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Warren Buffett

Warren Buffett was born in 1930 in Omaha, Nebraska. He studied at the University of Nebraska and graduated with a Bachelor of Science in 1950. During his studies he read the book “The Intelligent Investor”, written by Benjamin Graham. This inspired Buffett to go to Columbia University to study under Graham. He graduated from Columbia in 1951 with a Master of Science in business. He then went on to form an investment company called Buffett-Falk & Company in Omaha. He held the position of investment salesman in this firm from 1951 until 1954. Buffett remained in touch with Graham throughout this period and Graham continued to share his time and opinions with his former student. Buffett was then offered a position as a security analyst at the Graham-Newman Corporation, Graham’s firm in New York. Buffett worked in this role for two years (until 1956) during which time he worked closely with Graham analyzing company profiles. This experience gave Buffett a solid foundation upon which he developed his successful approach to investing in stocks.

Buffett was principally interested in working for himself, so he returned to Omaha and organized a family investment partnership. He was 25 years old at this point when the partnership began with an initial capital of $100,000. This partnership was in operation from 1956 until 1969. At the time that it was dissolved, the investors realized a thirty-fold increase in the value of each share. One of the highlights of this partnership for Buffett involved the successful turnaround of a textile company. Buffett purchased Berkshire Hathaway (a textile company based in New Bedford, Massachusetts) in 1965 at a time when it was an unprofitable business. He reorganized the financial framework of the company so that it could retain the textile operations (despite increasing pressures) while also using it as a holding company for dealing with other investments. During the market collapse of 1973 and 1974, Buffett used the Berkshire structure to purchase several other companies (and invest in “The Washington Post”) at heavily discounted prices. Berkshire Hathaway is now a hugely successful holdings company that owns stock in a large range of different businesses. In 2006, the company’s asset value totaled approximately $240 billion and the sales totaled around $100 billion.

Buffett’s investment style focuses on value, discipline and patience. These factors have enabled him to consistently perform better than the market over several decades. Buffett has developed a list of criteria for determining the businesses that are worth investing in. He looks for companies with the following characteristics:

  • easy to understand

  • profits that can be seen in cash flow

  • a good return on capital without lot of debt

  • freedom to price resulting from a strong franchise

  • relatively simple to run

  • predictable earnings

  • an owner-oriented management base

One of Buffett’s most famous quotes regarding investment is "Rule No.1 is never lose money. Rule No.2 is never forget rule number one." He also encourages a long-term approach to investing by saying, "If, when making a stock investment, you're not considering holding it at least ten years, don't waste more than ten minutes considering it.” He has also been quoted as saying; "All there is to investing is picking good stocks at good times and staying with them as long as they remain good companies."

Buffett advocated an investment approach that considered the ownership implications of investing. He says, "Shares are not mere pieces of paper. They represent part ownership of a business. So, when contemplating an investment, think like a prospective owner."

He also once advised investors to "Look at market fluctuations as your friend rather than your enemy. Profit from folly rather than participate in it."

Buffett’s approach to investment has been summarized by John Train (author of the book “The Money Masters”, published in 1980) as follows: "The essence of Warren's thinking is that the business world is divided into a tiny number of wonderful businesses – well worth investing in at a price – and a large number of bad or mediocre businesses that are not attractive as long-term investments. Most of the time, most businesses are not worth what they are selling for, but on rare occasions the wonderful businesses are almost given away. When that happens, buy boldly, paying no attention to current gloomy economic and stock market forecasts."

People often consider Warren Buffett to be one of the greatest investors ever. His investment success has lead to him acquiring the nicknames of the “Sage of Omaha” or the “Oracle of Omaha”. Based on the principles that he learned from Benjamin Graham, Buffett has become a multibillionaire. He has done this principally through using Berkshire Hathaway to purchase companies and stocks. In 1965, an investor who purchased $10,000 of Berkshire- Hathaway shares would today have an investment valued at well over $50 million.

Buffett is now over 70 years old and is one of the most respected voices, according to investors and people who work in the investment industry. He has not yet written any books, however the annual letter that he sends to shareholders as part of the Berkshire Hathaway annual report contains much of his investment advice. These communications (which generally run at around 20 pages each) are considered investment masterpieces and can be found on the Berkshire website.

Buffett made several charitable declarations in 2006. At this time he announced his intention to pledge a large amount of the value of his stocks to several charitable organizations, including the Bill and Melinda Gates Foundation (to receive $31 billion) and other charities that are operated by his family members (to receive $6 billion).

Publications about Warren Buffett include:

The Snowball: Warren Buffett and the Business of Life

The Essays of Warren Buffett: Lessons for Corporate America, Second Edition

About the author

Mark McCracken

Author: Mark McCracken is a corporate trainer and author living in Higashi Osaka, Japan. He is the author of thousands of online articles as well as the Business English textbook, "25 Business Skills in English".

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Mark McCracken , All Rights Reserved