What Is the Oracle of Omaha?

The Oracle of Omaha is a nickname for Warren Buffett, who is arguably one of the greatest investors of all time. He is called the Oracle of Omaha because the investment community very closely follows his investment picks and comments on the market, and he lives and works in Omaha, Nebraska. Buffett is the chairman and CEO of Berkshire Hathaway, a company that he became the controlling shareholder of in the mid-1960s.

Key Takeaways

  • Billionaire Warren Buffett (who lives and works in Omaha, Nebraska) is known as the Oracle of Omaha, a nickname he earned as one of the world's greatest investors.
  • The Oracle of Omaha built his fortune as a value investor, buying undervalued stocks with sound fundamentals for a discounted price, then holding them as long-term investments.
  • Buffett is chairman and CEO of Berkshire Hathaway, which owns over 60 companies, including GEICO Insurance, Duracell, and See's Candies.

Understanding the Oracle of Omaha

Warren Buffett is one of the richest men in the world. He built his fortune using a simple yet powerful investment strategy. His investments are long-term positions, accomplished by the purchase of fundamentally sound companies that are trading well below their intrinsic value. Some of his most publicized investments include Coca-Cola, Gillette, and Dairy Queen. As of March 12, 2020, the Oracle of Omaha is estimated to have a net worth of $73.2 billion.

In 2006, Warren Buffett pledged to give away over 99% of his fortune. Since then, he has donated over $38.8 billion to charitable causes.

The Oracle of Omaha’s Early Years

Warren Buffett was born in Omaha, Nebraska, in 1930 to parents Howard and Leila Buffett. The Oracle of Omaha’s father was a stockbroker, which gave him an early introduction to the stock market. Buffett purchased his first stock at age 11; he bought three shares of Cities Service Preferred for $38 per share and sold them at $40 per share. After he sold the stock, it advanced to $200. On reflection, Buffett believes this taught him the virtue of patience.

Buffett demonstrated business prowess from his early teens, running a paper delivery business and completing his own tax returns. The Oracle of Omaha started a pinball machine business while in high school and went on to sell the business for $1,300. He graduated from the University of Nebraska with a business degree.

Buffett says one of his favorite investments is See's Candies, a chocolate candy manufacturer that he purchased in 1972 for $25 million and has since generated a return of about 8,000% or over $2 billion of pretax income.

The Oracle of Omaha’s Investment Philosophy

Warren Buffett is a value investor and a follower of the Benjamin Graham school of value investing. Columbia Business School professors, Benjamin Graham and David Dodd, developed their investing concepts, which in 1949 were published in Graham's book, The Intelligent Investor.

As a value investor, Buffett looks to purchase companies that are below their intrinsic worth but have the potential to make money. Buffett attempts to do this by buying companies that are out of favor with the market. He values a company by assessing its fundamentals, such as return on equity and profitability.

For example, Buffett likes a company to have a low debt/equity ratio. He wants earnings growth generated from shareholders' equity as opposed to debt. The Oracle of Omaha’s quote, “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price,” sums up his investment philosophy.