Lesson 1

Warren Buffett: The Money Maker

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Executive Summary

Warren Buffett has more money than the gross domestic product of more than half of the countries of the world by choosing to invest in the right companies. He personally owns a quarter of Berkshire Hathaway managed by less than 20 persons until today.


About 35,000 Berkshire shareholders gather every year to attend the annual shareholders meeting where Buffett is like a celebrity surrounded by crowds and cameras. Apart from the cameras and the press, Buffett lives a normal life.


Buffett's house was bought at $31,000 60 years ago in Omaha and he never transferred houses ever since. His children studied in a public school where Warren and their descendants also did. Buffett doesn't feast at expensive restaurants. There's this local steakhouse named Gorat's that he really loves where he orders T-Bone, double order of hash brown, 3 cherry cokes, and a chocolate sundae for dessert. His breakfast is usually peanuts and Coca-Cola. He doesn't drink much water. He eats banana cream pie and strawberry shortcakes. Whether house, education, food or stocks, he knows what he likes.


Warren Buffett and Bill Gates are best friends since Gates was 25. They alternately take the position of #1 at the Forbes' list every year, but they never take it seriously. For them, they are just enjoying what they are doing. The best part is they even learn from each other; they never compete.


How Buffett becomes the top 1 or 2 at the Forbes' list is simply by investing and not speculating. Charlie Munger also helps him in fulfilling their checklist of the businesses to invest in. One their famous companies is Coca Cola where they own 10 billion dollars worth of Coke shares. With his great investments like Coke, Buffett grows 20% a year and more. A thousand dollars put in Berkshire shares in 1965 is now worth 5 million dollars.


Buffett's curiosity and interest in investing began at an early age. He read Moody's Manual and scrutinized each company and tried to find out which ones are worth buying. He has come a long way up, indeed. His first investments taught him lessons like the one's of Dempster Mills: don't just buy shares; own them! Own businesses that own other companies!


Truly,

Berkshire Hathaway will continue without Buffett. His daughter Susie said, "I am not lucky to have a rich famous dad. I am lucky because I got him." Warren Buffett is truly a legacy.


Full Transcript


What makes a billionaire? It isn't the money; it isn't the fame; it isn't the business. So what really makes a billionaire?


Warren Buffett has more money than the gross domestic product of more than half of the countries of the world. How he made it - by simply investing in the right companies.


Buffett is different from the other rich people in the world, because he developed his own business empire. For him, what you see is what you get.


Buffett as the Face of the Rich

Buffett personally owns a quarter of the enterprise. What's amazing is their headquarters has been their headquarters for so many decades already. It already holds lots of memories and transformation, because it's where Buffett started buying companies and making investments. Until today, he has less than 20 in the team who manages the entire Berkshire Hathaway holding.


Every year, there are about 35,000 shareholders of Berkshire who do the pilgrimage to attend the annual shareholders meeting. Actually, anyone can buy their shares of the company and have a piece of Buffett's success! At the meeting, Buffett is like a celebrity surrounded by crowds and cameras. However, away from the spotlight, he lives in a very different world: the real world.

Buffett's house was bought at $31,000 60 years ago in Omaha and he never transferred houses ever since. If he wanted to own a house in every state, he could and he would, but he wouldn't want that. For Buffett, his house is warm in the winter and cold in the summer; it's perfect.


Known to the public, Buffett and Gates are best friends. Aside from that, they also alternate every for the #1 spot of the richest man on Forbes' list. Last year, it was Buffett, so this year is Gates. They never take the matter seriously. In fact, they joke about it. They never let the ranking affect their friendship. They've known each other ever since Gates was 25 years old. Like father in relationships, Gates is willing to learn from Buffett. They enjoy each other's company talking about business and eating junk food.


Grab the Chance When It's There

On the contrary, Buffett takes it slowly. He invests instead of speculates. There is a meaningful distinction between making money between investment and speculating. Investing is knowing what kind of return you'd get. For example, when you own a farm, you look at the return from the farm itself, and not the price of the farm.


Other inventors watch the prices every minute hoping they'll go up, but until now, not one is as rich as Buffett. Charlie Munger helps him invest in the names in their checklist. Of course, before company names get in their list, Buffett and Munger make sure they understand what they want to enter. It needs to have intrinsic characteristic that gives a durable advantage. The management should also have integrity, plus the price should make sense.


Coca Cola used to be in Buffett and Munger's list. It has made great marketing over the decade. They are a good product and team. In the 80s, it ticked all of Buffett boxes! Coke has an excellent value in a comfortable margin. Berkshire bought so many shares for as much as they could buy. They were very aggressive! Within 4 years, their investment tripled in value and they never sold a stock ever. Today. they own 10 billion dollars worth of Coke shares.


With his great investments like Coke, Buffett grows 20% a year and more. A thousand dollars put in Berkshire shares in 1965 is now worth 5 million dollars.


Dig Holan is a Berkshire shareholder living the Buffet formula. He trusted his money with Buffett and Buffett has made him vey rich. Buffet is grateful to Dig, because he worked with him when he was 26. Dig bet on him when the richest person in the world didn't bet on Buffett.


