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.
1. He was the son of a stock broker and made his first stock purchase at the age of 11 buying 3 shares of cities services for $38 per share for 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 to invest in good companies for long term.
2. At the age of 13 in 1943 he filed his first income tax return deducting his bicycle as a work expense.
3. At the age of 14 he spent $1200 he saved from delivering newspapers to buy 40 acres of
farmland which he then rented to tenant farmers.
4. At the age of 15 he and one of his friend spent $25 to purchase a second hand pinball machine,
which they placed in a barber shop.within months they owned three machines in different locations.
At the age of 17 he passed high school he had then a personal savings of $5000 from delivering news papers. He never wanted to go to college.
His father had other plans, and urged his son to attend the Wharton Business School at the University of Pennsylvania. Buffett stayed two years, complaining that he knew more than his professors,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 persuaded to apply to Harvard Business School, which, in the worst admission decision in history, rejected him as "too young".
5. 1950: (20 years old)
Buffett enrolled at Columbia Business school after learning that Benjamin Graham and David Dodd two well-known securities analysts, taught there.
He obtained a Master's degree in economics in 1951 at Columbia Business school , studying under Benjamin Graham, alongside other future value investors including Walter Schloss and Irving Kahn. Another influence on Buffett's investment philosophy was the well known investor and writer Philip Fisher. After receiving the only A+ Benjamin Graham ever handed out to a student in his security analysis class, Buffett wanted to work at Graham-Newman but was initially turned down. He went to work at his father's brokerage as a salesman.
6. 1951: (21 years old)
Buffett discovered Graham was on the Board of GEICO insurance at the time. After taking a train to Washington, D.C. on a Saturday, Buffett knocked on the door of GEICO's headquarters until a janitor allowed him in. There, he met Lorimer Davidson, the Vice President, who was to become a lasting influence on him and life-long friend.
Buffett graduated and wanted to work on Wall street. Buffett offered to work for Graham for free but Graham refused. He purchased a Texaco gas station as a side investment, but that venture did not work out as well as he had hoped. Meanwhile, he worked as a stockbroker. During that time, Buffett also took a Dale Carnegie public speaking course. Using what he learned, he felt confident enough to teach a night class at the University of Nebraska, "Investment Principles." The average age of the students he taught was more than twice his own.
7. 1954: (24 years old)
Benjamin Graham offered him a job at his partnership at a starting salary of $12,000 a year. Here, he worked closely with Walter Schloss.
8. 1956: (26 years old)
Graham retired and folded up his partnership. Since leaving college six years earlier, Buffett's personal savings grew from $9,800 to over $140,000. Returned home to Omaha and created Buffett Associates, Ltd., an investment partnership.
9. Buffett established Buffett Associates, Ltd., his first investment partnership in 1956. It was financed by $100 from Buffett, the general partner, and $105,000 from seven limited partners consisting of Buffett's family and friends.
Buffett created several additional partnerships which were later consolidated as Buffett Partnership Limited. He ran the partnerships out of his bedroom, adhering closely to Graham's investment approach and compensation structure. These investments made in excess of 30% compounded annually between 1956 to 1969, in a market where 7% to 11% was the norm.
Buffett employed a three-pronged approach:
Generals: undervalued securities that possess margin of safety and meet expected return-to-risk characteristics
Arbitrages: company events that are not related to broader market changes, such as mergers and acquisitions, liquidation, etc.
Controls: build sizeable holdings, ally with other shareholders or employ proxies to effect changes in companies
10. 1959: (29 years old)
Buffett was introduced to Charlie Munger, the man who would eventually become the Vice Chairman of Berkshire Hathaway, and an integral part of the company's success. The two got along immediately.
11. 1962: (32 years old)
Buffett discovered a textile manufacturing firm, Berkshire Hathaway, that was selling for under $8 per share.(below its working capital) Through his partnership, Buffett eventually purchased 49% of the outstanding shares.
At the time,Charlie Munger, Berkshire's current Vice Chairman, remarked that purchasing the company was a mistake, due to the failure of the textile industry. Berkshire, however, became one of the largest holding companies in the world, as Buffett redirected the company's excess cash to acquire private businesses and stocks of public companies. At the core of his strategy were insurance companies, due to the large cash reserves ("float") they must keep on hand to pay out future claims. Essentially, the insurer does not own the float, but may invest it and keep any proceeds.
