The Snowball is an investment and business classic. It’s a massive book documenting Warren Buffett’s entire life. You learn about his childhood, psychology, fears, failures, triumphs, and personal beliefs.
Since the book spans decades, I’m not going to do a traditional review here.
Instead, you’ll discover several key lessons The Snowball offers. This is broken up into all-around advice and stock specific tactics.
Enjoy!
Part I: General Life And Business Advice
These are some key business and personal lessons which anyone can benefit from. You can use the following advice to improve your finances and mindset, no matter your income or occupation.
- Warren Buffett Builds Passive Income.
Teenage Warren Buffett would buy pinball machines set them up in barber shops, and collect the recurring income. He later used this money (as well as fund from his other ventures) to buy buy real estate.
- Commodity Land Is An Excellent Investment.
According to The Snowball, Buffett’s first real estate purchase was farmland in Nebraska. He owned the property, and the tenant paid him rent. In terms of price and ease of understanding, commodity land (like farms or timber) is “idiot proof” and doesn’t require immense skill to profit from.
- Never Let One Problem Compound Into Two.
Despite being some of the richest men in history, Warren Buffett and his business partner Charles Munger had a lot of personal hardships to overcome. Munger’s son died at a young age, Buffett had family problems (and is heavily implied to be “on the spectrum”). Yet neither man let their low-points define them. Double down on your fundamentals once tragedy strikes. This keeps your problems from spreading.
- You are Your Most Important Customer.
Charlie, as a very young lawyer, was probably getting $20 an hour. He thought to himself, ‘Who’s my most valuable client?’ And he decided it was himself. So he decided to sell himself an hour each day. He did it early in the morning, working on these construction projects and real estate deals. Everybody should do this, be the client, and then work for other people, too, and sell yourself an hour a day.
- One Dollar Today Is Worth $50 Tomorrow.
Many of Buffett’s luxury items are assets. He flies on private aircraft owned by his company NetJets. He owns five houses, which appreciate in value, and many of his purchases are counted as business expenses.
This is due to Buffett’s belief in compounding and using your current funds to create future wealth. The money most people spend on personal items or status symbols can be used to build cash-flow through assets like real estate or stocks.
Part II: Investing And Financial Advice
This section is more focused on stock picking and buying businesses. While The Snowball doesn’t detail the exact math behind Buffett’s value investments (for that you’d want to read The Intelligent Investor, or – my personal recommendation – 100 Baggers), it does show his system in action.
- How Warren Buffett Originally Beat The Market.
Buffett originally practiced strict value investing. This means he calculated how much a company was worth versus its current share price. If a business was worth $25 per share but selling for $19, he’d load up the truck. This is like earning $6 per share in free money.
While you can’t use the exact system Buffett originally used (in the early years stock prices were negotiable and he’d often haggle brokers down further), value investing is still alive and well. You can still find undervalued assets and buy them up for a big gain. It isn’t easy, but it is possible if you’re willing to do the research.
- Understanding Intrinsic Value.
Buffett made millions value investing in small cap companies, but his first major win came from buying up shares of American Express during a huge corporate crisis. The company had just lost millions in the Salad Oil Scandal, tanking their share prices. According to The Snowball, Buffett realized that this catastrophe didn’t affect average people and the company’s customers where still happy using their credit cards and traveler’s cheques.
“Intrinsic Value” is a company’s good will and leadership, as well as how the business will preform long-term. Buffett generally looks for businesses like this, and it’s one of the reasons he tends to sit on cash until there’s a panic in the markets.
- Innovation Rarely Pays.
It’s easy to read stories about people buying $10 in BitCoin or $100 in Amazon stock and becoming multimillionaires off these early investments. However, as Buffett explains, there are more dud ventures than big winners. If you invested in every major American car company between 1919 and 1939 (the golden age of automotive), you would have lost money long-term. Same goes for airline stocks.
For every Apple share trading at $0.85, there’s a dozen Cobalt Networks or 360networks.
Keep this in mind when looking for long-term investments.
- Turn What You Already Pay For Into A Reward.
In the early days, Buffet would “hire” brokers and assistants. But, instead of paying them a salary, he’d place his trades through them. This turned an inevitable expense into an asset, giving Buffett help with his research and acquisitions, without raising costs. If you work in a high-ticket field, there’s a good chance you can work out a similar agreement. In fact, this is still a popular strategy used between bankers and real estate agents to this day!
Final Thoughts
The Snowball is a fantastic book and well worth reading. Since it is a massive book (over 800 pages) spanning Warren Buffett’s entire life, there’s also a lot to be discovered by re-reading this book as time goes on. The earlier chapters about young man Buffett really highlight key concepts about building wealth and creating a system to grow your money as effectively as possible.
The book’s middle section explains how to invest, network, and establish a serious business (complete with political power, managerial positions, and established leadership). And the later sections dive into very high-level business, investing, and marketing skills (Buffett is the master at personal branding).
This is well worth a read no matter your age or income level. I think The Snowball contains great, applicable advice for everyone.