Warren Edward Buffett (born August 30, 1930) is an American investor, business magnate, and philanthropist, he is the Chairman and CEO of Berkshire Hathaway. He is considered one of the most successful investors in the world and has a net worth of US$68.9 billion as of May 2020, making him the fourth richest person in the world.
Warren Buffett was born in Omaha, Nebraska. He developed an interest in business and invested in his youth, eventually entering the Wharton School of the University of Pennsylvania in 1947 before transferring and graduating from the University of Nebraska at the age of 19. He later graduated from Columbia Business School, where he modeled his investment philosophy around the concept of value investing that was devised by Benjamin Graham. He attended the New York Institute of Finance to forge his economic vision and soon after began several business partnerships, including one with Graham. He created Buffett Partnership, Ltd. in 1956 and his company eventually acquired a textile manufacturing company called Berkshire Hathaway, assuming its name to create a diversified holding company. In 1978, Charlie Munger joined Buffett and became the company’s vice president.
Buffett has been the chairman and largest shareholder of Berkshire Hathaway since 1970. The world media has dubbed him the Oracle or “Sage” of Omaha.
Warren Buffett is noted for his adherence to value investing and for his personal frugality despite his immense wealth. Research published at the University of Oxford characterizes Buffett’s investment methodology as part of “founder centrism,” defined by a deference to managers with a founder’s mindset, an ethical disposition toward the collective of shareholders, and an intense focus on exponential value creation. Essentially, Buffett’s concentrated investments protect managers from short-term pressures in the market.
Warren Buffett is a noted philanthropist, who has pledged to donate 99 percent of his fortune to philanthropic causes, primarily through the Bill & Melinda Gates Foundation. He founded The Giving Pledge in 2009 with Bill Gates, where billionaires pledge to give away at least half of their fortunes.
Table of Contents
Youth and Education
Warren Buffett was born in 1930 in Omaha, Nebraska, the second of three children and the only son of Leila (née Stahl) and Congressman Howard Buffett. Buffett began his education at Rose Hill Elementary School. In 1942, his father was elected to the first of four terms in the United States Congress, and after moving his family to Washington, DC, Warren finished elementary school, attended Alice Deal High School, and graduated from Woodrow Wilson High School in 1947, where her yearbook photo reads, “He likes math; a future stockbroker. After finishing high school and finding success with his entrepreneurial and investment ventures, Buffett wanted to skip college to go straight into business, but his father wouldn’t let him.
Warren Buffett showed an interest in business and investing at a young age. He was inspired by a book he borrowed from the Omaha Public Library at the age of seven, A Thousand Ways to Earn $1,000.
Much of Buffett’s early childhood was filled with entrepreneurial endeavors.
In one of his first businesses, Buffett sold gum, Coca-Cola bottles and weekly magazines door to door. He worked in his grandfather’s supermarket. While still in high school, he earned money delivering newspapers, selling golf balls and stamps, and cleaning cars, among other things.
On his first tax return in 1944, Buffett agreed to a $35 deduction for the use of his bicycle and viewing on his paper route. In 1945, as a high school sophomore, Buffett and a friend spent $25 to buy a used pinball machine, which they placed at the local barbershop. Within months, they owned multiple machines at three different salons in Omaha. The business was sold later in the year for $1,200 to a war veteran.
Investor Benjamin Graham was influential on the young Buffett Buffett
‘s interest in the stock market and investments, on the other hand, dates back to his college days spent in the client room of a regional stockbroker near the office of his father’s brokerage.
On a trip to New York City at the age of ten, Buffett made it a point to visit the New York Stock Exchange. At age 11, she bought three shares of Cities Service Preferred for himself and three for his philanthropist sister Doris Buffett.
By the age of 15, Warren Buffett was earning more than $175 a month delivering newspapers from the Washington Post.
In high school, he invested in a business owned by his father and bought a 40-acre farm worked by a tenant farmer. He bought the land when he was 14 years old with $1,200 of his savings. By the time he finished college, Buffett had accumulated $9,800 in savings (about $105,000 today).
