Warren Buffet

Warren Buffet was born in 1930.  Investing was in Buffets genes, as his father, Howard, was a successful stockbroker and also a congressman. Warren always had an eye for business.  He had 2 paper routes for the Washington Post, He also made money by collecting and selling lost golf balls. When Warren was eleven he purchased three shares of Cities Service Preferred at $38 per share for both himself and his older sister, Doris. Shortly after buying the stock, it fell to just over $27 per share. A frightened but resilient Warren held his shares until they rebounded to $40. He promptly sold them – a mistake he would soon come to regret. Cities Service shot up to $200. The experience taught him one of the basic lessons of investing: patience is a virtue.   He began betting on horses at 12, and started a pinball machine business while in high school, earning him $50 a week. By graduation, he also had bought himself forty acres of Nebraskan farm land with his profit.

Buffet spent time in a number of colleges including the Wharton Business School at the University of Pennsylvania., the University of Nebraska-Lincoln (where Buffet graduated in 3 years) and Columbia.  While attending college in Nebraska, Buffet invested in a Texaco station and some real estate, but neither were successful. After taking a course by Dale Carnegie, Buffet began teaching night classes at the University of Omaha. Buffet studied economics at Columbia Business School under Benjamin Graham, who team with David Dodd to pen the 1934 book Security Analysis, which explained their investment technique (also known as value investing.).

Buffet, who was married, moved to the suburbs of NY and went to work for Ben Graham.  Buffet’s primary duties were analyzing S&P reports to search for investment opportunities.  Buffet became interested in how a company worked, while Graham simply wanted numbers.   Warren was predominately interested in a company’s management as a major factor when deciding where to invest; Graham looked only at the balance sheet and income statement.  By 1956, Buffets working capital went from $10,000 to $140,000.  Buffet decided to move back to his native Omaha.

In May 1956, Buffet with 7 investors including his sister and aunt raised $105,000 ($5,000 of his own funds) to create the Buffet Associates, Ltd.  Before the end of the year, he was managing around $300,000 in capital.   While the Dow was up 74% over the next 5 years, Buffets investments returned 251.0%.   By 1962, the partnership had capital in excess of $7.2 million, and Buffet’s personal fortune was over $1million.  Buffet had an unusual fee structure.  Instead of a set fee, Buffet earned 1/4 of the profits above 4%).

Buffet acquired 49% of the common stock of Bershire Hathaway by May 1965, and named himself Director. Warren refused to award stock options on the basis that it was unfair to shareholders, so he cosigned a loan for $18,000 for his new President, Ken Chace to purchase 1,000 shares of the company’s stock.

Berkshire Hataway began to acquire companies and massive stock holding.  Scott & Fetzer, he maker of Kirby vacuum cleaners and World Book encyclopedia, was the target of a hostile takeover by Ivan Boesky.  Buffet, who owned 250,000, sent a message to the company asking if they were interested in merging and deal was wrapped up less than a week later.

Berkshire Hathaway. Built a diverse portfolio includes utilities (MidAmerican Energy Holdings), insurance (Geico, General Re), apparel (Fruit of the Loom), flight services (FlightSafety, NetJets). Buffet also took large positions in major companies such as American Express, Coca-Cola, Gillette, the Washington Post and Wells Fargo.  Berkshire would see its share price climb from $2,600 to as high as $80,000 in the 1990’s.  Berkshire, has delivered compound annual return of 22 for over the last 40 years.

Buffet is also a generous philanthropist, donating more than $12 million each year to the Susan Thompson Buffet foundation.  Buffet recently announced he will donate much of his fortune to the foundation of his bridge partner and friend Bill Gates.

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