The Hustler: Lessons from a Young Warren Buffett
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The Hustler: Lessons from a Young Warren Buffett
"When Warren was a little boy collecting bottle caps, flinging papers day after day ... if you had asked him if he wanted to be the richest man on earth, he would have said, Yes." Alice Schroeder
Hello everyone,
It’s easy to look at Buffett today, at 92 years old and heading the world’s largest conglomerate, and see him as an abstraction of lessons about stock picking and business. It’s easy to forget this man was once young and hungry for success. Rummage around his biographies and it’s clear that he had tremendous energy.
And if we look past the specific actions, we find timeless ingredients for success that have lost none of their potency in the internet age.
Young Buffett hustled to build his initial capital stake.
Buffett was working, and mostly for himself, from an early age. That kid hustled. Nonstop. He sold packs of gum and bottles of Coca-Cola door to door. He delivered newspapers, traded in refurbished golf balls, and shipped sets of collectible stamps to buyers out of state. He struck partnerships with barber shops to operate pinball machines at their locations.
He was creative and always looked for ways to improve what he was doing. From The Snowball:
“He also sold calendars to his newspaper customers, and he developed another sideline too. He asked all his customers for their old magazines as scrap paper for the war effort. Then he would check the labels on the magazines to figure out when the subscriptions were expiring, using a code book he had gotten from Moore-Cottrell, the publishing powerhouse that had hired him as an agent to sell magazines. He made a card file of subscribers, and before their subscriptions expired, Warren would be knocking at their door, selling them a new magazine.”
Today’s side hustles will be different. But let’s just for a moment appreciate this relentless commercial energy.
Buffett ceaselessly worked to accumulate his initial capital stake.
“By July, he had sold 220 dozen golf balls and had reaped $1,200 from them. From all his ventures combined, he had saved $9,800. That trifling grubstake would be the source of every dollar that Buffett would earn. He had tracked every penny—the Cities Service stock, the paper route, the golf-ball sales, the pinball—in squiggly, uneven handwriting.” Making of an American Capitalist
Young Buffett invested.
A book called One Thousand Ways to Make $1,000 introduced Buffett to the idea of compounding in the form of coin-operated weighing machines.
“The weighing machine was easy to understand. I’d buy a weighing machine and use the profits to buy more weighing machines. Pretty soon I’d have twenty weighing machines, and everybody would weigh themselves fifty times a day. I thought—that’s where the money is. The compounding of it—what could be better than that?” The Snowball
Well, to start compounding capital you first need some capital.
“The hard part for most people is the first $100,000. If you have a standing start at zero, getting together $100,000 is a long struggle for most people.” Charlie Munger
Buffett worked for his money and quickly started experimenting with having his money work for him (he bought his first stock at 11, farmland at 15 etc.). Once he realized he didn’t have to break his back but could use his mind, his curiosity went into overdrive.
Young Buffett followed his curiosity and turned into a learning machine.
I previously poked fun at value investors’ obsession with Buffett’s reading habits. But it’s of course true that Buffett was obsessed with learning. And that meant a lot of reading. Buffett devoured everything he could find on the subjects that interested him.
“In terms of accounting and finance, what’s the best way to teach yourself? I was interested in it from a young age. My approach was to go to the Omaha Public Library and take out every book there was on the subject. And I learned a lot. I learned a lot that wasn’t true, too.
I did it by just a tremendous amount of reading. It was easy for me because it was like going to baseball games or something of the sort.” 1999 Annual Meeting
“When I started, I went through the pages of the manuals page by page. I probably went through 20,000 pages in the Moody’s industrial, transportation, banks and finance manuals. And I did it twice. And I actually, you know, looked at every business. I didn’t look very hard at some.” 2001 Annual Meeting
This included some pretty niche stuff. Buffett worked at his grandfather’s grocery store and developed a lifelong interest in retail. He read “a shelf full of back issues of the Progressive Grocer.” Schroeder observed dryly that “subjects like ‘how to stock a meat department’ fascinated him.”
“I read all kinds of business publications. I read a lot of industry publications…. I’ll grab whatever comes in the morning. American Banker comes every day, so I’ll read that. I’ll read the Wall Street Journal. Obviously. I’ll read Editor and Publisher, I’ll read Broadcasting, I’ll read Property Casualty Review, I’ll read Jeffrey Meyer’s Beverage Digest. I’ll read everything. And I own 100 shares of almost every stock I can think of just so I know I’ll get all the reports. And I carry around prospectuses and proxy material.” 1991 lecture at the University of Notre Dame via The Joys of Compounding.
Buffett was so obsessed with learning about business that by the time he enrolled at Wharton a classmate commented that “Warren came to the conclusion that there wasn’t anything Wharton could teach him. And he was right.”