In 1947, Buffett entered the Wharton School at the University of Pennsylvania. He would have preferred to concentrate on his business, but his father pressured him to sign up. Warren studied there for two years and joined the Alpha Sigma Phi fraternity. He then transferred to the University of Nebraska, where at age 19 he graduated with a Bachelor of Science in Business Administration. After being rejected by Harvard Business School, Buffett enrolled at Columbia University’s Columbia Business School upon learning that Benjamin Graham was teaching there. He earned a Master of Science in Economics from Columbia in 1951. After graduation, Buffett attended the New York Institute of Finance.
« The basic ideas of investing are to look at stocks as a business, use market fluctuations to your advantage, and look for a margin of safety. That’s what Ben Graham taught us. A hundred years from now they will still be the cornerstones of investing.” – Warren Buffett
Warren Buffett’s early years as an investor
Buffett worked from 1951 to 1954 at Buffett-Falk & Co. as an investment salesman; from 1954 to 1956 at Graham-Newman Corp. as a securities analyst; from 1956 to 1969 at Buffett Partnership, Ltd. as general partner; and since 1970 as Chairman and CEO of Berkshire Hathaway Inc.
In 1951, Buffett discovered that Graham was on the GEICO insurance board. Taking a train to Washington, DC, on a Saturday, he knocked on the door of GEICO headquarters until a janitor admitted him. There he met Lorimer Davidson, vice president of GEICO, and the two discussed the insurance business for hours. Davidson would eventually become Buffett’s lifelong friend and lasting influence, later recalling that he discovered Buffett to be an “extraordinary man” after only fifteen minutes. Buffett wanted to work on Wall Street, but both his father and Ben Graham urged him not to. He offered to work for Graham for free, but Graham refused.
Buffett returned to Omaha and worked as a stockbroker while taking a public speaking course at Dale Carnegie. Using what he learned, he felt confident enough to teach an evening class on “Investing Principles” at the University of Nebraska-Omaha. The average age of his students was more than twice his own. During this time he also purchased a Sinclair Texaco service station as a secondary investment but was unsuccessful.
In 1952, Buffett married Susan Thompson at the Dundee Presbyterian Church. The following year they had their first child, Susan Alice.
In 1954, Buffett accepted a job with Benjamin Graham’s partnership. His starting salary was $12,000 a year (about $114,000 today). There he worked closely with Walter Schloss. Graham was a tough boss. He insisted that stocks offer a wide margin of safety after weighing the trade-off between their price and their intrinsic value. That same year, the Buffetts had their second child, Howard Graham. In 1956, Benjamin Graham retired and closed his partnership. At this time, Buffett’s personal savings exceeded $174,000 (about $1.64 million today) and he started Buffett Partnership Ltd.
In 1957, Buffett operated three partnerships. He bought a five-bedroom stucco house in Omaha, where he still lives, for $31,500. In 1958, the Buffetts’ third child, Peter Andrew, was born. Buffett operated five companies that year.
In 1959, the company grew to six partnerships, and Buffett met their future partner Charlie Munger. By 1960, Buffett operated seven companies. He asked one of his partners, a doctor, to find ten other doctors willing to invest $10,000 each in his partnership. Ultimately, eleven agreed, and Buffett raised his money from a 100% fund of his own.
In 1961, Buffett disclosed that 35% of the partnership’s assets were invested in the Sanborn Map Company. He explained that Sanborn stock sold for only $45 a share in 1958, but the company’s investment portfolio was worth $65 a share. This meant that Sanborn’s map business was valued at “minus $20.” Buffett eventually bought 23% of the company’s outstanding shares as an activist investor, getting himself a seat on the Board of Directors, and allied himself with other dissatisfied shareholders to control 44% of the shares. To avoid a power struggle, the Board offered to buy back shares at fair value, paying with a portion of his investment portfolio. 77% of the outstanding shares were delivered. Buffett obtained a 50% return on investment in just two years.
Running Berkshire
In 1962, Buffett became a millionaire through his partnerships, which in January 1962 had a profit of $ 7,178,500, of which more than $1,025,000 belonged to Buffett. He merged these associations into one. Buffett invested in and eventually took control of a textile manufacturing company, Berkshire Hathaway. He began buying shares in Berkshire from Seabury Stanton, the owner, whom he later fired.
Buffett’s associations began buying shares at $7.60 per Berkshire share.
In 1965, when Buffett’s partnerships began aggressively buying Berkshire stock, they paid $14.86 per share, while the company had a working capital of $19 per share. This did not include the value of fixed assets (factory and equipment).
