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Warren Buffett Biography
The
Story of Berkshire Hathaway's Billionaire Chairman
Warren Buffett, the
“
Sage of
Omaha
”
, is generally
considered to be the world
’
s
most successful investor. His investment vehicle,
Berkshire Hathaway, is legendary.
Investors
would
love
to
know
the
secret
of
his
success----to
know
how
he
became
America
’
s second
or third richest man, and a living legend.
Warren Buffett is Born
Warren Edward Buffett
was
born on August 30, 1930 to his father Howard, a
stockbroker-turned-Congressman. The
only boy, he was the second of three children,
and displayed an amazing aptitude for
both money and business at a very early age.
Acquaintances recount his uncanny
ability to calculate columns of numbers off the
top of his head - a feat Warren still
amazes business colleagues with today.
At
only
six
years
old,
Buffett
purchased
6-packs
of
Coca
Cola
from
his
grandfather's grocery store for twenty
five cents and resold each of the bottles for a
nickel,
pocketing
a
five
cent
profit.
While
other
children
his
age
were
playing
hopscotch
and
jacks,
Warren
was
making money.
Five
years
later,
Buffett took his
step into
the world of high finance.
At
eleven
years
old, 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.
Warren Buffett's Education
In 1947, a seventeen year old Warren
Buffett graduated from High School. It
was
never
his
intention
to
go
to
college;
he
had
already
made
$$5,000
delivering
newspapers
(this
is
equal
to
$$42,610.81
in
2000).
His
father
had
other
plans,
and
urged
his
son
to
attend
the
Wharton
Business
School
at
the
University
of
Pennsylvania.
Buffett
stayed
two
years,
complaining
that
he
knew
more
than
his
professors.
When
Howard
was
defeated
in
the
1948
Congressional
race,
Warren
returned
home
to
Omaha
and
transferred
to
the
University
of
Nebraska-Lincoln.
Working
full-time, he managed to graduate in only three
years.
Warren
Buffett
approached
graduate
studies
with
the
same
resistance
he
displayed a few years earlier. He was
finally persuaded to apply to Harvard Business
School,
which,
in
the
worst
admission
decision
in
history,
rejected
him
as
young
Ben
Graham
and David Dodd taught
- an experience that would forever change his
life.
Ben Graham -
Buffett's Mentor
Ben
Graham
had become
well
known
during
the
1920's.
At
a
time
when the
rest of the world was approaching the
investment arena as a giant game of roulette,
he searched for stocks that were so
inexpensive they were almost completely devoid
of
risk
. One of
his best known calls was the Northern Pipe Line,
an oil transportation
company
managed
by
the
Rockefellers.
The
stock
was
trading
at
$$65
a
share,
but
after
studying
the
balance
sheet
,
Graham
realized
that
the
company
had
bond
holdings
worth
$$95
for
every
share.
The
value
investor
tried
to
convince
management to sell the
portfolio
, but they refused.
Shortly thereafter, he waged a
proxy
war and secured a spot on the
Board of
Directors
. The company sold its bonds
and paid a
dividend
in the amount of
$$70 per share.
When he was
40 years old, Ben Graham published
Security Analysis
, one of
the
greatest works ever penned on the
stock market. At the time, it was risky; investing
in equities had become a joke (the
Dow Jones
had fallen from
381.17 to 41.22 over
the course of
three to four short years following the crash of
1929). It was around
this
time
that
Graham
came
up
with
the
principle
of
business
value
-
a
measure of a
business's true worth that was completely and
totally independent of
the
stock
price.
Using
intrinsic
value,
investors
could
decide
what
a
company
was
worth
and
make
investment
decisions
accordingly.
His
subsequent
book,
The
Intelligent
Investor
, which Warren celebrates as
written
introduced
the
world
to
Mr.
Market
-
the
best
investment
analogy
in
history.
Through his
simple
yet profound
investment
principles,
Ben
Graham became
an idyllic
figure to the twenty-one year old Warren Buffett.
Reading an old edition of
Who's Who,
Warren discovered his mentor was the Chairman of a
small, unknown
insurance
company
named
GEICO.
