Summary of “The Snowball” by

Alice Schroeder
Warren Buffett and the business of life

Written by Bookey
About the book
“The snowball just happens if you’re in the right
kind of snow, and that’s what happened with me. I
don’t just mean compounding money either. It’s in
terms of understanding the world and what kind of
friends you accumulate.” This is Warren Buffett’s
snowball philosophy. He was once the richest man
in the world, having earned his enormous wealth
through investing. Many have wondered how
Buffett did it. What are his philosophies of doing
business? This book will give you the answers.
About the author
This book was written by Alice Schroeder, a former
advisory director at Morgan Stanley. She got to
know Warren Buffett while writing an analysis
report on Berkshire Hathaway. Her insight and
ability to master a subject was highly appreciated
by Buffett, so she was authorized to write his
biography. In order to write this book, she spent
five years conducting thorough interviews with
Buffet, totaling over 2,000 hours. She was also
given access to many of Buffett’s personal letters.
Thus, she successfully presents to us a true life
image of Buffett.
Chapter 1: Overview
Hi, welcome to Bookey. Today we will unlock the
book The Snowball:Warren Buffett and the
Business of Life. You must have heard the name
Warren Buffett before. Known as the “Oracle of
Omaha,” he is one of the richest and most
respected business leaders in the world and an
investment guru. In late 2007, under Buffett’s
leadership, Berkshire Hathaway had a stock price
of over $140,000 per share and an impressive
market cap of over $200 billion. By December
2017, the company’s market cap hit a staggering
$480 billion. Buffett is also one of the most
generous philanthropists in the world. In June 2006,
Buffett announced that in the following years he
would donate 85% of Berkshire Hathaway’s shares
to charitable foundations, which was worth a total
of $37 billion at the time. Such a huge donation
caused quite a stir. Since the book is titled “The
Snowball,” you may wonder what “the snowball”
refers to. At the very beginning of the book, the
author depicts a scene of a 9-year-old Buffett
playing in the snow. He’s with his younger sister in
his yard. He packs the snow into a small ball,
slowly rolling it on the ground. Every time he
pushes it, the ball picks up more snow. As such, the
snowball grows bigger and bigger. From there,
Buffet has continued onward, casting his eye on a
whole world full of snow. As he puts it, “Life is
like a snowball, all you need is wet snow and a
really long hill.” And that doesn’t just apply to
compounding money; it also refers to an
understanding of the world and what kind of
friends you accumulate. The author of this book,
Alice Schroeder, is a former advisor director at
Morgan Stanley, one of the most renowned
investment banks in the world. She got to know
Buffett while writing an analysis report on
Berkshire Hathaway and became the first and only
financial analyst that was able to interview Buffet.
Buffett appreciated her insight and ability to master
a subject, so he authorized her to write his
biography. In order to write this book, she spent
five years interviewing Buffett for a total of over
2,000 hours. She also interviewed 250 other people,
including his friends, families, and co-workers. She
was given access to many never-before-published
personal letters and files of Buffett’s. Unlike
previous books that overemphasize Buffett’s
success and legendary life experience, this book
not only tells his legendary stories as a top-notch
investor but also depicts his human side. Thus, we
are allowed to get to truly know Buffett’s most
valuable experiences throughout his over 60 years
of doing business and investing. If you are
interested in Buffett and his life of wealth, The
Snowball is a great read. And if you want to know
more about his investment philosophy, you can find
the Bookeys on The Warren Buffett Way and The
Little Book That Builds Wealth. Up next, let’s
explore The Snowball through the following three
sections. Part 1: How Buffett has snowballed in
terms of investing Part 2: How Buffett has
snowballed in terms of understanding the world
and accumulating friends Part 3: How Buffett has
given back to society after achieving great wealth
and fame.
