He is widely considered the most successful investor of the 20th century. Buffett is the primary shareholder, chairman and CEO of Berkshire Hathaway and consistently ranked among the world’s wealthiest people. American magazine Time named Buffett one of the most influential people in the world. Buffett is called the “Wizard of Omaha”, “Oracle of Omaha”, or the “Sage of Omaha” and is noted for his adherence to the value investing philosophy and for his personal frugality despite his immense wealth.
Warren Edward Buffett was born on August 30, 1930 in Omaha, Nebraska. 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. 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. Warren returned home to Omaha and transferred to the University of Nebraska-Lincoln. Working full-time, he managed to graduate in only three years. Working with Benjamin Graham
He tried to get a position with Graham’s firm and was at first unsuccessful. He finally got the job and, as he generously acknowledges, learned a lot about stock investment from The Master. Graham eventually retired and Buffett started a limited partnership in Omaha, using capital contributed by family and friends. The partnership was a great success and Buffett is said to have averaged an annual rate of return for the partnership in excess of 23 per cent, far in excess of the market. 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 “Buffett’s 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 “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 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.