How Warren Buffet Built His Empire

 

It’s no secret Warren Buffet is one of the wealthiest, and most respected businesspeople alive. As of this writing, Mr. Buffet’s net worth stands at over $85.4 billion. So today, Ignitia takes a closer look at how ‘The Oracle of Omaha’ built his fortune.

An Inauspicious Beginning

Born to a working class family in Omaha, Nebraska in 1930, few would have guessed Warren Buffet would someday become one of the world’s most successful businesspeople. From a young age however, Buffet did demonstrate extraordinary abilities. Among these was the ability to add large columns of numbers in his head – an ability he would often use in the boardroom later in his career.

When Buffet was 11, his father allowed him to purchase his very first stock. Buffet bought three shares of Cities Service Preferred, for $38 per share. After the stock initially dropped, then rebounded, Buffet was glad to make a modest profit when he sold all three shares for $40 a piece. Only later did he come to regret the decision when the same stock crossed $200 per share. Buffet, stated the experience had a huge impact on him and taught him that any stock worth having was worth holding. This same sentiment was reflected by Buffet when he famously remarked, ‘Our favorite holding period is forever.’

His First Business Exit

Throughout much of his early life, Buffet was constantly finding ways to make money. In 1942, at the age of 13, after Buffet’s father was elected to the U.S. House of Representatives and the family moved to Washington D.C., Buffet and a friend bought a pinball machine for $25 and placed it in a local barber shop. The idea was a success, and soon the pair had several more pinball machines in several other locations across town. A year later, Buffet sold the company for $1,200.

Finding a Mentor

After a stint at the Wharton School, Buffet transferred to the University of Nebraska. At age 19, Buffet enrolled in Columbia Business School to study under his long-time idol, Benjamin Graham. According to Buffet, “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.”

After graduating with his masters in 1951, Buffet returned to Omaha to work selling securities for his father’s company. By then Buffet had managed to save $9,800 (roughly $101,000 by today’s standards). Three years later, Buffet’s mentor Graham called him with a job offer. Graham wanted Buffet to work for him and he was willing to pay him $12,000 a year. Buffet took the job. Two years later in 1956, Buffet’s savings had grown to $140,000. Soon however, Buffet returned to Omaha to start his own company, Buffet Partnership Ltd.

Setting Out On His Own

Buffet put $100,000 of his own money into the company and raised another $105,000 from friends and family. By identifying undervalued assets and companies, within three years Buffet had doubled his investor’s money and became a millionaire himself in the process.

During this time, one of the undervalued companies Buffet identified was, Berkshire Hathaway. At the time, Berkshire Hathaway produced textiles. Buffet began aggressively buying up the company’s undervalued stock, and by 1965 at the age of 35, Warren Buffet became the company’s majority share holder. At the same time, Buffet was identifying other investment opportunities as well. He bought 5% of American Express when that company’s stock tanked due to scandal, and invested $4 million in Disney for a 5% of ownership stake in the company. By 1969 however, Buffet had begun to put all his efforts into building up Berkshire.

The Boom Times

Buffet’s ultimate goal for Berkshire Hathaway was to turn it into a holding company. To do this, he first phased out the textile manufacturing. Next, he began to purchase large shares of other companies. These assets included, The Washington Post, GEICO, and even Exxon. Over the next twenty-years Buffet’s investments gained him tremendous wealth. In 1985, Buffet helped to finance the purchase of ABC by Capital Cities. The deal was worth $3.5 billion. For his part, Buffet walked away owning 25% of the new company. In 1988, Buffet began to purchase Coca-Cola. He soon owned 7% of the company, worth roughly $1.02 billion. In response, Buffet was named a company director, a position which he served on from 1989-2006.

Giving Back

In 2006, now worth billions of dollars, Buffet committed to donate 85% of his fortune to The Bill and Melinda Gates Foundation. At the time, the amount stood at $37 billion, which became the largest donation in the history of the United States. This was Buffet backing up a pledge he had made in 2010 when he and Gates founded The Giving Pledge. The pledge was to convince other billionaires to donated the majority of their wealth to the foundation as well. To date, over 183 billionaires have signed the pledge, including Richard Branson, Bill Gates, Elon Musk, Michael Bloomberg, Mark Zuckerberg, Larry Ellis, and Paul Allen just to name a few.

Even after the age of 80, Warren Buffet has not slowed down. In 2013, Buffet purchased the H.J. Heinz company for $28 billion. He has also purchased major shares in Duracell, Kraft Foods, and Apple, as well as owning 700 million shares of Bank of America. In January of 2018, Buffet once again shocked the financial world by announcing he had reached an agreement with Amazon and JP Morgan Chase to found a non-profit healthcare company for their workers. The move is sure to change the rules of how the business side of healthcare is run, and hopefully for the better.

Throughout all the years and all the money Warren Buffet has amassed, he has not lost sight of what’s really important – working hard and treating people right.

 

 

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