Warren Buffett took control of Berkshire Hathaway at a board meeting and appointed a new chairman, Ken Chace, to lead the company. In 1966, Buffett closed the partnership to new money. He later claimed that the textile business had been his worst business of his. He then moved the business into the insurance business and, in 1985, the last of the mills that had been Berkshire Hathaway’s core business was sold.
In a second letter, Buffett announced his first investment in a private business: Hochschild, Kohn and Co, a private Baltimore department store. In 1967, Berkshire paid it’s first and only 10-cent dividend. In 1969, after his most successful year, Buffett liquidated the partnership and transferred his assets to his partners. Among the assets paid were shares of Berkshire Hathaway.
In 1970, Buffett began writing his now-famous annual letters to shareholders. He lived solely on his salary of USD 50,000 per year and his income from outside investments.
In 1973, Berkshire began purchasing shares in the Washington Post Company. Buffett became close friends with Katharine Graham, who controlled her company and flagship newspaper and joined her board of directors. In 1974, the SEC opened a formal investigation into the acquisition of Wesco Financial by Buffett and Berkshire, due to a possible conflict of interest. No charges were filed. In 1977, Berkshire indirectly purchased the Buffalo Evening News for $32.5 million. The antitrust charges began, instigated by its rival, the Buffalo Courier-Express. Both newspapers lost money until the Courier-Express folded in 1982.
In 1979, Berkshire began to acquire shares in ABC.
Capital Cities announced a $3.5 billion purchase of ABC on March 18, 1985, shocking the media industry as ABC was four times the size of Capital Cities at the time. Buffett helped finance the deal in exchange for a 25% stake in the combined company. The newly merged company, known as Capital Cities/ABC (or CapCities/ABC), was forced to sell some stations due to US Federal Communications Commission ownership rules. The two companies also owned a number of stations. radio in the same markets.
In 1987, Berkshire Hathaway bought a 12% stake in Salomon Inc., making it the largest shareholder and Buffett a director. In 1990, a scandal broke out involving John Gutfreund (former CEO of Salomon Brothers ). A rogue trader, Paul Mozer, was bidding in excess of what was allowed by Treasury rules. When this was brought to Gutfreund’s attention, he did not immediately suspend the rebellious merchant. Gutfreund left the company in August 1991. Buffett became Chairman of Salomon until the crisis passed.
In 1988, Buffett began buying stock in The Coca-Cola Company, eventually buying up to 7% of the company for $1.02 billion. It would turn out to be one of Berkshire’s most lucrative investments, and one that it still holds.
Warren Buffett is a billionaire
Warren Buffett became a billionaire when Berkshire Hathaway began selling Class A shares on May 29, 1990, with the market closing at $7,175 per share.
In 1998 it acquired General Re (Gen Re) as a subsidiary in a deal that ran into difficulties, according to Rational, the investment website Walk, “underwriting standards proved inadequate.”
During a 2005 investigation of an accounting fraud case involving AIG, Gen Re executives were implicated. On March 15, 2005, the AIG board forced Greenberg to resign from his position as Chairman and CEO after New York state regulators claimed that AIG had engaged in questionable transactions and improper accounting.
On February 9, 2006, AIG agreed to pay a $1.6 billion fine. In 2010, the US government reached a $92 million settlement with Gen Re, allowing the Berkshire Hathaway subsidiary to avoid prosecution in the AIG case. Gen Re also pledged to implement “corporate governance concessions,” which required Berkshire Hathaway’s Chief Financial Officer to attend General Re’s audit committee meetings and mandated the appointment of an independent director.
In 2002, Buffett signed $11 billion worth of forward contracts to deliver US dollars against other currencies. By April 2006, his total profit on these contracts was over $2 billion. In 2006, Buffett announced in June that he would gradually give away 85% of his Berkshire holdings to five foundations in annual stock gifts, beginning in July 2006: the largest contribution would go to the Bill & Melinda Gates Foundation.
In 2007, in a letter to shareholders, Buffett announced that he was looking for a younger successor, or perhaps successors, to run his investment business.
