Warren Buffett

Warren Edward Buffett
Born	(1930-08-30) August 30, 1930 Omaha, Nebraska
Nationality	American
Occupation(s)	Chairman & CEO, Berkshire Hathaway
Spouse(s)	Susan Buffett (1952–2004) (her death), Astrid Menks (2006-)
Children	Susie Buffett, Howard Graham Buffett, Peter Buffett
Website	www.berkshirehathaway.com

Warren Edward Buffett (born August 30, 1930) is an American investor, businessman, and philanthropist. He is one of the world's most successful investors and the largest shareholder and CEO of Berkshire Hathaway. He was ranked by Forbes as the richest man in the world during the first half of 2008, with an estimated net worth of $62.0 billion .

Often called the "Oracle of Omaha", or "the Sage of Omaha", Buffett is noted for his adherence to the value investing philosophy and for his personal frugality despite his immense wealth. His 2006 annual salary was about $100,000, which is small compared to senior executive remuneration in comparable companies. When Buffett spent $9.7 million of Berkshire's funds on a private jet in 1989, he jokingly named it "The Indefensible" because of his past criticisms of such purchases by other CEOs. He lives in the same house in the central Dundee neighborhood of Omaha that he bought in 1958 for $31,500 and today, it is valued at around $700,000. Buffett also is a notable philanthropist. In 2006, he announced a plan to give away his fortune to charity, with 83% of it going to the Bill & Melinda Gates Foundation. In 2007, he was listed among Time's 100 Most Influential People in The World. He also serves as a member of the board of trustees at Grinnell College.

Early life and Benjamin Graham

Warren Buffett was born in Omaha, Nebraska on 30th August 1930, to Leila (Stahl) and Howard Buffett. As the son of a local stockbroker, it is likely that he was exposed to markets at a very young age.

One of his influential mentors was Benjamin Graham. Graham’s philosophy had such an impact on Buffett that he enrolled in Columbia Business School to study directly under him. In Buffett’s own words: “I’m 15 percent Fisher and 85 percent Benjamin Graham”. As Buffett often would say about Graham’s teachings: “The basic ideas of investing are to look at stocks as business, use the market's fluctuations to your advantage, and seek a margin of safety. That’s what Ben Graham taught us. A hundred years from now they will still be the cornerstones of investing”.

Political connections

In addition to other political contributions over the years, Mr. Buffett has formally endorsed and made campaign contributions to Barack Obama's presidential campaign. On 2nd July 2008, Mr. Buffett attended a $28,500 per plate fundraiser for Mr. Obama's campaign in Chicago hosted by Mr. Obama's National Finance Chair, Penny Pritzker and her husband, as well as Obama advisor Valerie Jarrett.

During the second 2008 U.S. presidential debate, candidates John McCain and Barack Obama, after being asked first by presidential debate mediator Tom Brokaw, both mentioned Buffett as a possible future Secretary of the Treasury.

Later, in the third and final presidential debate, Obama mentioned Buffett as a potential economic advisor. Buffett was also finance advisor to California Republican Governor Arnold Schwarzenegger during his 2003 election campaign.

Writings

Warren Buffett's writings include his annual reports and various articles. In his article "The Superinvestors of Graham-and-Doddsville", Buffett condemned the academic position that the market was efficient and that beating the S&P 500 was "pure chance" by highlighting a number of students of the Graham and Dodd value investing school of thought. In addition to himself, Buffett named Walter J. Schloss, Tom Knapp, Ed Anderson (Tweedy, Brown Inc.), Bill Ruane (Sequoia Fund, Inc.), Charles Munger, Warren Parkkonen (Speedtroller LLC), Rick Guerin (Pacific Partners, Ltd.), and Stan Perlmeter (Perlmeter Investments)

Personal life

Mr. Buffett married Susan Thompson in 1952. They had three children, Susie, Howard, and Peter. The couple began living separately in 1977, although they remained married until her death in July 2004. Their daughter Susie lives in Omaha and does charitable work through the Susan A. Buffett Foundation and is a national board member of Girls, Inc.

