Some said no to investing with Buffett early on

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Posted: Saturday, May 4, 2013 12:00 am

Part of Elizabeth Hanon's job as Warren Buffett's secretary in the 1960s was to walk across Farnam Street every day at 3 p.m. and buy her boss a Pepsi and a bag of peanuts.

On the day he bought Coca-Cola stock for Berkshire, Buffett told her, “No more Pepsi. Only bring a Coke. And the peanuts.”

In the late 1960s, Elizabeth's husband, Harry, inherited between $20,000 and $40,000, and Buffett offered to let him join the investment partnership he was running from his office at 36th and Farnam Streets.

“Warren Buffett even offered to lend my dad money to put into his new endeavor and pay him back later,” said Hanon's son, Kent, now a retired Bellevue East High School teacher.

No, thanks, said Harry, a career Army officer who was working with the Iowa National Guard. Instead, Hanon put the money into what turned out to be a pyramid scheme and lost it.

The Hanons later moved to California, and Buffett stayed in Omaha to build his financial fortune through Berkshire Hathaway Inc. Had Hanon invested $20,000 with Buffett in 1969 and never sold, his shares of Berkshire Hathaway would be worth more than $75 million.

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Harry Hanon had fought on Omaha Beach during World War II's D-Day and retired as an Army colonel, settling in California, living to age 94 and not being bothered by his decision to skip Buffett's offer.

A new World-Herald book, “The Oracle & Omaha: How Warren Buffett and His Hometown Shaped Each Other,” includes stories of Omahans who didn't invest with Buffett, as well as those who did become Berkshire multimillionaires.

Today it's clear that investing with Buffett was the right choice, Kent Hanon said, but 50 years ago, “Who knew that Warren Buffett would become Warren Buffett? I reminded my dad, 'I could have been the son of a millionaire.' ”

But he said the lack of a Buffett fortune didn't dim his career as a teacher. “I wouldn't have traded it for anything.” One of his former students recently invited him to an Air Force ceremony marking his promotion to general, and his son-in-law, Jeff York, won a Buffett-sponsored teaching award at Rosehill School, the same Omaha grade school that Buffett attended.

The question was logical in the 1960s, 1970s and even the 1980s. Should you trust Buffett or not? Is this the one investing decision you can make that could change your life? Or would it be a mistake you'd regret forever? Such doubts meant that most people who had the early opportunity didn't bite.

Buffett based his investment pitch on trusting him and his investing ideas, while revealing few details about exactly what he'd do with the money. Today, it sounds eerily like a typical investment scam, although Buffett's secrecy was designed to prevent other investors from mimicking his decisions.

“People trusted Bernie Madoff, too,” said early Buffett investor Carl Mammel, referring to the man responsible for the biggest investment fraud in U.S. history. The difference: Madoff's returns were fictional, and Buffett's quickly proved to be real.

Even those who knew the Buffett family well often didn't invest with Warren.

Victor Spittler had managed the congressional campaigns of Warren Buffett's father, Howard Buffett, but instead of investing in the Buffett partnerships or Berkshire Hathaway, Spittler relied on his law practice and a conservative nature.

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“Dad wasn't a big investor,” said son Robert Spittler of Omaha. “I don't know what his thoughts were. He never looked back” and didn't complain about missing a chance to make a fortune by investing with Buffett. “He didn't, but I might have said that.”

Gunnar Horn, a longtime journalism teacher at Benson High School, took a class that Buffett taught in the 1950s at what was then Omaha University and was impressed with his ideas. By the time he died in 2001, Horn had built up a $3million estate following Buffett's investment principles, leaving part of the money for college scholarships.

But Horn never bought Berkshire stock because it didn't pay dividends.

Carl Falk, who was a partner in Howard Buffett's stock brokerage business, mostly followed the traditional methods of Wall Street, buying shares of blue-chip companies and bonds he figured would turn a profit. But Falk didn't embrace Buffett's idea of buying little-known, undervalued stocks or businesses and holding onto them until the stock price rose to meet their true value.

“Some people really went for that concept,” said Falk's son, Bob, who had a successful Omaha career in finance himself. “It was not conservative investing, but it worked. Today, they're the ones giving all that money away. I didn't follow Warren's standards so much. Some people were a little bit goosey about that. He would buy into companies that weren't traded very much.”

Investors such as Falk and his clients, using their tried-and-true methods, prospered as time went on but didn't make the huge, compounding gains of the early Buffett crowd.

“Even my own dad didn't get into it until later,” Falk said. “I think he was one of those people who didn't think that value stuff was pertinent. But Warren's done all right.”

The choice to invest with Buffett wasn't as simple a decision as it might seem today.

Donald Keough, a neighbor of Buffett's, was a salesman for Butternut Coffee in Omaha. Keough's five children used to play with Buffett's three kids.

“One day, Warren popped over and asked if I'd thought about how I was going to educate these kids,” Keough once told New York magazine. “I told him I planned to work hard and see what happened. Warren said if I gave him $5,000 he'd probably do better.

“My wife and I talked it over, but we figured we didn't know what this guy even did for a living, how could we give him $5,000? We've been kicking ourselves ever since. I mean, if we had given him the dough, we could have owned a college by now.”

Keough hasn't suffered, of course. He later became president of Coca-Cola Co. and is a member of Berkshire Hathaway's board of directors.

The Omaha World-Herald Co. is owned by Berkshire Hathaway Inc.

Contact the writer: steve.jordon@owh.com

402-444-1080, twitter.com/buffettOWH


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