The Snowball: Warren Buffett and the Business of Life written by Alice Schroeder. I believe this is the most authentic summary of Warren Buffett and has a lot of his life lessons captured in great detail. Studying his life teaches us so many lessons.
I’ve been reading a lot of books these days. I’m just enjoying gaining wisdom from people who’ve been there and done that. Instead of getting this knowledge late in my 40s and 50s, I choose to read all these great books in my 20s. They say, “It’s never too late to be wise”. I say: “It’s never too early to be wise” and I cannot agree more after reading about Buffett.
Warren Buffett is currently the fourth richest man in the world and has been there in the list of richest men for a very very long time. Despite the fact that people claim stocks are risky, all his wealth is invested in stocks, except for the emergency funds which is in the treasury.
He started his journey in the 1940s with just $1000 and he’s now worth $80 billion or $80,000,000,000. In fact, even if he loses all the money today, he is going to become rich the very next day. How? This is because of the skillset and the reputation he has gained over the years. People will happily hand him billions to handle in the markets and he can simply charge 1% and take his million-dollar as fees. But he never does that.
Despite being the best money manager in the world, he doesn’t run a mutual fund or a hedge fund company. Because he is smart. He doesn’t want to be judged by people on short term and daily NAVs. He doesn’t want people to compare his returns to other mutual funds daily/yearly etc.
So he basically runs an insurance company where he gets premiums paid by customers upfront and use that money to buy companies. So in the back end, he is doing the same job as managing money but with more independence & without any pressure of answering anyone on daily returns. And the historic return of Berkshire Hathaway is proof that long-term approach and conservative investing wins—anytime and every time.
The stock price of Berkshire Hathaway has grown at an annualized rate of 20.9%. That’s more than double the Index—S&P 500’s average TOTAL return (including dividends) of 9.9% during the same time period. Don’t forget, that every 1% on top of 9.9% has the power to beat the WHOLE 9.9% in the long-term period. That’s just how the compounding works. To give you a hint, in 50 years, $1 at 9.9% grows to $112 and $1 at 20.9% grows to 13222. Surprising!??
He took over the company when the stock price was just $12.37 and now you can google it yourself to see where it is. It’s beyond $3,00,000. He not only made sure the company survives but also made it one of the best-performing stocks in the last 50 years—with a guarantee!
When he was very young, he made a bet with his friends that he will be a millionaire by 30 and he did become one. Why was he so sure about it? Because he understood the power of compounding, conversation investing, and its impact in the long run.
The Snowball: Warren Buffett and the Business of Life
This book was awarded many times by several magazines and news agencies. Let’s dive in straight to the quick summary and few of my important takeaways.
There’s a famous quote by him “Out favorite holding period is forever.” and he means every word of it. Usually, when buying a company, he makes sure he reads all the historic annual reports and all the relevant data to understands the competitive position. He usually visualizes where this company will be in the next 10-20 years.
Now a lot of people might wonder how does he make money if he doesn’t sell anything. Well, that’s the whole game of investing.
If you buy something with a mindset to sell later, you’re a trader. If you buy something to hold forever, then you can be called an investor. You can Google the list of fortune 500 richest men and check their average holding periods. It’s going to be much longer than you can imagine. There are some ultra-rich people who don’t sell their stocks for generations and pass it to their children.
They definitely have a lot of money diversified in different investments but they did it AFTER becoming rich, not while creating wealth. This is something vast majority of people miss out on understanding.
A little today or a lot later?
Buffett has this philosophy of sacrificing a little for a lot later and that has played a major role in making him wealthy. Now a lot of people complain that he is too old to enjoy his wealth. But the reality is this:
At age 9: He started selling coke,
At age 10: He sold peanuts in football matches,
At age 11: He had already saved $120 dollars (in today’s value, it’ll be approx $3000 or ₹2 lakh rupees). Imagine an 11-year kid in your neighborhood having 2 lakh rupees as savings today.
At age 12: He ran a newspaper delivery business on subscription and was earning $175 monthly. This is was far more than his school teacher’s salary then. (This is kind of similar to me because when I was in college, I was also making a lot more than my teachers. My teacher was shocked when she saw my bank statement that I had to provide for some documentation.☺)
If you think logically, someone who’s earning this amount at so early age will definitely have a better standard of living and a less stressful life.
The result is in front of us. He is 90 right now and eats like a kid. He consumes burgers, coke, ice cream, candies every SINGLE day, and still enjoys his life. While average people in their 50s start developing serious diseases that force them to avoid eating all of these.
He became a millionaire by age 30. How did this help him in his life?
He was able to choose a career of his choice. Leave any company or start his own any time and become even richer. That’s exactly what he did.
When I tell my friends to become rich slowly through stocks, they imagine themselves being 50-60 years old and having a lot of money but no energy to spend. So they choose to spend now instead of getting rich slowly. The result is now in front of them. I’m in my late 20s, financially free and enjoying my time online while they’re still slogging and working on a job they hate.
The whole problem boils down to one thing—most people can’t imagine or visualize anything more than 2-5 years. However, all successful people think in terms of decades.
“Most people overestimate what they can do in one year and underestimate what they can do in ten years” —Bill Gates, one of the richest man in the world.
Learn as early as possible
Warren Buffett took admission to Columbia Business School with an intention to meet Benjamin Graham and learn how he handled money. He had already read all the books written by Benjamin Graham. Eventually, he found his passion early in life.
Now would you call him lucky here? Because today, despite having advanced technology and easy access to information, the vast majority of people aren’t able to find their passion or meaning in lives.
If you learn something important late in life, you’ve already lost it. You’ve lost those important years from your life—you can’t get it back. Sadly, this is the truth of the majority. They enjoy their 20s and by the time they’re given loads of responsibility, they realize they did something wrong in their life.
“Start a little bit ahead of the game, it’s so much better than starting out behind the game, and credit cards really get you behind the game”
— Warren Buffett
He read every biography he could find of people he admired looking for lessons to be learned.
Set high goals
When Buffett joined the Columbia Business School when he was not so famous. Benjamin Graham was already famous and had already made a lot of money by that time. Warren Buffett made a good friendship with Graham and eventually found a company with him on partnership. It was a great win-win for Buffett because he got the solid learnings from Graham at an early age that made him what he is today.
And yes, he still spends about 80% of his day reading and gaining more knowledge.
When the majority of our generation read books only to pass exams and complete degrees only to get a title and get a good job. It’s no doubt that the readers are going to be leaders.
Whether it’s 100 years ago, or 100 years in the future, these are timeless principles.
The amount of contribution he has done to the investing community is immense. Maybe hundreds of years down the line in the future, people will remember him just like we remember Benjamin Franklin or Abraham Lincoln.
One life is enough for you to make it big or remain average. Whether you’re born poor or rich, doesn’t matter. What matters is how you lived and how well you enjoyed your life.
My favorite quote on health:
“If a genie appeared and gave you the car of choice (and you love cars), but there is a catch, the is the last care you get in your life. What will you do with it? You’ll read the manual five times, keep it in the grange, fix the least little dent, fixed right away, etc.. This is exactly the position you in concerning your mind and body. You only get one mind and one body, and it’s got to last a life time… it’s what you do right now that determines how your mind and body will operate ten, twenty, thirty years from you.”
Moral: Start early, think long-term, understand compounding in the true sense, create a life-long learning habit, and set high goals. If done, you’re definitely going to be rich in a decade or so.
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