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Warren Buffett |
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Warren Edward Buffett (b. August 30 1930, Omaha, Nebraska), often called the "Sage of Omaha" or the "Oracle of Omaha"[1], is an American investor, businessperson and philanthropist.
Buffett has amassed an enormous fortune from astute investments managed through the holding company Berkshire Hathaway, of which he is the largest shareholder and CEO. With an estimated current net worth of around US$52 billion,[2] he was ranked by Forbes as the second-richest person in the world as of September 2007, behind Bill Gates.[3] In June 2006, he made a commitment to give away his fortune to charity, with 83% of it going to the Bill and Melinda Gates Foundation.[4] The donation amounts to approximately $30 billion. Buffett's donation is said to be the largest in U.S. history. At the time of the announcement the donation was enough to more than double the size of the foundation. Despite his immense wealth, Buffett is renowned for his unpretentious and frugal lifestyle.[5] When he spent $9.7 million of Berkshire's funds on a corporate jet in 1989, he jokingly named it "The Indefensible" because of his past criticisms of such purchases by other CEOs.[1] He continues to live in the same house in the central Dundee neighborhood of Omaha, Nebraska that he bought in 1958 for $31,500[6] (although he also owned a more expensive home in Laguna Beach, California which he sold in 2004). The current estimated value for his Omaha house is around $700,000.[7] His 2006 annual salary of about $100,000 [7] is tiny by the standards of senior executive remuneration in other comparable companies. CEOs in S&P 500 constituent companies averaged about $9 million compensation in 2003.[8] In 2007, Buffett was listed among Time Magazine's 100 Most Influential People in The World. OverviewWarren Buffett was born in Omaha, Nebraska to Howard Buffett, a stock broker and United States Representative, and his wife Leila Buffett. Warren Buffett displayed an extremely keen understanding of business and mathematics at a young age, easily doing complex mathematical computations in his head. He was also known as a bookworm who displayed an insatiable hunger for knowledge pertaining to business and capital markets. He began working at his father's brokerage at the age of 11, and that same year made his first stock purchase, buying Cities Services shares for $38.25 each. He sold them when the price reached $40, only to see them rocket to $200 a few years later.[9] This taught him the importance of investing in good companies for the long term. At the age of 14, he and a fellow high school student began installing pinball machines in barber shops, and he eventually spent his take of $1,200 to buy 40 acres of farmland which he then rented to tenant farmers. [10] Although he excelled as a student, he felt college would be a waste given his success as an entrepreneur. He already had money coming in from a number of newspaper routes he ran, as well as from Wilson Coin Op, a pinball machine company he had started with a friend, and from the passive income streams coming from a farmer paying rent to him for the use of his farm. He had saved $5,000 and graduated near the top 20 in his class at the age of 16. He eventually yielded to his father's advice and decided to attend college.Following his graduation from Washington, DC's Woodrow Wilson High School in 1947, Warren attended the prestigious Wharton School at the University of Pennsylvania for three years, then transferred to the University of Nebraska. There he began his interest in investing after reading Benjamin Graham's The Intelligent Investor. He obtained a Master's degree in economics in 1951 at Columbia University, 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. Instead, he went to work at his father's brokerage as a salesman until Graham offered him a position in 1954. Buffett returned to Omaha two years later, when Graham retired. 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.[11] 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:
