The Greatest Investors: Warren Buffett

Watch what happened when we approached five strangers on the streets of New York to answer questions about Warren Buffett.

Born: August 30, 1930 (Omaha, Nebraska)

Key Positions: Buffet-Falk & Co. (1951-54)

Graham-Newman Corp. (1954-56)

Buffett Partnership, Ltd. (1956-69)

Berkshire Hathaway, Inc. (1970-present)

Personal History:
Warren Buffett spent much of his childhood in Washington, D.C., where his father was a long-term member of the United States Congress when he wasn't focusing on his own investment career. Buffett was an active entrepreneur and aspiring investor from a young age. After two years at the Wharton School at the University of Pennsylvania, Buffett completed his college degree at the University of Nebraska in 1950. Inspired by reading "The Intelligent Investor" by Benjamin Graham, Buffett enrolled in a graduate program at Columbia University, where Graham was a professor, obtaining his Master of Science degree in economics in 1951.

Buffett returned to Omaha in 1951, where he founded the investment firm Buffett-Falk & Co., for which he worked as an investment salesman until 1954. He then returned to Omaha and formed the investment firm of Buffett-Falk & Company, and worked as an investment salesman from 1951 to 1954. In these early years of his career, Buffett became close with Graham and with Lorimer Davidson, the Vice President of GEICO insurance, learning a great deal from each of them. The interactions between former professor and student eventually led to Buffett securing a job with Graham's New York company, Graham-Newman Corp., where Buffett was employed as a security analyst from 1954 to 1956. Buffett would later credit this early experience and Graham's exacting investment strategy as critical in the development of his own investment abilities and philosophy.

Feeling a desire to manage his own partnership, Buffett returned home to Omaha to found Buffet Partnership, Ltd. Though Buffett was just 25 years old, the company started with a capital base of around $100,000 (about $900,000 in today's dollars). Over the subsequent 13 years, from 1956 to 1969, Buffett and his investors experienced a gain of 30 times their value per share. During this time, Buffett also acquired Berkshire Hathaway, an unprofitable textile company headquartered in New Bedford, Massachusetts (1965). Under Buffett's guidance, Berkshire altered its basic financial framework; it maintained its textile business even despite external pressures to shut down, and Berkshire also became a holding company for a series of separate investments. Buffett Partnership was liquidated in 1969, when he focused his attention on Berkshire.

Buffett's early years with Berkshire Hathaway were incredibly successful. He first bought shares in the Massachusetts company for $7.60 each. Within three years, the price per share had jumped to $19. He moved Berkshire into the insurance sector and eventually eliminated its textile arm in 1985. Following the 1973-74 market collapse, Buffett began to acquire other companies at bargain prices, including substantial holdings in The Washington Post, ABC, and The Coca-Cola Company, among others. Today, Berkshire is a massive conglomerate with total assets above $620 billion (2016) and nearly 400,000 employees.

Investment Philosophy:
Warren Buffett's investments focus on intrinsic value and simplicity.

John Train, author of "The Money Masters" (1980), provides a succinct description of Buffett's investment approach: "The essence of Warren's thinking is that the business world is divided into a tiny number of wonderful businesses – well worth investing in at a price – and a large number of bad or mediocre businesses that are not attractive as long-term investments. Most of the time, most businesses are not worth what they are selling for, but on rare occasions the wonderful businesses are almost given away. When that happens, buy boldly, paying no attention to current gloomy economic and stock market forecasts."

Buffett's criteria for "wonderful businesses" include, among others, the following:

• A strong return on capital without a great deal of debt.
• An understandable business model
• A realization of profits in cash flow.
• Strong franchises and an accompanying freedom to price.
• Lack of reliance on a singular individual executive.
• Predictable earnings.
• Owner-oriented management.

Publications
While Buffett has not authored any books of his own, he is well known among investors as a writer of annual shareholder letters to Berkshire investors. Buffett has consistently impressed with his broad investment knowledge and capacity for storytelling in these 20-page missives. Copies of the annual shareholder letter are available from 1977 onward through Berkshire's website.

• "Buffett: The Making of an American Capitalist" by Roger Lowenstein (1996).
• "Warren Buffett Speaks: Wit And Wisdom From The World's Greatest Investor" (1997)
• "The Warren Buffett Way" by Robert G. Hagstrom (2005)

Quotes

"Shares are not mere pieces of paper. They represent part ownership of a business. So, when contemplating an investment, think like a prospective owner."

"All there is to investing is picking good stocks at good times and staying with them as long as they remain good companies."

"Look at market fluctuations as your friend rather than your enemy. Profit from folly rather than participate in it."

"If, when making a stock investment, you're not considering holding it at least ten years, don't waste more than ten minutes considering it."