In 2006, on his seventy-sixth birthday, he married his never-married longtime-companion, Astrid Menks, who was then sixty years old. She had lived with him since his wife's departure in 1977 to San Francisco. It was Susan Buffett who arranged for the two to meet before she left Omaha to pursue her singing career. All three were close and holiday cards to friends were signed "Warren, Susie and Astrid". Susan Buffett briefly discussed this relationship in an interview on the Charlie Rose Show shortly before her death, in a rare glimpse into Buffett's personal life.

He remains an avid player of the card game bridge, and has said that he spends twelve hours a week playing the game. He often plays with Bill Gates and Paul Allen.

In 2006, he sponsored a bridge match for the Buffett Cup. Modeled on the Ryder Cup in golf, held immediately before it, and in the same city, a team of twelve bridge players from the United States took on twelve Europeans in the event.

In 2006, he auctioned his 2001 Lincoln Town Car on eBay to raise money for Girls, Inc.

Warren Buffett works with Christopher Webber on an animated series with DiC Entertainment chief Andy Heyward. According to information presented by Buffett at the Berkshire Hathaway annual meeting on May 6, 2006, the series will feature Buffett and Munger in roles and the series will teach children healthy financial habits for life. Cartoon drawings of Buffett and Munger were displayed throughout the events during the weekend as well as in a special animated movie from Heyward, displayed before the meeting.

Buffett has described himself as agnostic when it comes to religious beliefs.

In December 2006 it was reported that Mr. Buffett does not carry a cell phone, does not have a computer at his desk, and drives his own automobile, a Cadillac DTS.

In 2007, he auctioned a luncheon with him that raised a final bid of $650,100 for a charity.

Buffett's DNA report revealed that his paternal ancestors hail from northern Scandinavia, while his maternal ancestors most likely have roots in Iberia or Estonia. Despite widespread suggestions to the contrary, and the casual friendship which has developed between their families, Warren Buffett is no clear relation to the well-known singer Jimmy Buffett.

Historical timeline

Education: Woodrow Wilson High School, Washington, D.C. in 1947 The Wharton School, University of Pennsylvania, 1947–1949 B.S. in Economics University of Nebraska, 1950 M.S. in Economics, Columbia University, in 1951. Employment: 1951–1954 Buffett-Falk & Co., Omaha - Investment Salesman 1954–1956 Graham-Newman Corp., New York - Securities Analyst 1956–1969 Buffett Partnership, Ltd., Omaha - General Partner 1970–Present Berkshire Hathaway Inc, Omaha - Chairman, CEO

1943: (13 years old)

• Buffett filed his first income tax return, deducting his bicycle and watch as a work expense for $35 for his work as newspaper delivery boy.

1945: (15 years old)

• In his freshman year of high school, Buffett and a friend spent $25 to purchase a used pinball machine, which they placed in a barber shop. Within months, they owned three machines in different locations.

1949: (19 years old)

• In 1949, he was initiated into Alpha Sigma Phi Fraternity while an undergraduate at the Wharton School at the University of Pennsylvania. His father and uncles also were Alpha Sigma Phi brothers from the chapter at Nebraska, to which Warren eventually transferred.

1950: (20 years old)

• Buffett applied for admission to Harvard Business School, but was turned down.
• Buffett enrolled at Columbia Business School after learning that Benjamin Graham and David Dodd, two well-known securities analysts, taught there.

1951: (21 years old)

• Buffett discovered Graham was on the board of GEICO insurance at the time. After taking a train to Washington, D.C. on a Saturday, Buffett knocked on the door of GEICO's headquarters until a janitor allowed him in. There, he met Lorimer Davidson, the vice president, who was to become a lasting influence on him and life-long friend. They talked for four hours about the insurance business. Davidson recalled that he found Buffett to be an “extraordinary man” after fifteen minutes.
• Buffett was graduated from Columbia and wanted to work on Wall Street. Both his father and Ben Graham urged him not to. Buffett offered to work for Graham for free, but Graham refused. He purchased a Sinclair Texaco gas station as a side investment, but that venture did not work out as well as he had hoped. Meanwhile, he worked as a stockbroker. During that time, Buffett also took a Dale Carnegie public speaking course. Using what he learned, he felt confident enough to teach a night class at the University of Nebraska, "Investment Principles." The average age of the students he taught was more than twice his own.

