We have talked about Warren Buffett on this blog on many occasions, focusing primarily on his style of investment style. However, to better understand how this legend of investment in the stock market was forged, it is necessary to take a deeper journey through its entire life span, from its childhood to the present.
In this article we will do an extensive review of the life of Warren Buffett to understand how a young man from a small town in the North American Midwest became the best investor in history.
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- Benjamin Graham taught in the fundamentals of value investing through his bookparent of value investing.
He was the youngest in his class with Graham. He was very participatory, enthusiastic and always had something to say, unlike the other students. He was Graham's prodigy student, leading him to be the only student Ben awarded an A +, the highest possible grade. Thanks to Ben's teachings, Warren was able to meet other investors value legendary, like Walter Castle -who worked with Graham-, Tom Knapp -founder of the firm value Tweedy, Browne and William Ruane - founder of the current Sequoia Fund-. Both Graham's apprentices.
When Buffett graduated from his MBA in 1951, both his mentor and his father advised him not to go into investing in the stock market, but Warren wanted to work with Ben for free, the latter rejecting him for not being Jewish. Saddened by her mentor's decision, Warren returned to Omaha to begin a new adventure: the conquest of her future life partner.
In love with Susie Thompson, Warren began trying to win her over. Without success, since the interest in him was null, he decided better to conquer his future father-in-law. After a year, he managed to seduce her and they got married. The couple was ready to start a family.
Warren Buffett with his wife Sussie and their 3 children
Buffett worked at his father's new brokerage firm, where he sold stock recommendations. He was not happy with his job, as he was not a great salesman and his true passion was in analysis.
Despite this, the young Warren decided to enroll in a course to be able to speak in public, a course taught by value investing clásico, investing in cigar butts, arbitration situations and Workouts -or special situations-.
It was 1958 and the Buffett family was expecting their third and last child, so moving to a bigger house was necessary. That same year, he bought the house in which he still lives today, for an amount of $ 31.500 (approximately $ 265.000 today). The house is located on Farnam Street, the same street that Berkshire Hathaway is based on.
The Warren Buffett home on Farnam Street
Working from home, in a T-shirt and athletic shoes, Warren had trouble raising more capital, but little by little these problems faded. In 1961 he made his first major investment in a farm products manufacturing company, Dempster Mill. It was a typical Grahamnian investment. Gaining significant control over the company, Warren asked for major changes to make it profitable again. As the investment in Dempster Mill did not pay off, Warren sought advice from Munger, whom he met in 1959. Munger introduced him to a friend who was ultimately hired to do the job Warren couldn't: cut expenses, close plants, and liquidate inventory. . All the cash went to Warren to invest in other assets. But this did not turn out so well, since just over a hundred employees had to be laid off, which Warren did not like very much since he was strongly criticized and known as a liquidator. He promised himself that he would never do that again. In 1963 he sold to Dempster Mill, generating $ 2,3 million for his partnership.
But Warren was a man obsessed with numbers and investments. And this brought him difficulties in his family. He was extremely dependent on Susie - his wife -: she took care of the children, paid the bills and took care of almost everything in the family. Warren took the mother figure that he lacked in his wife. He was also not a very expressive father. On Saturdays, he would occasionally take his three children to his office, where he would play with them and help them with their homework. But he was not a father who showed his emotions. And although he was a little more affectionate with his daughter -Susie-, his two sons felt rejected by him. "It is the same quality (the lack of showing your emotions) that makes you an excellent investor.His eldest son Howard commented in the biography Buffett (Random House, 2008).
By 1962, Buffett Associates was managing $ 7,2 million, Warren's one million. From seven original partners, it grew to ninety, from all over the North American country. That same year he moved to Kiewit Plaza and began investing in Charlie Munger. Back then, Munger was a lawyer, but he was a lover of business and investment and this passion was love at first sight between him and Warren. That same year, Munger was already managing his own investment company.
The Oracle was changing his perspective of investing. He was looking at other important things, like the quality of the business and its brand. This thanks to the influence of Munger and Phillip fisher, who was a little recognized manager. This perspective led him to invest in American Express, which at the time was experiencing a problem due to "Salad Oil Scandal". However, Buffett realized that this did not affect the global reputation of the finance company.
In the early 1973s, Warren and Munger began acquiring two Californian companies with excellent quality and brand, Blue Chip Stamps and See's Candy Shop. In 1974 they invested in another Californian company, Wesco Financial. By XNUMX, the SEC (Securities Exchange Commission) started a case against Buffett and Munger, specifically in the case of the investment they made in Wesco Financial through Blue Chip Stamps. By 1976 the case was closed, concluding that no illegal activity was carried out in the acquisition of the Californian bank.
