Warren Buffet - The Sage of Omaha

Warren Buffet – ‘The Sage of Omaha’ The Early Years Warren Edward Buffet was born to Howard Buffet and Leila Buffet in Omaha, Nebraska, US on 30th August, 1930. His father was a stockbroker turned United States Representative. Warren Buffet was very good at his understanding of business and mathematics and could do calculations on columns of numbers in his head. He had an insatiable thirst for knowledge related to business and capital market and he could never get enough of books. First Tryst with Business Buffet started showing his true colours and the business knack in him at a very early age. His first encounter with the world of business was probably at the age of six when he bought a six pack of Coca Cola from his grandfather’s grocery store and sold each for a nickel, hence making a 5 cent profit. Warren made his first share investment at the age of eleven when he bought 3 shares of Cities Service at $38.25 each. The share lost value to $27 but shot back to $40 at which Buffet sold his part. This was a mistake as the share rocketed to $200 a few years later. This was Warren’s biggest and first lesson that he learnt about investment in stock market. Warren’s Education Warren graduated from High School at the age of 17. Before this he had already amassed $5000 from his pinball machine company, the returns from the various newspaper routes that he operated and his returns from the farmers to whom his farmland had been rented. Warren never intended to go to college but had to give up to his father’s perseverance and he finally joined The Wharton Business School at the University of Pennsylvania from where he transferred to the University of Nebraska after 2 years. Warren always complained that he knew more than his professors. Warren graduated in just 3 years and then applied to The Harvard University which turned him down stating that he was too young. This obviously would be rued by them later as Warren went on to become the 2nd richest person in the world. Warren meets his Mentor Warren met his mentor Ben Graham at the University of Columbia from where he earned his Masters degree in Economics in 1951. Warren still holds ‘The Intelligent Investor’ by Ben Graham as the best book in the world for learning the art of investment. Warren was the only student to have scored an A+ in Graham’s securities analysis test. Warren later got interested in working for Graham and offered to work for free but he was turned down. He later went on to work for his father’s brokerage firm as a salesman. Later he was invited by Graham to work for him until Graham retired. Then Warren returned to Omaha and started a Company called Buffet Associates Ltd.

Warren meets love During this time Warren had met Sussie Thomson who later on went to become his wife in 1952. They also bought a house for $31,500 and called it ‘Buffet’s Folly’. Warren was happily married and had three children two boys, Howard and Peter and the eldest a girl named Susie, same as her mother. Warren makes fortune This was a prosperous and merry time for the Buffets not only on the personal front but on the business front as well. In 1956, Warren founded Buffet partnership along with seven partners including his sister Doris and his aunt. The Partnership rose over 251% in the next five years while the stock market only surged 74.3%. Warren had till this time had acquired a heroic stature in Omaha. Despite his very strong knowledge base he refrained from giving any kind of investment advice. During the course of next ten years his partnership rose by 1,156% compared to 112.5% increase in the stock markets. The assets with Warren now amounted to about $44 million. Berkshire Hathaway is acquired In 1965 Buffet acquired 49% of the common stock of Berkshire Hathaway and named himself as the Director of the company. Berkshire was a manufacturing company in a declining textile market and his decision to buy Berkshire was touted as a ‘bad business decision’ by Charlie Munger who was the Vice President of Berkshire and later on became a long term ally of Buffet. In 1967, Warren Buffet completely acquired Berkshire Under Munger’s influence the investment strategies of Buffet changed a bit from being strictly according to Graham’s principles. Warren’s personal share in Berkshire had risen from 29% to 43% and another 3% with his wife Susie. The company’s share’s book value had risen from $20 to $95. Warren’s entire fortune was placed in Berkshire. During this period Warren acquired many new companies like See’s candy, Wesco and also got involved with GEICO the company of Graham which was running into huge losses mainly because of mismanagement. Later on this insurance company became a giant and became a fully owned subsidiary of Berkshire Hathaway. The Growing 80’s and 90’s The 80’s was a growth phase for Berkshire which went on to make some very big acquisitions like Nebraska Furniture Mart and Scott and Fetzer. The stock price of the Berkshire share had risen from $290 in the 70’s to $2600’s in the 80’s to $80,000 in the 90’s. During the later part of the 90’s the computer revolution was at its peak and Berkshire took its share of beatings because of it. In 1999 when Berkshire reported only 0.5% increase in share price it was thought that ‘The Oracle of Omaha’ had lost his touch. But Warren as always proved them wrong and Berkshire’s shares were again upto about $45,000 a piece. The Turbulent Personal life During the period of his rapid growth Warren suffered one of the worst setbacks when in 1977 his wife parted from him to live separately in a mansion in San Francisco.

She made several arrangements for him with other women out of which one waitress Astrid Menks later went on to live with Warren and later became his wife. Personality Traits Warren Buffer is a man known for his frugal lifestyle despite being a billionaire. He still resides in his $31,500 house in Omaha and does not have a computer at his office and also does not have driver to drive him around. He only carries a cell phone when he is traveling. The only luxurious spending of his life has been the buying of a luxury jet. He has a strong dislike for bureaucracy and hence he runs his Nebraska headquarters with fewer than 20 employees. He drinks atleast 5 bottles of Cherry Coke each day and is a very keen Bridge player. Warren Buffet is known for his wittiness and humour and some of his best known remarks are: "I buy expensive suits. They just look cheap on me." "There are three kinds of people in the world: Those who can count, and those who can't." "I drink five (Cherry Cokes) a day. That's 750 calories. I would have lost 70 pounds a year if I didn't drink them. Really, it's been a lifesaver." Charity Warren Buffet in 2006 donated around $31 billion to Bill and Melinda Gates Foundation and hence became the biggest philanthropist in history. This amount more than doubled the Gates Foundation. He also contributes regularly to Susan Thompson Buffet Foundation setup in the memory of his loving wife. He donated the money to The Gates Foundation instead of his wife’s because he believes that charity is about results and not about the amount or the organization. This act speaks volumes about the man. References: 1. beginnersinvest.com as seen on 4-12-07. http://beginnersinvest.about.com/cs/warrenbuffett/a/aawarrenbio_2.htm 2. wikipedia.com as seen on 4-12-07. http://en.wikipedia.org/wiki/Warren_Buffett 3. frugalmarketing.com as seen on 4-12-07. http://www.frugalmarketing.com/dtb/warren-buffett.shtml 4. Business Week: ‘The Warren Buffet you don’t know.’; 5 July,1999 issue. http://www.businessweek.com/1999/99_27/b3636001.htm

Cross Cultural Management

Biographical Sketch of Warren Buffet

Submitted By: Sushant Mishra B-68 Section ‘B’ MBA (IB) 2007-09