Warren Edward Buffett, the legendary value investor, turned an ailing textile mill into a financial engine that powered what would become the world's most successful holding company.
Known as the Oracle of Omaha for his investment prowess, Buffett has amassed a personal fortune in excess of $100 billion, according to Forbes. He inspires legions of loyal fans to make a yearly trek to Omaha, Nebraska, for an opportunity to hear him speak at Berkshire's annual meeting, an event ironically dubbed the Woodstock of Capitalism.
- Warren Buffett started investing at a young age, buying his first stock at age 11 and his first real estate investment at age 14.
- Buffett studied under the legendary value investor Benjamin Graham while pursuing a business degree at Columbia University. Harvard had rejected him.
- Buffett teamed with Charlie Munger to buy the ailing Berkshire Hathaway textile company, later to be used as a vehicle to acquire other businesses and make investments.
- Buffett is a true value investor, buying underpriced but solid companies and holding them for the long term.
- Buffett always has been a philanthropist and has pledged the vast amount of his personal fortune of more than $100 billion to the Bill & Melinda Gates Foundation upon his death.
Warren Buffet: The Road To Riches
Early Life and Education
Buffett was born to Howard and Leila Buffett on Aug. 30, 1930, in Omaha, Nebraska. He was the second of three children, and the only boy. His father was a stockbroker and four-term U.S. congressman. Howard Buffett served non-consecutive terms on the Republican ticket but espoused libertarian views.
Making money was an early interest for his son, Warren, who sold soft drinks and had a paper route. When he was 14 years old, he invested the earnings from these endeavors in 40 acres of land, which he then rented for a profit. At his father's urging, he applied to the University of Pennsylvania and was accepted. Unimpressed, Buffett left that university after two years, transferring to the University of Nebraska.
Upon graduation, his father once again convinced him of the value of education, encouraging him to pursue a graduate degree. Harvard rejected Buffett, but Columbia University accepted him. Buffett studied under Benjamin Graham, the father of value investing, and his time at Columbia set the stage for a storied career, albeit one with a slow start.
Upon graduation, Graham refused to hire Buffett, even suggesting that he avoid a career on Wall Street. Buffett's father agreed with Graham, and Buffett returned to Omaha to work at his father's brokerage firm. He married Susan Thompson, and they started a family. A short while later, Graham had a change of heart and offered Buffett a job in New York.
Unlike his mentor Benjamin Graham, Buffett wanted to look beyond the numbers and focus on the company's management team and its product's competitive advantage in the marketplace when considering an investment.
Once in New York, Buffett had the chance to build upon the investing theories he had learned from Graham at Columbia. Value investing, according to Graham, involved seeking stocks that were selling at an extraordinary discount to the value of the underlying assets, which he called the "intrinsic value". Buffett internalized the concept, but had an interest in taking it a step further.
In 1956, he returned to Omaha, launched Buffett Associates, and later purchased a house. In 1962 he was 30 years old and already a millionaire when he joined forces with Charlie Munger. Their collaboration eventually resulted in the development of an investment philosophy based on Buffett's idea of looking at value investing as something more than an attempt to wring the last few dollars out of dying businesses.
Along the way, they purchased Berkshire Hathaway (BRK.A), a dying textile mill. What began as a classic Graham value play became a longer-term investment when the business showed some signs of life. Cash flows from the textile business were used to fund other investments. Eventually, the original business was eclipsed by the other holdings. In 1985, Buffett shut down the textile business but continued to use the name.
Wealth and Philanthropy
What do you do with your money when you are the world's most successful investor? If you're Warren Buffett, you give it away. Buffett stunned the world in June of 2006 when he announced the donation of the vast majority of his wealth to the Bill & Melinda Gates Foundation, which focuses on world health issues, U.S. libraries, and global schools, among other issues. It is one of the world's largest transparent charities.
Buffett's donations will come in the form of Class B shares of Berkshire Hathaway stock. His total donation to the Gates Foundation is 10 million shares. It will be given out in 5% increments until Buffett's death or until the foundation fails to meet the spending stipulation or the stipulation that either Bill or Melinda Gates remain actively involved in the foundation's activities. Buffett's 2006 donation was 500,000 shares, valued at approximately $1.5 billion.
