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His grandfather charged him interest
The loan
The stock market had crashed a month earlier, and the money from his Bar Mitzvah still fell short of the price of one share. His grandfather lent him the difference and charged interest on it as a way to teach him. The boy had read a few Fortune articles about Warren Buffett and loved the brands in the portfolio, American Express and Coca-Cola among them. He knew nothing yet about float or insurance.
The paper certificate
Buffett's advice back then was to have the share certificate mailed to you in physical form rather than leave it with a broker, so nobody could margin against it. The certificate traveled all the way to Venezuela and arrived. Every year after that, the annual letter came in the mail too.
The annual letters
He read each letter with a highlighter in hand. When a term stumped him, he bought a little Wall Street Journal book called Understanding Money and Markets and looked it up. At 18 he went to his first Berkshire annual meeting, a Friday afternoon at a Holiday Inn with a couple hundred people.
Why did the 1987 stock market crash happen?
On October 19, 1987, the Dow Jones Industrial Average fell about 22 percent in a single day, the largest one-day percentage drop in its history. A 1988 presidential commission, known as the Brady Commission, pointed to portfolio insurance as an accelerant. Those strategies automatically sold index futures as prices dropped, so falling prices triggered more selling. Markets in London, Tokyo, and Hong Kong fell in the same days.
How does a paper certificate block margin loans?
A margin loan works because the broker holds the shares as collateral and can sell them if the price falls. Shares kept with a broker are usually registered in the broker's street name, which makes them easy to pledge. A physical certificate registered to its owner sits outside that arrangement. Today almost all U.S. shares are held electronically through the Depository Trust Company, and paper certificates have become rare.
Why did Buffett's annual letters become famous?
Buffett took control of Berkshire in 1965 and wrote its annual shareholder letters in plain language with few financial terms. Berkshire posts the letters, including old ones, on its website, so anyone can read the whole run. Collections have also been published as books, notably Lawrence Cunningham's The Essays of Warren Buffett.
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