Warren Buffett (History)
Warren Edward Buffett was born in August 30, 1930 in Omaha, Nebraska, the second among three children and only son of businessman & politician Howard Buffett and his wife Leila. Buffett began his education in Omaha at Rose Hill Elementary School. In 1942, to the first of four terms in the United States Congress; his father was elected and after moving with his family to Washington, D.C., Warren finished his remaining elementary school, then he attended Alice Deal Junior High School, and then graduated from Woodrow Wilson High School. The boy (Warren Buffett) displayed an amazing propensity for both money and business at a very early age, as these qualities are inborn. He went door to door for selling chewing gums, Coca-Cola, Newspapers and Weekly Magazines. At the same time as, he worked in his grandfather's grocery store. While as a high school boy, he carried out several successful money-making ideas: delivering newspapers, selling golf balls and stamps, and detailing cars, among them. At the only age of fourteen, he filed his first Income Tax Return (ITR) in 1944; Buffett took a $35 deduction for the use of his bicycle and watch on his paper route. Acquaintances recount his mysterious capability to calculate columns of numbers off the top of his head - an achievement 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 Buffett was making money. After Five years, At the age of Eleven, Buffett took his step into the world of high finance. At the same time, he purchased three shares of Cities Service at $38 per share for both himself and his older sister, Doris. As a result the incident, taught him one of the basic lessons of investing: Patience Is A Virtue.
In 1945, in his sophomore year of high school, a used pinball machine was purchased by Buffett and his friend by spending $25, which later on they placed in the local barber shop. Within a few months, they owned numerous machines in different barber shops.
Buffett's interest in the stock market and investing was inborn which he also dated to his childhood, to the days he spent in the customers' lounge of a regional stock brokerage near his father's own brokerage company's office.
Warren Buffett's Education
While in high school, he invested in one of his father's owned business and bought a farm worked by a tenant farmer. In 1947, a seventeen year old Warren Buffett graduated from High School. He was not in intention to go to college; he had already made $5,000 delivering newspapers (this is equal to $42,610.81 in 2000). But his father had other plans for Buffett's career which made Buffett to enter college at The Wharton Business School at The University of Pennsylvania. Buffett stayed there for about two years, complaining that he knew more than his professors. At the age of Nineteen, When his father (Howard Buffett) was defeated in the 1948 Congressional race, Warren returned home to Omaha and transferred to the University of Nebraska-Lincoln, where in 1950, he finished his studies for a B.S. in Economics. 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 influenced to apply himself to Harvard Business School, which is famous for its worst admission decision in history, rejected him as "too young". Slighted, Warren Buffett enrolled at Columbia Business School after learning that Benjamin Graham ( The author of "The Intelligent Investor" - one of his favorite books on investing) and David Dodd, two well-known Securities Analysts, taught there. An experience that would forever changed his life. And finally in 1951, he received a M.S. in Economics from Columbia Business School. Buffett also attended the New York Institute of Finance.
In Buffett's own words:
"I am 15 percent Fisher & 85 percent Benjamin Graham.
The basic ideas of investing are to look at stocks as business, use the Market's fluctuations to your advantage and seek Margin of safety. That's what Benjamin Graham taught us. A hundred years from now they will still be the cornerstones of investing."
Ben Graham - Buffett's Mentor
During the period of 1920's, Ben Graham had become famous. He searched for stocks that were so inexpensive they were almost completely full of risk, at a time when the rest of the world was approaching the investment arena as a enormous game of roulette. The Northern Pipe Line, an oil transportation company managed by the Rockefellers was one of his best known calls. The value investors tried to convince management to sell the portfolio, but they refused because Graham realized that the company had bond holdings worth $95 for every share which was traded at $65 a share. Shortly thereafter, he waged a surrogate war and secured a spot on the Board of Directors (BOD). The company paid a dividend in the amount of $70 per share and sold its bonds.
At the age of 40, Security Analysis, one of the greatest works ever penned on the stock market was pubished by Ben Graham. At that 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 "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 be in the position to decide what a company was worth and could be able to make investment decisions accordingly. His subsequent book, The Intelligent Investor, which Warren celebrates as "the greatest book on investing ever 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. While reading an old edition of Who's Who, Warren discovered his mentor was the Chairman of a small, unknown insurance company named GEICO. He stepped a train to Washington D.C. one Saturday morning to find the headquarters. When he got there, he found the doors were locked. Unstoppably, Warren insistently crushed on the door until a janitor came to open it for him. He asked her that if there was anyone in the building. As luck (or fate) would have it, there was. It turns out that on the sixth floor there was a man still working. Warren was escorted up to meet him and immediately began asking him questions about the company and its business practices; as a result the conversation stretched on for four hours. The man was none other than Lorimer Davidson, the Financial Vice President. The experience would be something that stayed for the rest of his life with Buffett. He eventually acquired the entire GEICO Company through his corporation, Berkshire Hathaway. In the history of Graham's classes, Warren Buffett was the only student ever to earn an A+. 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 but Ben turned him down and he preferred him to hold his spots for Jews who were not hired at Gentile firms at the time. As a result of which, Warren was crushed.