Chapter 2: How Buffett has
snowballed in terms of investing
Let’s start with how Buffett has snowballed in
terms of making investments. Buffett has had
great enthusiasm for numbers since he was very
young. His hobbies and interests all revolved
around numbers. When he was six, he was
obsessed with counting time in seconds, and
invented a game to play with his stopwatch. He
filled the bathtub with water and lined up his
individually named marbles at the back of the tub.
He then clicked the stopwatch just as he swept the
marbles into the water. As the marbles raced down
the porcelain slope, racing after each other toward
the stopper, when the first one hit, Buffett hit the
stopwatch and declared the winner. He called the
game “the bathtub steeplechase.” He never seemed
to get bored of the game and would play it again
and again. Besides this game, Buffett also often sat
by the roadside and wrote down the license plate
numbers of passing cars, calculating the frequency
of letters and numbers on them. Also at the age of
six, Buffet earned his first few cents from selling
packs of chewing gum. From that age onward, he
showed an unyielding attitude toward his
customers. There were five sticks of gum in one
pack, and when someone asked to buy only one
stick, Buffett resisted the temptation to close the
sale but insisted that he wouldn’t break up packs.
Young as he was, little Buffett was already aware
that he would risk spending more time selling the
gum if he were to break the pack. Meanwhile,
he also bought Pepsi-Cola and Coca-Cola from his
grandfather’s grocery store for 25 cents per carton
and resold them nearby for 5 cents per bottle. Thus,
he could earn 5 cents for each carton of six bottles.
While selling soda, little Buffett also collected
bottle caps that people threw on the ground. He
categorized them according to their brands, counted
the numbers of each to identify which soda sold the
best, and adjusted which soda he would sell
accordingly. In this way, little Buffett learned to
make money by applying probability at a very
young age. When Buffett was 10, he found a
book in the library called One Thousand Ways to
Make $1,000. On the first page it read:
“Opportunity Knocks. Never in the history of the
United States has the time been so favorable for a
man with small capital to start his own business as
it is today.” The heaven of wealth depicted in this
inspirational book excited Buffett. That was the
first time Buffett got to know the concept of
compound interest. What is compound interest?
It is the addition of interest to the principal sum of
a deposit. That is to say, in the next period, the
interest is then earned on the principal sum plus
previously accumulated interest. This book told
Buffett that he needed to first earn $1,000. If he
started with $1,000 and grew it ten percent a year,
then in five years, $1,000 became more than $1,600.
In ten years, it became almost $2,600, and in
twenty-five years, it became more than $10,800.
This is how a small amount of money can become
a large sum through the power of compound
interest. The 10-year-old Buffett was deeply
moved. He could picture the numbers
compounding as vividly as a snowball growing in
size. It was as if he could see the money waving at
him, and he announced that he would be a
millionaire by the time he reached 35. This was
back in 1941, in the aftermath of the Great
Depression. Nobody took the 10-year-old boy’s
words seriously. But Buffett believed that he could
do it. He had 25 years to prove himself, and he
knew that the longer the money compounded, the
better his chances were of achieving his goal. In
order to earn his first pot of gold, little Buffett sold
used golf balls at the golf course, peddled popcorn
at the baseball park, and delivered newspapers door
to door. By the age of 14, Buffett already
accumulated the $1,000 needed to begin his
investments, thus completing the first step
mentioned in One Thousand Ways to Make $1,000.
