Risk comes from not knowing what you're doing.
- Warren Buffett
Warren E. Buffett is a rich guy. He plays the stock market. If you've got enough money to invest, he lets you play the stock market with him.
Unlike most billionaires out there, he's a simple guy with simple tastes. He still drives a beater, he still lives in the same house he had waaayyy back when he wasn't even a millionaire. He still prefers meals like a hamburger and fries with a cool Coca-Cola Classic to anything you can get at a fancy french restaurant.
According to Forbes Magazine's 2004 Wealthiest Persons report, with a net worth of $42.9 Billion USD1, Warren Buffett was the 2nd richest person in the world.
On June 26, 2006 he made an announcment that he shall be donating the vast majority of his personal fortune to the Bill and Melinda Gates Foundation. This will come in the form of 10 million shares of Berkshire Hathaway, the investement firm he leads. At the time of the announcement, this donation is valued at $37 billion USD, making it the largest charitible donation in history, by a factor of more than 10, the previous record being held by Mr. and Mrs. Gates.
He is dubbed the Oracle of Omaha, due to his often uncanny ability to pick out stocks that are undervalued, and of course the fact that he lives in Omaha, Nebraska. Buy low, if you think that the company's value will be going higher. Brilliant! Of course, it's a bit harder to pick which companies are likely to go up in the future. Not just go up, but stay there.
In the latter part of the 1990's, many people derided Buffett as a bit of a dinosaur. Refusing to invest in businesses that he doesn't understand, he stuck with his holdings in companies like American Express, Coca-Cola, and Gillette, instead of getting in on the Internet boom. We do, however, know who got the last laugh there.
Born on August 30th, 1930, in Omaha, Nebraska, Buffett is the son of a stockbroker, who later became a Congressman. He was always an enterprising young man, working multiple paper routes, and used the proceeds to purchase 40 acres of Nebraska farmland, which he leased out to a farmer. This was at the age of 14.
He went to school at the University of Nebraska, and then went on to Graduate school at Columbia University in New York City. There, he studied under Benjamin Graham, who taught him about value investing, a concept that Buffett took and improved upon. Basically, the idea was that you figured out how much a company's stock *should* be worth, based upon factors such as their past performance, debt load, profit margins, and other factors. And, if the company's current stock price is a certain percentage less than what you calculate they should be, then it would be a good investment. If you'd like to learn more about this theory, I suggest you check out Graham's book "The Intelligent Investor".
Buffet's style differed from his mentor's. Graham was only interested in the hard numbers. Income, debt load, stock price, etc. Buffett however, started looking factors such as the management style, corporate structure, and brand recognition in the companies that he considered investing in. I'm not sure exactly how he takes these into account, mind you, but that's why he's the billionaire, and I'm not.
Soon after graduating, Buffett worked for Graham's investment firm for a couple of years. After saving up some money, he decided to head back to Omaha. There, he started up his own investment partnership.
In the meantime, he had married a young lady by the name of Susan Thomson. Together, they have had three children. In the early 70's, however, Susan decided to leave her husband. Kind of. The two of them still technically remained married. Susan, however, moved out to San Francisco. They still, however, talked every day, met with the kids together, and once a year took a two week trip to New York.
In addition, it was Susan who hooked Warren up with his next "female companion", a young waitress by the name of Astrid Menks. Susan and Astrid and Warren were quite close, apparently to the extent that their Christmas cards were signed from Warren, Susie and Astrid. An interesting setup, I'd imagine, but if it works, it works.
Update: Halspal says re Warren Buffett: Did I miss something or do you not mention that HE'S JIMMY BUFFETT'S UNCLE, FER CHRISSAKE.
Actually, Wikipedia says that they're distant cousins. I of course didn't realize this until yelled at.
Actually, it turns out that both Halspal and wikipedia were wrong. According to a WIRED article I read (Sorry, I forget which issue, this was a few weeks back), they got their DNA analyzed to see if they were related, because they were curious but didn't know! It turns out that they are not related.
Buffett Partnerships Ltd.
Back in Nebraska, he rounded up several investors, including friends and family. Throwing in $100 of his own money, and $105,000 of their money, he started up Buffett Associates, Ltd. His goal was to beat the Dow Jones Industrial Average by 10% per year. Well, he managed to do that. In the first five years of the partnership, while the Dow was up 75%, Buffet's partnership was up an impressive 250%. Instead of charging a fee for his stock picking canny, Buffett was entitled to a full 25% of any profits above 4%. By 1962, his share of this profit had made him a millionaire. Not bad from an initial investment of $100.
