Omaha’s Finest: Warren Edward Buffett
Posted on:
18
Feb
2012
by James Farmer
Born 1930 in Omaha, Nebraska, and hasn’t left yet.
Yes, you know a lot about this investment giant. You wanna bet?
An entrepreneur from the word go
The son of a Nebraska congressman, Buffett spent his school years building businesses that extended from selling Coca-Cola to running a small pinball machine empire. And he didn’t miss many opportunities. His first tax assessment, at the age of 14, included a $35 deduction for the use of his bicycle and wrist watch on his paper round. He bought his first shares at the age of ten, and a farm property in his teens, and by 19 he had made a modest fortune.
Ben Graham’s prodigy
After a first degree at Wharton, Buffett headed for Columbia Business School, where the father of value investing, Benjamin Graham, was teaching, and by 24 he had finally persuaded Graham to give him a job. He still claims to be 85% Ben Graham today – but he has become noticeably wealthier than his mentor. He was a millionaire at 32, although not a billionaire until 60 when his Berkshire Hathaway empire went public.
Graham’s value theory, briefly, is that fundamental analysis won’t make you rich. Instead, you accept that markets are illogical and you watch out for the occasional bargains that turn up for no good reason. The talent lies in spotting those bargains in the first place.
Some you win, some you lose
Buffett felt that Graham’s price-related criteria were too strict, and that qualitative issues should merit consideration too. But, like Graham, Buffett has always preferred large blue-chip company stocks to smaller ones. And the better the dividend yields, the better. His biggest coup was a 1988 investment in a struggling Coca-Cola, for an adjusted equivalent of $3. It’s currently around $67. And Buffett made a cool $2 billion in 2002 for Berkshire Hathaway by trading $11 billion worth of forward contracts to supply dollars. It takes nerve and judgement to make that sort of call.
Not all of Buffett’s ventures became money-spinners. His early ventures into mining got him into trouble, and he completely missed out on the 1990s technology boom because he always refused to buy companies that ‘do things he doesn’t understand’. He now seems to have changed tack with last November’s $11 billion (5%) stake in IBM.
Keep it simple, stupid
Buffett’s great appeal has always been his aforementioned preference for simple, large companies that don’t pose difficult questions. But his affable public persona is undoubtedly one of his key assets – his vast annual shareholders’ meetings in Omaha have been entertained just as much by his jokes and by his colourful dismissal of investment fashions. (EBITDA is for people who believe in the tooth fairy, apparently.) And he and his associate Charlie Munger have a colourful line in forthright public speaking which has annoyed the corporate bullshit merchants no end.
Philanthropy
Buffett is no longer the world’s richest man – Microsoft’s Bill Gates and Mexico’s Carlos Helu have overtaken him recently. But he has committed to giving away 99% of his vast $50 billion fortune to charitable causes. His 2006 transfer of 10 million Berkshire Hathaway shares (then worth $31 billion) to the Bill and Melinda Gate Foundation was by far the biggest donation in history.
Wannabes start here
Like his contemporary George Soros (with whom he shares very few sentiments, incidentally), Buffett’s every move is scrutinised in detail by an army of analysts keen to ride on the great man’s coat tails. The fact that few of them have ever succeeded does not mean that he’s wrong – simply that his timing is better.
“I don’t look to jump over 7-foot bars. I look around for 1-foot bars that I can step over.”
“Beware of geeks bearing formulas”
Tags: Warren Edward Buffett