Buffett’s activity during the 2008 financial crisis
Buffett was criticized during the 2007–2008 subprime crisis, part of the recession that began in 2007, for allocating capital too soon, resulting in suboptimal deals. “Buy American.” he wrote for a New York Times op-ed in 2008. Buffett called the downturn in the financial sector that began in 2007 “poetic justice.” Buffett’s Berkshire Hathaway suffered a 77% drop in profits during the third quarter of 2008 and several of his subsequent deals suffered huge market losses.
Berkshire Hathaway acquired 10% of Goldman Sachs’s perpetual preferred stock. Some of Buffett’s put options that he sold had a loss of about $6.73 billion on the market at the end of 2008. The scale of the potential loss prompted the SEC to require Berkshire to produce “a more robust disclosure .” » of the factors used to value the contracts. Buffett also helped Dow Chemical pay for its $18.8 billion acquisition of Rohm & Haas. Thus, he became the largest shareholder in the enlarged group with his Berkshire Hathaway, which provided USD 3 billion, underlining his instrumental role during the crisis in the debt and equity markets.
In 2008, Buffett became the world’s richest person, with a total net worth estimated at $62 billion by Forbes and $58 billion by Yahoo, surpassing Bill Gates, who had been number one on the list. Forbes for 13 consecutive years. In 2009, Gates regained the top spot on the Forbes list, with Buffett slipping to second place. The values of both men fell, to $40 billion and $37 billion respectively, according to Forbes, Buffett lost $25 billion in a 12-month period during 2008/2009.
In October 2008, the media reported that Buffett had agreed to buy General Electric (GE) preferred stock. The deal included special incentives: He received the option to buy three billion shares of GE, at $22.25, within five years of the deal, and Buffett also received a 10% dividend (due within three years). In February 2009, Buffett sold some shares of Procter & Gamble Co. and Johnson & Johnson from his personal portfolio.
In addition to suggestions that he had bought shares at the wrong time, the wisdom to hold on to some of Berkshire’s top holdings, including The Coca-Cola Company, which peaked at $86 in 1998, raised questions. Buffett discussed the difficulties of knowing when to sell in the company’s 2004 annual report:
“That may seem easy to do when you look through an always clean rearview mirror. Unfortunately, though, it’s the windshield through which investors must look, and that glass is invariably fogged up.”
In March 2009, Buffett said in a cable television interview that the economy “had fallen off a cliff… Not only has the economy slowed down a lot, but people have really changed their habits as I’ve never seen them before.”». Additionally, Buffett feared that the levels of inflation that occurred in the 1970s, leading to years of painful stagflation, could resurface.
investment philosophy
Warren Buffett’s writings include his annual reports and various articles. Buffett is recognized by journalists as a great storyteller, as evidenced by his annual letters to shareholders. He has warned about the pernicious effects of inflation:
The arithmetic makes it clear that inflation is a far more devastating tax than anything our legislatures have ever enacted. The inflation tax has a fantastic ability to simply consume capital. It doesn’t matter to a widow with her savings in a 5 percent account that pays 100 percent income tax on her interest income during a period of zero inflation, or pays no income taxes during years of 5 percent inflation. » – Buffett, Fortune Magazine (1977)
In his article, “The Graham-and-Doddsville Super Investors,” Buffett refuted the academic efficient-market hypothesis that beating the S&P 500 index was “pure fluke,” highlighting the results achieved by several Graham and Dodd students. from the school of value investing. In addition to himself, Buffett named Walter J. Schloss, Tom Knapp, Ed Anderson (Tweedy, Browne LLC), William J. Ruane (Sequoia Fund), Charlie Munger (Buffett’s partner in Berkshire), Rick Guerin (Pacific Partners Ltd .) and Stan Perlmeter (Perlmeter Investments) in their November 1999 Fortune article, warning of unrealistic investor expectations:
« Let me summarize what I have been saying about the stock market: I think it is very difficult to make a persuasive case that stocks in the next 17 years will do something similar to what they have done in the last 17. If I had to choose the most likely return, from appreciation and dividends combined, that investors collectively would earn in a world of constant interest rates, 2% inflation, and those harmful friction costs, would be 6%! – Buffett, Fortune (1999)
Index Funds vs. Active Management
Warren Buffett has been a proponent of index funds for people who aren’t interested in managing their own money or don’t have the time.
