Happy Fourth of July!  While the rest of the country celebrates with the customary barbeques, fireworks and road trips, I thought a fitting way to celebrate America would be to learn about one of its greatest businessmen, investors, and now philanthropists, Warren Buffett.  Buffett, the world’s 2nd-richest man behind Bill Gates, just announced he’d be giving away most of his $44 billion dollar fortune to the Bill and Melinda Gates Foundation.  This single act of charity has made Buffett the greatest philanthropist ever - the gifts of famous givers of the past like Carnegie and Rockefeller, adjusted for inflation, don’t even come close.  What better way to celebrate independence than by learning how a great man achieved his own financial independence?

Warren E. Buffett, b. 1930, investor, businessman, philanthropist, Berkshire Hathaway Inc.

Background

• Born to a stockbroker-turned-Congressman father.
• Started making money at age 6 by reselling bottles of Coke.
• Bought his first stock at age 11 for $38/share and sold at $40/share, only to watch it rise to $200/share.  The experience taught him to be patient with investing.
• Earned a Masters in Economics from Columbia Business School under the mentorship of Benjamin Graham, a.k.a. the "Dean of Wall Street" and author of The Intelligent Investor

Accomplishments

• Started his first investment partnership, Buffett Associates Ltd., in 1956.  As general partner he contributed $100, and had seven limited partners who contributed $105,000.  Over the next 13 years he achieved 30% year-over-year gains, compared to ~10% for the general market.  Buffett’s investment strategies focused on finding undervalued companies and purchasing significant holdings large enough to effect change in the companies.
• Continually adding on new investment partners, Buffett merged all his parnerships into Buffet Partnerships, Ltd and moved the operations to New York.  Buffett found a textile manufacturing firm, Berkshire Hathaway, and aggressively purchased every available share to gain a controlling stake.
• Buffett liquidated his other investments except for Berkshire Hathaway, where he used the small textile profits to transform the company into a holding company focusing on insurance and banking.  By 1970, textile profits were $45,000, while insurance and banking brought in $4.7 million. 
• Through savvy investment and management decisions, Buffett has grown the share price of Berkshire Hathaway from $8/share in 1962 to $91,600/share today.  Berkshire stands as one of only seven companies to have Moody’s Aaa credit rating, the highest possible.
• Known as the "Oracle of Omaha", Buffett’s annual reports and shareholder meetings are followed and analyzed with a near-religious fervor.

Fun facts

• Despite having such a large personal fortune, Buffett almost never sold any of his own Berkshire shares – he lived off his CEO’s salary of $100,000 per year.
• Buffett has never lived like a wealthy man – he lives in the same house he purchased in 1958, loves eating at Dairy Queen and drinks 15 cans of Coke each day.
• Though it generates billions in annual profits, Berkshire Hathaway only has 13 full-time employees.

Lessons

• Though he is the public face of Berkshire, Buffett is quick to point out that much of his success is due to forming the right partnership with the right person – Charlie Munger.
• Buffett views his role primarily as a capital allocator – his job is to find the right companies to invest in, while giving the existing management full freedom to continue running their operations.
• Buffett and Munger believe strongly in choosing the right workers and giving them as much freedom as possible.  They are famously hands-off and avoid doing anything that someone else could do better.

Quotes

• "Risk comes from not knowing what you’re doing."
• "I don’t look to jump over 7-foot bars: I look around for 1-foot bars that I can step over."
• "We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful."
• "You do things when the opportunities come along. I’ve had periods in my life when I’ve had a bundle of ideas come along, and I’ve had long dry spells. If I get an idea next week, I’ll do something. If not, I won’t do a damn thing."
• "It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently."

More Reading

• Wikipedia: Warren Buffett
• About.com: Warren Buffett Biography
• AskMen.com: Warren Buffett
• Fortune.com: Warren Buffett gives away his fortune

The more I learned about Buffett, the more I came to admire him; not only for what he did, but how he did it.  Here is a guy who’s achieved more financial success than anyone could ever hope for, and has managed to do so while maintaining a great reputation for humility, humor, fair play and strong morals.  He’s become a hero for those who believe that being a decent person and being successful in business are not mutually exclusive, which happens to be something we’re trying to show as well.  

It just so happens that today we’re also celebrating our Two-Bit Independence – it’s been 5 months to the day that we left our corporate jobs to start up this start-up!  It’s amazing (and scary) how quickly time passes – we’ve gotten a ton of stuff done, but there’s still so much left to do.  It’s been a fun and crazy ride, to say the least.  The coming month is a particularly busy one and a bit of a make-or-break time for us – stay tuned for more on that.

-JL

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