Warren Buffett – The Sage of Omaha.

Warren Buffett is a personality who is revered as a demi-god amongst the investing and fund management community. His investment approach and philosophies are taught as lessons in investment management field through out the world. His reputation as a successful investor underlies a personality and incredible life which will inspire every reader and investor.

Eearly Life:

Buffett was born in 1930 in Omaha, Nebraska, a midwestern U.S. state. He was the second child to his parents - father Howard Buffett and mother Leila. Howard was a four time U.S. Congressman and also a stock broker. Since early life, Buffett was a true entrepreneur at heart and a brilliant student with a knack of learning Economics and business studies. His father's work as a stock broker also had an early impression on his mind and created a lot of curiosity about numbers and businesses.

It was at age 10 that Buffett realised that we would dedicate his life to making money. The inspiration behind this was a chance visit of Buffett with his father to meet member of the NY Stock Exchange. After lunch, this rich man got a custom-made cigar on the spot after picking from different tobacco leaves. Buffett was inspired by this opulent service and knew what he wanted from his life after that experience.

Warren Buffett demonstrated keen business abilities at a young age. At the age of 13, Buffett was running his own businesses as a paperboy and selling his own horseracing tip sheet. That same year, he filed his first tax return, claiming his bike as a $35 tax deduction. When Buffett was in high-school, he pitched purchasing a second-hand pin-ball game machine with his friends for $25. They proposed putting up this machine at a local barber shop for free where his customers could play on the machine while waiting. It was a hit idea and they earned $4 on opening night. Buffett and his friends though reinvested all earnings into expanding the business. Soon, Buffett was the pin-ball king in the town with multiple machines at various places. He sold the business in a year for about $1,200. During childhood there were many such other small ventures like selling gum, soda and washing cars.

Talk of early investing? Buffett had his first investment in stock when he was just 11 years old. He bought three shares of a company at $38 per share. The young Buffett held on to them despite a quick price drop, to $27 per share, but sold them as soon as they reached $40. However, after a little while, the price soared to nearly $200. This experience imparted an important life-long financial lesson for Buffett and which shapes his investment decisions to this day - Buy and hold. Through his various business endeavors, Buffett is said to have amassed a small fortune of $53,000 (in today's money) by the time he was just 16.

Benjamin Grahim.

Buffett, an avid reader, read the book 'The Intelligent Investor', a bible of sorts even today, when he was 19. The philosophy of 'value investing' put forward by Benjamin Graham in the book changed his life. After completing his undergraduate studies, Buffett decided to move to New York to attend Columbia's School of Business where Graham was a professor. Soon Buffett was a student of Graham. But despite the fact that Buffett was has probably his best student, Graham refused to hire him at his firm. He even advised Buffett to completely avoid a career on Wall Street.

As such, after Buffett earned his master's degree in 1951, he moved back and sold securities for his father's brokerage firm in Omaha, for three years. Ultimately, Graham had a change of heart and in 1954 he offered Buffett a job in New York. Here Buffett worked for his mentor for two years as an analyst till 1956 when Graham closed his partnership. Graham had a lasting impression on Buffett and working with him laid the foundation stones for Buffett's success in the later years. Buffett described him as the second most influential person in his life after his own father. Graham today is widely known as the "father of value investing” and his work in managerial economics and investing has led to a modern wave of value investing within mutual funds, hedge funds, diversified holding companies, and other investment vehicles.

Berkshire Hathaway

After working with Graham, Buffett returned to Omaha and in 1956 started his own company Buffett Partnership Ltd. By the end of the 1950s, Warren had opened seven partnerships. He became a millionaire in 1962 at just 32 years of age as a result of his earnings from the partnerships he was involved in. Though successful with his small partnership firms, Buffett was not satisfied and wanted to build something big. Eventually, Buffett merged all his partnerships into one and invested all the money in a textile-manufacturing firm, Berkshire Hathaway. Buffett kept buying shares of this company and took ultimate control over the company in 1964.

Berkshire Hathaway is now a global conglomerate, among the largest listed companies on NYSE, having stakes in many big corporations, all under the vision and leadership of Buffett. Today, the company has the highest stock price at a whopping $255,550 a share. In INR, the share price is worth Rs.165.42 lakhs! In 1964, the share price was $19 and it gave a delivered an annualised compounded returns of over 21% for over 50 years under Buffett. The share price is also a reflection of Buffett's investment philosophy since Berkshire Hathaway has never split its Class A shares in order to only attract long-term investors as opposed to short-term speculators.

How Buffett shaped and steered Berkshire Hathaway into being among the most successful companies is an education in itself. When Buffett took control of the company (or probably tricked into it), the traditional textile business was failing. However, Buffett soon ventured into insurance business which proved to be more successful. Thereafter, he started venturing into different industries and buying stakes in other companies and sometimes often buying out entire companies. Interestingly, in 2010, Buffett claimed that purchasing Berkshire Hathaway was the “biggest investment mistake” he ever made, and claimed it had denied him returns of about $200 billion over the subsequent 45 years. Had Buffett invested that money directly in insurance businesses instead of buying out Berkshire Hathaway, those investments would have paid off several times more.

Warren Buffett Today:

Buffett is today revered most a businessman and an investor whom every investor looks for as an inspiration. With a net-worth of over US $70 Billlion, he is amongst the world's richest persons. But he still lives in a modest house that he bought 60 years ago in 1957. The 87-year old could often be found using public transport and doesn't even own a cellphone! Buffett's frugality is a trademark of his "brand" but does not mean Buffett is a miser. He is a big contributor to philanthropic activities & charity and till last year had lifelong donations of about US$ 28.5 Billion! perhaps more than any one else in the world. Buffett despite having children and a full-fledged family, is known to donate 99.9% of his wealth.

Many books have been written by and about Buffett over the years and many have been best sellers. He is popularly termed as the Wizard or the Oracle of Omaha. Buffett is a perfect example for investors and entrepreneurs with an important message of clear vision, mission, patience, focus and hard work.

Investment Lessons:

Despite all his success, Warren Buffett still manages to remain humble and approachable. There are many lessons everyone can learn from the respected investor and businessman. One of the most important one is about saving first and living well within your means. Despite his wealth, Buffett still lives a modest life at 87 years. Perhaps one of the reasons why he is so successful is because he chose to always invest his surplus money into businessess instead of spending. Had it been otherwise, Buffett would not have managed to be what he is today as all his money saved and invested has multiplied manyfold. He wanted to be rich but not live like one.

Another important lesson is investing for long term. What's long term can be gauged from a famous quote of his “Someone is sitting in the shade today because someone planted a tree a long time ago.” Let us see a read a few more quotes from him which can unravel more about his ideas and investment philosophy...

1. Rule No.1: Never lose money. Rule No. 2: Never forget Rule no. 1.

2. Risk comes from not knowing what you are doing.

3. Price is what you pay, value is what you get.

4. Predicting rains does not count. Building arks does.

5. It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently.

6. Only buy something that you would be perfectly happy to hold if the market shut down for 10 years.

7. You only have to do a very few things right in your life so long as you don't do too many things wrong.

8. Beware of geeks bearing formulas.

9. We enjoy the process far more that the proceeds.

10. Wide diversification is only required when investors do not understand what they are doing.

11. Basically, when you get to my age, you will measure your success in life by how many people you want to have love you actually do love you.