Warren Buffet

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“It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.”

Bershire_Hathaway

Warren Edward Buffett (/ˈbʌfɨt/; born August 30, 1930) is an American business magnate, investor and philanthropist. He is the most successful investor of the 20th century. Buffett is the chairman, CEO and largestshareholder of Berkshire Hathaway,[4] and consistently ranked among the world’s wealthiest people. He was ranked as the world’s wealthiest person in 2008[5] and as the third wealthiest in 2015.[6] In 2012 Time named Buffett one of the world’s most influential people.[7]

Buffett is often referred to as the “Wizard of Omaha” or “Oracle of Omaha,”[8] or the “Sage of Omaha,”[9] and is noted for his adherence to value investing and for his personal frugality despite his immense wealth.[10]Buffett is a notable philanthropist, having pledged to give away 99 percent[11] of his fortune to philanthropic causes, primarily via the Gates Foundation. On April 11, 2012, he was diagnosed with prostate cancer,[12] for which he successfully completed treatment in September 2012.[13]

Early life

Buffett was born in 1930 in Omaha, Nebraska, of distant French Huguenot descent.[14] He was the second of three children and the only son of Leila (née Stahl) and Congressman Howard Buffett,[15] Buffett began his education at Rose Hill Elementary School. In 1942, his father was elected to the first of four terms in the United States Congress, and after moving with his family to Washington, D.C., Warren finished elementary school, attended Alice Deal Junior High School and graduated from Woodrow Wilson High School in 1947, where his senior yearbook picture reads: “likes math; a future stockbroker.”[16]

Buffett displayed an interest in business and investing at a young age. One of his first business ventures, Buffett sold chewing gum, Coca-Cola bottles, or weekly magazines door to door. He worked in his grandfather’s grocery store. While still in high school, he made money delivering newspapers, selling golf balls and stamps, and detailing cars, among other means. On his first income tax return in 1944, Buffett took a $35 deduction for the use of his bicycle and watch on his paper route.[17] In 1945, as a high school sophomore, Buffett and a friend spent $25 to purchase a used pinball machine, which they placed in the local barber shop. Within months, they owned several machines in 3 different barber shops across Omaha. The business was sold later in the year for $1,200 to a war veteran.[18]

Buffett’s interest in the stock market and investing dated to schoolboy days he spent in the customers’ lounge of a regional stock brokerage near his father’s own brokerage office. On a trip to New York City at age ten, he made a point to visit the New York Stock Exchange. At 11, he bought three shares of Cities Service Preferred for himself, and three for his sister Doris Buffett (founder The Sunshine Lady Foundation[19]).[20][21] At the age of 15, Warren made more than $175 monthly delivering Washington Post newspapers. In high school, he invested in a business owned by his father and bought a 40-acre farm worked by a tenant farmer. He bought the land when he was 14 years old with $1,200 of his savings. By the time he finished college, Buffett had accumulated a princely sum of more than $90,000 in savings measured in 2009 dollars.[22][23]

In 1947, Buffett entered the Wharton School of the University of Pennsylvania. He would have preferred to focus on his business ventures; however, he enrolled due to pressure from his father.[24] Warren studied there for two years and joined the Alpha Sigma Phifraternity.[25] He then transferred to the University of Nebraska–Lincoln where at nineteen, he graduated with a Bachelor of Science in business administration. After being rejected by Harvard Business School, Buffett enrolled at Columbia Business School upon learning that Benjamin Graham taught there. He earned a Master of Science in economics from Columbia in 1951. Buffett also attended the New York Institute of Finance.

The basic ideas of investing are to look at stocks as business, use the market’s fluctuations to your advantage, and seek a margin of safety. That’s what Ben Graham taught us. A hundred years from now they will still be the cornerstones of investing.[26][27][28]

— Warren Buffett

Business career

Buffett worked from 1951 to 1954 at Buffett-Falk & Co. as an investment salesman; from 1954 to 1956 at Graham-Newman Corp. as a securities analyst; from 1956 to 1969 at Buffett Partnership, Ltd.; as a general partner beginning in 1970; and as Chairman and CEO of Berkshire Hathaway Inc.