1952: (22 years old)

• Buffett married Susan Thompson.

1953: (23 years old)

• Susan and Warren Buffett had their first child, Susan Alice Buffett.

1954: (24 years old)

• Benjamin Graham offered Buffett a job at his partnership with a starting salary of $12,000 a year. Here, he worked closely with Walter Schloss.
• Graham, who was a tough man to work for, was adamant that a stock provide a wide margin of safety after weighting the trade-off between its price and intrinsic value. Graham’s demand that a stock be worth more than its price made sense to Buffett, but it also made him question whether the criteria were too stringent, causing them to miss out on some big winners that had more qualitative values.
• Susan and Warren Buffett had their second child, Howard Graham Buffett.

1956: (26 years old)

• Benjamin Graham retired and closed his partnership.
• Buffett's personal savings were now over $140,000.

• Buffett returned home to Omaha and created Buffett Partnership Ltd., an investment partnership.

  I’ll tell you why I like the cigarette business. It costs a penny to make. Sell it for a dollar. It’s addictive. And there’s fantastic brand loyalty.

  — Warren Buffett, 1987

1957: (27 years old)

• Buffett had three partnerships operating the entire year.
• Buffett purchased a five-bedroom stucco house in Omaha, in which he still lives, for $31,500.

1958: (28 years old)

• Susan and Warren Buffett had their third child, Peter Andrew Buffett
• Buffett had five partnerships operating the entire year.

1959: (29 years old)

• Buffett had six partnerships operating the entire year.
• Buffett was introduced to Charlie Munger.

1960: (30 years old)

• Buffett had seven partnerships operating the entire year.
• The partnerships were: Buffett Associates, Buffett Fund, Dacee, Emdee, Glenoff, Mo-Buff, and Underwood.
• Buffett asked one of his partners, a doctor, to find ten other doctors who would be willing to invest $10,000 each in his partnership. Eventually, eleven doctors agreed to invest.

1961: (31 years old)

• Buffett revealed that Sanborn Map Company accounted for 35% of the partnerships' assets.
• Buffett explained that in 1958, Sanborn sold at $45 per share when the value of the Sanborn investment portfolio was $65 per share. This meant buyers valued Sanborn at "minus $20" per share, and buyers were unwilling to pay more than 70 cents on the dollar for an investment portfolio with a map business thrown in for nothing.
• Buffett revealed that he earned a spot on the board of Sanborn.

1962: (32 years old)

• Buffett became a millionaire because Buffett's partnerships, in January 1962, had in excess of $7,178,500 of which over $1,025,000 belonged to Buffett.
• Buffett merged all partnerships into one partnership.
• Buffett discovered a textile manufacturing firm, Berkshire Hathaway. Buffett's partnerships began purchasing shares at $7.60 per share.

1965: (35 years old)

• When Buffett's partnerships aggressively began purchasing Berkshire, they paid $14.86 per share while the company had working capital (current assets minus current liabilities) of $19 per share. This did not include the value of fixed assets (factory and equipment).
• Buffett took control of Berkshire Hathaway at the board meeting and named a new president, Ken Chace, to run the company.

1966: (36 years old)

• Buffett closed the partnership to new money.
• Buffett wrote in his letter “unless it appears that circumstances have changed (under some conditions added capital would improve results) or unless new partners can bring some asset to the partnership other than simply capital, I intend to admit no additional partners to BPL.”
• In a second letter, Buffett announced his first investment in a private business — Hochschild, Kohn and Co, a privately owned Baltimore department store.

1967: (37 years old)

• Berkshire paid out its first and only dividend of 10 cents.

1969: (39 years old)

• Following his most successful year, Buffett liquidated the partnership and transferred their assets to his partners. Among the assets paid out were shares of Berkshire Hathaway.

1970: (40 years old)

• As chairman of Berkshire Hathaway, began writing his now-famous annual letters to shareholders.

1973: (43 years old)

• Berkshire began to acquire stock in the Washington Post Company. Buffett became close friends with Katharine Graham, who controlled the company and its flagship newspaper, and became a member of its board of directors.

