AN UNASSUMING BILLIONAIRE


Investor Warren Buffett believes anyone

can be successful with money!


Warren Buffet

I N THE ANNALS of creating wealth, investor Warren Buffett stands out. Starting from scratch, over a period of four decades, he has amassed a fortune of some $15 billion—making him one of the richest men in America. And he did it not by resorting to the more venal excesses of Wall Street, but through old-fashioned long-term investing. His genius in succeeding is largely one of character —patience, self-discipline, rationality and inner resolve. Buffett says you don’t need a stratospheric I.Q. to invest successfully.


The son of a securities salesman, Warren already had a knack for making money in childhood. A friend recalls that at age five Buffett set up a stand on the sidewalk in front of his family’s Omaha house and sold gum to passers-by. Then he sold lemon-ads—not on the quiet street where he lived, but in front of a friend’s house where the traffic was heavier. Friends say that he wasn’t thinking about getting pocket money, but about getting rich. While still in grade school, Warren announced he would be rich before he was 35.


He searched the local golf course for resalable golf balls. Friends remember going to the Omaha racetrack with Buffett and searching the floors for winning tickets care-lessly tossed away. He bought soda pop from his grandfather’s grocery and sold it door-to-door on summer nights. As a teen-ager, he was delivering close to 500 news papers each morning, earning $175 a month—what many adults were earning full time—and saving it all. He would bury himself in a favorite book, One Thousand Ways to Make $1,000.


He was as fascinated by stocks as other boys were by model aircraft. He charted the price of shares, observing their ups and downs. At age 11 he made his first pur-chase —three shares of Cities Service preferred at $38 a share. When the stock reached $40, he sold, netting, after commission, his first $5 profit in the market. At 14 he invested $1200 of his savings in 40 acres of Nebraska farmland, which he rented to a tenant farmer. From all his ventures, Buffett had saved $9800 by the time he was 21. That grubstake would become the source of nearly every dollar he came to earn.



GREED vs. FEAR.


 Buffett did well at the University of Pennsylvania’s Wharton School for two years and at the University of Nebraska, to which he transferred. He studied business and finance while working virtually full time. Then he was off to Columbia Business School, where he found his Rosetta stone of investing. It was revealed to him by famed teacher Benjamin Graham, who pioneered a methodical basis, rather than speculation, for picking stocks. By carefully studying a company’s published materials and focusing on its earnings, assets and growth prospects, Graham held, one could arrive at the intrinsic value of the business, independent of its market price. The trick was to invest when the stock prices were far below that value, and trust in the market’s tendency to correct. Or, as Buffett himself said, “You try to be greedy when others are fearful, and fearful when others are greedy.”


Buffett was fanatical about following in Graham’s footsteps, even in his investing. After discovering that the professor was chairman of the Government Employees Insurance Company (GEICO), he decided to visit the company. Buffett took the train to Washington on a Saturday and, finding that GEICO was locked, banged on the doors until a janitor appeared. “Is there anybody besides you I can talk to?” Buffett queried. The janitor said there was a man on the sixth floor and agreed to take Buffett there. Lorimer A. Davidson, soon to become financial vice president, was taken aback to see a young student hovering at his desk—and stunned when he started asking about GEICO’s method of doing business, its outlook, its growth potential. Davidson told him plenty, and Buffett returned to New York enamored of GEICO. Although insurance experts told him the stock was overpriced, Buffett invested two-thirds of his savings in it. Buffett’s firm, Berkshire Hathaway, now owns the company.


ZEALOUS RESEARCHER.


After graduating in 1951, Buffett went through the Standard & Poor’s Stock Guide like a buzzsaw, looking for what Graham called “cigar butts,” stocks one could pick up almost for free but which might have a couple of valuable “puffs” left in them. By 1956, working in Graham’s New York investment firm, he had boosted his personal capital from $9800 to $140,000. It was time to go back to Omaha and set up his own business. In 1956 he and his wife, Susie, rented a house two blocks from Grandfather Buffett’s grocery, and he formed Buffett Associates, Ltd., with seven limited partners drawn from Warren’s friends and family. By 1962 his various enterprises, begun with a $105,000 stake, were worth nearly $7.2 million, $1 million of which belonged to Buffett and his wife. Two years later he was managing $22 million, and his personal net worth was close to $4 million.


Buffett’s appetite for research continued to set him apart from other Investors. He read the heavy business manuals with the zest of a small boy reading comics. Line for line, he soaked up financial pages. His friends cheerfully accepted that Buffett knew more about stocks than anyone. And when asked, he explained his methods simply and unassumingly: Picking a stock depended not on the whim of the crowd, but on the facts. Nobody was going to tell you which stocks were a steal; you had to get there on your own. And so he did his homework. Buffett’s independence of mind and ability to focus on his work also served him well. In the evenings in Omaha he would go down to the drugstore for the late edition of the local paper that carried the closing stock prices. Then he’d go home and read a stark of annual reports. He once told a visitor that while a lot of guys studied baseball stats or the Racing Form, he just had a hobby that made him money.