At this time, he took this partnership, along with a whole bunch of other smaller similar partnerships around the country, and merged them into Buffett Partnerships Ltd. Buffett continued to pick stocks uncannily well, and by 1968, he was managing over $104 million. He wasn't alone in this. He also developed a close personal, and business relationship with a man by the name of Charlie Munger.
The next year, he made the decision to dissolve the partnership. No one could really complain, as he'd made them a load of money. He sold off all the assets of the partnership, with the exception of two companies. Diversified Marketing, and Berkshire Hathaway, a small textiles firm. The shares of these companies were distributed to the members of the partnership.
Berkshire Hathaway made cloth. Warren Buffett bought the company. The company wasn't doing so well making cloth, so Buffett made a few changes. He had the company use what profits it did make, and started buying up insurance and banking firms. These are investments that generally provide a steady stream of funds. After all people pay for their insurance up front, and you might have to pay them back later.
By 1970, the textiles company itself was earning $45,000 per annum, while the insurance and banking holdings were bringing in $4.7 million. Buffett made sure that this money was used wisely. Instead of paying dividends to stock holders, a practice that Buffett has said time and time again that he feels is a poor use of the investor's money, he used this money to purchase, you guessed it, more stock.
I'm going to make a long story short. Warren threw all his money into shares of Berkshire Hathaway. Through Berkshire Hathaway, he made a lot of very good investments. Very few of them did poorly, and most of them did quite well. Despite the fact that he only made $50,000 a year as director of Berkshire Hathaway, on paper he's very very very rich, due to the excellent performance of that particular stock, which in turn is due to the excellent performance of the holdings of Berkshire Hathaway. When he bought them, the average price of his shares of Berkshire Hathaway was $32. At the time I'm writing this, the price of a single share of Berkshire Hathaway is $83,390. Make good investments, get money, use that money to make more good investments. Do this consistently, and it's very very easy to get very very rich.
This has allowed him, either on his own or through Berkshire Hathaway, to invest in a wide range of companies. He owns a substantial amount of stock in companies such as Dairy Queen, American Express, Gillette, Fruit of the Loom, Coca-Cola, Geico, and many many others. As a result, of prudent investing such as this, and by avoiding the tech boom-then-bust of the late 1990's, he has become, and remained, extremely wealthy.
Politically speaking, for the most part Buffett is a rather liberal individual. He's heavily supported pro-choice movements in the United States. He backed Hillary Clinton's senate race in New York State, and is an economic adviser to John Kerry. Or at least, was. At the same time, he's not strictly a Democrat, as he has also supported a number of Republican congressmen, and he helped out in Arnold Schwarzenegger's gubernatorial campaign.
It seems that Buffett has no plans of slowing down, or of letting someone else take over at Berkshire Hathaway until he passes on. Apparently, they've got up to 4 people lined up to take over. My money's on Charlie Munger. Until that day, however, I expect that Warren Buffett will continue driving around his beater, eating at Dairy Queen, and picking the best damned stocks on the market.
1: All figures in USD.
Larry Kanter, "Salon Brilliant Careers | Warren Buffet," Salon.com. August 31, 1999. <www.salon.com/people/bc/1999/08/31/buffett/> (November 7, 2004)
"Warren Buffet," Wikipedia, the free encyclopedia. November 6, 2004. <en.wikipedia.org/wiki/Warren_Buffett> (November 7, 2004)
Forbes.com Inc., "Warren E Buffet," Person Tearsheet. 2004.
<www.forbes.com/finance/mktguideapps/personinfo/FromPersonIdPersonTearsheet.jhtml?passedPersonId=240672> (November 7, 2004)
"Warren Buffet," Askmen.com. 2000. <www.askmen.com/men/business_politics/43_warren_buffett.html> (November 7, 2004)
Jeff Louderback, "The Real Warren Buffet," Newsmax.com. August 19, 2003. <www.newsmax.com/archives/articles/2003/8/18/155747.shtml> (November 7, 2004)
Joshua Kennon, "Warren Buffett Biography," Beginnersinvest.About.Com. 2004. <beginnersinvest.about.com/cs/warrenbuffett/a/aawarrenbio_5.htm> (November 7, 2004)