The Snowball Book: A Comprehensive Summary of Warren Buffett's Life

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[00:00:14] Today we will unlock the book The Snowball, Warren Buffett and the Business of Life.

[00:00:19] You must ever have heard the name Warren Buffett before.

[00:00:22] Known as the Oracle of Omaha, he is one of the richest and most respected business leaders in

[00:00:28] the world and an investment guru. In late 2007, under Buffett's leadership, Berkshire Halfaway

[00:00:35] had a stock price of over $140,000 per share and an impressive market cap of over $200 billion.

[00:00:43] By December 2017, the company's market cap hit a staggering $480 billion. Buffett is also one

[00:00:50] of the most generous philanthropists in the world. In June 2006, Buffett announced that in the following

[00:00:57] years he would donate 85% of Berkshire Halfaway shares to charitable foundations, which was worth a

[00:01:04] total of $37 billion at the time. Such a huge donation caused quite a stir.

[00:01:11] Since the book is titled The Snowball, you may wonder what The Snowball refers to. At the very

[00:01:16] beginning of the book, the author depicts a scene of a nine-year-old Buffett playing in the snow.

[00:01:22] He's with his younger sister in his yard. He packs the snow into a small ball, slowly rolling it

[00:01:28] on the ground. Every time he pushes it, the ball picks up more snow. As such, the snowball grows

[00:01:35] bigger and bigger. From there, Buffett has continued onward, casting his eye on a whole world full

[00:01:41] of snow. As he puts it, life is like a snowball, all you need is wet snow and a really long hill.

[00:01:48] And that doesn't just apply to compounding money, it also refers to an understanding of the

[00:01:53] world and what kind of friends you accumulate. The author of this book Alice Shroeder is a former

[00:02:00] advisor director at Morgan Stanley, one of the most renowned investment banks in the world.

[00:02:05] She got to know Buffett while writing an analysis report on Berkshire Halfaway and became the first

[00:02:11] and only financial analyst that was able to interview Buffett. Buffett appreciated her insight

[00:02:17] and ability to master a subject, so he authorized her to write his biography.

[00:02:22] In order to write this book, she spent five years interviewing Buffett for a total of over

[00:02:27] 2,000 hours. She also interviewed 250 other people, including his friends, families, and co-workers.

[00:02:35] She was given access to many never before published personal letters and files of Buffett's.

[00:02:40] Unlike previous books that overemphasize Buffett's success and legendary life experience,

[00:02:46] this book not only tells his legendary stories as a top notch investor but also depicts his human

[00:02:51] side. Thus, we are allowed to get to truly know Buffett's most valuable experiences throughout his

[00:02:58] over 60 years of doing business and investing. If you are interested in Buffett in his life of

[00:03:03] wealth, the snowball is a great read. And if you want to know more about his investment philosophy,

[00:03:10] you can find the bookies on the Warren Buffett way and the little book that builds wealth.

[00:03:14] Up next, let's explore the snowball through the following three sections.

[00:03:20] Part 1. How Buffett has snowballed in terms of investing. Part 2. How Buffett has snowballed

[00:03:26] in terms of understanding the world and accumulating friends. Part 3. How Buffett has given back

[00:03:33] to society after achieving great wealth and fame. Let's start with how Buffett has snowballed

[00:03:39] in terms of making investments. Buffett has had great enthusiasm for numbers since he was very young.

[00:03:46] His hobbies and interests all revolved around numbers. When he was six, he was obsessed with

[00:03:52] counting time in seconds and invented a game to play with his stopwatch. He filled the bathtub

[00:03:58] with water and lined up his individually named marbles at the back of the tub. He then clicked

[00:04:03] the stopwatch just as he swept the marbles into the water. As the marbles raised down the

[00:04:08] porcelain slope, racing after each other toward the stopper, when the first one hit, Buffett hit

[00:04:14] the stopwatch and declared the winner. He called the game the bathtub steeple chase.