In 1962 Buffett Partnerships began purchasing shares of Berkshire Hathaway, a large manufacturing company in the declining textile industry that was selling for less than its working capital. In 1969, Buffett would dissolve all his partnerships to focus on running Berkshire Hathaway. 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 they must keep on hand to pay out future claims. Essentially, the insurer does not own the reserve, but may invest it and keep any proceeds. Under Munger's influence, Buffett's investment approach moved away from a strict adherence to Graham's principles, and he began to focus on high-quality businesses with enduring competitive advantages. He described such advantages as a "moat" that kept rivals at a safe distance, as opposed to commodity businesses, which sell undifferentiated products and face direct competition. A classic example of a wide-moat company is Coca-Cola, because consumers are willing to pay more for a Coke than for a generic beverage with a similar taste. On the other hand, salt is considered a commodity product because consumers generally have no preferences for one brand of salt over another. Investment in wide-moat businesses has become a hallmark of Berkshire Hathaway, particularly when buying whole companies rather than public stocks. As a result, it now owns a large number of businesses which are dominant players in their respective industries, specialize in various niche markets, or possess other unique characteristics to separate them from their competitors. Management styleWarren 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:
Besides his skills in managing Berkshire's cash flow, Buffett is skilled in managing the company's balance sheet. Since taking over Berkshire Hathaway, Buffett has weighed every decision against its impact on the balance sheet. As of 2005, he has succeeded in building Berkshire into one of the nine companies that are still rated by S&P as AAA, the highest credit rating achievable and thus, with the lowest cost of debt. Buffett takes comfort in his belief that, for the near future, his company will not be one of those shaken by economic or natural catastrophes. He has repeated over the years that his catastrophe insurance operation is the only one he knows of that can keep the checks clearing during a financial turmoil. Investment approachBuffett's philosophy on business investing is a modification of the value investing approach of his mentor Benjamin Graham. Graham bought companies because they were cheap compared to their intrinsic value. He was of the belief that as long as the market undervalued them relative to their intrinsic value he was making a solid investment. He reasoned that the market will eventually realize it has undervalued the company and will correct its course regardless of what type of business the company was in. In addition he believes that the business has to have solid economics behind it. Buffett's investment style is also heavily influenced by Phil Fisher.The following are some questions to determine what business to buy, based on the book Buffettology by Mary Buffett:
He is known for being conservative when speculation is rampant in the market and being aggressive when others are fearing for their capital. This contrarian strategy is what led Buffett's company through the Internet boom and bust without significant damage, although critics have also noted that it may have led Berkshire to miss out on potential opportunities during the same period. He also asks at what price is the business a bargain, and his answer typically is when it provides a higher rate of compounded return relative to other available investment opportunities. Buffett has coined the term "economic moat," preferring to acquire companies that possess sustainable competitive advantages over their competitors.[2] Warren Buffett's letters to shareholders are a valuable source in understanding his investment style and outlook.[12] PhilanthropyIn June 2006, Warren Buffett announced plans to contribute approximately 10 million Berkshire Hathaway Class B shares to the Bill & Melinda Gates Foundation (worth approximately USD 30.7 billion as of June 23 2006; see [3]) making it the largest charitable donation in history. The foundation will receive 5% of the total donation on an annualized basis each July, beginning in 2006. Buffett will also join the board of directors of the Gates Foundation, although he does not plan to be actively involved in running the foundation.Buffett also announced plans to contribute additional Berkshire stock valued at approximately $6.7 billion to the Susan Thompson Buffett Foundation and to other foundations headed by his three children. This is a significant shift from previous statements Buffett has made, having stated that most of his fortune would pass to his Buffett Foundation. The bulk of the estate of his wife, valued at $2.6 billion, went to that foundation when she died in 2004.[4] His children will not inherit a significant proportion of his wealth. These actions are consistent with statements he has made in the past indicating his opposition to the transfer of great fortunes from one generation to the next. Buffett once commented, "I want to give my kids just enough so that they would feel that they could do anything, but not so much that they would feel like doing nothing"[5]. The following two quotations from 1995 and 1988, respectively, highlight Warren Buffett's thoughts on his wealth and why he long planned to reallocate it:
Since 2000, Buffett has raised money for the Glide Foundation through online auctions. Bidders have donated up to $650,100 for the chance to have one meal with him. In September 2006, Buffett auctioned his Lincoln Town Car to support Girls, Inc.[6] The vehicle sold for $73,200 on eBay.[7] In May 2007, fishermen, tribal leaders and environmental leaders from northwest California went to Omaha to ask Buffett to tear down four dams on the Klamath River. [8] The dams, owned by Berkshire Hathaway subsidiary Pacific Corp., are currently up for relicensing. The dams have had a devastating effect on the Klamath River fisheries. Members of the Hupa, Yurok, and Karuk tribes who depend on these fisheries have been especially hard hit. In September, 2002, low water flows resulting from the dams caused the death of at least 33,000 adult salmonids. As of July 2007, with Klamath River waters dangerously low once again, it is unclear what action Buffett will take. WritingsWarren Buffett's writings include his annual reports and various articles. In his article The Superinvestors of Graham-and-Doddsville, Buffett condemned the academic position that the market was efficient and that beating the S&P500 was "pure chance" by highlighting a number of students of the Graham and Dodd value investing school of thought. In addition to himself, Buffett named: Walter J. Schloss, Tom Knapp, Ed Anderson (Tweedy, Brown Inc.), Bill Ruane (Sequoia Fund, Inc.), Charles Munger, Rick Guerin (Pacific Partners, Ltd.), and Stan Perlmeter (Perlmeter Investments) as having beaten the S&P500, "year in and year out".Public stancesBuffett has repeatedly criticized the financial industry for what he considers to be a proliferation of advisors who add no value but are compensated based on the volume of business transactions which they facilitate. He has pointed to the growing volume of stock trades as evidence that an ever-greater proportion of investors' gains are going to brokers and other middlemen.Buffett emphasized the non-productive aspect of gold in 1998 at Harvard: "It gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head." Buffett believes that the U.S. dollar will lose value in the long run. He views the United States' expanding trade deficit as an alarming trend that will devalue the U.S. dollar and U.S. assets. As a result it is putting a larger portion of ownership of U.S. assets in the hands of foreigners. This induced Buffett to enter the foreign currency market for the first time in 2002. However, he substantially reduced his stake in 2005 as changing interest rates increased the costs of holding currency contracts. Buffett continues to be bearish on the dollar, and says he is looking to make acquisitions of companies which derive a substantial portion of their revenues from outside the United States. Buffett invests in PetroChina Company Limited and in a rare move, posted a commentary[9] on Berkshire Hathaway's website why he will not divest from the company despite calls from some activists to do so. Buffett's speeches are known for mixing serious business discussions with humor. Each year, Buffett presides over Berkshire Hathaway's annual shareholders' meeting in the Qwest Center in Omaha, Nebraska, an event drawing over 20,000 visitors from both United States and abroad, giving it the nickname "Woodstock of Capitalism". Berkshire's annual reports and letters to shareholders, prepared by Buffett, frequently receive coverage by the financial media. Buffett's writings are known for containing literary quotes ranging from the Bible to Mae West, as well as Midwestern advice and numerous jokes. Various websites extol Buffett's virtues while others decry Buffett’s business models or dismiss his investment advice and decisions. Buffett favors the inheritance tax, saying that repealing it would be like "choosing the 2020 Olympic team by picking the eldest sons of the gold-medal winners in the 2000 Olympics".[10]. Buffett has been recognized as most responsible for FASB 123 (r), or Stock Option Expensing on the GAAP Income Statement. When asked about the subject at Berkshire Hathaway's 2004 annual meeting, he compared the United States Congress and the Securities and Exchange Commission's decision to override FASB, who wanted to consider company-issued stock-option compensation as an expense, to a bill that passed in the Indiana house for Pi to be changed from 3.14...to 3.20. Buffett has held fundraisers for both Hillary Clinton and Barack Obama for president. He has not indicated who he will vote for, but he has expressed that both would make "great Presidents". ([11] Historical timeline
