ARTICLE: How Warren Buffett made his Billions Moneycontrol.com December 26, 2006 Warren Buffett is a man who has made millions but he also started working at his father's brokerage when he was 11 years old, that's an age when most other kids were playing hide-n-seek and didn't know how to spell 'brokerage'.
This financial wizard is by recent estimates, worth $46 billion but how he got there is the fascinating story. It all began in the family grocery store back in Omaha. Buffett's great grandfather started the store in 1869 and it was in the Buffet family until 1969, till his uncle finally retired. But it's at this store, where he began going around his neighbourhood selling gum. This was before his stint at his father's firm.
Warren Buffett told CNBC's Liz Claman, "My grandfather would sell me Wrigley's chewing gum and I would go door to door around my neighbourhood selling it. He also sold me six Coca Cola for a quarter and I would sell it for a nickel each in the neighbourhood, so I made a small profit. I was always trying to do something like this." From small beginnings come bigger things and so after selling gum, soft drinks and working with his father, by age 14, he had bought a 40 acres farm in Washington, Thurston County. But he confesses that he never enjoyed the farm as much as he enjoyed investing in stocks. But the first stock he bought was "Citi Service preferred stock. I had three shares and made all of $5 on it. I had bought it at $38.25 and then I sold it around $40, it went down to $27 in between and after I sold it at $40, it went to $200!" From that poorly timed stock sale in 1944, he learnt a lesson that became his legendary investment strategy - which is essentially - patience pays, so buy them and hold them. He figured out two other critical things about himself in the 1940s - what he is good at and what he likes to do. This pivotal moment in his journey came in 1956, when he was just 25 years old. This man who was rejected by Harvard and now armed with contributions from family and friends and $100 of his own money starts a limited partnership with seven people. Over the next nine years, Buffett turned a $105,000 into $26 million - a stunning 24,000 per cent increase! He had invested mostly in textile companies, farm equipment manufacturers and even a company making windmills.
Warren Edward Buffett Biography: From Wikipedia, the free encyclopedia Jump to: navigation, search http://en.wikipedia.org/wiki/Warren_Buffett (b. August 30, 1930, Omaha, Nebraska) is an American investor, businessman and philanthropist. Nicknamed the "Oracle of Omaha" or the "Sage of Omaha", Buffett has amassed an enormous fortune from astute investments, particularly through the company Berkshire Hathaway, of which he is the largest shareholder and CEO. With an estimated current net worth of around US$46 billion, he is ranked by Forbes as the second-richest person in the world, behind only Microsoft co-founder Bill Gates. In June 2006, he made a commitment to give away his fortune to charity, with 85% of it going to the Bill and Melinda Gates Foundation ([3]). Buffett's donation was the largest act of charitable giving in United States history ([4]). Despite his immense wealth, Buffett is famous for his unpretentious and frugal lifestyle. When he spent $6.7 million of Berkshire's funds on a corporate jet in 1989, he jokingly named it "The Indefensible" because of his past criticisms of such purchases by other CEOs ([5]). He continues to live in the same house in the central Dundee neighborhood of Omaha Nebraska that he bought in 1958 for $31,500 ([6]) (although he also owns a mansion in Laguna Beach, California). His annual salary of $100,000 is tiny by the standards of senior executive remuneration in other S&P 500 companies, which averaged about $9 million in 2003 ([7]).
Overview Buffett was born in Omaha, Nebraska to Howard Buffett, a stockbroker and United States Representative, and Leila Buffett. He began working at his father's brokerage at the age of 11, and that same year made his first stock purchase, buying Cities Services shares for $38 each. He sold them when the price reached $40, only to see them rocket to $200 a few years later. This taught him the importance of investing in good companies for the long term. At the age of 14 he spent $1,200 he had saved up from two paper routes [citation needed] to buy 40 acres of farmland which he then rented to tenant farmers. Buffett initially attended the Wharton School at the University of Pennsylvania, then transferred to the University of Nebraska. There he began his interest in investing after reading Benjamin Graham's The Intelligent Investor. He obtained a Master's degree in economics in 1951 at Columbia Business School, studying under Benjamin Graham, alongside other future value investors including Walter Schloss and Irving Kahn. Another influence on Buffett's investment philosophy was the well known investor and writer Philip Fisher. After receiving the only A+ Benjamin Graham ever handed out to a student in his security analysis class, Buffett wanted to work at Graham-Newman but was initially turned down. He went to work at his father's brokerage as a salesman until Graham offered him a position in 1954. Buffett returned to Omaha two years later, when Graham retired. Buffett established Buffett Associates, Ltd., his first investment partnership, in 1956. It was financed by $100 from Buffett, the general partner, and $105,000 from seven limited partners consisting of Buffett's family and friends. Buffett created several additional partnerships which were later consolidated as Buffett Partnership Limited. He ran the