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Warren Buffett

By Amarendra Bhushan for CEOWORLD Magazine Updated:September 24, 2008

Investment entrepreneur and executive. Born August 30, 1930 in Omaha, Nebraska. A stockbroker’s son, Buffett studied at the University of Nebraska and Columbia University, and formed his own firm, Buffett Partnership, in his hometown in 1956. His investment successes, particularly in buying undervalued companies whose stocks shortly began to rise, made him extremely rich and gained him the sobriquet, “Oracle of Omaha.” Other notable career succeses include helping rescue Salomon Brothers from corporate raiders (1987) and taking charge of the New York City house (1992) in the wake of an insider trading scandal.

The majority of Buffett’s considerable fortune was amassed through Berkshire Hathaway, a company for which he is the largest shareholder and CEO. Ranked as Forbes second-wealthiest man, his net worth is estimated at $42 billion. In June 2006, Buffett made an announcement that he would be giving his entire fortune away to charity, committing 85 percent of it to the Bill and Melinda Gates Foundation. This donation became the largest act of charitable giving in United States history.

Warren purchased three shares of Cities Service at $38 a share for himself and his older sister. Although the stock fell to just over $27 he held his shares until they rebounded to $40, unfortunately selling them before they climbed to $200. The experience taught him one of the basic lessons of investing: patience is a virtue.

In 1947 at the age of 17 he graduated from High School and while he never intended to go to college his father urged him to attend the Wharton Business School. Buffett lasted two years, claiming he knew more than his professors. Warren moved back home and transferred to the University of Nebraska. Even while working full-time, he graduated in only three years with a Bachelor of Science degree, and went on to be rejected by Harvard Business School because he was to young. He completed a master’s in economics at Columbia University where he meet Ben Graham a lecturer and famed investor.

Warren worked for his father who owed an investment banking company for the next three years during which he meet Susie Thompson and in 1952 they were married and had three children together. Warren didn’t have a lot of money at this point until he was asked by Ben Graham to join his company as a security analyst, which he did and by 1956 his fortune rose to $140,000.

In 1956 at the age of twenty five, Warren started his own investment company, the Buffett Partnership, using a small amount of his own funds and collecting around $100,000 from partners and family he managed to increase his capitol to $300,000 by the years end. One of the companies Warren invested in during his role as managing partner of the Buffett Partnership was a textile company called Berkshire Hathaway.

Berkshire Hathaway was eventually liquidated but the name was kept and turned into an investment business. Its main interest was with insurance, which added considerable cash flow for future investments. He liquidated the Buffett partnership in 1969, and spent the remainder of the year liquidating its portfolio.

Warren became chairman of the board and chief executive officer for Berkshire Hathaway in which he remains today. Berkshire Hathaway now owns more than forty companies employing more than 150,000 people.

In 1977 Warren and Susan separated but never divorced, She was also a significant stockholder in Berkshire Hathaway and a board member as well. Susan Buffett died in 2004, and Warren now lives with companion Astrid Menks whom he meet through his wife.

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. 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:

* Generals: undervalued securities that possess margin of safety and meet expected return-to-risk characteristics

* Arbitrages: company events that are not related to broader market changes, such as mergers and acquisitions, liquidation, etc.

* Controls: build sizeable holdings, ally with other shareholders or employ proxies to affect changes in companies

In 1962 Buffett Partnerships began purchasing shares of Berkshire Hathaway, a large manufacturing company in the declining textile industry that was selling below its working capital. Buffett would eventually 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 (“float”) they must keep on hand to pay out future claims. Essentially, the insurer does not own the float, but may invest it and keep any proceeds.

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