Warren Buffett's investment strategy has made him one of the richest men in the world.
Born during the Great Depression in Nebraska, Warren Buffett is one of the wealthiest businessmen and investors alive. With a net worth of $53.5 billion as of March 2013, Forbes is the second wealthiest American and fourth wealthiest person in the world. Completely self-made, Buffett is famous for his frugal lifestyle and down-to-earth personality, yet still ranks 15th on Forbes magazine's "World's Most Powerful People" list.
A math prodigy, Buffett began to show his intelligence as a young child. His father was a stockbroker and a U.S. congressman, and Buffett spent many hours at his father's stock brokerage shop. He made his first investment at age 11, buying three shares of Cities Service Preferred. He sold his shares at a small profit, but regretted his choice when the stocks shot up to a much higher price. Buffett used this experience as an early lesson on investment patience.
By 13, Buffett was working as a paperboy and also selling his own horseracing tip sheet. He even filed a tax return, showing his business prowess by claiming his bike as a $35 tax deduction. When Buffett's father was elected to the U.S. House of Representatives, Buffett kept himself busy by profiting off of pinball machines. He eventually sold the pinball business for $1,200, making a tidy profit before his 16th birthday.
At this early age, Buffett honed his money-making strategy. "The first rule of investing is 'don't lose money,'" he said. "The second rule is 'don't forget Rule No. 1.'"
After attending the University of Pennsylvania, the University of Nebraska, and Columbia University, Buffett took the money saved from his childhood ventures and formed his own firm, the Buffett Partnership. His investment success, based on buying undervalued companies, earned him the nickname "Oracle of Omaha." Buffett follows a strategy called value investing, developed in the 1930s by Benjamin Graham, a professor at Columbia Business School. He looks for securities with prices that are low based on their intrinsic worth. Buffett analyzes a company's fundamentals and seeks high-quality products that are underpriced. Though other investors may weigh securities against the stock market Buffett recommends against it.
"In the short term, the market is a popularity contest; in the long term, it is a weighing machine," he said. Rather than looking at stocks as a capital gain, Buffett seeks ownership in quality companies that are capable of generating earnings. "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."
As CEO of Berkshire Hathaway since 1970, Buffett's success has inspired investors around the country to follow his every business move. He recently purchased HJ Heinz for $28 billion, emphasizing the company's quality products and solid management. https://www.businessnewsdaily.com is a major part of how Buffett looks at a company.
"You can have the greatest goals in the world," he said, "but if you have the wrong people running it, it isn’t going to work. On the other hand, if you’ve got the right person running it, almost anything is possible."
Buffett is also cautious and examines every business deal with an eye for detail. He's careful to look at deals in context of the current market, and reminds investors that bad deals aren't necessarily obvious when times are good. "After all," he said, "you only find out who is swimming naked when the tide goes out."
Frugal lifestyle, modest house
Buffett is famous for his frugal lifestyle. Despite the paychecks of most CEOs, Warren Buffett earns a base salary of $100,000 a year at Berkshire Hathaway, which has remained the same salary for the last 25 years. When his first child was born, he turned a dresser drawer into the baby's bassinet and borrowed a crib for the second child. Not one for fancy cars, Buffett drove a Volkswagen until his wife upgraded him to a Lincoln Towncar. Buffett made headlines in 2011 when he encouraged the government to increase his taxes, noting that his tax rates were unfairly significantly lower than his secretary's.
Even though most billionaires live in mansions in exotic locations, Buffett still lives in Omaha in the five-bedroom house he bought for $31,500 more than 50 years ago. "I'm happy there," he said. "I'd move if I thought I'd be happier someplace else. How would I improve my life by having 10 houses around the globe? I'm warm in the winter; I'm cool in the summer. It's convenient for me."
In addition to demanding fairness for American taxes, Buffett focuses heavily on philanthropy. In 2006, he announced that he would commit 85 percent of his fortune to the Bill and Melinda Gates Foundation. He has held up his promise, giving more than $30 billion to the foundation and supporting the philanthropic work of his children. He also uses his status to promote other charity work and quietly gives to groups, such as the Glide Foundation, an antipoverty charity in San Francisco.
Warren Buffett quotes
"You ought to be able to explain why you're taking the job you're taking, why you're making the investment you're making, or whatever it may be. And if it can't stand applying pencil to paper, you'd better think it through some more. And if you can't write an intelligent answer to those questions, don't do it."
"Time is the friend of the wonderful business, the enemy of the mediocre."
"I have pledged – to you, the rating agencies and myself – to always run Berkshire with more than ample cash. We never want to count on the kindness of strangers in order to meet tomorrow’s obligations. When forced to choose, I will not trade even a night’s sleep for the chance of extra profits."
"I try to buy stock in businesses that are so wonderful that an idiot can run them. Because sooner or later, one will."
"You don't need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ."
"Wall Street is the only place that people ride to in a Rolls-Royce to get advice from those who take the subway."