98. Warren Buffett-Legendary Investor of All Times- Oracle of Omaha

Updated: Nov 19, 2021

Who is Warren Buffett ?

An inspired child had developed his life goal at the early age of 7 by reading a book called “one thousand ways to make one thousand dollars”. Believe me, this age is very little and the majority of children spend their time learning and play. But this unique child has inspired by reading and decided to do something in life. I know that you have understood this genius person. Can you guess?

No … no… let me tell you, this great person is no other than Mr. Warren Edward Buffett. Today he is an owner of approx. USD $103.3 Billion and CEO of Berkshire Hathaway. He is the wealthiest person in the world and believes that success is not one day work if someone is sitting under the shade because someone had planted the tree a long time ago”. Do not wait for the right to happen. Every day is special, just work on that.

Pic : Warren Buffett

Personal Networth : USD $103.3 Billion as of 29/04/2021

  • Known as the "Oracle of Omaha," Warren Buffett is one of the most successful investors of all time.

  • Buffett runs Berkshire Hathaway, which owns more than 60 companies, including insurer Geico, battery maker Duracell and restaurant chain Dairy Queen.

  • The son of a U.S. congressman, he first bought stock at age 11 and first filed taxes at age 13.

  • He has promised to donate over 99% of his wealth. So far he has given more than $41 billion, mostly to the Gates Foundation and his kids' foundations.

  • In 2010, he and Bill Gates launched the Giving Pledge, asking billionaires to commit to donating at least half of their wealth to charitable causes.

Lets dive into his Life Lanes :

i. Birth

Warren Edward Buffett was born on August 30, 1930, to his mother Leila and father Howard, a stockbroker-turned-Congressman. The second oldest, he had two sisters 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 six-packs of Coca-Cola from his grandfather's grocery store for 25 cents and resold each of the bottles for a nickel, pocketing a 5-cent profit. While other children his age were playing hopscotch and jacks, Warren was making money. Five years later, Buffett took his first 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.

ii. Education

In 1947, Warren Buffett graduated from high school when he was 17 years old. 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 only stayed two years, complaining that he knew more than his professors. He returned home to Omaha and transferred to the University of Nebraska-Lincoln. Despite working full-time, he managed to graduate in only three years.

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 rejected him as "too young." Slighted, Warren then applifsafeed to Columbia, where famed investors Ben Graham and David Dodd taught—an experience that would forever change his life.

iii. Mentor Ben Graham

Ben Graham had become well known during the 1920s. At a time when the rest of the world was approaching the investment arena as if it were a giant game of roulette, Graham 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 most notable works ever penned on the stock market. At the time, it was risky. (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 "intrinsic" 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 Buffett celebrates as "the greatest book on investing ever written," introduced the world to Mr. Market, an investment analogy.

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, Buffett was the only student ever to earn an A+ in one of Graham's classes. However, both Graham and Buffett'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 Jewish workers who were not hired at other firms at the time. Warren was crushed.

iv. Returning 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 the young couple shared the space with a family of 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, Buffett'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.

Then, Graham called one day, inviting the young stockbroker to come to work for him. Buffett was finally given the opportunity he had long awaited.

Photo (left to right): Warren Buffett, Oprah Winfrey, Bill Gates, Melinda Gates, Peter Peterson, Leon Black, Jon Bon Jovi, Marc Benioff, David Rubenstein, Steve Case, Laura Arrillaga-Andreessen, Marc Andreessen.

These 12 "Titans of Philanthropy," who grace the cover of Forbes magazine for its 30th annual Forbes 400 issue, which ranks the richest people in the world, have clearly chosen the latter path.

v. Working for Ben Graham

Buffett and Susie moved into 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 differences between the Graham and Buffett philosophies began to emerge.

Buffett became interested in how a company worked—what made it superior to competitors. Graham simply wanted numbers, while Warren was more 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, Buffett 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 to create the Buffett Associates, Ltd. Before the end of the year, he was managing around $300,000 in capital.

Buffett purchased a house for $31,500, affectionately nicknamed "Buffett's Folly," and managed his partnerships originally from one of the home's bedrooms, then 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, Buffett's 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 $1 million was Buffett's personal stake. He didn't charge a fee for the partnership; he was entitled to one-fourth 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 Buffett Partnerships Ltd., upped 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 Munger 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 rose more than 1,156%, compared to the Dow's 122.9%. Acting as lord over assets that had ballooned to $44 million dollars, Buffett and Susie's personal stake was $6,849,936. Mr. Buffett, as they say, had arrived.

Wisely enough, just as he was firmly establishing success, 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. The partnership pulled its biggest coup in 1968, recording a 59.0% gain in value and catapulting to over $104 million in assets.

The next year, Buffett went much further than closing the fund to new accounts; he liquidated the partnership. In May 1969, he informed his partners that he was "unable 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 Buffett informing them that he would, in some capacity, be involved in the business, but was under no obligation to them in the future. He didn't reveal his intention to hold onto his own stake in the company (he owned 29% of the Berkshire Hathaway stock).