Who is Warren Buffett?

To be among the top two or three richest people in the world invites heroic status. The amazing thing about Warren Buffett, however, is that he got rich not by being a robber baron or by founding some spectacular high-tech company to much public acclaim. Rather, he was an investor of quiet demeanor and habit (never did build that mega-mansion in Omaha) who viewed investing and business in the long term. Slowly and deliberately, he acquired company after company, which he folded into his holding organization, Berkshire Hathaway-the most expensive stock on the New York Stock Exchange.

What makes Warren Buffett a true hero is that he has given most of his money to charity. With one swipe of the pen, tens of billions of dollars went to a variety of good causes, mosdy under the auspices of the Bill and Melinda Gates Foundation to be used in ways that will benefit the world.

He is our hero because he remains humble and retains a sense of humor, despite billions in wealth and enormous personal power and prestige. All would agree that this is a rare combination, considering the typical vast egos of the worlds rich and famous!

What made him Warren Buffett?

Buffett was born into an upper-middle-class family on August 30,1930, in Omaha, Nebraska. His father, Howard, was a stockbroker and later would be a U.S. Congressman. Buffett had two sisters. His grandfather owned a grocery store in Omaha where both Warren and his friend Charlie Munger worked as boys. Munger would go on to be the president of Buffett’s investment company, Berkshire Hathaway.

At an early age, Buffett was able to calculate columns of numbers in his head, a feat he still performs today. When he was 6 years old, he bought six-packs of Coca-Cola from his grandfather’s store for 25 cents, then turned around and sold the bottles for a nickel each, giving him a profit of five cents.

Although Buffett was making good money delivering newspapers in high school and had no desire to go to college, his father urged him to attend the Wharton School at the University of Pennsylvania. After two years, Buffett was complaining that he knew more about business than his professors. His father was defeated for re-election and Buffett returned home, where he graduated from College of Business Administration at the University of Nebraska.

It was there that Buffett would meet the man who would have a major influence on his future career and success as an investor. By the 1940s, Ben Graham was considered one of the most influential investors in America. He had built his reputation on careful consideration of the market and purchasing stocks at such a low price that they presented a minimal risk. He wrote the ground-breaking book Security Analysis. Later, he would publish The Intelligent Investor, which made a huge impression on Buffett.

Graham was one of Buffett’s instructors at the Columbia Business College, and the young Buffett earned the only A+ Graham had ever given a student in his security analysis class. After graduation, Buffett applied for a position in the Graham & Newman investment brokerage. He was initially turned down and worked at his father’s brokerage as a salesman. Graham finally hired him in 1954.

Buffett had been dating Susie Thompson in the early 1950s, and they married in 1952. They soon had a daughter, also named Susie. When Graham asked Buffett to work for him, the couple moved to suburban New York. Buffett worked tirelessly, analyzing Standard & Poor’s (S&P) reports on possible investments. It was during this time that his and Graham’s philosophies on investing began to diverge. Graham made his decisions solely on the basis of numbers. Buffett was more interested in how a company worked, what its business philosophy and management style were, and how it differed from the competition.

During this time, Buffett built up his own sizable funds for future investments. Graham retired from the business in 1956, and Buffett returned to Omaha to set up his own investment company. He established Buffett Associates, Ltd., and later Buffett Partnership Limited. Buffett ran all the partnerships out of his bedroom.

Buffett proved his ability by showing profits almost 50 times higher than the Dow. He soon found himself a millionaire and a father of three. Also at this time, he made an important professional decision when he hired Charlie Munger. The two shared a similar business philosophy, and Munger was instrumental in expanding Buffett Partnership.

“Buffett had purchased enough stock in an undervalued manufacturing company called Berkshire Hathaway that he was made a director. In 1967, he bought the whole company and made it into the largest holding company in the world.”

Buffett’s business philosophy was to take profits from the company and use it to acquire other businesses or buy stock in public companies.

Although Buffett’s business life was thriving, his personal life was in disarray. His wife left him, but remained married to him, and set up her own apartment in San Francisco. Buffett was devastated, but he and Susie remained close, even taking annual vacations together. Eventually Susie would introduce Buffett to a waitress named Astrid Menks. She later moved in with Buffett, all with Susie’s blessings.

By the 1970s, Buffett was considered one of the most talented investors in the country. During the me decade of the 1980s, he started devoting more time to charitable efforts. He devised an innovative plan where each shareholder in his company would designate $2 for charitable giving from each Berkshire share. Eventually, Berkshire Hathaway was giving away millions of dollars each year, all to the shareholders’ favorite causes.

The Buffett reputation for philanthropic giving reached new heights in 2006, when he announced that he would contribute 10 million Berkshire Hathaway Class B stocks to the Bill and Melinda Gates Foundation. At the time of the announcement, the stocks were worth almost $31 billion, making it the largest charitable contribution in history. At the same time, he also earmarked stock valued at almost $7 billion to the Susan Thompson Buffett Foundation (his wife had died in 2004) and foundations established by his children.

As he continues to operate the amazingly successful Berkshire Hathaway and pursue his charitable efforts, Buffett has made it clear that his children would not inherit any large amount of his estate. When asked about this, he answered in a way that summed up his business style: “I want to give my kids enough so they could feel that they could do anything, but not so much that they could do nothing.”

The Legacy of the man

Buffett’s two most important legacies are his investment style and the management style he brings to companies he has acquired. As an investor he looks for companies that are in industries with good economic models. They should have upward earning trends with good and consistent margins, low debt-to-equity ratios, a high and consistent return on expenditures, a low maintenance cost of operations and retained earnings for growth, with prices that can be adjusted for inflation.

His management style keeps him from interfering in the running of the individual companies. Further, he is not involved in hiring and compensating top executives, and insists on careful capital management of the companies that make up his empire.

Buffett’s public perception is of a successful man who mixes business with humor and is concerned with politics and the world around him. He can be a bit of a contradiction, supporting the Democratic Party, but also working as a financial adviser to the Republican Arnold Schwarzenegger during his successful run for California governor. His support of pro-choice groups has not sat well with anti-abortion supporters. He is also a noted technophobe who does not even have an e-mail address. This lack of technical sophistication has not hurt his career, and in his middle 70s, Buffett is still considered one of the most successful investors in history.

Courtesy

You can find out more about Warren Buffett and the holding company he created by visiting www.berkshirehathaway.com.

Books by and about Buffett include The Essays of Warren Buffett: Lessons for Corporate America, The Cunningham Group, 2001; The Warren Buffett Way, Riley, 2004; Buffett: The Making of an American Capitalist, Main Street Books, 1996; and Warren Buffett Speaks: Wit and Wisdom from the World’s Greatest Investor, Wiley, 1997.