US entrepreneur and philanthropist who achieved legendary fame as a stock market investor and is believed to have become the wealthiest individual in the world. His conservative approach to portfolio management turned a rundown textile company, Berkshire Hathaway, into a huge holding company that invested in everything from insurance to soft drinks, and gained him the nickname the ‘oracle of Omaha’. A self-confessed technophobe, Buffett has been criticized for dismissing market-leading technology stocks, although his value investments philosophy was vindicated by the Nasdaq market fall in 2000. US financial magazine Forbes estimated his net worth at $62 billion in 2008, a fortune that he intends to give to charity, largely to the Bill & Melinda Gates Foundation.
Buffett's firm, the Buffett Partnership, was founded in 1956 with $5,000 of his own money and $100,000 from friends and family. The investment firm bought stock in the undervalued Berkshire Hathaway, an old Massachusetts textile company, at $8 per share. When the Buffett Partnership was liquidated in 1969, Buffett retained the stock in Berkshire Hathaway. Redeploying Berkshire's capital, he bought a number of insurance companies, which allowed him the resources to buy other companies and fold them into Berkshire, boosting its value as high as $80,000 per share in 1998. Share prices fell to $40,000 by early 2000, but recovered to $60,000 in December 2000. By 2007 Berkshire's investments totalled $141 billion.
Buffett was born in Omaha, Nebraska, his father a stockbroker and a Republican member of Congress. As a child he had a flair for numbers with the ability to memorize the populations of US cities and baseball scores. His interest in finance was also evident very early in life – for example, when he was ten he played the stock markets at his father's firm, making a $5 profit on an investment. Having lost his job and his savings during the depression, his father was elected to Congress and moved the family to Washington, DC. Buffett earned money as a paperboy for the Washington Post and from his own business selling pinball machines. At the age of 14 he spent his $1,200 profit to buy forty acres of farmland in Nebraska, which he leased to a tenant farmer.
Having graduated from the University of Nebraska with a BS but been rejected by Harvard Business School, he moved to New York to study at Columbia University where he graduated with a master's in economics. There he met his mentor, Professor Benjamin Graham, US author of the investment bibles Security Analysis (1934) and The Intelligent Investor (1949), whose work he had studied at Nebraska. Buffett strongly believed in Graham's theory of value investing, in which investors ignore fashionable trends and buy into undervalued stocks and then hold on to them for their long-term growth.
In 1951 he joined his father's old firm Buffett-Falk as a securities salesman, but left in 1954 to become a securities analyst at Graham's Wall Street firm. This closed in 1956 and Buffett returned to Omaha to start his own investment firm, the Buffett Partnership, buying stock in Berkshire.
Although the US textile industry had declined in the face of growing overseas competition, Buffett in a classic move redeployed Berkshire's capital. He first bought a series of insurance companies and used their large cash flow (policyholders pay premiums up front, while claims are paid out later) to buy other businesses. His flagship was GEICO (Government Employees Insurance Company), one of the most successful and profitable US insurance companies, which he bought outright for over $2.3 billion in 1996. He then bought into a whole variety of businesses and folded them into Berkshire. Buffett has built up substantial shareholdings in US blue-chip corporations, in particular Coca-Cola (which in 1988 was not a fashionable stock, but he recognized a strong brand name and overseas market potential), American Express, Disney, Freddie Mac, Gillette, and the Washington Post. In 1998 he purchased General Re, the third largest reinsurer in the world, for $22 billion.
After Berkshire's share price fell to $40,000 in early 2000, Buffett was criticized by the press for sticking to his value investments. Although he awarded himself a D-grade for capital allocation at Berkshire's annual meeting in 1999, his investment philosophy was subsequently vindicated by the Nasdaq market fall in 2000. Since then he has made numerous profitable acquisitions, including an 80% interest in Israel's ISCAR Metalworking, one of the world's largest manufacturers of precision carbide industrial cutting tools, in 2006.
Buffett's famous addresses in the Berkshire annual reports have turned its annual meetings into a pilgrimage of sorts for investors (dubbed ‘Woodstock for Capitalists’). His Buffett Foundation, established in 1964, supports planned parenthood causes.
Buffett, Warren Edward
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WHY READ IT? The first full biography of Warren Buffett, the most famous investor of all time, written with his full cooperation and collaboration.