Since then, Buffett has always made compound
interest investments, and continually thinks of
placing the money he earns into his next
investment. Among his early investments, the
business of coin-operated pinball machines was a
typical example of a Buffett-style compound
interest investment. When Buffett was in high
school, he bought a used Wilson’s coin-operated
pinball machine for 25 dollars. He then went to the
barbershop near his home and told the owner that
he represented Wilson’s Coin-Operated Machine
Company, and that he had a proposition from the
company. He assured the barbershop owner that it
would be at no risk or cost to him. All he needed to
do was make a tiny space for the pinball machine
and collect half of the money earned. The owner
thought it was a good deal. Not only could he earn
some extra money, but the pinball machine could
also bring more customers. As such, Buffett struck
his first pinball machine deal. Buffett got his 25
dollar investment back within just one week. He
immediately made his next move as instructed in
One Thousand Ways to Make $1,000, buying
another pinball machine with the 25 dollars. That is
to say, he made a compound interest investment by
putting the proceeds into his next investment. With
increasing income, Buffett continued to buy more
pinball machines and put them into other
barbershops. Meanwhile, he subscribed to a
magazine to keep track of what was going on in the
market of pinball machines and bought more
machines whenever he found a cheap, used one. As
such, his business expanded, and Buffett began
feeling the magic of compound interest. It’s like an
engine that drives money to work hard for its owner.
In the half-century to come, Buffett continued
making compound interest investments. Speaking
of compound interest, you may be thinking of the
concept of principle. With a large principal and a
long period of time, one can make decent money
from compound interest. During the course of his
investments, Buffett discovered an almost free
source of principal called “float,” something used
by insurance companies. Simply put, float is the
money that is deposited and paid back after some
time. It is common practice for insurance
companies to collect premiums upfront and pay the
compensation when a claim is filed. The premiums
paid before the compensation is known as float.
In Buffett’s eyes, float is highly lucrative. Many
people buy insurance, and each of them pays a
substantial amount in premiums. Decades may pass
from the collection of premiums to the
compensation, and sometimes compensation is not
even needed. So these premiums provide a huge
cash flow for insurance companies. In order to
take full advantage of float, Buffett founded the
Reinsurance Corporation of Nebraska. A
reinsurance company is a company that provides
insurance to other insurance companies. Through
the reinsurance business, the company was able to
take in a lot of float. With a steady stream of float,
Buffett had the capital to invest in many stocks. He
transferred the float to his other holding company
and made investments through it. From this, his
float and investment returns continued doubling
over time, which made his wealth grow
exponentially. Another critical reason behind
Buffett’s success was his ability to concentrate,
which was quite unusual. Since he was very young,
he read the biographies of all the people he admired,
learning from their life experiences and trying to
follow their steps. A college classmate described
him as a very focused person who could focus
non-stop like a spotlight. He would often go
through thousands of pages of Standard & Poor’s
or Moody’s Manual looking for stocks. Even when
he was on his honeymoon, his car’s backseat was
loaded with Moody’s Manuals and ledgers. He
once spent several months reading newspapers
from the past century to study business cycle
models, the history of Wall Street, capitalism, and
the modern corporation. While working for the
Graham-Newman Corporation, in order to know
more about the companies he was interested in, he
would visit them in person and spend hours talking
with their managers and shareholders. As the
chairman and CEO of Berkshire Hathaway, he’s
lived in the same house for most of his life, arrives
at his office at 8:30, and gets down to work with a
high degree of concentration. Every morning, he
reads news reports, followed by various reports and
data submitted by Berkshire Hathaway-owned
companies. He closely follows global political
trends, analyzing the impact of politics on business.
Buffett also analyzes economic strategies and tries
to figure out what they imply, and focuses on the
businesses that he loves. Like a detective who takes
all details into consideration, he never stops
thinking about business and his investments.
Behind Buffett’s extraordinary achievements is his
heavy workload that goes unseen by the public, and
requires unremitting concentration to accomplish.
This is another key to Buffett’s success. That’s all
for the first part. In this section, we got to know
how Buffett has snowballed his investments. He’s
had great enthusiasm for numbers from an early
age, and his hobbies and interests all revolved
around numbers. Buffett also made his first bit of
earnings at six and by the age of ten, he understood
the concept of compound interest and realized that
he could snowball his money, thus making money
with money. After founding the Reinsurance
Corporation of Nebraska, Buffett had a steady
stream of float to invest in the stock market. He
also possesses a rare ability to concentrate. He’s
carefully studied and analyzed stocks and
economic strategies every day for decades. Such
concentration is also the key to his success.
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