Berkshire Hathaway's Billionaire Boss --- How did Warren Buffett start making money?
The name Warren Buffett has a very strong presence in the minds of the people, especially who are investing in stock market or planning to invest in future. There may be many questions in one's mind, such as How did Warren Buffett start making money?, What is the story of Warren Buffett ?, When did Warren Buffett become a billionaire?, What is the Warren Buffett Rule of investing?, How did Warren Buffett make his first million?, How old is Warren Buffett now?, How old was Buffett when he became a millionaire? etc. Well, we are going to touch each of these in a nutshell in this article. Mr Warren Buffett was burn in year 1930 in Omaha of United states of America. Most of the stock market investors take inspiration from him due to his easy to adopt investment strategies.
His father used to work as a sales man in one of stock broking firm in the city in early 1930s. Due to severe worldwide economic depression situation he had lost his job, post which he has started his stock broking firm using his savings.
When other kids were fund of playing & actively engaged in the fun activities, Warren has started enjoying number crunching, as if that is the purpose of his life. When he was approximately 7 years old, he started reading motivational books, articles etc, during this period he read a book called “1000 ways to make $1000”, One of the idea in the book was Pinball machine business, so he was inspired by the idea & started calculating the purchase price of the machine & how much time it will take for him to purchase another machine through the profit made out of the first machine. Warren has liked the idea & he has purchased a Pinball machine with a partnership with his close friend by using his pocket money he used to get. He has placed the machine in a barber shop, so that people can play with the machine while being in the queue. He started purchasing new machines from the profit he was gaining & placed the machines in different barber shops. Like he gained a good amount of money in the tin age & sold his business with $1200 & made a good profit. He had proven in skills in profit making in the teen age when kids in the similar age generally engaged in other activities.
He has learnt business & profit making in the early teen age. Out of his interest, he has enjoyed making money in various ways, such as news paper delivery, food delivery etc in the early age. Warren used to enjoy making money from small activities. When he was 14 years old, he had purchased 40 acres of land out of his savings & when he has finished his collage, he had roughly $10,000 as a saving. His father used to call him “Fire ball”, because warren was very keen in doing small businesses & making profit in his childhood. His father was very confident on warren, Warren gives a lot of credit to his father for being successful in his career, as he has learnt a lot from his father on the money making philosophy.
Like grass is not always green, however it turns green one day, Warren has applied for Post graduation in Harvard University, unfortunately he was rejected in the interview. Post which he started researching for some good colleges. He found Mr Benjamin Graham, who was working as a professor in Columbia University. Warren was a big fan of Mr Benjamin after reading his book “Security Analysis”. Without wasting time he wrote a letter to Professor Benjamin on his interest & as a response he was called for an interview & accepted for admission, this was proven to be a life changing decision for him.
Professor Benjamin strong believed & promoted the philosophy of value investing, latter he was known to be the Father of Value Investing. Warren has learnt a lot on value investing from Professor. Latter he has expressed his interest to work for Graham-Newman for free, which was a partnership investment firm of Professor Benjamin, however professor has rejected the proposal due to circumstantial constraints. However after two years Professor Benjamin offered a job to Mr Warren buffet in the same firm for $12,000, for the next two years Warren worked as a security analyst in the firm & improved his investing skills in a professional way. In 1956 Professor Benjamin closed his partnership firm & warren had to return to his home town.
After he returned to Omaha, he has started an investment firm in partnership with some close friends. He has made a good amount of profit by following the philosophy of “Value Investing” & soon became a Millionaire. Value Investing means to purchase the undervalued stocks, which can further be decomposed to purchasing a stock below the intrinsic value, which may be justified by the company’s real value including a neutralization of assets & liabilities. He used to analyse the financial statements & derive the intrinsic value of a stock.
Most often stock value falls below than the intrinsic value due to different reasons, which is the perfect time to purchase a stock as per Value Investing philosophy. Mr Buffet has purchased “Berkshire Hathaway” shares for the first time in 1962, when the company was a mid size textile company & it was not performing good, the textiles were getting sold one by one & the shares were getting repurchased out of that money. Mr Buffet thought, the management of “Berkshire Hathaway” planning to close the company & when the company sells rest of the textile mills, company would try to buy back the shares, then a good value can be earned out of the shares. He has purchased a significant amount of shared in “Berkshire Hathaway” by the end of 1964. As anticipated the company has approached Mr Warren to repurchase the shares, he quoted ~$11.5 per share in 1964 & the company has agreed with the price, however released an offer letter for a reduced price of ~$11.37, whereas the deal was for $11.5. He did not like the unethical behaviour of the management & rejected the offer immediately and started purchasing more shares of the company as he was now confident more than ever especially when the company has already approached him to purchase the shares. He kept purchasing the shares until he has got the control of the company. He had wiped the unethical staff of the company as soon as he got control of the company. He always say “The greatest enemies of the equity investor are expenses & emotions”. He had taken the decision to takeover “Berkshire Hathaway” out of emotion, hence he thinks this was not right, however he could convert the wrong decision in to a successful business.
In 1969 he had closed he partnership firm & became the chairman of “Berkshire Hathaway”. He did not see a lot of growth in the textile business of the company, hence he has converted the company to a holding company, which means “Berkshire Hathaway” can now act as a instructional investment company. Now he can started investing through “Berkshire Hathaway” in some of good companies like Coca-cola, Washington post, Geico etc & latter he has also invested in some Insurance companies, hence closed the textile business permanently.
Mr Warren Buffet has invested in stock market at the age of 11. He says “I have invested the first time in the stock market at the age of 11, until then i have wasted my time”.
He had a lot of books in his father’s office related to stock market investment strategy, warren had read all of them in the childhood itself, as a result he was attracted towards the stock market investment. He had made his first investment in a stock called CITIES SERVICE @$38 & sold @$40, latter the stock climbed to $200, Mr Buffet says “Successful investing takes time, discipline & patience. No matter how great the talent or effort, some things just take time” , hence general Warren Buffett’s Investments are long term more or less.
Mr Warren Bufett has started purchasing Washington Post shares in 1973, where he got more than 9000% return. There are number of examples where Mr Bufett has earned returns in multiple percentages. He generally thinks that purchasing a share of a company is not very different from purchasing a company; hence he invests in companies, which he understands better.
He started investing in Coca-cola in 1988 & purchased approximate 7% shares & he still has those shares in his portfolio. He himself is a big fan of the soft drink. He generally reinvests his dividends & profits in different stocks instead of spending them elsewhere.
He knew the companies like Coca-cola, Washington-post, Wrigley’s Chewing gum from his childhood when he was doing the home delivery job during his childhood, hence he had a thorough knowledge on the Product quality, Business & customer loyalty, which helped him while investing on the stocks.
Professor Benjamin Graham has written in his book “Intelligent Investor” that “Investing is most intelligent when it is most businesslike”, Mr Bufett endorses that these are the words which are incredibly true when we think of investing on any stock.
The golden words of Mr Warren Buffet’s investment philosophy says “Buy quality stocks at lower valuation”, ie: Buy the stocks, when the quality business goes down due to circumstantial reasons, because they have a good potential to revive & go further.
Golden rules of Mr Warren Buffett
- Never Lose Money
- Never forget rule number 1
- Invest in yourself first
- Invest to buy & hold
- Only invest what you understand
- Know the difference between relevant & irrelevant news
- There is no place of emotion when investing.
Now he is 89 years old, still he always think of long term gain while investing in a stock.
Some facts amount Mr Warren Buffett
- Mr Warren Buffett was the richest person in the world during 2008-09
- Donations until 2019 was ~50 billion
- Total net worth approximate $90 billion