Before there was Warren Buffett, there was Ernest Buffett.
“Perhaps no man was more aptly named,” Warren Buffett wrote in Berkshire Hathaway Inc.’s annual letter to shareholders over the weekend.
Ernest Buffett was Warren Buffett’s grandfather. He did not finish high school. He started Buffett & Son grocery in Omaha, Neb., in 1915. He taught his children lessons that Wall Street’s Ivy League MBAs have yet to learn to this day.
In a 1939 letter to his youngest son (Warren Buffett’s Uncle Fred), Grandpa Buffett displays a common sense rarely seen at many major corporations today–even when they should know better after the financial crash of 2008.
“I have known a great many people who…suffered in various ways because they did not have ready cash,” he wrote in a neatly typewritten letter.
“I have made it a point to keep a reserve, should some occasion come up where I would need money quickly, without disturbing the money that I have in my business.
“Chances are that some day you will need money, and need it badly, and with this thought in view, I started a fund by placing $200 in an envelope, with your name on it, when you were married.
“Ten years have elapsed since you were married… Each year I added something to it… Now there is $1,000 in the fund.
“It is my wish that you place this envelop in your safety deposit box. … Use it as little as possible and replace it as soon as possible.
“You might feel that this should be invested and bring you an income. Forget it–the mental satisfaction of having $1,000 laid away where you can put your hands on it, is worth more than what interest it might bring.
“You might repeat it with your own children.
“There has never been a Buffett who ever left a very large estate. But there has never been one that did not leave something. They never spent all they made, but always saved part of what they made, and it has all worked out pretty well.”
Grandpa Buffett’s store survived two world wars and the Great Depression. “Good meat priced right is better than poor meat priced cheap,” a sign at its meat counter advertised.
Warren Buffett, one of the world’s richest men, didn’t know much about his grandfather for most of his life. But a couple of years ago, the Oracle of Omaha’s cousin, Bill Buffett, published a book: “Foods You Will Enjoy: The Story of Buffett’s Store.”
“When I was young, Ernest was just sort of a grandfather,” Warren Buffett said in a 2008 interview. “He had more to do with adults than he did with kids…After…this book, I’ve just come to have incredible admiration and respect for him.”
In an age when too many Americans think an emergency fund is an untapped credit card, Berkshire Hathaway has taken Grandpa Buffett’s advice to new heights. Its reserve fund is a lot bigger than Uncle Fred’s at more than $20 billion.
That’s a heck of a lot of trips to Dairy Queen, one of Berkshire Hathaway’s storied holdings. But when you own insurance companies, it’s enough to get through Hurricane Katrina, the insurance industry’s most expensive disaster at $3 trillion.
When the financial crisis hit in 2008, it wasn’t just greedy banks and reckless auto makers that went scrambling for emergency government funding.
Harley Davidson, McDonald’s, Caterpillar Inc., and other well-known companies went begging for taxpayer assistance because the market for commercial paper–loans companies use to finance basic operations–had seized.
“A short absence of credit can bring a company to its knees,” Warren Buffett wrote in the shareholders’ report. “During episodes of financial chaos…we will be equipped both financially and emotionally to play offense with others scramble for survival.”