Follow your genuine curiosity. Become a sponge for information and go as deep as you can.
Young Buffett found fun and creative ways to practice his skills.
Buffett spent time at the racetrack which turned from a side hustle into valuable practice for markets. This reminded me of Alix’s idea of Futsal, indoor soccer which offers each player more contact with the ball and thus a steeper learning curve.
Buffett’s time on the track was like going to a gym for estimating odds. Thinking in bets became ingrained in him and he got a lot of repetitions. From The Snowball:
“At Ak-Sar-Ben [Omaha’s race track], Warren had learned something about how to read the tip sheet, and it opened up a whole new world. Handicapping horses combined two things he was very, very good at: collecting information and math. It was not unlike counting cards at blackjack, except that the winning hand had four legs and ran around a track. Soon, he and Russ knew enough to put out their own tip sheet, the cannily named Stable-Boy Selections.”
And how did he learn? Again, he started by reading everything he could find. From The Snowball:
“‘Pop, there’s just one thing I want. I want you to ask the Library of Congress for every book they have on horse handicapping.’ And he got me hundreds of books on horse handicapping. Then what I would do is read all these books.”
But he did more than that.
“I sent away to a place in Chicago on North Clark Street where you could get old racing forms, months of them, for very little. They were old, so who wanted them? I would go through them, using my handicapping techniques to handicap one day and see the next day how it worked out. I ran tests of my handicapping ability day after day, all these different systems I had in my mind.”
Let that sink in. Buffett even found a way to back test his ideas. Having read the books and practiced, he went to the racetrack and published his own newsletter.
The whole experience offered an education in human behavior. From The Snowball:
“Warren discovered the Rules of the Racetrack:
1. Nobody ever goes home after the first race.
2. You don’t have to make it back the way you lost it.
The racetrack counts on people to keep betting until they lose. Couldn’t a good handicapper turn these rules around and win?
“The market is a racetrack too. But I was not developing elaborate theories in those days. I was just a little kid.”
Buffett started to see that markets were generally roughly efficient but that there was plenty of opportunity to exploit mispricings if one paid close attention.
“I’d get the Daily Racing Form ahead of time and figure out the probability of each horse winning the race. Then I would compare those percentages to the odds. But I wouldn’t look at the odds first, to avoid prejudicing myself. Sometimes you would find a horse where the odds were way, way off from the actual probability. You figure the horse has a ten percent chance of winning but it’s going off at fifteen to one.”
“The less sophisticated the track, the better. You have people betting on the jockey’s colors, and you have them betting on their birthdays, you have them betting on the horses’ names. And the trick, of course, is to be in a group where practically no one is analytical and you have a lot of data. So I would study the forms like crazy when I was a kid.”
Long before getting serious with stocks, Buffett was learning how to think in bets, how to recognize the impact of human psychology and decision-making biases in markets, and how to develop an edge in investing. He did it by finding a field of practice that was fun and interesting to him.
Young Buffett learned from the eminent dead.
This is a term coined by Munger:
“There is no reason to look only for living models. The eminent dead are some of the best models around. Some of the very best models have been dead for a long time.”
“I learn better plowing through written material by myself. I’ve done a lot of that in my life. I frequently like the eminent dead better than the live teachers.”
Like his future partner, Buffett looked for lessons in biographies. From The Snowball:
“Since a young age Warren had studied the lives of men like Jay Cooke, Daniel Drew, Jim Fisk, Cornelius Vanderbilt, Jay Gould, John D. Rockefeller, and Andrew Carnegie. Some of these books he read and reread.”
That idea has lost none of its value. And you can do it very efficiently through David Senra’s excellent Founders podcast.
… and sought out the best teachers alive.
“I was very lucky, early, very early in life, that I had certain heroes. It just stands to reason that you copy the people that you do look up to, and particularly if you do it at an early enough age. I think that it beats a whole lot of other things in life to have the right models around.”
One of Buffett’s role models turned out to be the father of value investing, Ben Graham. Buffett was already trading stocks with a passion.
“I started buying stocks when I was 11. I’d been reading every book in the library on it. I loved it. My dad loved [it], it was his business and I’d get to go down to his office and I’d read the books down there. My dad took me to the New York Stock Exchange. I could tell you how the specialist system worked, and the odd lot arrangements, and I could tell you the history of finance, all of these things.
I got very interested in technical analysis, and charted stocks, and did all kinds of crazy things. Hours and hours and hours. And tried shorting. And I just did everything.”
But he still lacked a rational framework for markets. He found it in Ben Graham’s Intelligent Investor (chapter 8, “The Investor and Market Fluctuations”).