partnerships out of his bedroom, adhering closely to Graham's investment approach and compensation structure. These investments made in excess of 30% compounded annually between 1956 to 1969, in a market where 7% to 11% was the norm. Buffett employed a three-pronged approach: • Generals: undervalued securities that possess margin of safety and meet expected return-to-risk characteristics ([8]) • Arbitrages: company events that are not related to broader market changes, such as mergers and acquisitions, liquidation, etc. • Controls: build sizeable holdings, ally with other shareholders or employ proxies to effect changes in companies In 1962 Buffett Partnerships began purchasing shares of Berkshire Hathaway, a large manufacturing company in the declining textile industry that was selling below its working capital. Buffett would eventually dissolve all his partnerships to focus on running Berkshire Hathaway. At the time, Charlie Munger, Berkshire's current Vice Chairman, remarked that purchasing the company was a mistake, due to the failure of the textile industry. Berkshire, however, became one of the largest holding companies in the world, as Buffett redirected the company's excess cash to acquire private businesses and stocks of public companies. At the core of his strategy were insurance companies, due to the large cash reserves ("float") they must keep on hand to pay out future claims. Essentially, the insurer does not own the float, but may invest it and keep any proceeds. Under Munger's influence, Buffett's investment approach moved away from a strict adherence to Graham's principles, and he began to focus on high-quality businesses with enduring competitive advantages. He described such advantages as a "moat" that kept rivals at a safe distance, as opposed to commodity businesses, which sell undifferentiated products and face direct competition. A classic example of a wide-moat company is Coca-Cola, because consumers are willing to pay more for a Coke than for a generic beverage with a similar taste. On the other hand, salt is considered a commodity product because consumers generally have no preferences for one brand of salt over another. Investment in wide-moat businesses has become a hallmark of Berkshire Hathaway, particularly when buying whole companies rather than public stocks. As a result, it now owns a large number of businesses which are dominant players in their respective industries, specialize in various niche markets, or possess other unique characteristics to separate them from their competitors. Historical timeline Education: Woodrow Wilson High School, Washington D.C. in 1947 Wharton School of Finance, University of Pennsylvania, 1947-1949 B.S. University of Nebraska, 1950 M.S. in Economics, Columbia University, in 1951. Employment: 1951-1954 Buffett-Falk & Co., Omaha - Investment Salesman 1954-1956 Graham-Newman Corp., New York - Securities Analyst 1956-1969 Buffett Partnership, Ltd., Omaha - General Partner 1970-Present Berkshire Hathaway Inc, Omaha - Chairman, CEO 1943: (13 years old) Buffett filed his first income tax return, deducting his bicycle as a work expense. 1945: (15 years old) • In his senior year of high school, Buffett and a friend spent $25 to purchase a used pinball machine, which they placed in a barber shop. Within months, they owned three machines in different locations. 1950: (20 years old) • Buffett enrolled at Columbia Business School after learning that Benjamin Graham and David Dodd, two well-known securities analysts, taught there. • During this time, Buffett also pledged to the Alpha Sigma Phi fraternity. He is still active today, donating every year to the fraternity. 1951: (21 years old) • Buffett discovered Graham was on the Board of GEICO insurance at the time. After taking a train to Washington, D.C. on a Saturday, Buffett knocked on the door of GEICO's headquarters until a janitor allowed him in. There, he met Lorimer Davidson, the Vice President, who was to become a lasting influence on him and life-long friend.[2] • Buffett graduated and wanted to work on Wall Street. Buffett offered to work for Graham for free but Graham refused. He purchased a Texaco gas station as a side investment, but that venture did not work out as well as he had hoped. Meanwhile, he worked as a stockbroker. During that time, Buffett also took a Dale Carnegie public speaking course. Using what he learned, he felt confident enough to teach a night class at the University of Nebraska, "Investment Principles." The average age of the students he taught was more than twice his own. 1952: (22 years old) • Married Susan Thompson. 1954: (24 years old) • Benjamin Graham offered him a job at his partnership at a starting salary of $12,000 a year. Here, he worked closely with Walter Schloss. 1956: (26 years old) • Graham retired and folded up his partnership. Since leaving college six years earlier, Buffett's personal savings grew from $9,800 to over $140,000. Returned home to Omaha and created Buffett Associates, Ltd., an investment partnership. 1959: (29 years old) • Buffett was introduced to Charlie Munger, the man who would eventually become the Vice Chairman of Berkshire Hathaway, and an integral part of the company's success. The two got along immediately. 1962: (32 years old) • Buffett discovered a textile manufacturing firm, Berkshire Hathaway, that was selling for under $8 per share. Through his partnership, Buffett eventually purchased 49% of the outstanding shares. 1965: (35 years old) Took control of Berkshire Hathaway at the board meeting and named a new President, Ken Chace, to run the company…
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