The Story of Warren Buffett

When he was only ten years old, Warren Buffett went to New York City to visit the New York Stock Exchange. While other kids his age were busy playing baseball or football, Buffett decided that the best way to spend his free time was by going to Wall Street. While there, he bought six shares of Cities Services, three of which he gave to his sister.

Such is the life of Buffett. Even before he reached his teen years, he was already thinking of investing in companies and he was already generous enough to share what he had with other people. This traits manifested in the future, as he grew up to be one of the richest men in the world and one of the most charitable philanthropists as well.

 

Early Investments

Buffett was into business early in his life. As a child, he made money by going from door to door to sell beverages, sodas, chewing gums and weekly magazines. In his teen years, he buttressed up his allowance by delivering newspapers, detailing cars and selling postage stamps and golf balls. By the age of 14, he was already filing an income tax return. He made sure that he would not be shortchanged by taking deductions for the use of his bike and watch while on his paper route.

The following year, he bought a pinball machine with a friend, which they then set up in a local barbershop. It did not take long for Buffett and his friend to expand and own several more machines placed in other barbershops.

He also had a voracious appetite for learning, attending Wharton before transferring to the University of Nebraska in Lincoln where he graduated at the age of 19. Armed with a degree in Business Administration, he furthered his studies by enrolling at Columbia, where he received a Master’s degree in Economics. He also attended the New York Institute of Finance.

 

Start of Career

Buffett started out as an investment salesman even as he continued his learning by taking a public speaking course at Dale Carnegie. He then taught Investment Principles for night students at the University of Nebraska in Omaha. During this time, Buffett invested in a Texaco gas station that did not turn out very well.

In 1954, he started working for his old professor in Columbia, Benjamin Graham, in a company called Graham-Newman Corp. Graham was a stickler for value investment. He insisted on a wide margin of safety after weighing the trade-off between a stock’s price and its intrinsic value. Buffett credits Graham for almost his entire business philosophy. Graham had taught him to look at stocks as business and use the ups and owns of the market to advantage. A wide margin of safety is desirable. Buffett has been quoted as saying that these ideas will be the cornerstones of investing a hundred years from now.

Buffet did have some misgivings, however, because Graham’s extremely strict criteria meant they had to miss out on stocks that had qualitative values. He took this knowledge and experience into consideration when he formed his own partnership in 1956 after Graham retired.

 

Getting Into Berkshire Hathaway

By 1960, he already had seven partnerships with total value of over $7 million, a million of which belonged to him. He then decided to merge all the partnerships into one. The partnership then started buying shares of Berkshire Hathaway at $7.60 per share

Berkshire Hathaway was a textile company that resulted from the 1955 merger of Berkshire Fine Spinning Associates and Hathaway Manufacturing Company. At that time, it had 12,000 employees with revenues of over $120 million. The renewed profitability was dampened however by a decline in the overall industry. By 1960, seven of the company’s locations were already closed down.

Buffet noticed a price pattern in the company however whenever it would close down a location. He started buying into the company, though he eventually realized that the situation would probably not improve. Buffet agreed to a buyout of $11½. The company undercut it however and tendered an offer at only $11 3/8. Buffet got mad and bought more shares to gain control of the company and fire the owner.

After getting full control, Buffett acknowledged that the business was failing and decided to diversify to other businesses. He purchased the National Indemnity Company in the late 1960s and got an equity stake in the Government Employees Insurance Company, or GEICO, in the late 1970s.  It also bought shares in the Washington Post and the Buffalo Evening News. He also bought stocks in ABC. In 1985, he helped Capital Cities purchase the network, which was four times larger.

By 1985, all of the company’s textile mills were already closed. Its interests, however, were already highly diversified. Berskhire Hathaway also bought a 12 percent stake in Salomon, Inc. in 1987. In 1988, it bought seven percent of The Coca-Cola Company after paying $1.02 billion.

 

Billionaire Buffett

By 1990, Buffett had become a billionaire, at least on paper. The company’s shares were then selling at $7,175 per share. It has not declared any stock split and has paid dividends only once, thus allowing the share to move above $100,000 by 2006.

In 2006, Buffett earned over $2 billion after entering into $11 billion worth of forwarding contracts four years earlier. The contracts entailed delivering US dollars against other currencies.

 

Feet on the Ground

Throughout all of these wheeling and dealings, Buffett has continued staying in his old home in Omaha, which he bought in 1958 for only $31,500. He is known for his frugal ways and once lambasted other CEOs for extravagant purchases. When he bought a private jet in 1989, he felt so guilty about it that he named it “The Indefensible.”

His annual salary as Chairman of Berkshire Hathaway was only $175,000 in 2008. He has also committed to donating up to 85 percent of his wealth to charitable institutions. He has urged other billionaires to do the same.

Buffett has also continued supporting the football team of the University of Nebraska. He is such an avid supporter that he was named an honorary assistant coach in 2009.

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