Warren Buffet – ‘The Sage of Omaha’

The Early Years

Warren Edward Buffet was born to Howard Buffet and Leila Buffet in Omaha,
Nebraska, US on 30th August, 1930. His father was a stockbroker turned United States
Representative. Warren Buffet was very good at his understanding of business and
mathematics and could do calculations on columns of numbers in his head. He had an
insatiable thirst for knowledge related to business and capital market and he could never
get enough of books.

First Tryst with Business

Buffet started showing his true colours and the business knack in him at a very
early age. His first encounter with the world of business was probably at the age of six
when he bought a six pack of Coca Cola from his grandfather’s grocery store and sold
each for a nickel, hence making a 5 cent profit. Warren made his first share investment at
the age of eleven when he bought 3 shares of Cities Service at $38.25 each. The share lost
value to $27 but shot back to $40 at which Buffet sold his part. This was a mistake as the
share rocketed to $200 a few years later. This was Warren’s biggest and first lesson that
he learnt about investment in stock market.

Warren’s Education
Warren graduated from High School at the age of 17. Before this he had already
amassed $5000 from his pinball machine company, the returns from the various
newspaper routes that he operated and his returns from the farmers to whom his farmland
had been rented.
Warren never intended to go to college but had to give up to his father’s
perseverance and he finally joined The Wharton Business School at the University of
Pennsylvania from where he transferred to the University of Nebraska after 2 years.
Warren always complained that he knew more than his professors. Warren graduated in
just 3 years and then applied to The Harvard University which turned him down stating
that he was too young. This obviously would be rued by them later as Warren went on to
become the 2nd richest person in the world.

Warren meets his Mentor

Warren met his mentor Ben Graham at the University of Columbia from where he
earned his Masters degree in Economics in 1951. Warren still holds ‘The Intelligent
Investor’ by Ben Graham as the best book in the world for learning the art of investment.
Warren was the only student to have scored an A+ in Graham’s securities analysis test.
Warren later got interested in working for Graham and offered to work for free
but he was turned down. He later went on to work for his father’s brokerage firm as a
salesman. Later he was invited by Graham to work for him until Graham retired. Then
Warren returned to Omaha and started a Company called Buffet Associates Ltd.
Warren meets love
During this time Warren had met Sussie Thomson who later on went to become
his wife in 1952. They also bought a house for $31,500 and called it ‘Buffet’s Folly’.
Warren was happily married and had three children two boys, Howard and Peter and the
eldest a girl named Susie, same as her mother.

Warren makes fortune

This was a prosperous and merry time for the Buffets not only on the personal
front but on the business front as well. In 1956, Warren founded Buffet partnership along
with seven partners including his sister Doris and his aunt. The Partnership rose over
251% in the next five years while the stock market only surged 74.3%.
Warren had till this time had acquired a heroic stature in Omaha. Despite his very
strong knowledge base he refrained from giving any kind of investment advice. During
the course of next ten years his partnership rose by 1,156% compared to 112.5% increase
in the stock markets. The assets with Warren now amounted to about $44 million.

Berkshire Hathaway is acquired

In 1965 Buffet acquired 49% of the common stock of Berkshire Hathaway and
named himself as the Director of the company. Berkshire was a manufacturing company
in a declining textile market and his decision to buy Berkshire was touted as a ‘bad
business decision’ by Charlie Munger who was the Vice President of Berkshire and later
on became a long term ally of Buffet. In 1967, Warren Buffet completely acquired
Berkshire
Under Munger’s influence the investment strategies of Buffet changed a bit from
being strictly according to Graham’s principles. Warren’s personal share in Berkshire had
risen from 29% to 43% and another 3% with his wife Susie. The company’s share’s book
value had risen from $20 to $95. Warren’s entire fortune was placed in Berkshire. During
this period Warren acquired many new companies like See’s candy, Wesco and also got
involved with GEICO the company of Graham which was running into huge losses
mainly because of mismanagement. Later on this insurance company became a giant and
became a fully owned subsidiary of Berkshire Hathaway.

The Growing 80’s and 90’s

The 80’s was a growth phase for Berkshire which went on to make some very big
acquisitions like Nebraska Furniture Mart and Scott and Fetzer. The stock price of the
Berkshire share had risen from $290 in the 70’s to $2600’s in the 80’s to $80,000 in the
90’s.
During the later part of the 90’s the computer revolution was at its peak and
Berkshire took its share of beatings because of it. In 1999 when Berkshire reported only
0.5% increase in share price it was thought that ‘The Oracle of Omaha’ had lost his touch.
But Warren as always proved them wrong and Berkshire’s shares were again upto about
$45,000 a piece.

The Turbulent Personal life

During the period of his rapid growth Warren suffered one of the worst setbacks
when in 1977 his wife parted from him to live separately in a mansion in San Francisco.
She made several arrangements for him with other women out of which one waitress
Astrid Menks later went on to live with Warren and later became his wife.

Personality Traits
Warren Buffer is a man known for his frugal lifestyle despite being a billionaire.
He still resides in his $31,500 house in Omaha and does not have a computer at his office
and also does not have driver to drive him around. He only carries a cell phone when he
is traveling. The only luxurious spending of his life has been the buying of a luxury jet.
He has a strong dislike for bureaucracy and hence he runs his Nebraska headquarters with
fewer than 20 employees. He drinks atleast 5 bottles of Cherry Coke each day and is a
very keen Bridge player.
Warren Buffet is known for his wittiness and humour and some of his best known
remarks are:
"I buy expensive suits. They just look cheap on me."

"There are three kinds of people in the world: Those who can count, and those who
can't."

"I drink five (Cherry Cokes) a day. That's 750 calories. I would have lost 70 pounds a
year if I didn't drink them. Really, it's been a lifesaver."

Charity
Warren Buffet in 2006 donated around $31 billion to Bill and Melinda Gates
Foundation and hence became the biggest philanthropist in history. This amount more
than doubled the Gates Foundation.
He also contributes regularly to Susan Thompson Buffet Foundation setup in the
memory of his loving wife. He donated the money to The Gates Foundation instead of his
wife’s because he believes that charity is about results and not about the amount or the
organization.
This act speaks volumes about the man.

References:
1. beginnersinvest.com as seen on 4-12-07.
http://beginnersinvest.about.com/cs/warrenbuffett/a/aawarrenbio_2.htm
2. wikipedia.com as seen on 4-12-07.
http://en.wikipedia.org/wiki/Warren_Buffett
3. frugalmarketing.com as seen on 4-12-07.
http://www.frugalmarketing.com/dtb/warren-buffett.shtml
4. Business Week: ‘The Warren Buffet you don’t know.’; 5 July,1999 issue.
http://www.businessweek.com/1999/99_27/b3636001.htm
 Cross Cultural
Management

Biographical Sketch of
Warren Buffet

Submitted By:
Sushant Mishra
B-68
Section ‘B’
MBA (IB)
2007-09