Warren Buffett has been called the Oracle of Omaha for quite some time. Why? His amazing success with investments far away from Wall Street seems to be the primary reason. What could we learn by studying this amazing man? Plenty is my answer. We can go back and review his life and see what clues he has left for us to follow so we too can become successful with our investments AND our life.
Warren was born in 1930 to a family who had enough to get by, but not much more as they tried to survive the Great Recession. This led him to create some side hustles for extra cash. As a small boy he would sell newspapers and magazines, buy a six pack of coke and sell each bottle individually. He did the same with gum, selling piece by piece. Thinking and acting outside the box can open up opportunities.
Warren did not have an ideal childhood. His mother was verbally abusive and by all accounts, bipolar. Warren had to figure out how to get along with a mother who would fly off the handle and any moment. It wasn't easy for him and his sister, Doris. He learned how to cope with a difficult situation without losing hope for a better future. He has been resolute throughout his life. We must be resilient.
Warren started bugging his dad to help him start investing. He wanted to get started young. His father finally relented. Warren Buffett starting investing at age 11. He bought three shares of Cities Service Preferred Stock through his father's brokerage. Even at that young age, Warren understood that he had to save money and then invest it in assets that can appreciate over time. Starting early is smart.
Warren never stopped investing from there. He kept working and kept saving and investing. He even bought a farm while he was in high school! He wanted to go straight into business after high school, but his dad required him to go to College. He got turned down by Harvard and ended up at Columbia. There he found a wonderful teacher in Benjamin Graham. We must find the right teachers.
Warren graduated from college with about $10,000 in liquid savings. In today's dollars it might equal about $132,000. With no debt and that kind of money, you might think he was set. What really made the difference for young Warren was that education he received from Benjamin Graham. That would be something that paid off handsomely over time. No one can take knowledge away from you.
Warren worked for the next few years under his father's firm as an investment salesman and analyst. He finally took the plunge and became the chairman and CEO of Berkshire Hathaway in 1970. Prior to that Warren thought about working on Wall Street, but his father and Graham talked him out of it. He would stay in Omaha and create value there for his future clients. Be willing to go your own way.
Warren became a millionaire, starting in 1962. That was a lot of money back then. Did he hit it big on every investment he made? Nope. Some went South, but that did not deter him. He stayed with it and continued to learn and grow in his chosen field. This became relatively simple because he loved what he was doing. It is much easier to improve and thrive when you love your work.
Warren continued to build his brand over the coming decades. Hitting on some winning businesses and losing on others. He won more than he lost. He became famous for studying every detail of a company to understand it's actual value and then once he purchased the stock, he went all in, being on the board and assisting with managing it's future earnings. Do your research and then fully commit.
Warren was working with Charlie Munger over these many decades. He knew who to bring into his life and who not to. Warren was big on surrounding yourself with the right people and Charlie was one of them. He became a sounding board as they discussed ideas, good and bad. We all need those folks in our life who will provide us the truth. We need to surround ourselves with great people.
There were ups and down over those many decades. Warren was able to deal with problems without it affecting his investing abilities. When bad events occurred he would deal with them directly with as much transparency as possible, building trust with those he was dealing with. This endeared him to many as someone they could trust with a handshake and his word. Being trustworthy pays big dividends.
Fast forward a couple of decades and that is when Warren became a billionaire. He lifted up many as his fortune was created. He demonstrated how you can create value and wealth without hurting others. He did a lot to help the "little guy" as they purchased Berkshire Hathaway stock. The average return over time has come in at around 20% per year. It pays to invest in the stock market.
Warren now gives advice to the average investor and it is pretty simple. Do not try to pick individual stocks, Wall Street has advantages that go far beyond anything the average retail investor can know. Own index funds is his advice. Focus on the S&P 500 Index primarily and minimize your fees. That advice has been great over the last 50 years and it likely will serve us well over the next 50 years.
Warren is well known for his frugal nature. He still lives in his home he purchased in 1958 for $31,500. He is often seen dropping by McDonald's and picking up an Egg McMuffin, with a coupon. He knows the value of a dollar and he hasn't allowed the idea of spending money needlessly to creep into his life. Money does not control Warren, he controls money. Lifestyle creep should be avoided.
Warren's focus was not on how much he earned. He paid himself a salary, but nothing extravagant. It was usually around $100,000 a year. He knew it came down to how much he saved and invested, not how much he made. Compound interest would do its magic over time and it certainly did. The wealth occurred because he put time on his side, starting early. Saving and investing wisely is how wealth is created.
Warren became famous for reading all day with Munger doing the same. Learning more while making only a few stock decisions was the key. Saying no was required while managing the ego was mandatory. Warren made it clear that staying in his zone of knowledge was critical while avoiding areas where he did not have expertise. Wisdom came to him bit by bit with every book and new experience.
Warren Buffett has donated $68 Billion to charity (more than any human being ever) and plans to do more when he passes. He has demonstrated with his life how a person can create wealth for him, his family, and thousands of others, while still helping those that are needing some help along the way. What a wonderful example that is to us all. Thank you Warren. You have been a shining light to us all. I salute you!