“I saw one paragraph, and it told me I’d been doing everything wrong. I just had the whole approach wrong. I thought I was in the business of trying to pick stocks that would go up. And, in one paragraph, I saw that that was totally foolish.
It changed my life. If I hadn’t read that book, I don’t know how long I would have gone on looking for head-and-shoulders formations, and 200-day moving averages, and the odd lot ratios, and a zillion things. And I love that kind of stuff. Except it was the wrong stuff I was looking at.”
After getting rejected by Harvard, Buffett found out that his idols Ben Graham and David Dodd were teaching security analysis at Columbia University in New York. He managed to get admitted and ended up as Graham’s only A+ student.
“Now I had a philosophy that made a lot of sense that I could employ. The game became even more fun.”
It’s difficult to overstate the significance of studying under Graham. First, Buffett picked up an investment philosophy that gave him an edge in markets at the time (he later wrote about Graham’s disciples as the Superinvestors of Graham and Doddsville).
Learning from Graham was so valuable to Buffett that he offered to work for his teacher for free. Graham declined but, after a brief stint in Omaha, Buffett eventually returned to New York to briefly work at Graham’s investment partnership, Graham Newman Corp. These were formative years: Buffett learned about security analysis and about the business of managing money. It also became the kernel of his network of fellow investors and aided his reputation. And Graham, who soon retired, became a source of wisdom, friendship, and even investor referrals.
There is a limit to what you can learn from books and on your own. Try to find the best teachers in your field. This also introduces you to a community of dedicated students.
Young Buffett built a community.
Buffett found lifelong friends among Graham’s students. He gathered his group of confidantes every two years. These trips were a way for Buffett to combine travel, investing, and socializing with people who intellectually stimulated him. I wrote about the group in The Reading Obsession:
“The group … began in 1968 with 13 people and now has about 60, including Mrs. Graham, Munger, Murphy, Ruane, Tisch, Keough, Gates, Jack Byrne, and Lou Simpson. Sometimes Buffett refers to the group as ‘Our Gang’. During their retreats, the group holds seminars on public policy, investments, charitable giving (whether to do it early in life or late), life’s toughest and silliest moments.” Of Permanent Value, The Story of Warren Buffett
Social media has made it much easier to find new tribes. But the skill of turning a loose group of (digital) acquaintances into a lasting network of friends might be more important and valuable than ever. It’s worth the effort.
Young Buffett was proactive.
Another idea I touched on in The Reading Obsession. When Buffett learned that Graham was on the board of GEICO, he visited the company’s office to learn more. From The Snowball:
“One Saturday, Buffett boarded a train to Washington DC to visit the company. He asked the guard if there was anyone who could explain the business to him and was led to GEICO’s financial vice president, Lorimer Davidson.
‘My name is Warren Buffett. I’m a student at Columbia. Ben Graham is going to be, probably, my professor. I read his book, and I think he’s wonderful. And I noticed that he’s the chairman of Government Employees Insurance. I don’t know anything about it, but I wanted to come here and learn.”’ The Snowball
‘My name is Buffett and I’m here to learn’ would make a decent title for a Buffett biography.
In general, Buffett was relentless about finding overlooked sources of information. He dug deeply to gain an edge in his area.
“The business I best understood was insurance. I had very little competition. I went to the insurance department in Harrisburg, Pennsylvania. One time I drove there just to check on some Pennsylvania company. You couldn’t get all this information on the internet. I went in and asked about some company, and the guy said, “You’re the first one that’s ever asked about that company.”
I went over to the Standard and Poor’s library on Houston Street. And I would go up there and ask for all this obscure information. And there wasn’t anybody sitting around there. They had a whole bunch of tables that you could set and examine things through. So, there was less competition.
If you know even one thing very well, it’ll give you an edge at some point. It’s what Tom Watson Sr. said at IBM. “I’m no genius, but I’m smart in spots and I stay around those spots.” That’s basically what Charlie and I try and do.”
Young Buffett faced his fears.
As he was starting to master markets, Buffett still found himself lacking in other areas of his life. He was shy around women and feared public speaking.
“I was absolutely, throughout high school and college, terrified of public speaking. I avoided any classes, signing up for them, that would require it. I would get physically ill if I even thought about having to do it, let alone doing it.”
“I was so terrified that I just couldn’t do it. I would throw up. In fact, I arranged my life so that I never had to get up in front of anybody.”
He first decided to tackle this fear while at Columbia.
“I went to Dale Carnegie because I was painfully aware of being socially maladjusted. And I went and gave them a check, but then I stopped payment on it because I lost my nerve.”
Upon his return to Omaha, Buffett saw another ad. This time he kept his nerves.
