Warren Edward Buffett, the legendary value investor, turned an ailing textile mill into a financial engine that powered what would become the world’s most successful holding company.
Known as the "Oracle of Omaha” for his investment prowess, Buffett has amassed a personal fortune in excess of $100 billion, according to Forbes. He inspires legions of loyal fans to make a yearly trek to Omaha, Neb., for an opportunity to hear him speak at Berkshire’s annual meeting, an event ironically dubbed “Woodstock for Capitalists.”
Key Takeaways
- Warren Buffett started investing at a young age, buying his first stock at age 11 and his first real estate investment at age 14.
- Buffett studied under the legendary value investor Benjamin Graham while pursuing a business degree at Columbia University (Harvard had rejected him).
- Buffett teamed with Charlie Munger to buy the ailing Berkshire Hathaway textile company, later to be used as a vehicle to acquire other businesses and make investments.
- Buffett is a true value investor, buying underpriced but solid companies and holding them for the long term.
- Buffett always has been a philanthropist and has pledged the vast amount of his personal fortune of more than $100 billion to the Bill & Melinda Gates Foundation upon his death.
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Early Life and Education
Buffett was born to Howard and Leila Buffett on Aug. 30, 1930, in Omaha, Neb. He was the second of three children, and the only boy. His father was a stockbroker and four-term U.S. congressman. Howard Buffett served nonconsecutive terms on the Republican ticket but espoused libertarian views.
Making money was an early interest for Warren, who sold soft drinks and had a paper route. When he was 14 years old, he invested the earnings from these endeavors in 40 acres of land, which he then rented for a profit. At his father's urging he applied to the University of Pennsylvania and was accepted at age 16. Buffett left that university after two years, transferring to the University of Nebraska.
Upon graduation his father once again convinced him of the value of education, encouraging him to pursue a graduate degree. Harvard rejected Buffett, but Columbia University accepted him. Buffett studied under Benjamin Graham, the father of value investing, and his time at Columbia set the stage for a storied career, albeit one with a slow start.
Upon graduation, Graham refused to hire Buffett, even suggesting that he avoid a career on Wall Street. The reason was that Graham himself had been rejected by Wall Street firms, which he believed was because he was Jewish. Thus, Graham made it a policy only to hire Jews for his Wall Street company. Buffett returned to Omaha to work at his father’s brokerage firm. He married Susan Thompson in 1952, and they started a family. After three years Graham had a change of heart and offered Buffett a job in New York.
Unlike his mentor Benjamin Graham, Buffett wanted to look beyond the numbers and focus on a company’s management team and its product’s competitive advantage in the marketplace when considering an investment.
Notable Accomplishments
Once in New York, Buffett had the chance to build on the investing theories he had learned from Graham at Columbia. Value investing, according to Graham, involved seeking stocks that were selling at an extraordinary discount to the value of the underlying assets, which he called the “intrinsic value.” Buffett internalized the concept but had an interest in taking it a step further.
In 1956 he returned to Omaha, launched Buffett Associates, and later purchased a house. In 1962 he was 30 years old and already a millionaire when he joined forces with Charlie Munger, whom he first met in 1959. Their collaboration eventually resulted in the development of an investment philosophy based on Buffett’s idea of looking at value investing as something more than an attempt to wring the last few dollars out of dying businesses.
Along the way the pair purchased Berkshire Hathaway (BRK.A), a dying textile mill. What began as a classic Graham-style value play became a longer-term investment when the business showed some signs of life. Cash flows from the textile business were used to fund other investments. Eventually, the original business was eclipsed by the other holdings. In 1985 Buffett shut down the textile business but continued to use the name, eventually growing Berkshire Hathaway into a multi-billion-dollar holding company.
How Buffett Grew Berkshire Hathaway
When Buffet first bought shares in Berkshire Hathaway in 1962, the struggling textile firm was facing low-cost competition that threatened to push it under. Entranced by the stock's low cost compared to its book value and net working capital, he purchased a controlling interest in 1965. Shares were trading around $8 when Buffet bought the stock, rising to almost $20 in the late 1960s, when he became CEO. Today, shares in Berkshire Hathaway Class A stock trade at more than $550,000.
How did he do it? Buffet used the textile company's profits to buy other companies, including life insurance firm National Indemnity. The useful thing about life insurance companies, Buffett found, is the float: the capital available after premiums have been paid but before claims are paid out. Buffett could use this float to invest further, buying securities and other businesses that could generate more money to be invested in more firms and more shares. He closed his investment partnerships by 1969, offering Berkshire Hathaway shares in lieu of cash, and bought insurance companies as wholly owned subsidiaries under the Berkshire umbrella.
He bought See's Candy in 1972, a purchase that generated more cash flow for investing. He also invested in American Express, Bank of America, Coca-Cola, and Apple, among many others, focusing on solid brands and businesses with a secure economic moat. Buffett bought for the long haul, preferring to buy and hold his investments, which tended to terrifically appreciate in value over time. He chooses firms with innovative, shareholder-focused management and high profit margins, seeking solid fundamentals when they're available at a discount.
Buffett closed the last Berkshire Hathaway textile mill in 1985, growing the company steadily as a conglomerate instead. Today, Berkshire Hathaway owns more than 65 companies outright, with a market cap of more than $791 billion.
