than wholesale cutting. I had to make some tough decisions. One story that was hard to cut, for example, was the story of Warren’s silver investment in the chapter “Semicolon.” He had bought almost a third of the world’s silver supply. He wanted to go to London to visit the silver, and pictured himself in the vault, enjoying the feeling of being surrounded by all those silver bars. What an image.

As your book points out, his wife left him—physically, at least—after 25 years, and his children, in their formative years, appear to have occupied his mind less than 10-Ks and 10-Qs.

Indeed, subheadings in your book’s index under “Warren Buffett” include, and I am not making this up, ‘attention-seeking,’ ‘emotional frugality,’ and ‘focus, total absorption and obsession.’

Isn’t one subtext of your book that WB failed where it really matters in the “business of life?”

Lastly, readers might be interested to know that a professional indexer creates the index. This is a real job – indexer — I am not making this up. Other terms she chose: complex personality, honesty, sense of rectitude, sentimentality, showmanship, personal growth after Susie’s death.

JM: You interviewed a lot of people for your book. First, what was your relationship with Susan T. Buffett, and how comfortable were you interviewing her?

AS: I met Susie the day I first interviewed Warren as an analyst. The first five years we barely knew each other. It wasn’t until the book got going that we started getting acquainted. Susie’s very comfortable to be around. One time she took me down to Glide Memorial Church to see the gospel choir rehearse, and we had dinner with the Reverend Cecil Williams and his wife, Janice Mirikitani. I’ve had a couple of meals with Susie, and her eating habits were nearly as appalling as Warren’s, incidentally.

As you would expect from reading The Snowball, when I was interviewing Susie, she didn’t want to talk about herself, but was forthcoming about Warren. She was diagnosed with cancer six months after I started working on the project, which limited the interviews we were able to do. That was too bad. She was a wise woman.

JM: Who was most fun to interview?

AS: Warren, of course. He’s nonstop funny as well as always teaching you things. Among the rest, my favorites, hands down, were the older people. The actuarial tables were not working in my favor, with so many people of Warren’s generation and older to interview, so I started with the oldest first – those over age ninety – and worked my way down. We so rarely spend generous amounts of time with our elders. I was able to do it often and at length. It was a privilege to spend so many hours among people who had accumulated such a great store of wisdom.

JM: Who gave you the most insightful view of Buffett?

JM: Speaking of those last, in your acknowledgements you cite “those who asked not to be named”: what, in general, did those who didn’t want to be named have in common?

AS: They wanted the truth to be told, and were afraid of retaliation if they were named.

JM: Wow. Okay. One final question along this line: there’s a quote late in the book (Page 694 in the paperback), about how Buffett held off on endorsing Obama “until it became irrelevant.” You write:

As one observer put it, “Warren only ever wants to back winners. Your real friends are the people who are there for you even though it might cost them something.”

That sounds remarkably catty for a true friend of Buffett to say. Buffett is a guy who won’t sell the Buffalo News even knowing its value is going to zero and who almost never fires a CEO, even if the business is underperforming. I suspect it was said by a political acquaintance. Am I wrong about that, and do you agree “he only ever wants to back winners”?

AS: To help and endorse and support your friends when they are in need is different than making business decisions about underperforming assets and people. The quote you refer to came from a close friend of his who has no involvement in politics, and is simply one of the people who have been hurt. I would describe it as a wounded, not catty statement.

By the way, as you can tell from The Snowball, people who’ve been hurt by Warren almost always rise above it, and still love him in the end.

JM: You became the first major sell-side analyst (we call them “Wall Street’s Finest” here—no offense, I hope) to cover Berkshire Hathaway after Buffett merged with Gen Re. You gained enough of Buffett’s respect that he regularly appeared at your famous (among Buffettologists) Friday night dinner in Omaha during the annual meetings, and ultimately gave you his blessing to write what was perceived to be his one and only authorized biography.

How did your own personal view of Buffett change from the first time you ever met him to the day “Snowball” was published—and how about as of today?

When I knew Warren as an analyst he was an awe-inspiring, almost infallible-seeming figure. Fortunately he didn’t care about the stock’s rating, and I believe he might even have been perversely pleased had I put a sell rating on it, so that he could show off how little he cared and make a point about Wall Street. (I didn’t, and it would have been a mistake to do that during the time I followed BRK).

Once I got to know him better he became real, fallible, even fragile. His achievements actually seem more impressive to me with hindsight. To start out in life with a family like his and accomplish what he has done is, in my opinion, a greater feat than the public generally gives him credit for. Whereas the hero-worship of Warren Buffett has been overdone, his real accomplishments are underappreciated.

Today, he seems the same person as when I finished the book. The test of whether you’ve done good research is how well you can predict and, more important, explain your subject’s behavior. Warren rarely surprises me, and I nearly always understand his motives.

JM: You wrote extensively—I’d guess too extensively for most Buffettologists, not to mention for Buffett himself, if the rumors are true—of his personal life. In fact, you named his first wife’s lover. Having been a Wall Street analyst and having written a book about Warren Buffett, I know it is not easy to write something unflattering about a person you both like and admire.

How hard was it to physically put those words down in a book that would be read by WB, not to mention his best friends and family?

Also, where did the worst reaction come from, and do you think you could have or should have done anything differently?

Warren knew my work as an analyst. He knew that I was dogged about research and that I had a history of writing things that were true even if they upset people. He chose me for this project anyway. He may have thought, who knows what. That in exchange for such complete cooperation, I would owe him the loyalty of writing the version he wanted. As many people would. Nonetheless, he knew what he was getting when he chose me. That was not an accident.