[00:04:20] He never seemed to get bored of the game and would play it again and again. Besides this game,

[00:04:26] Buffett also often sat by the roadside and wrote down the license plate numbers of passing cars,

[00:04:31] calculating the frequency of letters and numbers on them. Also at the age of six, Buffett earned

[00:04:38] his first few cents from selling packs of chewing gum. From that age onward, he showed an

[00:04:43] unyielding attitude toward his customers. There were five sticks of gum in one pack,

[00:04:49] and when someone asked to buy only one stick, Buffett resisted the temptation to close the sale

[00:04:54] but insisted that he wouldn't break up packs. Young as he was, little Buffett was already aware

[00:05:00] that he would risk spending more time selling the gum if he were to break the pack.

[00:05:05] Meanwhile, he also bought Pepsi Cola and Coca Cola from his grandfather's grocery store for 25 cents

[00:05:12] per carton and resold them nearby for 5 cents per bottle. Thus, he could earn 5 cents for each

[00:05:18] carton of six bottles. While selling soda, little Buffett also collected bottle caps that people

[00:05:24] threw on the ground. He categorized them according to their brands, counted the numbers of each

[00:05:30] to identify which soda sold the best and adjusted which soda he would sell accordingly. In this way,

[00:05:36] little Buffett learned to make money by applying probability at a very young age.

[00:05:42] When Buffett was 10, he found a book in the library called 1000 Ways to Make $1,000.

[00:05:48] On the first page at red, Opportunity Nox, never in the history of the United States has

[00:05:54] the time been so favorable for a man with small capital to start his own business as it is today.

[00:06:00] The heaven of wealth depicted in this inspirational book excited Buffett. That was the first time

[00:06:05] Buffett got to know the concept of compound interest. What is compound interest? It is the edition

[00:06:12] of interest to the principal sum of a deposit. That is to say in the next period, the interest

[00:06:18] is then earned on the principal sum plus previously accumulated interest.

[00:06:23] This book told Buffett that he needed to first earn $1,000. If he started with $1,000 and grew at

[00:06:30] 10% a year, then in 5 years, $1,000 became more than $1,600. In 10 years, it became almost $2,600

[00:06:42] and in 25 years, it became more than $10,800. This is how a small amount of money can become

[00:06:49] a large sum through the power of compound interest. The 10-year-old Buffett was deeply moved.

[00:06:56] He could picture the numbers compounding as vividly as a snowball growing in size.

[00:07:01] It was as if he could see the money waving at him, and he announced that he would be a millionaire

[00:07:06] by the time he reached $35. This was back in 1941, in the aftermath of the Great Depression.

[00:07:13] Nobody took the 10-year-old boy's word seriously. But Buffett believed that he could do it.

[00:07:19] He had 25 years to prove himself, and he knew that the longer the money compounded,

[00:07:24] the better his chances were of achieving his goal.

[00:07:28] In order to earn his first pot of gold, little Buffett sold used golf balls at the golf course,

[00:07:34] peddled popcorn at the baseball park, and delivered newspapers door to door. By the age of 14,

[00:07:40] Buffett already accumulated the $1,000 needed to begin his investments, thus completing the first

[00:07:46] step mentioned in 1,000 ways to make $1,000. Since then, Buffett has always made compound

[00:07:53] interest investments, and continually thinks of placing the money he earns into his next investment.

[00:07:59] Among his early investments, the business of coin-operated pinball machines was a typical

[00:08:04] example of a Buffett-style compound interest investment. When Buffett was in high school,

[00:08:11] he bought a used Wilson's coin-operated pinball machine for $25. He then went to the

[00:08:16] Barbershop near his home and told the owner that he represented Wilson's coin-operated

[00:08:21] machine company, and that he had a proposition from the company. He assured the Barbershop owner

[00:08:27] that it would be at no risk or cost to him. All he needed to do was make a tiny space for the

[00:08:32] pinball machine and collect half of the money earned. The owner thought it was a good deal.

[00:08:38] Not only could he earn some extra money, but the pinball machine could also bring more customers.

[00:08:44] As such, Buffett struck his first pinball machine deal.

[00:08:49] Buffett got his $25 investment back within just one week. He immediately made his next move as

[00:08:55] instructed in 1000 ways to make $1000, buying another pinball machine with the $25.