1974: (44 years old)

• The SEC opened a formal investigation into Warren Buffett and one of Berkshire's mergers due to possible conflict of interest. Nothing ever came of it.

1977: (47 years old)

• Berkshire indirectly purchased the Buffalo Evening News for $32.5 million. Antitrust charges started.

1979: (49 years old)

• Berkshire began to acquire stock in ABC. With the stock trading at $290 per share, Buffett's net worth neared $140 million. However, he lived solely on his salary of $50,000 per year.
• Berkshire began the year trading at $775 per share, and ended at $1,310. Buffett's net worth reached $620 million, placing him on the Forbes 400 for the first time.

1987: (57 years old)

• Berkshire Hathaway purchased 12% stake in Salomon Inc., making it the largest shareholder and Buffett the director.

1988: (58 years old)

• Buffett began buying stock in Coca-Cola Company, eventually purchasing up to 7 percent of the company for $1.02 billion. It would turn out to be one of Berkshire's most lucrative investments, and one which it still holds.

1990: (60 years old)

• Scandals involving Maurice R. Greenberg and John Gutfreund (former CEO of Salomon Brothers) surfaced.

1999: (69 years old)

• Buffett was named the top money manager of the twentieth century in a survey by the Carson Group, ahead of Peter Lynch and John Templeton.

2002: (72 years old)

• Buffett entered in $11 billion worth of forward contracts to deliver U.S. dollars against other currencies. By April 2006, his total gain on these contracts was over $2 billion.

2004: (73 years old)

• His wife, Susan, died.

2006: (75 years old)

• Buffett announced in June that he gradually would give away 85% of his Berkshire holdings to five foundations in annual gifts of stock, starting in July 2006. The largest contribution would go to the Bill and Melinda Gates Foundation.

2007: (76 years old)

• In a letter to shareholders, Buffett announced that he was looking for a younger successor, or perhaps successors, to run his investment business. Buffett had previously selected Lou Simpson, who runs investments at Geico, to fill that role. However, Simpson is only six years younger than Buffett.

2008: (77 years old)

• Buffett became the richest man in the world, worth $62 billion according to Forbes, and $58 billion according to Yahoo. Bill Gates had been number 1 on the Forbes list for 15 consecutive years.

Public stances

• Buffett emphasized the non-productive aspect of gold in 1998 at Harvard: "It gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head." In 1977 Buffett was also quoted as saying about stocks, gold, farmland, and inflation: "stocks are probably still the best of all the poor alternatives in an era of inflation - at least they are if you buy in at appropriate prices."
• Buffett stated that he only paid 19% of his income for 2006 ($48.1 million) in total federal taxes, while his employees paid 33% of theirs, despite making much less money.
• Buffett believes that the U.S. dollar will lose value in the long run. He views the United States' expanding trade deficit as an alarming trend that will devalue the U.S. dollar and U.S. assets. As a result it is putting a larger portion of ownership of U.S. assets in the hands of foreigners. This induced Buffett to enter the foreign currency market for the first time in 2002. However, he substantially reduced his stake in 2005 as changing interest rates increased the costs of holding currency contracts. Buffett continues to be bearish on the dollar, and says he is looking to make acquisitions of companies which derive a substantial portion of their revenues from outside the United States. Buffett invested in PetroChina Company Limited and in a rare move, posted a commentary on Berkshire Hathaway's website stating why he would not divest from the company despite calls from some activists to do so. (He did, however, sell this stake, apparently for purely financial reasons.)
• Buffett believes that the world is nearing its maximum capacity of oil production and that gradually depleted oil fields could reduce the amount produced.
• Buffett believes government should not be in the business of gambling, believing it to be a tax on ignorance.
• Buffett's speeches are known for mixing business discussions with humor. Each year, Buffett presides over Berkshire Hathaway's annual shareholder meeting in the Qwest Center in Omaha, Nebraska, an event drawing over 20,000 visitors from both United States and abroad, giving it the nickname "Woodstock of Capitalism".
• Berkshire's annual reports and letters to shareholders, prepared by Buffett, frequently receive coverage by the financial media. Buffett's writings are known for containing literary quotes ranging from the Bible to Mae West, as well as Midwestern advice, and numerous jokes. Various websites extol Buffett's virtues while others decry Buffett’s business models or dismiss his investment advice and decisions.
• Buffett favors the inheritance tax, saying that repealing it would be like "choosing the 2020 Olympic team by picking the eldest sons of the gold-medal winners in the 2000 Olympics". In 2007, Buffett testified before the Senate and urged them to preserve the estate tax so as to avoid a plutocracy.
• Buffett has endorsed Barack Obama for president and intimated that John McCain's views on social justice were so far from his own that McCain would need a "lobotomy" for Buffett to change his endorsement.
• Buffett has called the 2007—present downturn in the financial sector "poetic justice".
• In his letter to shareholders in March, 2005, Warren Buffett predicted that in another ten years’ time the net ownership of the U.S. by outsiders would amount to $11 trillion. “Americans … would chafe at the idea of perpetually paying tribute to their creditors and owners abroad. A country that is now aspiring to an ‘ownership society’ will not find happiness in - and I’ll use hyperbole here for emphasis - a 'sharecropping society’.”
• Author Ann Pettifor has adopted the image in her writings and has stated: "He is right. And so the thing we must fear most now, is not just the collapse of banks and investment funds, or of the international financial architecture, but of a 'sharecropper society, angry at its downfall."

