The Snowball: Chapters 45, 46, 47 & 48

Warren Buffett chose Alice Schroeder to be his biographer, granting her access to his personal life like no outsider has ever been granted. In The Snowball, she is rather frank and is not always complimentary of the investing legend, which has apparently led to a rift between the two. Here follows a summary of the book.

In the 1980's, leveraged buyouts were all the rage. Interest rates had fallen as inflation had been brought under control, and so private firms were looking for bloated public firms that they could buy, make more efficient, and sell for a profit. Buffett is wary of the debt (including debt of 'junk' status) that is used to finance these purchases, and so he does not participate.

However, as his fortune and fame have risen, he is called upon by corporate managers as a white knight, to save them from hostile buyouts. Since Buffett does not micromanage, corporate managers are happy to have him take stakes in their firms, even if it means a lower price; private equity firms, on the other hand, are likely to fire the existing managers.

During this time, Buffett was also facing losses in his insurance businesses. The book details some of the management changes that took place, and how Buffett has dealt with poorly performing businesses. He will often single out managers who have done a good job in his annual letter to shareholders, but will omit praise when it is not due. Often, he will take the blame himself in his letters, but behind the scenes he will make management changes.

The author also goes into excruciating detail with the Salomon debacle that Buffett was involved in that almost bankrupted the firm. Ethical violations by top managers at the firm resulted in the government shutting the firm out from debt auctions. This would likely have sent financial markets on a downward spiral, as Salomon's bankruptcy would likely have spread to other firms, its counter-parties, who would go unpaid in the event of a bankruptcy. Drawing on the reputation Buffett had earned by this point, Buffett is able to get concessions from the government that allow the firm to stay solvent enough time to survive a run on the firm's paper.