1943: (13 years old)
Personal lifeBuffett married Susan Thompson in 1952. They had three children, Susie, Howard, and Peter. The couple began living separately in 1977, though they remained married until her death in July 2004. His daughter Susie lives in Omaha and does charitable work through the Susan A. Buffett Foundation and is a national board member of Girls, Inc.On his 76th birthday Buffett married his longtime companion, Astrid Menks, who had lived with him since his wife's departure. Interestingly, it was Susan Buffett who arranged for the two to meet before she left Omaha to pursue her singing career. All three were close, and holiday cards to friends were signed "Warren, Susie and Astrid" (as per Roger Lowenstein's book, Buffett: The Making of an American Capitalist). Susan Buffett briefly discussed this relationship in an interview on the Charlie Rose Show shortly before her death, in a rare glimpse into Buffett's personal life.[12] Buffett is an avid player of the card game bridge. He has said that he spends 12 hours a week playing bridge.[13] He often plays with Bill Gates. In 2006, he sponsored a bridge match for the Buffett Cup.[14] In this event, modeled on the Ryder Cup in golf (and held immediately before it and in the same city), a team of twelve bridge players from the United States took on twelve Europeans. Buffett's favorite place to eat is Gorat's Steak House in Omaha, where he always purchases a T-bone steak (cooked rare), a double order of hash browns, and Cherry Coke. According to U.S. News and World Report. He drinks about five Cherry Cokes a day. He used to drive a 2001 Lincoln Town Car[15] which he auctioned on eBay to raise money for Girls Inc.[16] He currently drives a Cadillac DTS.[17] Warren Buffett is currently working with Christopher Webber on an animated series with DiC Entertainment chief Andy Heyward. According to information presented by Buffett at the Berkshire Hathaway annual meeting on May 6 2006, the series will feature Buffett and Munger in roles and the series will teach children healthy financial habits for life. Cartoon drawings of Buffett and Munger were displayed throughout the events during the weekend and the special movie before the meeting began was in animation form by Heyward. In December 2006 it was reported that Mr. Buffett does not carry a cell phone, does not have a computer at his desk, and drives his own car.[18] However, in May 2007 Richard Santulli, CEO and Chairman of NetJets, stated on the Nightly Business Report that Mr. Buffett now uses a cell phone, however he still does not use email. He has described himself as agnostic.[19] Buffett's DNA report revealed that he is not related to the singer Jimmy Buffett and that his paternal ancestors hail from northern Scandinavia, while his mother's side most likely has roots in Spain or Estonia.[20] See also
Further reading
Compilations
References1. ^ [21] 2. ^ "The World's Billionaires: #2 Warren Buffet", Forbes.com, 2007-03-08. Retrieved on 2007-04-11. 3. ^ Helen Coster. "Carlos Slim Helu Now World's Second-Richest Man", Forbes.com, 2007-04-11. Retrieved on 2007-04-13. 4. ^ Yuki Noguchi. "Gates Foundation to Get Bulk of Buffett's Fortune", 2006-06-26. Retrieved on 2007-04-13. 5. ^ Pallavi Gogoi. "What Warren Buffett might buy", 2007-05-08. Retrieved on 2007-05-09. 6. ^ "Homes Of The Billionaires", Forbes.com, 2005-03-10. Retrieved on 2007-04-13. Note that this is a changing slide show 7. ^ [22] 8. ^ Rich Smith. "Stupid CEO Tricks", The Motley Fool, 2005-06-29. Retrieved on 2007-04-13. 9. ^ "How Warren Buffet (sic) made his billions.", Rediff news, 2006-12-26. Retrieved on 2007-04-13. 10. ^ Train, John (2003). The Midas Touch: The Strategies that Have Made Warren Buffett America's Most Successful Investor. Harriman House Limited, 7. ISBN 1897597290. 11. ^ Roger Lowenstein. Buffett: The Making of an American Capitalist. p. 58. 12. ^ His shareholder letters are publicly available at [23]. 13. ^ Roger Lowenstein. Buffett: The Making of an American Capitalist. p. 43. 14. ^ Business Wire. Warren Buffett and Peter Lynch Voted Top Money Managers of the Century. 1999-11-22. Retrieved on 2007-09-18.