Buffett is skeptical that active management can outperform the market in the long run and has advised individual and institutional investors to move their money into low-cost index funds that track broad, diversified stock indices. Buffett said in one of his letters to shareholders that “when Wall Street brokers handle trillions of dollars charging high fees, it will usually be the managers who reap outsized profits, not the customers.” In 2007, Buffett made a bet with numerous managers that a single S&P 500 index fund would outperform hedge funds. They charge exorbitant fees. By 2017, the index fund outperformed every hedge fund that made the bet against Buffett.
Warren Buffett’s health company
On January 30, 2018, Berkshire Hathaway, JPMorgan Chase, and Amazon delivered a joint press release announcing plans to team up and form a new healthcare company for their American employees.
According to the statement, the company would be “free from incentives and restrictions to make a profit” as it tried to find ways to reduce costs and improve the overall process for patients, with an initial focus on technology solutions.
Calling rising health care costs a “hungry tapeworm in the American economy,” Warren Buffett said, “we share the belief that putting our collective resources behind the best talent in the country can, over time, check the rise in costs.” health costs while improving patient satisfaction and outcomes.
In March, the media reported that Berkshire Hathaway’s HomeServices of America Inc. , the second-largest residential brokerage owner in the US, was poised to take further steps toward the top spot, held by Realogy’s NRT LLC. Buffett said that he “barely noticed” when Berkshire Hathaway originally acquired HomeServices, then part of MidAmerican Energy Holdings Co., in 2000.
Warren Buffett returned to the news in the spring of 2020 with the announcement that Berkshire Hathaway had divested its holdings in the “big four” airlines (Southwest, American, Delta and United) over concerns that the industry would never fully recover. of the coronavirus pandemic.
Recent Years and Warren Buffett’s Philanthropy
In 2012, Buffett revealed that he had been diagnosed with prostate cancer. He began receiving radiation therapy in July and successfully completed his treatment in November.
The health scare did little to slow the octogenarian, who annually ranks near the top of Forbes’ world list of billionaires. In February 2013, Buffett bought HJ Heinz with the private equity group 3G Capital for $28 billion. Later additions to the Berkshire Hathaway stable included battery maker Duracell and Kraft Foods Group, which merged with Heinz in 2015 to form North America’s third-largest food and beverage company.
In 2016, Buffett launched Drive2Vote, a website intended to encourage people in his Nebraska community to exercise their right to vote, as well as help register and get voters to a polling place if they needed transportation.
Warren Buffett, a vocal supporter of Democratic presidential candidate Hillary Clinton, whom he had endorsed in 2015, also challenged Republican candidate Donald Trump to get together and share his tax returns. “I’ll meet him in Omaha or Mar-a-Lago or, he can pick the place, anytime between now and the election,” he said at an Aug. 1 rally in Omaha. I will bring my statement, he will bring his statement. We are both under audit. And believe me, no one is going to stop us from talking about what’s in those statements.” Trump did not accept the offer, although his refusal to share his statements ultimately did not prevent his election to the presidency in 2016.
In May 2017, Buffett revealed that he had begun selling some of the approximately 81 million shares he owned in IBM stock, noting that he did not value the company as much as he did six years earlier. After another sale in the third quarter, his stake in the company fell to about 37 million shares. On the other hand, he increased his investment in Apple by 3 percent and became the largest shareholder in Bank of America by executing warrants for 700 million shares. Early the following year, he added more shares of Apple to make it Berkshire Hathaway’s largest single-stock investment.
Philanthropy
The fourth richest man in the world continues to make his fortune in investment and turn it into philanthropy in the great tradition of Carnegie and Rockefeller. In 2006 he made history in the United States by making the largest charitable donation by an individual: $37 billion to the Bill & Melinda Gates Foundation.
Warren Buffett has supported the following charities:
- Animal Rescue Foundation
- Bill and Melinda Gates Foundation
- Girls Inc.
- glide
- James Redford Institute for Transplant Awareness
- Make-A-Wish Foundation
- Music Rising
- NoVo Foundation
- SmileTrain.
Perhaps one of the key aspects of Buffett being one of the most generous people in the world is that he has actually earned more than 90% of his fortune after the age of 50. Perhaps over time he has learned to look at money with much more calm and detachment than the rest of us mortals do.
