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Saturday, December 29, 2012

Who is Warren Buffett?

Everybody who is remotely familiar in investing have mostly likely heard or read the name Warren Buffett. Most people know and consider him as the most successful investor of this century. An American investor, business magnate, and philosopher, Warren Buffett is the chairman and CEO of multinational holding company Berkshire Hathaway.

Financially Adept

Warren Buffett was born on August 30, 1930 in Omaha, Nebraska, the second of three children and only son of a US congressman. When he finished high school, his yearbook picture read: "Likes math; a future stockbroker."

Buffett has displayed an interest in saving and making money even at a young age. He went door-to-door selling chewing gum, refreshments, stamps newspapers or magazines and worked in his grandfather's grocery store for a while. He filed his first income tax at the age of fourteen and took a deduction claiming expenses for the use of his bicycle and watch when delivering. His interest in the stock market started at the age of ten. He visit the New York Stock Echange or spend time in a nearby stock brokerage. The first documented stock he bought was of Cities Services preferred shares, buying three shares at the age of 11.

After graduating in college with a business administration degree, he decided to enroll in Columbia Business School after learning that famous securities analysts Benjamin Graham and David Dodd taught there. He would be greatly influenced by Graham, also an author of "The Intelligent Investor" and "Securities Analysis", two books which are considered the holy bible of investing.

Business and Employment

Between 1951 to 1969, Buffett has worked as an investment salesman, security analyst, and professor before eventually starting Berkshire Hathaway Inc. in 1970. By 1960, he had seven partnerships operating: Buffett Associates, Buffett Fund, Dacee, Emdee, Glenoff, Mo-Buff and Underwood. The following year, he was able to pool fund and invested most of it in Sanborn Map company.  He explained that in 1958 Sanborn stock sold at only $45 per share when the value of the Sanborn investment portfolio was $65 per share. This meant that buyers valued Sanborn stock at "minus $20" per share and were unwilling to pay more than 70 cents on the dollar for an investment portfolio with a map business thrown in for nothing. This earned him a spot on the board of Sanborn. Eventually, he consolidated his partnerships and had over $1,025,000 remaining for himself.

Berkshire Hathaway

Buffett invested in and eventually took control of a textile manufacturing firm, Berkshire Hathaway. Buffett's partnerships began purchasing shares at $7.60 per share but later on had to pay $14.86 per share as he aggressively continued to purchase. The company had working capital of $19 per share. This did not include the value of fixed assets (factory and equipment). Buffett took control of Berkshire Hathaway at the board meeting and named a new president, Ken Chace, to run the company. 

Buffett announced his first investment in a private business under Berkshire — Hochschild, Kohn and Co, a privately owned Baltimore department store. In 1967, his company paid out its first and only dividend of 10 cents. In 1970, as chairman of Berkshire Hathaway, Buffett began writing his now-famous annual letters to shareholders. However, he lived solely on his salary of $50,000 per year, and his outside investment income. In 1979, Berkshire began the year trading at $775 per share, and ended at $1,310. Buffett's net worth reached $620 million, placing him on the Forbes 400 for the first time. Also in the same year, Berkshire began to acquire stock in ABC. Capital Cities announced $3.5 billion purchase of ABC on March 18, 1985  which surprised the media industry, as ABC was four times bigger than Capital Cities at the time. Buffett helped finance the deal in return for a 25% stake in the combined company. He became a billionaire on paper when Berkshire Hathaway began selling class A shares on May 29, 1990, when the market closed at $7,175 a share. His company is still aggressively in pursuit of new businesses to invest in or acquire.

His Legacy

Warren Buffett have had a number of recognition under his name. In 1999, he was named the top money manager of the Twentieth Century in a survey by the Carson Group, ahead of Peter Lynch and John Templeton. In 2007, he was listed among Time's 100 Most Influential People in the world. In 2011, President Barack Obama awarded him the Presidential Medal of Freedom. Most recently, Buffett, along with Bill Gates, was named the most influential global thinker in Foreign Policy's 2010 report. He also became famous by his annual letter to shareholders, giving them updates and insights on the current position of the company and the economic outlook in general. Often referred to as "The Oracle of Omaha", Warren Buffett has truly been influential not only as an investor, but also as an inspiration for other generations. 

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