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..... Click the link for more information. 19th century - 20th century - 21st century 1900s 1910s 1920s - 1930s - 1940s 1950s 1960s 1927 1928 1929 - 1930 - 1931 1932 1933 Year 1930 (MCMXXX ..... Click the link for more information. Omaha, Nebraska An aerial view of Omaha. Flag Seal Nickname: Gateway to the West Motto: Fortiter in Re ..... Click the link for more information. An investor is any party that makes an investment. The term has taken on a specific meaning in finance to describe the particular types of people and companies that regularly purchase equity or debt securities for financial gain in exchange for funding an expanding company. ..... Click the link for more information. A businessperson is a generic term for someone who is employed at a, usually, profit-oriented enterprise, or more specifically, someone who is involved in the management (at any level) of a company. ..... Click the link for more information. philanthropist is someone who engages in philanthropy; that is, someone who donates his or her time, money, and/or reputation to charitable causes. The term may apply to any volunteer or to anyone who makes a donation, but the label is most often applied to those who donate large ..... Click the link for more information. Berkshire Hathaway Public (NYSE: BRKA , NYSE: BRKB ) Founded 1888 Headquarters Omaha, Nebraska Key people Warren Buffett, Chairman & CEO Charlie Munger, Vice Chairman Industry Property and casualty insurance, Diversified investments ..... Click the link for more information. 20th century - 21st century - 22nd century 1970s 1980s 1990s - 2000s - 2010s 2020s 2030s 2004 2005 2006 - 2007 - 2008 2009 2010 2007 by topic: News by month Jan - Feb - Mar - Apr - May - Jun ..... Click the link for more information. Forbes is an American publishing and media company. Its flagship publication, Forbes magazine, is published bi-weekly. Its primary competitors in the national business magazine category are Fortune, which is also published bi-weekly, and BusinessWeek. ..... Click the link for more information. "Billion" and "Billionaire" in the context of the following lists refers to the short scale meaning of the word i.e. 1,000,000,000 or 109:
..... Click the link for more information. William Henry Gates III (born October 28, 1955[1]) is an American entrepreneur, philanthropist and chairman of Microsoft, the software company he founded with Paul Allen. ..... Click the link for more information. Bill & Melinda Gates Foundation Founder Bill & Melinda Gates Founded 2000 Headquarters Seattle, Washington Key people Bill Gates, Co-Founder and Co-Chair Melinda French Gates, Co-Founder and Co-Chair William H. Gates, Sr. ..... Click the link for more information. This article or section contains information about a planned or expected new airline. It may contain information of a speculative nature and the content may change dramatically as development continues, the launch date approaches, and as more information becomes available. ..... Click the link for more information. Dundee is a historic neighborhood located at and around 50th and Underwood Streets in Omaha, Nebraska, United States. Founded in 1880 and annexed into the city in 1915, Dundee is situated within Midtown. Dundee is home to the second richest man in the world, Warren Buffett. ..... Click the link for more information. City of Laguna Beach, California Seal Location of Laguna Beach within Orange County, California. Coordinates: Country United States State California ..... Click the link for more information. The S&P 500 is an index containing the stocks of 500 Large-Cap corporations, most of which are American. The index is the most notable of the many indices owned and maintained by Standard & Poor's, a division of McGraw-Hill. ..... Click the link for more information. Time (whose trademark is capitalized TIME) is a weekly American newsmagazine, similar to Newsweek and U.S. News & World Report. A European edition (Time Europe, formerly known as Time Atlantic) is published from London. ..... Click the link for more information. Omaha, Nebraska An aerial view of Omaha. Flag Seal Nickname: Gateway to the West Motto: Fortiter in Re ..... Click the link for more information.
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Warren Buffett, I was interested to learn, also recognizes his privilege: His wealth comes from no "special virtues of mine," he says. THE world's second-richest man, Warren Buffett, is in the news again. Geico improved its productivity 32% in just two years, Warren Buffett told investors in his annual letter to Berkshire Hathaway shareholders. |
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Warren Buffett