By 1950, at 20, Buffett had made and saved $9,800 (over $96,000 inflation adjusted for the 2014 USD[29]).[30] In April 1952, Buffett discovered that Graham was on the board of GEICO insurance. Taking a train to Washington, D.C. on a Saturday, he knocked on the door of GEICO’s headquarters until a janitor admitted him. There he met Lorimer Davidson, Geico’s Vice President, and the two discussed the insurance business for hours. Davidson would eventually become Buffett’s lifelong friend and a lasting influence,[31] and would later recall that he found Buffett to be an “extraordinary man” after only fifteen minutes. Buffett wanted to work on Wall Street; however, both his father and Ben Graham urged him not to. He offered to work for Graham for free, but Graham refused.[32]

Buffett returned to Omaha and worked as a stockbroker while taking a Dale Carnegie public speaking course.[33] Using what he learned, he felt confident enough to teach an “Investment Principles” night class at University of Nebraska-Omaha. The average age of his students was more than twice his own. During this time he also purchased a Sinclair Texaco gas station as a side investment. However, this was not successful.[citation needed]

In 1952,[34] Buffett married Susan Thompson at Dundee Presbyterian Church. The next year they had their first child, Susan Alice. In 1954, Buffett accepted a job at Benjamin Graham‘s partnership. His starting salary was $12,000 a year (approximately $105,000inflation adjusted for the 2012 USD[29]). There he worked closely with Walter Schloss. Graham was a tough boss. He was adamant 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 stringent and caused the company to miss out on big winners that had other appealing features.[citation needed] That same year the Buffetts had their second child, Howard Graham. In 1956, Benjamin Graham retired and closed his partnership. At this time Buffett’s personal savings were over $174,000 ($1.47 million 2012 USD[29]) and he started Buffett Partnership Ltd..

Buffett’s home in Omaha

In 1957, Buffett operated three partnerships. He purchased a five-bedroom stucco house in Omaha, where he still lives, for $31,500. In 1958 the Buffetts’ third child, Peter Andrew, was born. Buffett operated five partnerships that year. In 1959, the company grew to six partnerships and Buffett met future partner Charlie Munger. By 1960, Buffett operated seven partnerships. He asked one of his partners, a doctor, to find ten other doctors willing to invest $10,000 each in his partnership. Eventually 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. He explained that in 1958 Sanborn stock sold at only $45 per share when the value of the Sanborn investment portfolio was $65 per share. This meant that buyers valued Sanborn stock at “minus $20” per share and were unwilling to pay more than 70 cents on the dollar for an investment portfolio with a map business thrown in for nothing. This earned him a spot on Sanborn’s board.

As a millionaire

In 1962, Buffett became a millionaire because of his partnerships, which in January 1962 had an excess of $7,178,500, of which over $1,025,000 belonged to Buffett. He merged these partnerships into one. Buffett invested in and eventually took control of a textile manufacturing firm, Berkshire Hathaway. He began buying shares in Berkshire from Seabury Stanton, the owner, whom he later fired. Buffett’s partnerships began purchasing shares at $7.60 per share. In 1965, when Buffett’s partnerships began purchasing Berkshire aggressively, they paid $14.86 per share while the company had working capital of $19 per share. This did not include the value of fixed assets (factory and equipment). Buffett took control of Berkshire Hathaway at a board meeting and named a new president, Ken Chace, to run the company. In 1966, Buffett closed the partnership to new money. He later claimed that the textile business had been his worst trade.[35] He then moved the business into the insurance sector, and, in 1985, the last of the mills that had been the core business of Berkshire Hathaway was sold. Buffett wrote in his letter: “… unless it appears that circumstances have changed (under some conditions added capital would improve results) or unless new partners can bring some asset to the partnership other than simply capital, I intend to admit no additional partners to BPL.”

In a second letter, Buffett announced his first investment in a private business — Hochschild, Kohn and Co, a privately owned Baltimore department store. In 1967, Berkshire paid out its first and only dividend of 10 cents. In 1969, following his most successful year, Buffett liquidated the partnership and transferred their assets to his partners. Among the assets paid out were shares of Berkshire Hathaway. In 1970, Buffett began writing his now-famous annual letters to shareholders. However, he lived solely on his salary of $50,000 per year and his outside investment income. In 1979, 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.