Warren Buffett's Career
From 1951-54, Buffett was employed from Buffett-Falk & Co., Omaha, as an Investment Salesman,
From 1954-1956, at Graham-Newman Corp., New York, as a Securities Analyst,
From 1956-1969, at Buffett Partnership Ltd., Omaha, as a General Partner, and
From 1970 - Present, at Berkshire Hathaway Inc., Omaha, as its Chairman, CEO.
In 1950, as a 20 years old gentleman, Buffett had made and saved $9,800. Buffett returned to Omaha and worked as a stockbroker while taking a Dale Carnegie public speaking course. At the University of Nebraska-Omaha, Using everything he learned, he felt confident enough to teach an "Investment Principles" night classes. The average age of his students was more than twice his own. During this time, as a side investment, he also purchased a Sinclair Texaco gas station. However, this did not turn out to be a successful business venture.
In 1952, Buffett married Susan Thompson and the next year they had their first child and preferred same name as Susan Alice Buffett. 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 was successful. It was also during this time, at the University of Omaha, he began teaching night classes. Thankfully, things changed. May be the destiny want something else and on one day Ben Graham called him. Inviting the Young Stockbroker to come to work for him. Warren was finally given the opportunity he had long awaited. Buffett accepted a job at Benjamin Graham's partnership. His starting salary was $12,000 a year (approximately $97,000 adjusted to 2008 dollars). The couple took a house in the fringes of New York. Buffett spent his days analyzing S&P reports, searching for investment opportunities etc. It was during this time, that the difference between the Graham and Buffett's philosophies began to emerge. Warren became interested in how a company worked, what are the strategies of a company to survive and 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 could care less about corporate leadership; he looked only at the balance sheet and income statement. There he worked closely with Walter Schloss. Graham was a tough man to work for. He was obdurate to believe that stocks provide a wide margin of safety after weighting the trade-off between their price and their intrinsic value. The argument made sense to Buffett but he questioned whether the criteria were too tough and caused the company to miss out on big successes that had more qualitative values. Buffett had their second child, Howard Graham Buffett, that same year. In 1956, Benjamin Graham retired and closed his partnership. At this time, Buffett started Buffett Partnership Ltd., an investment partnership in Omaha as Buffett's personal savings were over $174,000 ($1.2 million inflation adjusted to 2009 dollars).
On May 1, 1956, Warren Buffett rounded up seven limited partners who included his Sister Doris and Aunt Alice, raising $105,000 in the process. He put in $100 himself, officially creating the Buffett Associates Ltd. He was managing around $300,000 in capital, before the end of the year. Small, to say the least, but he had much bigger plans for that pool of money. In 1957, Buffett had three partnerships operating the entire year. He purchased a five-bedroom stucco house in Omaha, where he still lives, for $31,500. In 1958, the Buffett's third child, Peter Andrew Buffett was born. Buffett operated five partnerships the entire year. In 1959, the company grew to six partnerships operating the entire year and Buffett was introduced to Charlie Munger. By 1960, Buffett had seven partnerships operating: Buffett Associates, Buffett Fund, Dacee, Emdee, Glenoff, Mo-Buff and Underwood. He asked one of his partners, a doctor, to find ten other doctors willing to invest $10,000 each in his partnership. Ultimately eleven agreed, and Buffett pooled their money with a mere $100 original investment of his own. In 1961, Buffett revealed that Sanborn Map Company accounted for 35% of the partnership's assets. The Buffett partnerships racked up an impressive 251.0% profit, while the Dow was up only 74.3%. A somewhat-celebrity in his hometown, despite constant requests from friends and strangers alike, Warren never gave stock tips. By 1962, the partnership had capital in excess of $7.2 million, of which a $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. He melded the partnerships into a single entity called "Buffett Partnerships Ltd.", in one of his crucial move, 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. Buffett and Charlie were immediately drawn together, Introduced by mutual friends, providing the roots for a friendship and business collaboration that would last for the next forty years.
About 10 years after, he founded that the Buffett Partnership assets were up more than 1,156% compared to the Dow's 122.9%. Acting as lord over assets that had blown up to $44 million dollars, Warren and Susie's personal stake was $6,849,936. Mr. Buffett, as they say, had arrived.
