Billionaire: Warren Buffett
Wealth: $47.0 billion
Source of Wealth: Berkshire Hathaway
Berkshire Hathaway founder Warren Buffett was not born into a billionaire family; he is self-made. Few ever become billionaires, but anyone can benefit from analyzing Warren Buffett’s approach and the thinking behind Berkshire Hathaway.
The future billionaire was born in Nebraska in 1930. His father, Howard Buffett, was a four-term congressman. The roots of Berkshire Hathaway can be seen in Warren Buffett’s earliest years. How many children are willing to sell door-to-door as he did?
Warren Buffett had a newspaper route in high school, sold stamps and golfballs, and even detailed cars. Showing initiative common to billionaires, he filed his first tax return at age 14, taking a $35 business deduction for his watch and bicycle. A year later, Warren Buffett and his partner put a used pinball machine in a barber shop. The future billionaire didn’t stop there, however; within months they added several more locations.
Warren Buffett took an early interest in the stockbroker business, spending many hours at a regional brokerage office picking the brains of people in the Customer Lounge. His acquisition of three shares of Cities Service Preferred stock at the tender age of eleven was unusual, even in the life of a billionaire.
As a teenager, Warren Buffett invested in a tenant-run farm and one of his father’s businesses. In college, he continued on his path to billionaire. Most college students graduate with substantial debt; Warren Buffett did so with assets, if inflation-adjusted to 2009, of $90,000.
Warren Buffett’s basic philosophy is to use market fluctuations while constantly striving for a safety margin. It’s easy to invest recklessly; a billionaire doesn’t take unnecessary chances.
The roots of Berkshire Hathaway can be found in Buffett-Falk & Company, formed by Warren Buffett in 1951 where he sold investments until 1954.
After taking a Dale Carnegie public speaking course, Warren Buffett taught a night class in investment principles, with his students averaging twice his age. The billionaire always stresses constant education focused on one’s life goals. He values teaching, primarily because it forces one to clarify his own thoughts before making an idea clear to others.
Warren Buffett considered Benjamin Graham, author of “The Intelligent Investor,” to be a mentor, giving him substantial credit for his rise to billionaire. Starting work for him in 1954, Warren Buffet thought Graham a difficult boss, losing investment opportunities by demanding too great a safety margin. Warren Buffett does realize a billionaire needs no unnecessary risk, but without boldness, that billionaire remains a mere multi-millionaire.
When Benjamin Graham retired in 1956, Warren Buffett had a net worth of almost $200,000. The following year, he purchased a five-bedroom house where he still lives; an extremely odd dwelling for a billionaire.
In another milestone toward billionaire, Warren Buffet’s net worth increased to just over $1,000,000 in 1962 and he merged his various partnerships into one entity. The not-yet billionaire then focused on Berkshire Hathaway, a textile manufacturer. To Warren Buffett, the key was Berkshire Hathaway’s working capital of $19 per share, which didn’t include manufacturing facilities, not the $15 per share price.
In 1969, Warren Buffett liquidated his partnership, including Berkshire Hathaway shares. As Chairman of Berkshire Hathaway, Warren Buffett took a mere $50,000 annual salary, also odd for a budding billionaire.
In 1979, a share of Berkshire Hathaway stock soared from $775 to $1310. At $620 million, this put him on the Forbes 400 list; not yet a billionaire, but close.
A $3.5 billion purchase in 1985 gave Capital Cities control of ABC. It was partially financed by the near-billionaire’s company, Berkshire Hathaway, in exchange for 25% of the newly combined enterprise.
In 1988, Warren Buffett had Berkshire Hathaway start buying Coca Cola stock, eventually acquiring about 7% of the company. This remains one of Berkshire Hathaway’s best investments. Berkshire Hathaway started selling Class A shares in 1990. By 1998, Berkshire Hathaway stock had risen enough to finally make Warren Buffett a billionaire.
In 2002, Berkshire Hathaway began speculating on foreign currency forward contracts. Four years later, Berkshire Hathaway was over $2 billion ahead. That year, he also announced he would donate 85% of his Berkshire Hathaway stock to charity and that he was looking for a successor to run Berkshire Hathaway.