He
hopped
a
train
to
Washington
D.C.
one
Saturday
morning
to
find
the
headquarters.
When
he
got
there,
the
doors
were
locked. Not to be
stopped, Buffett relentlessly pounded on the door
until a janitor
came to open it for
him. He asked if there was anyone in the building.
As luck (or fate)
would have it, there
was. It turns out that there was a man still
working on the sixth
floor.
Warren
was
escorted
up
to
meet
him
and
immediately
began
asking
him
questions
about
the
company
and
its
business
practices;
a
conversation
that
stretched
on
for
four
hours.
The
man
was
none
other
than
Lorimer
Davidson,
the
Financial
Vice
President.
The
experience
would
be
something
that
stayed
with
Buffett
for
the
rest
of
his
life.
He
eventually
acquired
the
entire
GEICO
company
through his
corporation,
Berkshire
Hathaway
.
Flying
through his graduate studies at Columbia, Warren
Buffett was the only
student
ever
to
earn
an
A+
in
one
of
Graham's
classes.
Disappointingly.
both
Ben
Graham
and
Warren's
father
advised
him
not
to
work
on
Wall
Street
after
he
graduated.
Absolutely
determined,
Buffett
offered
to
work
for
the
Graham
partnership for free. Ben turned him
down. He preferred to hold his spots for Jews
who were not hired at Gentile firms at
the time. Warren was crushed.
Warren Buffett Returns Home
Returning
home,
he
took
a
job
at
his
father's
brokerage
house
and
began
seeing
a
girl
by
the
name
of
Susie
Thompson.
The
relationship
eventually
turned
serious
and
in
April of
1952
the two
were
married.
They
rented out a
three-room
apartment for $$65 a month; it was run-
down and served as home to several mice. It
was here their daughter, also named
Susie, was born. In order to save money, they
made a bed for her in a dresser drawer.
During these initial years,
Warren's investments were predominately limited to
a Texaco station and some
real estate
, but neither
were successful. It was also during
this time he began teaching night
classes at the University of Omaha (something that
wouldn't
have
been
possible
several
months
before.
In
an
effort
to
conquer
his
intense fear of public
speaking, Warren took a course by Dale Carnegie).
Thankfully,
things changed. Ben Graham
called one day, inviting the young stockbroker to
come
to work for him. Warren was
finally given the opportunity he had long awaited.
Warren Buffett Goes to Work
for Ben Graham
The
couple
took
a
house
in
the
suburbs
of
New
York.
Buffett
spent
his
days
analyzing
S&P
reports,
searching
for
investment
opportunities.
It
was
during
this
time
that
the
difference
between
the
Graham
and
Buffett
philosophies
began
to
emerge.
Warren
became
interested
in
how
a
company
worked
-
what
made
it
superior
to
competitors.
Ben
simply
wanted
numbers
whereas
Warren
was
predominately
interested
in
a
company's
management
as
a
major
factor
when
deciding to invest, Graham looked only
at the
balance sheet
and
income statement
;
he could care less about corporate
leadership. Between 1950 and 1956, Warren built
his personal capital up to $$140,000
from a mere $$9,800. With this war chest, he set
his sights back on Omaha and began
planning his next move.
On
May
1,
1956,
Warren
Buffett
rounded
up
seven
limited
partners
which
included his Sister
Doris and Aunt Alice, raising $$105,000 in the
process. He put in
$$100
himself,
officially
creating
the
Buffett
Associates,
Ltd.
Before
the
end
of
the
year, he was managing around $$300,000
in capital. Small, to say the least, but he had
much
bigger
plans
for
that
pool
of
money.
He
purchased
a
house
for
$$31,500,
affectionately
nicknamed
Folly
and
managed his
partnerships
originally
from the bedroom,
and later, a small office. By this time, his life
had begun to take
shape; he had three
children, a beautiful wife, and a very successful
business.