Buffett has always mistrusted advice givers and financial soothsayers. ‘With enough inside information and a million dollars, you can go broke in a year,” he says. For a stock to merit investment, Buffett has to persuade himself of it. Confidence in ones own judgment, realized early on, is what matters most.



COUNTING THE ODDS.


Buffett’s thirst for numbers is legendary. While he was growing up, ball scores, racing odds and city populations were all fodder. Even today his ability for figures leaves his colleagues stunned. He observes two cherished rules:


                              Rule No. 1—Never lose money;


                              Rule No. 2—Never forget Rule No. 1.


During a golf game with pals, one of the players, an insurance executive, proposed a side bet: for a “premium” of $11, he would pay $10,000 to anyone who made a hole-in-one. Everyone reached for the cash, except Buffett. He had coolly calculat-ed that, given the odds, $10,000 was insufficient. He measured the $11 wager exactly as he would $11 million—and kept his wallet zipped.


In business he helps keep the odds in his favor by generally avoiding debt. He compares indebtedness to “the weak link that snaps you.  He also avoids investing in technologies and businesses he doesn’t understand. “When you go into a poker game, look around, and you will always see one patsy,” he says. “If you can’t tell who the patsy is, that’s ‘cause it’s you.”


“I’LL TAKE THE CASH.”


Over the years Buffett’s spiraling accumulation of wealth has had no noticeable effect on his life-style. When a fellow businessman asked him, “Warren, what’s it like to be a millionaire?” Buffett replied, “I can have anything I want that money will buy. But I always could.” Other people’s fantasies—cars, paintings, houses— meant nothing to him. Money to him is merely a scoreboard for his favorite game.


Friends tell how one summer when he and his family were touring the William Randolph Hearst estate in San Simeon, Calif., the guide gave a blow-by-blow account of how much Hearst had paid for every item—the drapes, carpets, antiques. Buffett blurted out, “Don’t tell us how he spent it; tell us how he made it.”


Another story told about Buffett concerns a VIP dinner he attended, where publisher Malcolm Forbes brought out a wine that he intimated had cost him plenty. When the waiter got to Buffett, a teetotaler, Buffett put his hand over his glass and said, “No, thanks. I’ll take the cash.”  To this day, Buffett has no art collection or snazzy car. His outer office might be that of a moderately successful dentist, and his idea of a power lunch is a Big Mac and fries at his desk. His one concession to his business is a private jet that he has dubbed “The Indefensible.”


Buffett continues to reside in a modest home for which he paid $31,500 in 1958. According to a friend, when his wife, Susie, spent $15,000 on refurbishing the place, her husband griped, “Do you know how much that would be if you cornpounded it over 20 years?” He has a preference for the familiar. His office in Omaha is on the same street as his home. Buffett has stubbornly retained the homey nameof the New England textile company he acquired 30 years ago—Berkshire Hathaway, now a legend on Wall Street—as his holding company for investments in Coca-Cola, Gillette, the Washington Post Co. and other interests. “It is almost like the family business now,” he says. An investment of $10,000 with Buffett in 1956 was worth $80 million at the end of 1994.


“FOOD STAMPS” FOR THE RICH.


Buffett is not stingy—he’s quick to pick up the check. But when a nickel today could become so much more tomorrow, he is reluctant to spend it. Once, while staying at the Plaza Hotel in New York, he called his friend Jerry Orans. “Could you bring over a six-pack of Pepsi? You can’t believe what room service charges.


To Buffett, a vast pool of wealth, such as his own, should ultimately benefit society —the reason he has created and funded the Buffett Foundation. He is critical of the super rich who leave fortunes to their heirs, money he likens to “privately funded food stamps.” He thinks it’s wrong for rich kids to get a big head start over every-one else. Seeing his three children, Howie, Peter and Susie, succeed on their own is a real issue for him. The three will get something when the time comes, but not enough to lead the life of the super-rich.


Once, when asked what his goal was at a time when he was considered the richest man in the country, Buffett replied, “To become the oldest one.” At 65 he is in excellent health, but when he is called to his reward, the Buffett Foundation will probably find itself with the largest endowment in the country.  Meanwhile, Buffett proceeds much as he did back in his boyhood days in Omaha, his motivat-ion clear and resolute. “It’s not that I want money, he once explained to a friend. “It’s the fun of making money and watching it grow.”



SOURCE:

READER’S DIGEST Magazine

March 1996, (pgs. 87-91)


          “BUFFETT: THE MAKING OF A AMERICAN CAPITALIST:

          Copyright @ 1995 by: Roger Lowenstein

                              Published: RANDOM HOUSE, Inc.

                              201 East 50th Street, New York, N.Y. 10022



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