[00:09:02] That is to say he made a compound interest investment by putting the proceeds into his next

[00:09:08] investment. With increasing income, Buffett continued to buy more pinball machines and put

[00:09:14] them into other Barbershops. Meanwhile, he subscribed to a magazine to keep track of what was going

[00:09:20] on in the market of pinball machines and bought more machines whenever he found a cheap used one.

[00:09:26] As such, his business expanded and Buffett began feeling the magic of compound interest.

[00:09:32] It's like an engine that drives money to work hard for its owner. In a half century to come,

[00:09:38] Buffett continued making compound interest investments.

[00:09:42] Speaking of compound interest, you may be thinking of the concept of principle.

[00:09:47] With a large principle and a long period of time, one can make decent money from compound interest.

[00:09:53] During the course of his investments, Buffett discovered an almost free source of principle

[00:09:58] called float, something used by insurance companies. Simply put, float is the money that is

[00:10:04] deposited in paid back after some time. It is common practice for insurance companies to collect

[00:10:10] premiums upfront and pay the compensation when a claim is filed. The premiums paid before

[00:10:16] the compensation is known as float. In Buffett's eyes, float is highly lucrative.

[00:10:22] Many people buy insurance, and each of them pays a substantial amount in premiums. Decades

[00:10:28] may pass from the collection of premiums to the compensation, and sometimes compensation is not

[00:10:34] even needed. So these premiums provide a huge cash flow for insurance companies.

[00:10:40] In order to take full advantage of float, Buffett founded the Reinsurance Corporation of Nebraska.

[00:10:46] A reinsurance company is a company that provides insurance to other insurance companies.

[00:10:52] Through the reinsurance business, the company was able to take in a lot of float. With a steady

[00:10:57] stream of float, Buffett had the capital to invest in many stocks. He transferred the float to his

[00:11:03] other holding company and made investments through it. From this, his float and investment returns

[00:11:09] continued doubling over time, which made his wealth grow exponentially.

[00:11:14] Another critical reason behind Buffett's success was his ability to concentrate, which was quite

[00:11:20] unusual. Since he was very young, he read the biographies of all the people he admired,

[00:11:26] learning from their life experiences and trying to follow their steps. A college classmate described

[00:11:32] him as a very focused person who could focus nonstop like a spotlight. He would often go through

[00:11:37] thousands of pages of standard and porous or moody's manual looking for stocks. Even when he was on

[00:11:43] his honeymoon, his car's backseat was loaded with moody's manuals and ledgers. He once spent several

[00:11:50] months reading newspapers from the past century to study business cycle models, the history of Wall Street,

[00:11:56] capitalism and the modern corporation. While working for the Graham Newman Corporation,

[00:12:02] in order to know more about the companies he was interested in, he would visit them in person

[00:12:07] and spend hours talking with their managers and shareholders. As the chairman and CEO of Berkshire

[00:12:13] Hathaway, he's lived in the same house for most of his life, arrives at his office at 830 and gets

[00:12:19] down to work with a high degree of concentration. Every morning, he reads news reports, followed by

[00:12:26] various reports and data submitted by Berkshire Hathaway owned companies. He closely follows global

[00:12:33] political trends, analyzing the impact of politics on business. Buffett also analyzes economic

[00:12:39] strategies and tries to figure out what they imply and focuses on the businesses that he loves.

[00:12:45] Like a detective who takes all details into consideration, he never stops thinking about business

[00:12:50] and his investments. Behind Buffett's extraordinary achievements is his heavy workload that goes unseen

[00:12:57] by the public, and requires unremitting concentration to accomplish. This is another key to Buffett's

[00:13:03] success. That's all for the first part. In this section, we got to know how Buffett has snowballed

[00:13:10] his investments. He said great enthusiasm for numbers from an early age, and his hobbies and

[00:13:16] interests all revolved around numbers. Buffett also made his first bit of earnings at 6,

[00:13:22] and by the age of 10, he understood the concept of compound interest and realized that he could

[00:13:27] snowball his money, thus making money with money. After founding the reinsurance corporation of

[00:13:33] Nebraska, Buffett had a steady stream of flow to invest in the stock market. He also possesses

[00:13:39] a rare ability to concentrate. He's carefully studied and analyzed stocks and economic strategies

[00:13:45] every day for decades. Such concentration is also the key to his success.

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