Wealth and Philanthropy
What do you do with your money when you are the world’s most successful investor? If you’re Warren Buffett, you give it away. Buffett stunned the world in June 2006 when he announced the donation of the vast majority of his wealth to the , which focuses on world health concerns, U.S. libraries, and global schools, among other issues. It is one of the world’s largest transparent charities.
Buffett’s donations will come in the form of Class B shares of Berkshire Hathaway stock. His total donation to the Gates Foundation is 10 million shares. It will be given out in 5% increments until Buffett’s death or until the foundation fails to meet the spending stipulation or the stipulation that either Bill or Melinda Gates remains actively involved in the foundation’s activities. Buffett’s 2006 donation was 500,000 shares, valued at approximately $1.5 billion.
In June 2022 the foundation’s CEO, Mark Suzman, sent an email to the employees of the Bill & Melinda Gates Foundation. The email was also shared on the foundation’s website that Buffett’s contributions since 2006 have totaled more than $36 billion. USA Today reported that his 2023 donation of 10,453,008 shares of Berkshire Hathaway stock amounted to $3.5 billion, bringing that total to $39.5 billion. Buffett expects stock price appreciation to increase that amount over time.
In 2023 another stock donation of 731,708 shares was evenly divided among three charities run by Buffett's children. An additional 1,045,300 shares went to a foundation run in honor of his first wife.
While the enormous size of the donation to the Gates Foundation was certainly a big surprise, Buffett’s charitable endeavors are nothing new. He’d been giving money away for 40 years through the Buffett Foundation, eventually renamed the Susan Thompson Buffett Foundation, which has two purposes: It supports pro-choice family planning causes in the U.S. and internationally and offers college scholarships to low-income students in Nebraska.
Buffett always planned to give the bulk of his wealth to charity but initially insisted that that would occur posthumously. The change of heart is quintessential Buffett—rational, decisive, maverick, and blazing a path all his own. “I know what I want to do, and it makes sense to get going,” he famously said upon making the change.
Buffett's Investing Strategy
Buffett’s investment philosophy is based on the principle of acquiring stock in what he believes are well-managed, undervalued companies. When he makes a purchase, his intention is to hold the securities indefinitely. Coca-Cola, American Express, and Costco all met his criteria and have remained in Berkshire Hathaway’s portfolio for many years.
In many cases he purchased the companies outright, continuing to let their management teams handle the day-to-day business. A few of the better-known firms that fit into this category include See’s Candies, Fruit of the Loom, Dairy Queen, the Pampered Chef Ltd., Heinz, and GEICO.
Buffett’s mystique remained intact until technology stocks became popular. As a resolute technophobe, Buffett sat out the incredible run-up in technology stocks during the late 1990s. Sticking to his guns and refusing to invest in companies that didn’t meet his mandate, Buffett earned the scorn of Wall Street experts and was written off by many as a man whose time had passed.
The tech wreck that occurred when the dotcom bubble burst bankrupted many of those experts. Buffett’s profits doubled.
Personal Life
Despite a net worth measured in billions, Warren Buffett is legendarily frugal. He still lives in the five-bedroom house he bought in 1958 for $31,500, drinks Coca-Cola, and dines at local restaurants, where a burger or a steak is his preferred table fare. For years he eschewed the idea of purchasing a corporate jet. When he finally acquired one, he named it the Indefensible—public recognition of his criticism about money spent on jets.
Buffett married Susan Thompson in 1952. They separated in 1977 but remained married until her death in 2004. They had three children, Susie, Howard, and Peter. Thompson introduced her husband to Astrid Menks, a waitress, and Buffett and Menks began living together in 1978. They were married in August 2006.
Legacy
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How Did Warren Buffett Amass His Fortune?
Buffett’s fortune was built by highly researched and timely purchases of undervalued stocks and companies, which he would then hold for the long term. For most of the companies he bought, he let existing management remain in place, as they had obviously done a good enough job to make their company attractive to Buffett in the first place. He has been in stocks for the long haul, holding companies such as co*ke and American Express for decades. (He still owns both.)
What Are Some of Buffett’s Pearls of Wisdom?
"If you aren’t willing to hold a stock for 10 years, don’t even think about holding it for 10 minutes," wrote Buffett in 1996 in a letter to Berkshire Hathaway shareholders. Another famous quote, part of a 2008 opinion piece in the New York Times, is, "A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful.” Indeed, Buffett is well known for his many investing aphorisms, which always come back to the simple rules of value investing.
What Does Warren Buffett Plan to Do With His Fortune?
The simple answer is give it away, which he plans to do by making mega-donations, primarily to the Bill & Melinda Gates Foundation, as he has established a great rapport with both of them and shares and respects their philanthropic causes, such as world health and women’s rights. Warren Buffet is legendarily generous in giving to causes he deems worthy, so it is no surprise he would give away the vast majority of his wealth to causes in need of funding.
The Bottom Line
The future looks to hold an increase in the amount of money that Buffett will continue to give. As he told BBC News in 2006: “I am not an enthusiast of dynastic wealth, particularly when the alternative is six billion people having much poorer hands in life than we have, having a chance to benefit from the money.”
Buffett has made his fortune by relying on the time-tested rules of value investing, meaning finding high-quality companies at fair market valuations. He then holds these investments for the long term, some indefinitely, always allowing the power of compounding to work its magic.
