Few investors have the "household name" status of Warren Buffett and for good reason. In 2008 Forbes magazine listed him as the richest man in the world with a worth of roughly 62 billion dollars USD! Any investing genius with such an aptitude for business and extreme wealth is definitely worth investigating.
But where did such an icon come from? Besides business savvy, what other traits does this leader have that are worthy of imitation?
Warren Buffett's Early Life
Warren Buffett was born August 30th, 1930 in Omaha Nebraska. Even at an early age this investing tycoon displayed his prowess. At age 6 he understood and profitably exploited the concept of buying in bulk and selling for a markup. Armed with a pack of Coke purchased from his father's store he turned a 25 percent profit by selling bottles individually. By age 11 he was already dabbling in the stock market.
After begrudgingly attending college at his father's command and some family related set-backs, Warren Buffet was ultimately rejected by Harvard Business School for being too young. In retrospect, this was likely the greatest misjudgment in financial history. Warren Buffet set his sights on the Columbia Business School where he would find a famous mentor Benjamin Graham. It was from the master Graham that Buffet learned a wealth of information and techniques about stock selection and value investing.
Career of Buffett
- 1951-1954 Buffett-Falk & Co. Investment Salesman
- 1954-1956 Graham-Newman Corp. Securities Analyst
- 1956-1969 Buffett Partnership, Ltd. General Partner
- 1970-Present Berkshire Hathaway Inc Chairman, CEO
In 1954, following up on a previous rejection by his mentor as Graham was only hiring Jews at the time, Warren Buffett finally got to work closely with his beloved mentor. The job only lasted two years until Benjamin Graham closed his doors and retired. Taking his experience with him, Warren Buffet started up his own firm. Many of the previous clients and the Graham-Newman Corp. realized that something was special about this investment manager. Soon, millions of dollars worth of capital started to flow his way.
His first brush with the textile company Berkshire Hathaway was in 1962 when the share price of 8 dollars was only half the value of what Warren Buffet calculated. He kept buying and buying all available shares. He then made his first million dollars. But the company had problems of its own in the management department. By 1965 Warren made an executive decision to walk away with a decent profit or take over management and turn it into a huge one. He chose the latter that led to incredible profits for him and investors who believed in him.
In 1979 his worth rocketed up to 620 million dollars. He kept multiplying his investments until he reached 62 billion dollars of worth in 2008 being the world's richest man. What methodology makes Warren Buffett such an amazing investor?
Method to His Genius
Warren Buffet has a magical blend of qualities that every investor covets: he can discern value, has unending patience, and iron-will discipline. Warren has the uncanny ability to pick a winning stock amidst thousands of lack-luster ones. Some of the credit can go to Benjamin Graham in valuating stocks, but most of the credit lies with the man himself. Looking beyond concrete numbers, he is able to discern how smart management and an efficient company can translate into long term growth and share value appreciation.
His skill in picking good companies involves some of the following criteria:
- Low debt
- Good return on equity
- A company that one can understand
- Predictable earnings
- Simple to operate
- Profitability evident in cash flow
- Hands on management from owner
From Investor to Philanthropist
People with razor sharp business acumen are often accused of climbing the ranks for greed. Despite his immense wealth Warren Buffet has not shown himself to be a greedy individual. In 2006 he announced the biggest charity handout ever with a pledge of roughly 30.7 billion dollars. The majority of this money would be allocated over a period of roughly 20 years to the Bill and Melinda Gates Foundation.
In fact, through his entire life Warren Buffet has not shown the lust for wealth and a grossly lavish lifestyle so common amongst the ultra-rich elite. In fact his base salary for being head of one of the most successful businesses in existence is only 100,000 dollars. Even with bonuses his wages topped out around 175,000 dollars in 2007 and 2008. To this day he lives in the modest home he purchased in 1958.
Many who study Warren Buffett find that his riches are the least of his admirable qualities.
Warren Buffett Quotes
- I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.
- If a business does well, the stock eventually follows.
- It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently.
- It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price.
- Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.
- Of the billionaires I have known, money just brings out the basic traits in them. If they were jerks before they had money, they are simply jerks with a billion dollars.
- Only when the tide goes out do you discover who's been swimming naked.
- Price is what you pay. Value is what you get.
- Risk comes from not knowing what you're doing.
- Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.
- The business schools reward difficult complex behavior more than simple behavior, but simple behavior is more effective.
- Wall Street is the only place that people ride to in a Rolls Royce to get advice from those who take the subway.
- Why not invest your assets in the companies you really like? As Mae West said, "Too much of a good thing can be wonderful".
- Wide diversification is only required when investors do not understand what they are doing.
- You do things when the opportunities come along. I've had periods in my life when I've had a bundle of ideas come along, and I've had long dry spells. If I get an idea next week, I'll do something. If not, I won't do a damn thing.
As a genius investor, a philanthropist, and a role model for citizens, Warren Buffett will no doubt continue to be a household name for years to come.