In June 2022, the foundation's CEO, Mark Suzman, sent an email to the Bill & Melinda Gates Foundation employees. The email was also shared on the foundation's website that Buffett's contributions since 2006 have totaled more than $36 billion. Buffett expects stock price appreciation to increase that amount over time.
Another stock donation of 900,000 shares was evenly divided among three charities run by Buffett's children. An additional 1.5 million shares went to a foundation run in honor of his first wife.
While the enormity of the donation to the Gates Foundation was certainly a big surprise, Buffett's charitable endeavors are nothing new. He'd been giving money away for 40 years through the Buffett Foundation, renamed as the Susan Thompson Buffett Foundation. This foundation supports pro-choice family planning causes and works to discourage nuclear proliferation.
Buffett always planned to give the bulk of his wealth to charity but insisted that that would occur posthumously. The change of heart is quintessential Buffett—rational, decisive, maverick, and blazing a path all his own. "I know what I want to do, and it makes sense to get going," he's famous for saying.
Buffett's investment philosophy become one based on the principle of acquiring stock in what he believes are well-managed, undervalued companies. When he makes a purchase, his intention is to hold the securities indefinitely. Coca-Cola, American Express, and Gillette all met his criteria and have remained in Berkshire Hathaway's portfolio for many years.
In many cases, he purchased the companies outright, continuing to let their management teams handle the day-to-day business. A few of the better-known firms that fit into this category include See's Candies, Fruit of the Loom, Dairy Queen, The Pampered Chef Ltd., and GEICO Auto Insurance.
The tech wreck that occurred when the dotcom bubble burst bankrupted many of those experts. Buffett's profits doubled.
Buffett's mystique remained intact until technology stocks became popular. As a resolute technophobe, Buffett sat out the incredible run-up in technology stocks during the late 1990s. Sticking to his guns and refusing to invest in companies that didn't meet his mandate, Buffett earned the scorn of Wall Street experts and was written off by many as a man whose time had passed.
Despite a net worth measured in billions, Warren Buffett is legendarily frugal. He still lives in the five-bedroom house he bought in 1958 for $31,000, drinks Coca-Cola, and dines at local restaurants, where a burger or a steak is his preferred table fare. For years, he eschewed the idea of purchasing a corporate jet. When he finally acquired one, he named it the Indefensible—public recognition of his criticism about money spent on jets.
He remained married to Susan Thompson for more than 50 years after their 1952 wedding. They had three children, Susie, Howard, and Peter. Buffett and Susan separated in 1977, remaining married until her death in 2004. Before her death, Susan introduced him to Astrid Menks, a waitress. Buffett and Menks began living together in 1978 and were married in August 2006.
How Did Warren Buffett Amass His Fortune?
Through highly researched and timely purchases of both undervalued stocks and companies, which he would then hold for the long term. For most of the companies he bought, he let existing management remain in place, as they had obviously done a good enough job to make their company attractive to Buffett in the first place. For stocks, he has been in it for the long haul, holding companies like Coke and American Express for decades (he still owns both).
What Are Some of Buffett's Pearls of Wisdom?
To paraphrase one that's memorable: "If you're not prepared to hold a stock for 10 years, you shouldn't hold it for 10 minutes," directed at day traders seeking to get rich in a short time. Another famous quote is, "A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful.” Indeed, Buffett is well-known for his many investing aphorisms, which always come back to the simple rules of value investing.
What Does Warren Buffett Plan to Do With His Fortune?
The simple answer is to give it away, which he plans to do by making mega-donations, primarily to the Bill & Melinda Gates Foundation, as he has established a great rapport with the two and shares and respects their philanthropic causes such as world health and women's rights. Warren Buffet is legendarily generous in giving to causes he deems worthy, so it is no surprise he would give away the vast majority of his wealth to causes in need of funding.
The Bottom Line
The future looks to hold an increase in the amount of money that Buffett will continue to give. In his own words: "I am not an enthusiast of dynastic wealth, particularly when the alternative is six billion people having much poorer hands in life than we have, having a chance to benefit from the money."
Buffett has made his fortune by relying on the time-tested rules of value investing, meaning finding high-quality companies at fair market valuations. He then holds these investments for the long term, some indefinitely, always allowing the power of compounding work its magic.