12. 1965: (35 years old)
Took control of Berkshire Hathaway at the board meeting and named a new President, Ken Chace, to run the company.
13. 1967: (37 years old)
Berkshire paid out its first and only dividend of 10 cents.
14. 1973: (43 years old)
Berkshire began to acquire stock in the Washington Post Company.
15. 1979: (49 years old)
Berkshire began to acquire stock in ABC. Trading at $290 per share, Buffett's net worth neared $140 million. However, he lived solely on his salary of $50,000 per year.
Berkshire began the year trading at $775 per share, and ended at $1,310. Buffett's net worth reached $620 million, placing him on the Forbes 400 for the first time.
16. 1988: (58 years old)
Buffett began buying stock in Coca-Cola company, eventually purchasing up to 7 percent of the company for $1.02 billion. It would turn out to be one of Berkshire's most lucrative investments, and one which it still holds.
17. 2002: (72 years old)
Buffett entered in $11 billion worth of forward contracts to deliver US dollars against other currencies. By April 2006, his total gain on these contracts was over $2 billion.
18. 2006: (76 years old)
Buffett announced in June that he would give away more than 80%, or about $37 billion, of his $44 billion fortune to five foundations in annual gifts of stock, starting in July 2006. The largest contribution will go to the Bill and Melinda Gates Foundation.
19. He never invests in technology stocks and internet stocks not even in MICROSOFT
his logic is he dont invest in companies where he can not forsee the balancesheet
after 20 years.
20. Management style
Buffett views himself as a capital allocator above anything else. His primary responsibility is to allocate capital to businesses with good economics and keep their existing management to lead the company.
When Buffett acquires a controlling interest in a business, he makes clear to the owner the following:
He will not interfere with the running of the company.
He will be responsible for hiring and setting the compensation of the top executive.
Capital allocated to the business will have a price tag (a hurdle rate) attached. This process is to motivate owners to send excess capital that does not return more than its cost to Berkshire headquarters rather than investing it at low returns. This cash is then free to be invested in opportunities that offer higher returns.
21. KEY FACTORS IN HIS INVESTMENT APPROACH
A. Sector, Brand loyalty for the company, can any company with abundance of
resources compete successfully with the company.
B. cash flows of the company to repay debt when the earnings are below average.
C. the business should not have high maintenance cost of operations.
D. is the company free to adjust prices for inflation.
E. does the company retain earnings for growth.
HIS FAMOUS 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 past history was all there was to the game, the richest people would be librarians.Great investment opportunities come around when excellent companies are surrounded by unusual circumstances that cause the stock to be misappraised.I don't look to jump over 7-foot bars: I look around for 1-foot bars that I can step over.Risk comes from not knowing what you're doing.Our favorite holding period is forever.----------------------------------
There was a one hour interview on CNBC with Warren Buffet, the second richest man who has donated $31 billion to charity. Here are some very interesting aspects of his life:
1. He bought his first share at age 11 and he now regrets that he started too late!
2. He bought a small farm at age 14 with savings from delivering newspapers.
3. He still lives in the same small 3 bedroom house in mid-town Omaha that he bought after he got married 50 years ago.
4. He says that he has everything he needs in that house. His house does not have a wall or a fence.
5. He drives his own car everywhere and does not have a driver or security people around him.
6. He never travels by private jet, although he owns the world's largest private jet company.
7. His company, Berkshire Hathaway, owns 63 companies. He writes only one letter each year to the CEOs of these companies, giving them goals for the year. He never holds meetings or calls them on a regular basis.
8. He has given his CEO's only two rules. *Rule number 1: do not lose any of your share holder's money. Rule number 2: Do not forget rule number 1.*
9. He does not socialize with the high society crowd. His past time after he gets home is to make himself some pop corn and watch television.
10. Bill Gates, the world's richest man met him for the first time only 5 years ago. Bill Gates did not think he had anything in common with Warren Buffet. So he had scheduled his meeting only for half hour. But when Gates met him, the meeting lasted for ten hours and Bill Gates became a devotee of Warren Buffet.
11. Warren Buffet does not carry a cell phone, nor has a computer on his desk.
12. His advice to young people: *Stay away from credit cards* and invest in yourself.
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