Warren Buffet – The quintessential investor

The Oracle of Omaha as he is so often called, was born 30th August 1930 in Omaha, Nebraska. From an early aged he showed potential as an investor due to his super sharp analytical mind together with his passion and enthusiasm for investing in general. He went to study at Columbia Business School under well-known securities analyst, Benjamin Graham who arguably influenced Buffet most in terms of his investment philosophy and methodology. After generating interest, namely through some doctors, he created a number of investment partnerships until finally pulling them all together in 1962. In the same year he purchased a textile manufacturing company called Berkshire Hathaway which still continues to be the holding company for all his investments. The textile manufacturing side of Berkshire was eventually shut down, though Buffet was concerned not to seem to be like the typical liquidators who close down a business for a quick profit, though 400 disgruntled employees lost their jobs as Buffet’s strong opinion that shareholders should come first was enacted.

From here on, Buffet, through Berkshire Hathaway, invested in many lucrative deals including the Washington Post, American Express, Buffalo Evening News, ABC News and Coca-Cola, this last being the most lucrative of all his investments and one which he still holds. In more recent years Buffet has transacted in the foreign exchange market and a more controversial investment in Chinese commodity giant, Petrochina. Petrochina were allegedly involved with the Sudanese government who being criticised heavily by the US government, played a significant role in the genocide at Darfur. This also left some Berkshire shareholders unhappy, calling for Buffet to pull out of the deal though Buffet has always maintained the investment was only ever based on business. Buffet however later sold out his holding of petrochina to a total of approximately £3.5bn.

Though Berkshire has suffered a number of controversies in it’s history, Buffet, through the influence of his father more than anything, has always maintained that anyone can make money without being corrupt. He believes in truth and honesty and in his own personal life, though now (May 2008) sitting at the top of the Forbes list of richest people in the world, he leads a very unassuming lifestyle. He himself says that he does not need anymore than he already has. In 2006 his annual salary was just $100,000, a very low figure for a CEO of his standing.

Strategy

Buffet’s investment strategy derived from Benjamin Graham who proffered the value investment method. On the page Investing, I have briefly outlined the chief attributes of this strategy. Buffet himself has not changed anything though he has added to it. In this article, Buffet’s strategy is more exhaustively explained. The essential elements are he himself says, that the company has two prices, 1)the actual price of the company and 2) what the price the company is trading for. Buffet analysises the actual price of the company then after he is comfortable with this figure, he will see what price the company is trading at on the market. If it is lower then it is worth buying shares in. If not, then no. In the following video of an interview taken with Buffet concerning his deal with Petrochina, he gives a basic explanation of his method.

Outside of Investing

Warren Buffet holds many personal traits, not just his brilliance at understanding the market and knowing what company is a good company to buy. Buffet has shown himself to be quite the philanthropist and in June 2006, he gave the equivalent in shares of his Berkshire Hathaway company to the total of $30.7bn to his close friend and philanthropic partner, Bill Gates making it the largest ever charitable donation. He claims he does not have skills in knowing how to use money effectively for the alleviation of suffering or medical research, etc. so he preferred to give it to someone who does. He also made significant contributions to charities run by his children at the time. Altogether he gave away about 2/3’s of his entire wealth.

Buffet is also outspoken about the certain factors within the political and economic climate of the US and the wider world. He has criticised the financial sector of the market, noting the increasing number of stock brokers that have arisen which implies more money is being wasted through middle-men. He is critical of gold saying ‘It gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.’ He sees a bleak future for the US dollar highlighting the US’ severe trade deficit. He also sees a climax to oil production stating depleting oil fields will start to impact the amount able to be produced. In a notable article by the Times, Warren Buffet has also been very critical of the US tax system highlighting the fact that he himself pays less tax than his secretary. The following shows an interview with Buffet raising this issue again.

Buffet is also known for his writing, specifically his annual letter to shareholders every year which he started in 1970. Whilst attributing many articles, the most notable The Superinvestors of Graham-and-Doddsville, Buffet also can command a crowd as a public speaker with his easy, down to earth and very humorous personality, especially at the annual Berkshire Hathaway shareholders meeting where he draws in crowds of up to 20,000 including many foreigners willing to travel to hear him. Far and away the most successful investor of all time, Buffet has shown through his last and his work that honest hardworking share trading is possible and equally has the potential to be lucrative. Also he is an example in our commercial materialistic society that having vast riches does not need to negate the moral, ethical and corporate acts of extreme kindness that he has shown in his life. Not just a great investor whose strategy has served him so well and for so long but also an upright example to us all.