Investors

Discover the history of investor Warren Buffett

Warren Buffett is a legend of the financial market, reaching the rank of richest man on the planet – all thanks to his investments.

Warren Magazine

03/20/2023

Image: Kevin Lamarque/ Reuters

Born in Omaha, United States, in 1930, Warren Buffett is an American investor and entrepreneur, considered by many to be the greatest investor in history.

Ahead of Berkshire Hathaway, the company of which he is chairman and main shareholder, he continually beats indices such as the S&P 500 and Dow Jones.

With an average return of 20% per year on his investment strategies over the past decades, his outstanding performance has elevated him to star status, or rather, the “oracle of Omaha”.

According to information from Forbes magazine, Warren Buffet has a fortune of approximately US$ 99 billion and is the only one among the top 20 who achieved such a feat in the world of finance and investments.

But what made Warren Buffett get there and, mainly, stay at the top?

Warren Buffett’s Trajectory

Warren Buffett’s trajectory is marked by his differentiated vision.

As a child, he did business in the neighborhood selling products such as soft drinks, sweets and magazines door to door to profit from the convenience he offered to his customers.

In 1945, along with a schoolmate, he invested $25 in a pinball machine and placed it in a local barber shop. After some time, his small business more than tripled.

This vision for identifying opportunities accompanied him throughout his adolescence and professional life, with some milestones that call attention.

Chronology of success

Next, we set up a timeline with the story of Warren Buffett, going through the main milestones of his career.

1944

Little Warren Buffett, aged 14, makes his first tax return, getting a $35 deduction for demonstrating that his bicycle and watch were work tools.

1947

Warren enters the University of Pennsylvania, but transfers to the University of Nebraska-Lincoln, where he graduates in Business in 1950, aged 19.

1951

He began his professional relationship with the financial market, working as a salesman at Buffett-Falk and Co.

He married the following year, 1952, to Susan Buffett Thompson, with whom he had three children. In 1977, however, they stopped living together and, in 2004, she died.

1954

He becomes an analyst at Graham-Newman Corp and works there for two years alongside one of his biggest references in the financial market, Benjamin Graham.

1956

He dedicates his professional life until 1969 to the partnership he formed in the Buffett Partnership Ltd, when he finally acquired Berkshire Hathaway Inc, a company in the textile sector and operating in the insurance area.

1970

Year Berkshire Hathaway Inc. begins its transformation into a power in the financial market. Warren Buffett is still the current president and main shareholder of the company that, since then, has seen its shares appreciate by more than 1,000,000%.

1998

This year, Buffett negotiated the purchase of Banco Garantia from Brazilian Jorge Paulo Lemann to Credit Suisse First Boston for US$ 675 million.

This was not the only negotiation between the two investors, who joined forces in 2013 to purchase Heinz.

2002

In 2002, he made a $50 million donation to Washington’s Nuclear Threat initiative, becoming one of its advisors.

This was not the only donation made by Warren Buffett, who is also known for his philanthropic actions. In 2004, when his then-wife Susan passed away, his estate was donated in full to the Buffett Foundation.

2006

It announced that 85% of Berkshire Hathaway’s shares would be donated to charitable foundations, including the Bill and Melinda Gates Foundation.

2008

He became the richest man in the world, according to a survey by Forbes magazine.

2012

Three years later, in 2012, he was considered the third richest man in the world according to Forbes magazine.

2013

He was considered the person who raised the most money for the year, adding up to an amount of $ 37 million per day.

2020

Between few mistakes and many successes, Warren Buffett remains on the Forbes list of the richest men in the world, in fourth position.

Although this is not his main objective, it is a result that reflects his consistent investment strategy, always keeping an eye on trends and opportunities.

Another very striking feature of Warren Buffett is his thirst for knowledge and, consequently, gratitude to those who share it, such as Benjamin Graham and Philip Fisher, his main declared influences.

Image: Kevin Lamarque/ Reuters

Warren Buffett’s influences on the financial market

Every talent needs good influences to be inspired, and Warren Buffett was no different. His father, grandfather and other figures marked his personal formation, but inspirations from the financial world also helped shape his investor profile.

In particular, we can mention Benjamin Graham and Philip Fisher. Understand how they impacted Buffett’s life:

Benjamin Graham

Graham was his professor at Columbia Business School and later his employer and mentor when he worked as an analyst at Graham-Newman Corp.

Known as the forerunner of the “Buy and Hold” strategy and one of the fathers of Value Investing, the economist is the author of the books The Intelligent Investor and Security Analysis, co-authored with David Dodd in 1934.

Many economists claim that Security Analysis offers the paths to Value Investing, a strategy masterfully adopted by Warren Buffett.

For Graham and Dodd, the investor needs to evaluate a company beyond what the market is pricing, because there may be variations between the share price and the intrinsic value of the company.

If the intrinsic value is greater than what the market is paying for the company, it might be worth buying, after all, over time, the tendency is for the investment to pay off.

Simple, isn’t it?

But identifying the intrinsic value of a company is not an easy task. In the more than 22 years that Graham has taught at the business school, only Warren Buffett has earned an A+ in his subject.

Philip Fisher

The basic rule of Philip Fisher’s strategy is to invest in outstanding companies, but mainly with healthy growth potential.

To reach these opportunities, Fisher suggests analyzing the company’s sales potential in the long term, in addition to preferring companies with sustainable profit margins, a high level of competence and an innovative vision of their managers.

For Fisher, these elements, taken together, make it possible to find investments with greater return potential in the stock market.

As a curiosity: this is also one of the principles that we, at Warren, seek when creating the Warren Equals Fund. The portfolio is made up of Brazilian and foreign shares of companies that have outstanding gender equality policies. We use the Bloomberg Gender-Equality Index and its 75 metrics to shape our strategy.

Warren Buffett and Value Investing

Warren Buffett is considered one of the main creators and enthusiasts of Value Investing, often translated in Brazil as “value investment”.

If you are looking for investment for beginners, you may have an initial impact with the term, but its essence is quite simple.

It is an investment strategy that takes into account the intrinsic value of a company. This strategy is based on the understanding that, at times, the price the market pays for the stock is distorted in relation to its value.

Discovering intrinsic value means making a projection of the company’s cash generation in the future and its capacity for growth, bringing the numbers to present value, to find out whether or not the stock corresponds to that value.

This is a very complex approach that requires boldness to bet, often against the market, acquiring companies that are experiencing difficulties and end up being underpriced.

Buffett has a famous quote to explain the difference between price and value. According to him, price is what you pay, while value is what you get.

From that sentence, it is possible to understand the heart of the strategy: finding good companies at discounted prices.

It was this approach, with consistency and successive successes, that ensured the appreciation of the equity of Warren Buffett and Berkshire Hathaway. Next, we will detail a little of the relationship between Buffett and the company.

Warren Buffett and Berkshire Hathaway

Warren Buffett acquired Berkshire Hathaway in 1970 in full, but since 1962 he had been buying shares in the conglomerate which had approximately 15 factories.

The company operated in the textile and insurance market, but the mega-investor continued to expand its business and buy shares in other segments.

In effect, Buffett has turned Berkshire into a holding company through which he and his team invest in the companies they believe in.

Its conglomerate includes, for example, Duracell and GEICO, as well as stakes in Coca-Cola.

As Berkshire has shares traded in the United States, any investor can, in practice, become a partner of Buffet: just buy a share of the company – which today, at the end of July 2020, is costing around 192 dollars.

Since Buffett became the company’s majority shareholder, it has generated a lot of value for shareholders, as shown in the graph below, with the fluctuation of the share price in recent decades.