Warren Buffett, a leading figure in stock market investment over the last three decades, prioritizes understanding a company's value over its market price. He approaches investments with the mindset of an owner, immersing himself in the intricacies of the business and aligning closely with its management. Upon investing, Buffett often entrusts his proxy vote to the company's managers, signaling his support for the company's foundational principles. He is a staunch advocate of value investing, dismissing the significance of daily stock price fluctuations, the general economic climate, or other external influences. Buffett's investment philosophy is characterized by a steadfast focus on a company's inherent value, guided by a long-term outlook.
In 1993, Warren Buffett was recognized in the Forbes list as one of America's wealthiest individuals, with a fortune valued at $8.3 billion. He stood out among the 69 listed as the sole person who amassed his wealth via the stock market. Buffett's academic journey at the University of Nebraska was pivotal; it was there that he encountered Benjamin Graham's "The Intelligent Investor," a book that profoundly influenced him and led him to pursue further education under Graham's tutelage at Columbia Graduate Business School in New York. At the young age of 25, in 1956, Buffett embarked on an ambitious venture, establishing an investment partnership. He brought together seven limited partners who collectively contributed $105,000, while Buffett, as the general partner, invested a modest $100. The agreement with his partners was structured such that they would earn a 6-percent annual interest and 75-percent of any profits exceeding this interest, leaving Buffett with the remaining 25-percent. Over the ensuing 13 years, Buffett's partnership yielded an impressive annual compounding rate of 29.5-percent. By 1965, Buffett decided to dissolve the partnership, walking away with a personal fortune of $25 million. Buffett's next strategic move was to acquire a controlling interest in Berkshire Cotton Manufacturing, a reputable but faltering textile firm. This company later merged with Hathaway Manufacturing and expanded its portfolio by acquiring stakes in two insurance companies in 1967, leading to the formation of Berkshire Hathaway. The insurance entities provided a consistent cash flow, which Buffett astutely invested in stocks and bonds to ensure sufficient reserves for claim settlements. Initially, the company's stock portfolio was valued at $7.2 million, but under Buffett's management, it soared to $42 million within two years, with the insurance operations outperforming the textile business in terms of profitability. The 1970s saw Berkshire Hathaway diversify further, purchasing three additional insurance companies and founding five more. Buffett also made the decisive move to shut down the textile operations, transforming Berkshire Hathaway into a holding company. The conglomerate now encompasses a variety of subsidiary companies that deliver robust returns on equity without relying on debt. By 1993, the non-insurance divisions of Berkshire Hathaway reported sales of $2.0 billion and an after-tax profit of $176 million, accounting for approximately 37-percent of the group's operational earnings. Warren Buffett, alongside his wife, holds approximately 40-percent of Berkshire-Hathaway's stock. He serves as the Chief Executive Officer, drawing an annual salary of $100,000, a figure that is modest compared to the earnings of many of his employees who oversee different segments of the company. When Buffett took the reins of Berkshire Hathaway, it had a net worth of $22 million. Today, its value exceeds $10.2 billion. Buffett's ambition is to enhance the company's value by a compound rate of 15-percent annually. Berkshire Hathaway's policy is to reinvest all profits, opting not to distribute dividends. Consequently, shareholders' returns are realized through the appreciation of their stock value. Since 1964, the price of Berkshire shares has escalated from $19 to over $22,000, reflecting a compound annual growth rate of 23.2-percent, which surpasses Buffett's target of 15-percent. This growth trajectory underscores Buffett's exceptional investment acumen and the enduring success of Berkshire Hathaway under his leadership.
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