Philosophy On Wealth

From a NY Times article: "I don't believe in dynastic wealth," [Warren Buffett] said, calling those who grow up in wealthy circumstances "members of the lucky sperm club." Buffett has written several times of his belief that, in a market economy, the rich earn outsized rewards for their talents. The following is taken from one of Buffett's articles: "A market economy creates some lopsided payoffs to participants. The right endowment of vocal chords, anatomical structure, physical strength, or mental powers can produce enormous piles of claim checks (stocks, bonds, and other forms of capital) on future national output. Proper selection of ancestors similarly can result in lifetime supplies of such tickets upon birth. If zero real investment returns diverted a bit greater portion of the national output from such stockholders to equally worthy and hardworking citizens lacking jackpot-producing talents, it would seem unlikely to pose such an insult to an equitable world as to risk Divine Intervention.

Philanthropy

In June 2006, Buffett gave approximately 10 million Berkshire Hathaway Class B shares to the Bill & Melinda Gates Foundation (worth approximately USD 30.7 billion as of 23rd June 2006) making it the largest charitable donation in history and Buffett one of the leaders in the philanthrocapitalism revolution. The foundation will receive 5% of the total donation on an annualised basis each July, beginning in 2006. Buffett also will join the board of directors of the Gates Foundation, although he does not plan to be actively involved in the foundation's investments.

He also announced plans to contribute additional Berkshire stock valued at approximately $6.7 billion to the Susan Thompson Buffett Foundation and to other foundations headed by his three children. This is a significant shift from previous statements Buffett has made, having stated that most of his fortune would pass to his Buffett Foundation. The bulk of the estate of his wife, valued at $2.6 billion, went to that foundation when she died in 2004.

His children will not inherit a significant proportion of his wealth. These actions are consistent with statements he has made in the past indicating his opposition to the transfer of great fortunes from one generation to the next. Buffett once commented, "I want to give my kids just enough so that they would feel that they could do anything, but not so much that they would feel like doing nothing".

The following quotation from 1988, respectively, highlights Warren Buffett's thoughts on his wealth and why he long planned to re-allocate it:

"I don't have a problem with guilt about money. The way I see it is that my money represents an enormous number of claim checks on society. It's like I have these little pieces of paper that I can turn into consumption. If I wanted to, I could hire 10,000 people to do nothing but paint my picture every day for the rest of my life. And the GNP would go up. But the utility of the product would be zilch, and I would be keeping those 10,000 people from doing AIDS research, or teaching, or nursing. I don't do that though. I don't use very many of those claim checks. There's nothing material I want very much. And I'm going to give virtually all of those claim checks to charity when my wife and I die. (Lowe 1997:165–166)

On 27th June 2008, Zhao Danyang, a general manager at Pure Heart China Growth Investment Fund, won the 2008 5-day online "Power Lunch with Warren Buffett" charity auction on eBay with high bid of $2,110,100. Zhao had the right to dine with 76-year-old Buffett, at New York's Smith & Wollensky Steakhouse, and invite up to 7 companions for the private lunch and can ask Buffett anything at all, except what he's buying or selling. Auction proceeds benefit the San Francisco Glide Foundation. In 2007 Mohnish Pabrai dined with Buffett.