Over the course
of the next five years, the Buffett partnerships
racked up an
impressive 251.0% profit,
while the
Dow
was up only
74.3%. A somewhat-celebrity in
his
hometown, Warren never gave stock tips despite
constant requests from friends
and
strangers alike. By 1962, the partnership had
capital in excess of $$7.2 million, of
which a cool $$1 million was Buffett's
personal stake
(he didn't charge a fee
for the
partnership - rather Warren was
entitled to 1/4 of the profits above 4%). He also
had
more
than
90
limited
partners
across
the
United
States.
In
one
decisive
move,
he
melded the partnerships into a single
entity called
the
minimum
investment
to
$$100,000,
and
opened
an
office
in
Kiewit
Plaza
on
Farnam street.
In 1962, a man by the name
of Charlie Munger moved back to his childhood
home of Omaha from California. Though
somewhat snobbish, Munger was brilliant
in
every
sense
of
the
word.
He
had
attended
Harvard
Law
School
without
a
Bachelor's
Degree.
Introduced
by
mutual
friends,
Buffett
and
Charlie
were
immediately
drawn
together,
providing
the
roots
for
a
friendship
and
business
collaboration that
would last for the next forty years.
Ten years after its founding, the
Buffett Partnership assets were up more than
1,156%
compared
to
the
Dow's
122.9%.
Acting
as
lord
over
assets
that
had
ballooned to $$44 million dollars,
Warren and Susie's personal stake was $$6,849,936.
Mr. Buffett, as they say, had arrived.
Wisely
enough,
just
as
his
persona
of
success
was
beginning
to
be
firmly
established,
Warren
Buffett
closed
the
partnership
to
new
accounts.
The
Vietnam
war raged full force
on the other side of the world and the stock
market was being
driven up by those who
hadn't been around during the depression. All
while voicing
his
concern
for
rising
stock
prices,
the
partnership pulled
its
biggest
coup
in 1968,
recording a 59.0% gain in value,
catapulting to over $$104 million in assets.
Taking Control of Berkshire
Hathaway
The
next
year,
Warren
went
much
further
than
closing
the
fund
to
new
accounts;
he liquidated the partnership. In May 1969, he
informed his partners that
he
was
to
find
any
bargains
in
the
current
market
Buffett
spent
the
remainder of the year liquidating the
portfolio, with the exception of two companies
- Berkshire and Diversified Retailing.
The shares of Berkshire were distributed among
the
partners
with
a
letter
from
Warren
informing
them
that
he
would,
in
some
capacity,
be
involved
in
the
business,
but
was
under
no
obligation
to
them
in
the
future. Warren was clear in his
intention to hold onto his own stake in the
company
(he
owned
29%
of
the
Berkshire
Hathaway
stock)
but
his
intentions
weren't
revealed.
Warren
Buffett Gains Control of Berkshire Hathaway
Buffett's
role
at
Berkshire
Hathaway
had
actually
been
somewhat
defined
years
earlier.
On
May
10,
1965,
after
accumulating
49%
of
the
common
stock,
Warren named himself Director. Terrible
management had run the company nearly
into the ground, and he was certain
with a bit of tweaking, it could be run better.
Immediately
Mr.
Buffett
made
Ken
Chace
President
of
the
company,
giving
him
complete
autonomy
over
the
organization.
Although
he
refused
to
award
stock
options
on the basis that it
was unfair to shareholders, Warren agreed to
cosign a
loan for $$18,000 for his new
President to purchase 1,000 shares of the
company's
stock.
Two
years
later,
in
1967,
Warren
asked
National
Indemnity's
founder
and
controlling
shareholder
Jack
Ringwalt
to
his
office.
Asked
what
he
thought
the
company
was
worth,
Ringwalt
told
Buffett
at
least
$$50
per
share,
a
$$17
premium
above its then-
trading price of $$33. Warren offered to buy the
whole company on
the spot - a move that
cost him $$8.6 million dollars. That same year,
Berkshire paid
out a dividend of 10
cents on its outstanding stock. It never happened
again; Warren
said he
In 1970, Buffett named himself Chairman
of the Board of Berkshire Hathaway
and
for
the
first
time,
wrote
the
letter
to
the
shareholders
(Ken
Chace
had
been
responsible
for
the
task
in
the
past).
That
same
year,
the
Chairman's
capital
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