Objective: to become the best investor ever
During 1971-1972, Graham asked Warren if he was willing to co-author a new edition of The Smart Investor. Buffett declined because Graham wouldn't let him write a chapter on how to find great companies, so he only contributed the preface.
In 1973 Warren began investing in The Washington Post, the newspaper he distributed in his youth. That was when he began a professional relationship with his president, Katherine Graham, to whom he taught everything he knew about finance. In 1974 he became the director of the media company. Due to the energy crisis, inflationary and high interest rates that the country was experiencing in the decade, Warren also began to invest in other newspaper companies and advertising agencies, because their costs were miniscule, unlike those companies that they needed large amounts of capital to operate.
In 1977, Warren's wife, seeing that her life was being wasted, decided to leave him and move to San Francisco. It was to be expected, since the marriage did not spend much time together anymore. Although they did not divorce, the couple continued to travel and vacation together with the rest of the family. This was a very hard blow for Warren. He even thought about moving to California to be close to his family, but he was so used to his daily routine and life that he never did. Before long, Warren began dating another woman, Astrid, recommended by Sussie, with whom he was a close friend. Astrid is his current wife and they are still together to this day.
The 1983s were key to Berkshire Hathaway's personal fortune and success. Buffett and Munger invested in all types of businesses: mining, insurance, retailers, media, tobacco, etc. In XNUMX, Warren purchased Nebraska Furniture Mart from its owner, Mrs. B., a woman who reminded him of her grandfather as hardworking and ethical.
In addition to changing his wife, Warren also changed his favorite drink, ditching Pepsi for the new Cherry Coke, the same drink that can be seen at every Berkshire annual meeting. By the way, during the eighties, Berkshire's annual meeting went from being a restaurant to an event where thousands of followers came to listen to Buffett and Munger for hours.
Buffett drinking Cherry Coke
Despite the famous talk of The Graham & Doddsville SuperinvestorsAs the Columbia Business School began to embrace the Efficient Market Theory craze, Buffett refused to donate his time and money to the university for embracing the academic theories of Eugene Fame. However, seeing that the Oracle of Omaha could not be fought, the university decided to dedicate itself exclusively to the teachings of Graham and Dodd in the classes taught by Bruce Greenwald.
During Black Monday of 1987, Buffett lost US $ 342 million of his personal fortune, although it would not take long to recover it and emerge stronger from this new downturn. For the following year, seeing that Coca-Cola was going through many problems -among them the great failure of New Coke-, it acquired 7% of the company. During these years he became a very popular person, expanding his circle of friends to politicians, movie stars, businessmen, journalists, etc. During this time, Warren Buffett was already known throughout the country as "The Oracle of Omaha."
Warren Buffett's profitability compared to the S & P500
In the early 12s another controversy occurred for Warren. By owning a 2002% interest in Salomon Brothers -a merchant bank-, Buffett as interim president, had to stand in front of the US Treasury The reason was due to a bank trader breaking the rules issued by the Treasury . With the boom in tech companies based on the New Economy, the Oracle of Omaha was accused of “losing its touch” for not investing in these companies. In 2001 he was named the best money manager of the XNUMXth century, leaving Peter Lynch and John Templeton behind. By bursting the Dot Com Bubble in XNUMX, Warren was greeted like a god. Buffett would have achieved his goal, to become the richest man in the world and the best investor in history.
Warren Buffett's life today
Obama presenting the Presence Medal of Freedom to Warren Buffett
In 2004, his ex-wife, Susie Buffett, died of cancer. That same year Bill Gates, who has been a friend of Warren for years, is elected to the Berkshire board of directors. Following in the footsteps of decades ago, in 2006 Warren announced that he would donate 99% of his fortune to various family foundations and the Bill and Melinda Gates Foundation, being the largest charitable act in US history. In 2007 he announced to its shareholders that it is looking for a young successor who continues to lead the good path of the conglomerate. In 2010 together with Bill Gates, they founded the campaign The giving pledge, which aims to recruit more billionaires to donate their fortunes.
Warren Buffett with the Gates, creators of The Giving Pledge
In 2012 the followers of the Oracle of Omaha trembled with fear, Buffett had been diagnosed with cancer. That same year, he managed to cure himself of this fearsome disease.
Today, Warren can be seen appearing in more media and supporting philanthropic causes. Besides spending his free time playing brigde, he also writes letters to his friends. Recently, he has been featured in a documentary that follows his personal life, rather than his life as an investor.
We hope we have more years to the Oracle of Omaha, teaching us to be more cautious and enjoy every moment of life that we can.