Buffett also helped Dow Chemical pay for its $18.8 billion takeover of Rohm & Haas. He thus became the single largest shareholder in the enlarged group with his Berkshire Hathaway, which provided $3 billion, underlining his instrumental role during the current crisis in debt and equity markets.

Suggestions of Financial Failings

While Buffet's record of achieving an above 20% compounding annual return for the last 30 years arguably places Buffet as the most successful investor ever, Buffet ran into criticism during the subprime crisis of 2007-2008 that he has allocated capital too early resulting in suboptimal deals. Buffet's Berkshire Hathaway suffered a 77% drop in earnings during Q3 2008 and several of his recent deals appear to be running into large mark-to-market losses. Berkshire Hathaway acquired 10% perpetual preferred stock of Goldman Sachs at $123 only for it to fall to below $70. Furthermore some of Buffet's Index put options (European exercise at expiry only) that he wrote (sold) are currently running around $9 Billion mark-to-market losses.

In addition to suggestions of mistiming, questions have been raised as to the wisdom in keeping some of Berkshire's major holdings including Coke and Gillette (Procter & Gamble) which have performed poorly during the last ten years. For example a major Berkshire Holding is The Coca-Cola Company (NYSE:KO) which in 1998 peaked at $86. At 14 Nov 2008, KO traded at $45, representing nearly a halving in value. Similarly Procter & Gamble (NYSE:PG) traded at $46 on 1 Jan 1999, 10 years later, at 14 Nov 2008, PG traded at $63. Both major holdings are performing poorly during a significant period of 10 years even for a long-term value investor.

Ultimately Berkshire's Goldman Sachs shares and Index Put options may well realise a profit, but hindsight has shown that the entry prices have been far from optimal.

References

• "Warren Buffett and the Interpretation of Financial Statements" by Mary Buffett and David Clark
• "The Tao of Warren Buffett" by Mary Buffett and David Clark
• "The New Buffettology" by Mary Buffett and David Clark (ISBN 0-684-87174-2).
• "The Buffettology Work Book" by Mary Buffett and David Clark
• "Buffettology" by Mary Buffett and David Clark
• Hagstrom, Robert G. (2005), The Warren Buffett Way, John Wiley & Sons

Further reading

• "Warren Buffett and the Interpretation of Financial Statements" by Mary Buffett and David Clark
• "The Tao of Warren Buffett" by Mary Buffett and David Clark
• The New Buffettology, by Mary Buffett and David Clark (ISBN 0-684-87174-2).
• "The Buffettology Work Book" by Mary Buffett and David Clark
• "Buffettology" by Mary Buffett and David Clark
• Lowe, Janet C. [1997] Warren Buffett Speaks : wit and wisdom from the world's greatest investor, John Wiley & Sons, Inc., pp. 164-166 (ISBN 0-471-16996-X).
• Warren Buffett Talks Business, The University of North Carolina Center for Public Television, Chapel Hill, 1995 (modified later by Buffett letter to author), p. 192.
• Warren Buffett - The Pragmatist, Esquire, June 1988, p. 159.
• Full summary of The Essays of Warren Buffett: Lessons for Corporate America
• Warren Buffett - A Compilation - Largest compilation on Warren Buffett on the net, this site has a complete collection of articles by Warren Buffett.
• Warren Buffett - Recommendations - Here is a complete list of books by Warren Buffett recommended in his letters to shareholders.
• The Warren Buffett Way, Second Edition. Robert G. Hagstrom. John Wiley & Sons. 2005.
• USA Today article on 47 Buffett books in print.

Compilations

• Warren Buffett - A Compilation - Largest compilation on Warren Buffett on the net, this site has a complete collection of articles by Warren Buffett.

External links

• Berkshire Hathaway Official Website - Source for annual reports, with included commentary from Warren Buffett.
• Warren Buffet Biography - Biography of Warren Buffet.
• Worlds Richest Person - Warren Buffet.