Book Review: Buffett: The Making of an American Capitalist

It’s no secret to those who know me well that I’m a huge fan of Warren Buffett. I probably talk about him too often and with too much excitement, but they understand that he is someone that I admire. As long as I can remember, I’ve always had the idea that the most effective way to get better at something is to find out what the people at the top of their fields do and learn what makes them the best. When I started playing soccer at the age of 8, I went to the library and checked out books about Pele, possibly the greatest soccer player ever. Even if you can’t duplicate what the masters do, learning what makes them successful will give you insights that you can apply to improve your results.

The World’s Greatest Investor?

For those of you who don’t know who Warren Buffett is, he is currently the world’s third richest man according to the latest Forbes list of richest people in the world. He is unusual in that he is one of the only people on the list that made his money through investing. Buffett is arguably the greatest investor of all time. When he ran an investment partnership from 1957-1969, he racked up a compounded annual return of 29.5% a year, beating the Dow Jones Industrial Averages by an astonishing 22.1% per year over a 13-year period. What’s even more remarkable is that he didn’t lose money in a single year over those 13 years! Achieving returns like that over an extended period of time without losing money is almost unheard of.

He followed up that masterful performance by taking over a company called Berkshire Hathaway on May 10, 1965 and used his investment acumen to increase the stock price from $18 a share to its current price of about $123,000 a share. That’s not a typo. Berkshire Hathaway hasn’t split its stock since Buffett took over, so the stock price has continued to grow, much to the chagrin of the typographers of financial publications. The stock price of Berkshire Hathaway has compounded at about 22.8% a year since he took over in 1965. If you study Buffett’s investment decisions, you learn that he makes these huge investment gains while rarely taking a loss. It was this unique ability that intrigued me to learn more about how this was possible.

Buffett: The Making of an American Capitalist

During my initial search for Buffett’s secrets of investing success back in the mid- to late-1990s, I ran across Roger Lowenstein’s biography called Buffett: The Making of an American Capitalist. Although I may be biased because of my admiration for Buffett, Buffett is the best biography I have ever read. The book is extremely well researched and is very detailed, as can be seen from the beginning of Chapter 1:

“Almost from the day that Dr. Pollard awakened him to the world, six pounds strong and five weeks early, Warren Buffett had a thirst for numbers.”

Lowenstein continues this level of detail throughout the 423 pages of the book, but for the most part it feels natural rather than tedious. The details about some of the deals that Buffett has done might be a little excessive for some people, but with my love of investing, I personally thought that they were interesting. Lowenstein is a talented writer who wrote for the Wall Street Journal for more than a decade and is very knowledgeable about investing and finance. I have read numerous excellent articles by Lowenstein over the years.

Buffett’s Destiny as a Great Investor

If you are curious about how Buffett achieved such amazing investment results, let me warn you that the amount that you will learn from Buffett: The Making of an American Capitalist about his investment philosophy is somewhat limited. This is a biography rather than a book about investing. That being said, Lowenstein’s book does a great job of describing the formative influences that made Buffett the man he is today. It almost seems that Buffett was destined to be a great investor. He was born with a great mind for numbers and an amazing memory, and he seemed to be born with a burning desire to become wealthy. At the age of five, Buffett would buy six-packs of Coca Cola for 25 cents and sell the bottles for 5 cents a piece, earning a nickel profit. He made money in all sorts of business ventures while he was growing up, and then he would carefully count his growing capital.

The events in his life also seemed to be very serendipitous in leading him to his future as a great investor. About the same time that Buffett was disappointed by a rejection from Harvard, he happened to read a book that had been recently published called The Intelligent Investor by Benjamin Graham. Buffett was so impressed by the investment philosophy in Graham’s book that he decided to study under Graham at Columbia University’s graduate school. He later was given the opportunity to work under his mentor when he got a job working for Graham’s investment partnership. Graham’s teachings quickly formed the core of Buffett’s philosophy. Another serendipitous event occurred when Buffett met the brilliant Charlie Munger, who continues to be Buffett’s friend, business partner, and sounding board to this day. Munger was an important contributor to the evolution of Buffett’s investment philosophy. Buffett would have been a great investor even if he had never met Munger (who is an interesting character in his own right), but Munger’s influence helped take Buffett to a whole new level.

Conclusion

Buffett: The Making of an American Capitalist is a great book, one that I enjoyed so much that I have read it several times over the years. I have read many books about Buffett, but this one stands above the rest. I highly recommend it to anyone who is curious about what makes Warren Buffett tick, and if you are interested in studying Buffett more thoroughly, I can’t think of a better place to start than Buffett: The Making of an American Capitalist.

Other Reviews for Buffett: The Making of an American Capitalist

The Simple Dollar review – “Buffett: The Making of an American Capitalist is a very good biography. Buffett is a highly compelling subject, and with Lowenstein’s skill, it’s easily the best biography I’ve read of a modern investor, and it’s one of the rare books that I will keep and read again. If you have any interest in who Warren Buffett is as a person, pick this up and read it – it’s well worth the time.”

The New York Times review – “Aside from this odd and unconvincing bit of speculation, everything else rings true, and Mr. Lowenstein has done a masterly job over all. Once again, Mr. Buffett was right not to meddle in the business at hand, and in spite of his not saying anything directly to the author, Mr. Lowenstein has picked up numerous examples of his wit. Here’s an exchange from the annual meeting of Berkshire Hathaway, when a questioner in the crowd expressed fear of Mr. Buffett’s death:

‘I’m thinking of making a purchase of Berkshire,’ the person said, ‘but I’m concerned about something happening to you, Mr. Buffett. I cannot afford an event risk.’

Came the reply: ‘Neither can I.’

The bainvestor.com review – “Buffett: The Making of an American Capitalist is an excellent and thorough biography of Warren Buffett, one of the world’s greatest investors. For serious investors that might be a bit of history worth reading.”

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