In 1973, Berkshire began to acquire stock in the Washington Post Company. Buffett became close friends with Katharine Graham, who controlled the company and its flagship newspaper, and joined its board. In 1974, the SEC opened a formal investigation into Buffett and Berkshire’s acquisition of WESCO, due to possible conflict of interest. No charges were brought. In 1977, Berkshire indirectly purchased the Buffalo Evening News for $32.5 million. Antitrust charges started, instigated by its rival, the Buffalo Courier-Express. Both papers lost money, until the Courier-Express folded in 1982.

In 1979, Berkshire began to acquire stock in ABC. Capital Cities announced a $3.5 billion purchase of ABC on March 18, 1985 surprising the media industry, as ABC was four times bigger than Capital Cities at the time. Buffett helped finance the deal in return for a 25% stake in the combined company.[36] The newly merged company, known as Capital Cities/ABC (or CapCities/ABC), was forced to sell some stations due to U.S. Federal Communications Commission ownership rules. The two companies also owned several radio stations in the same markets.[37]

In 1987, Berkshire Hathaway purchased a 12% stake in Salomon Inc., making it the largest shareholder and Buffett a director. In 1990, a scandal involving John Gutfreund (former CEO of Salomon Brothers) surfaced. A rogue trader, Paul Mozer, was submitting bids in excess of what was allowed by Treasury rules. When this was brought to Gutfreund’s attention, he did not immediately suspend the rogue trader. Gutfreund left the company in August 1991.[38] Buffett became Chairman of Salomon until the crisis passed.[39]

In 1988, Buffett began buying Coca-Cola Company stock, eventually purchasing up to 7% 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.

As a billionaire

Buffett became a paper billionaire when Berkshire Hathaway began selling class A shares on May 29, 1990, with the market closing at US$7,175 a share.[40] In 1998 he acquired General Re (Gen Re) as a subsidiary in a deal that presented difficulties—according theRational Walk investment website, “underwriting standards proved to be inadequate,” while a “problematic derivatives book” was resolved after numerous years and a significant loss.[41] Gen Re later provided reinsurance after Buffett became involved with Maurice R. Greenberg at AIG in 2002.[42]

During a 2005 investigation of an accounting fraud case involving AIG, Gen Re executives became implicated. On March 15, 2005, the AIG board forced Greenberg to resign from his post as Chairman and CEO after New York state regulators claimed that AIG had engaged in questionable transactions and improper accounting.[43] On February 9, 2006, AIG agreed to pay a US$1.6 billion fine.[44] In 2010 the U.S. government agreed to a US$92 million settlement with Gen Re, allowing the Berkshire Hathaway subsidiary to avoid prosecution in the AIG case. Gen Re also made a commitment to implement “corporate governance concessions,” which required Berkshire Hathaway’s Chief Financial Officer to attend General Re’s audit committee meetings and mandated the appointment of an independent director.[41]

In 2002, Buffett entered in US$11 billion worth of forward contracts to deliver U.S. dollars against other currencies. By April 2006, his total gain on these contracts was over US$2 billion. In 2006, Buffett announced in June that he gradually would give away 85% of his Berkshire holdings to five foundations in annual gifts of stock, starting in July 2006—the largest contribution would go to the Bill and Melinda Gates Foundation.[45]

In 2007, in a letter to shareholders, Buffett announced that he was looking for a younger successor, or perhaps successors, to run his investment business.[46] Buffett had previously selected Lou Simpson, who runs investments at Geico, to fill the role; however, Simpson is only six years younger than Buffett.

On August 14, 2014, the price of Berkshire Hathaway’s shares hit US$200,000 a share for the first time, capitalizing the company at US$328 billion. While Buffett had given away much of his stock to charities by this time, he still held 321,000 shares worth US$64.2 billion. On August 20, 2014, Berkshire Hathaway was fined $896,000 for failing to report December 9, 2013 purchase of shares in USG Corporation as required.[47]



 

This profile is partly adapted from a Wikipedia entry on Warren Buffet, available under theCreative Commons Attribution-ShareAlike License.

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