“I knew I was going to have to speak in public sometimes. The agony was such that just to get rid of the pain I signed up for the course again. I took a hundred bucks in cash and gave it to Wally Keenan, the instructor, and said, ‘Take it before I change my mind.’”
The course changed his life.
“The way it works is that you learn to get out of yourself. I mean, why should you be able to talk alone with somebody five minutes before and then freeze in front of a group? So they teach you the psychological tricks to overcome this. Some of it is just practice—just doing it and practicing. We really helped each other through. And it worked. That’s the most important degree that I have.”
Students could earn a “pencil award” for doing something difficult with the training. Which Buffett did with one of the most important decisions of his life: “The week I won the pencil was the week that I proposed.”
And what did he do next? He put his new skill into practice
… and turned into a teacher.
“When I finished that course, I went right out to the University of Omaha and volunteered to start teaching.”
Buffett taught what he knew: “Investment Principles” at the local university as well as at an adult school. Today of course he holds court in front of tens of thousands of shareholders.
Fear is the only thing that gets smaller as we run towards it. Find a way to face yours. Once you make progress, find a rewarding way to stay in motion. Ideally a way that serves others and enriches the world.
Young Buffett used writing to reach the world.
Buffett spent a brief time working at his father’s brokerage firm. He had no interest in being a salesman, but he had to find a way to inject his ideas into the world. Writing turned out to be the best way for him to share and teach at scale. First he wrote about GEICO, later he poured his energy into his letters to partners and shareholders.
Writing about your interests is a timeless idea, in investing or otherwise. Today, Buffett might have started a substack, or even a YouTube channel, to share his thoughts on investing (though probably not specific investment ideas; he remained secretive for a long time to protect his performance).
Once he was ready, young Buffett followed his own path.
When Ben Graham retired, Buffett was offered to succeed him at Graham Newman. But he declined. He was ready to go his own way. He had to.
Buffett made important choices when he started his own business which are every bit as relevant today.
He didn’t start his partnership in New York. Instead, he returned to Omaha where he had plenty of friends and family for support. He felt comfortable and lowered the risk of interference with his work.
Omaha also offered a lower cost of living while he was building the business.
He and his family had a good reputation in Omaha whereas he was an unknown young financier in New York. Buffett’s initial capital came from friends, family, and local professionals and business people.
Buffet created conditions that supported his work process, that removed distractions, and that lowered the risk of failure as he avoided expensive overhead:
“He operated out of a tiny study at home that could be entered only by passing through the bedroom. He worked odd hours, a night owl like Susie, reading annual reports in his pajamas, drinking Pepsi-Cola and eating Kitty Clover potato chips, enjoying the freedom and solitude. He pored over the Moody’s Manuals looking for ideas, absorbing statistics on company after company. During the day, he went to the library and read newspapers and industry trade magazines.
He took care to handle everything of value personally, a pleasure in and of itself. He typed his own letters on an IBM typewriter, carefully lining up his letterhead sheet on the carriage. To make copies he slid sheets of blue carbon paper and tissue-thin onionskin behind the first page. He did all his own filing. He did the bookkeeping himself and prepared his own tax returns. With its numbers, accuracy, and the measuring of results, the recordkeeping aspect of the job pleased him.”
Buffett did not care about appearances. What he desired was the freedom to live life on his own terms. And to be surrounded by family and friends. His lifelong journey of accumulating wealth started with a fierce desire for independence. I for one can relate.
Money “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.” The Snowball
In summary:
Everything starts with the discovery of your innate curiosity. This is not something you can model. For Buffett it revolves around how businesses work and how to value them. Whatever it is for you, follow that thread.
Go deep. Read everything you can find and allow yourself to dig for obscure and overlooked sources of information. Once you’re armed with some knowledge and genuine interest, reach out to experts and practitioners. Remember: “Hi, I’m Warren B. and I’m here to learn.”
Seek out the best teachers, dead and alive. Perhaps you can find community among their students as well.
Share what you learn. Put yourself out there.
Pay attention to fear and resistance. Find help in conquering what is holding you back.
Look for adjacent games to practice your skills. You will climb the learning curve even faster.
If you don’t have capital, focus on building an initial stake. This may take hard work, dedication, creativity, and frugality. Once you have capital, learn how to let it work for you. Invest and be patient.
Find a rational investment philosophy that works for you. It has to fit your temperament and your level of skill and interest. Don’t try to blindly adopt anyone else’s philosophy.
Most importantly, whether it’s the journey of compounding wisdom or wealth, don’t be afraid to go your own way. And while it’s great to have an early start like good old Warren, it’s never too late to apply the lessons of his life to yours.
The Hustler: Lessons from a Young Warren Buffett
This is excellent
How to become a Billionaire. Start investing at 11, use compound interest, and always be learning. Great story!