Detail Biography of Warren Buffet: An Eye for Undervalued Investments

Warren Buffet is an Investment guru commonly known as the “Oracle of Omaha”. He has remained one of the world’s richest men over the years with a net worth of $72.6B (as of  May 27, 2020). He ranks No. 5 on Forbes 2020 World's Billionaires list.

Early Life & Education

Warren Edward Buffet was born into the family of Howard and Leila Buffet on the 30^th of August 1930, in their hometown Omaha, Nebraska. His father, Howard was a U.S. congressman and a stockbroker which kind of contributed to Warren's interest in business and finance matters. It was reported that Warren was a math whiz who could add up numbers without the use of a calculator.

Though it was never his intention to go to college since he had already made a whopping sum of $5,000 from his newspaper business; at the age of 16, Buffet enrolled into the University of Pennsylvania where he studied business and later moved on to the University of Nebraska to wrap up his tertiary education. He graduated from the University by 20 and had at least $10,000 in his name from all the businesses he had done. He bagged a Master’s degree in economics at Columbia University in 1951. He was opportune to study under Benjamin Graham, a renowned economist. He later furthered his education in Finance at the New York Institute of Finance.

Being a student of Ben Graham, Buffet learned quite a lot of lessons that were later useful to him in running his own businesses. As one who had taken time to study the stock market, Graham could easily spot loopholes and advantages in the market.  He went on to publish Security Analysis which is regarded as one of the "greatest" works ever done on the stock market. He coined the principles of the “intrinsic” business value, a way of measuring the true worth of a business completely independent of the stock price. This principle helped investors determine the true worth of a company and make investments wisely. This principle led to the publishing of Graham’s next book, The Intelligent Investor which has proven to be the “best investment analogy in history”. To date, Buffet still refers to the book as "the greatest book on investment ever written."

Buffet had picked so much interest in learning from Graham that we would later in life acquire GEICO, Graham’s insurance company.

Early Career

At a young age, he would go to his father's stock brokerage shop to help out with changing stock prices on the blackboard. By 11 he had already made his first investment by buying three shares of Cities Service Preferred worth $38 each. The shares fell to $27 by the time the eventually shot back up to $40 Buffet sold out, only shortly after did Cities Service shares value shot up to almost $200 per share. Buffet regretted his decision to sell his shares at a low-profit rate but he learned a valuable lesson that he still uses to date.  At 13, Buffet started his own business as a paperboy and also selling horseracing tip sheets.

Buffet established the Buffet Associates Ltd. in 1956. He had a total of seven limited partners which were made up of his Aunt Alice, his sister, Doris, and five others. Together they were able to raise $105,000 by the end of the year the company had about $300,000 capital it was managing. He later purchased a house where he used one of the bedrooms as an office space to manage all his partners, the house was nicknamed ‘Buffet’s Folly’. By 1961, Buffet’s partnership pulled in a profit of 251.0% within 5 years (1957-1961). In 1962, the Buffet partnership recorded a total of $7.2 million as capital, and $1 million out of the total capital was Warren's profit. He was entitled to ¼ of all profits above 4%.

Gradually, Buffet's Associates Ltd which started with only seven people evolved to Buffet Partnership limited with about ninety limited partners within the United States. The initial minimum investment was $100,000. Ten years later, the company's assets scaled above 1,156% with the Buffet's stake at $6,849,936. He later liquidated his firm in 1969 to develop the Berkshire Hathaway.

Berkshire Hathaway

Using the lessons, he got from Graham, Buffet had an eye for spotting undervalued companies one of such was Berkshire Hathaway, a textile company. He began by accumulating the stock in the early 1960s, by 1965 he had accumulated about 49% of the company's stock and, eventually gained control of the company. He later named himself Director and made Ken Chance the president of the company to autonomously oversee the affairs of the company. He expanded the company beyond the walls of textile by buying shares in media, insurance, and oil—The Washington Post, GEICO and Exxon, respectively. With better management, Berkshire Hathaway began to get its value once again.

By 1970, Buffet named himself Chairman of the company. The profits recorded at the end of the year only showed that Buffet’s involvement with the company was of great gain as the textile profits were only $45,000 compared to the $2.1 and $2.6 million profits that were recorded for insurance and banking investments.

Between 1965 and 1975, Berkshire Hathaway's book value has risen from $20 per share to almost $95. Buffet made the company his sole investment by pumping $15.4 million into the company at an average of $32.45 per share. By 1976, GEICO had suffered quite a few losses and its stock dropped to $2 per share. Buffet decided to step in, and used Berkshire to build up the failing insurance company which eventually yielded returns in millions. Benjamin Graham retained his fortune in GEICO but later died shortly before the profits started coming in. The insurance company eventually became a full subsidiary of Berkshire Hathaway.

Asides Berkshire, Buffet has accumulated other undervalued companies over the years, some of which are See’s Candy, a gourmet chocolate factory which offered Buffet a chance to buy the company at $30 million, but it was eventually bought at $25 million; and National Indemnity which was worth at least $50 per share, amongst others.