From time to time, I talked to Warren, and my agent talked to Warren, to let him know that he wasn’t going to like, or even necessarily agree with, some aspects of the book. He continued to cooperate with me throughout. Warren read the book in July 2008, right before it went to the printer.

I wouldn’t do anything differently with hindsight. This was an important book that needed to be written. I made a considered judgment based on the readers’ needs, and have tried to set my own feelings aside.

JM: The results speak for themselves, I’d say. Now, moving beyond the personal, while researching “Pilgrimage to Warren Buffett’s Omaha,” my thought process on Berkshire changed: I went in thinking Buffett the Investor could be replaced by an equally rational investor, while Buffett the Manager could be replaced by anyone who merely left the Berkshire companies alone.

However, I came out thinking Buffett the Investor may not need to be replaced—because the investment portfolio is so minor relative to the businesses Berkshire now owns—while Buffett the Manager can’t be replaced for the simple reason that nearly all those Berkshire companies are run by individuals who sold to Warren Buffett, not to Howard Buffett and the Board of Directors. Furthermore, it seems unlikely that families who might want to sell to Warren Buffett would feel comfortable selling to a David Sokol on anything like the terms Buffett would get.

What’s your take?

I am not in the camp that believes it must be broken up. That’s conceivable, but not necessary. The most critical issue is choosing good operating managers. Undoubtedly many of those who are running the businesses now will retire when Warren leaves. They have hand-picked their successors without much, if any, oversight from Warren. The next CEO will need to approach the turnover as an opportunity, not a problem, if he wants to succeed. It is, for example, an opportunity to improve diversity in Berkshire’s leadership.

Journalists and analysts disclose whether they own a stock, but interestingly, they aren’t ever asked to disclose whether the investment is material to their net worth. After the book was published and I’d said my piece, I did buy some BRK. It’s not significant to my net worth.

JM: I meet an inordinate number of people who have personally met Buffett and/or Munger in one way or another—finance (Buffett), real estate (Munger), charity (Munger), and education (Munger also)—and I’ve heard some great stories.

You must hear things all the time: what’s a favorite story, or a favorite interaction of your own with them, that you didn’t include in the book?

What’s your take on Charlie?

Your time will not be wasted talking to Charlie. Usually he’s got something very interesting and insightful to say. It’s better to listen when you’re around Charlie than to try to talk. The phenomenon I wrote about in the book, about him turning his head off when other people are talking, is very much in evidence at times. He’s really a treasure. I enjoyed interviewing Charlie immensely.

JM: I bet. Now, back to Warren.

Is it really all about him?

He’s so open about his self-orientation that it’s quite disarming, even part of his charm. He seeks out people who are comfortable with one-sided relationships, and once said that he felt he served Susie and Astrid by being a “taker,” because they loved to “give.” I thought that was pretty astute of him. He’s got a knack of making codependency work for the people involved, which is why people love him even after they get hurt.

JM: Buffett is known as a guy who “tap-dances to work,” and is so comfortable in his rational approach to the market that he could turn things off and nap whenever he needed to. When did he start taking sleeping pills?

AS: Warren is not a big self-medicator, unless you count work, sugar and caffeine. He loves going to work. It really is the highlight of his day. Work is his stress-reliever. He told me he’s never been a great sleeper, and I’m sure that’s true. He goes through withdrawal from work, and he can’t play bridge in his sleep. He’s got a major case of monkey mind, as the Buddhists would say.

So how does he sit on the board of Coke while its CEO starts promising growth targets—which Buffett hates—that leads to channel-stuffing and an SEC investigation?

Does he really hate confrontation that much? Or can he simply rationalize his way out of anything?

Warren divides the world into matters for which he has assumed personal responsibility and everything else that is not about him. Where he’s taken responsibility and will be judged for it, he’s uncompromising with himself, and even a micromanager. Otherwise, he “abdicates,” to use Tom Murphy’s term.

With both the operating managers and the CEOs of the companies who’s boards he’s sat on, the point at which he takes action is when the damage done by others could reflect on his reputation. The best example is Coca-Cola. He was passive until the crisis, then took on a role so active it shocked people.

JM: Understood. In the paperback “Snowball,” which is updated to cover the financial crisis, you make the excellent point that Buffett’s derivatives position handcuffed him during the market collapse last year. But instead of taking sides on whether Buffett should or shouldn’t have sold puts with $37 billion in notional value on the market near the peak, let’s invert the question in a manner of speaking, as Charlie Munger likes to do, and look at the sale of puts this way: What does it mean that he did it?

Does it mean that he had become as complacent as everyone else, despite years of warning about “ticking time bombs” and “financial weapons of mass destruction”?

It’s dicey to second-guess an investor as successful as Warren Buffett. Chances are he will be proved right on those puts and they’ll be profitable. I do think Warren, in his focus on the long-term, missed how much the short-term volatility of the market would affect others’ perceptions of Berkshire’s day-to-day financial strength. Berkshire had an awful lot of market exposure going into the crisis, and unfortunately, during the bloodbath, it didn’t look like the Ft. Knox of capital to the rating agencies.

JM: Okay. And last but not least—you. You describe yourself as “a full-time writer.” What’s next?

AS: I’m working on another book, subject undisclosed except that it’s not a biography. I have been approached to write a biography by several other well-known people, but said no. Right now my interests lie elsewhere.

I’m also writing a column on general topics for Bloomberg, roughly once a month, which has been incredibly enjoyable. Occasionally I’m also writing other short pieces, for example, like this, or for The Motley Fool or Huffington Post. You can find these at my website,