Buffett's Other Side of the World

Back in the days, Buffett's father, Howard Buffett was a stockbroker - a tough position in the depression years. Later, Howard was elected to Congress, so the family moved to Washington where Warren discovered money-making.


Buffett had a chain of pinball machines in a barbershop and he rounded newspapers in his block. He was earning more money than his teachers!


Although business-minded, he had lesson troubles. He was very good in Omaha, but then they moved to Washington. In Washington, he stole golf balls to show he wasn't happy with the world. Despite the setbacks, Warren managed to get up and at 13, he completed his own tax return. At 17, he said he'll be a millionaire at age 30.


After he left school, Buffett studied in New York with Ben Graham who authored The Intelligent Investor. The book introduced Mr. market, the most impotent thing Buffett learned in his investing life - the market is there to serve you and not to instruct you.


In his 20s, Buffett moved from New York to Omaha to marry Susie Thomson. They had three children who were never spoiled. Peter Buffett had $5 to buy food at McDonald's and he had to return the change. Warren put a slot machine at the 3rd floor of their house and everybody in the neighborhood thought it was the coolest thing ever. Warren got all the money back all the time. Susie never got the money back.


Buffett has always wanted in invest in great companies using Moody's Manual, so he would scrutinize it and look for undervalued companies. Undervalued companies are cigar butts that are almost nothing, but still one last puff left.


Buffett bought a company in the small town of the Acres and became the owner of one of the town's biggest employers, Dempster Mills. The company made industrial machinery, but didn't make money. Buffett hired Harry someone else to try to turn it around. The man he hired was unquestionably the man of the year.


It's a Long Way Up

Buffett's empire has come a long way. His shareholders meetings are evidences to it. His experience at Dempster Mill taught him a lesson to not just buy shares; own them! Own businesses that own other companies!


Berkshire Hathaway Holding is a strange mixture of children's toys, metal working solutions, hardware, clothes, candies, and lot of different companies. Buffett runs it by applying the lightest hand of the tiller.


Kevin Clayton says Buffett never looks at the sales every day nor does he spend time to visit his businesses. He just asks them to submit whatever reports there are. Buffett's job is to allocate the capitals successfully. It means taking the profit of one business and investing them in another. Persuasion is the net remarkable skill of Buffett. He convinced his manger of one business to use it in another of his business.


Before college, Buffett was terrified at public speaking until he took a Carnegie course and started teaching to apply it. Although he is super rich, he doesn't have a diploma in college nor in graduate school, but his diploma in Carnegie changed his life.


Berkshire's website has all the reports since 1994, but there are no pictures. He said, "Why waste money on a designer?" Buffett's style is not just charming, but it is also a financial asset. He bought the Nebraska Mart from a lady who couldn't read or write. She just saved $500 and invested on furniture. The Nebraska Mart still runs today managed by his grandson.


Soon after he bought the furniture mart, he became a billionaire. Behind his billionaire feels is the insurance business. His insurance companies are at the heart of Berkshire Hathaway, especially GEICO. Insurance float made it different from Wall Street. They can invest without borrowing money.


Many smart people have gone broke through leverage. A smart person can't be broke ever unless he uses leverage. Buffett is very conservative, so he does not like having a debt nor lending debt as much as possible. When Susie was pregnant, he tried to loan $30,000 from Warren, but he didn't let her, so Susie didn't push through her plan of renovating their kitchen at home. There were no hard feelings.


Buffett does not lend money, but he is so generous. His son Peter is a musician, and he knows he must not expect to inherit his wealth. They understand it, because they know they have to work hard for it. The children inherited some shares from Berkshire Hathaway, but Peter sold his to fund his music. He had his choice. He said, "Your money your life. I'd rather have my career and life built than $60 million dollars."


A Billionaire's Lifestyle

Buffett doesn't fly to expensive restaurants. He simply likes the local steakhouse at Omaha, Gorat's. Buffett likes a T-Bone, double order of hash brown, 3 cherry cokes, and a chocolate sundae for dessert. He does not eat vegetables and seldom eats tomatoes. His breakfast is peanuts and Coca-Cola. He doesn't drink much water. He eats banana cream pie and strawberry shortcakes. Whether food or stocks, he knows what he likes.


Buffett doesn't go out of his way to be different; he's just very confident. He's happy to be deeply conventional. However, something unconventional was when his wife Susie left Omaha to live a new life in San Francisco. It wasn't a total marriage breakdown though. They still talked to each other. Buffett was married to Astrid with Susie's blessing before she died.


Stocks at Omaha

In Omaha, it's easy to avoid the trending stocks. Taking the unfashionable deals is the real trend. While many professional quick profits, they also make quick loses. In short, Buffett is everything that Wall Street isn't.


Solomon brothers was in trouble with the financial authorities in Wall Street, and Buffett owned shares from them. He was ready to lose a part of his wealth when was forced to step in. The bank failed to report some illegal trading of the stocks. The Solomon Brothers was about to be sent away and lose everything, but Buffett stood on the line of career and failure and begged the juries to stop. Because they consider Buffett as honest and trustworthy, they didn't not close down the Solomon Brothers.


Berkshire will continue without Buffett. His daughter Susie said, "I am not lucky to have a rich famous dad. I am lucky because I got him." Warren Buffett is truly a legacy.