In this post you will learn how Warren Buffett, the world’s greatest investor and one of the world’s richest men, made his first million dollars. How he went from zero figures to seven figures at age 31. You will understand the events, characteristics, and of course investments, which were pivotal for Buffett to become successful at such a young age. But first, here’s a little rant. Some of the most popular videos and posts within the field of investing and personal finance on YouTube these days are those that cover Buffett’s most recent moves in the stock market. Whatever the world’s greatest investor is doing, you should be doing too, right? WRONG.
Let me explain Today, Warren Buffett is managing a portfolio of companies worth hundreds of billions of dollars at his Berkshire Hathaway. The difference between making money when you are managing such sums and when your net worth is, say,$1,000 - $500,000, is like night and day. You play a totally different game, and its actually rigged in the smaller investor’s favour.
Just look at this graph, which presents how Buffett’s wealth has been growing during the last 10 years and compares that to how fast his wealth grew when he was in his 20s. In terms of percentages, this is a landslide victory for the younger Buffett. Buffett would never act like he is acting today if he had $1,000-$500,000. He would do something similar to what you will learn about in this post. And you should too. This is the Healthy Mind - Think Big, bringing you the best tips and tools for reaching financial freedom, through stock market investing.
Our story begins in 1936, when Warren Buffett was 6 years old.
BUFFETT THE GRIDER (1936)
Ever thought that Buffett was handed everything on a silver plate? Well, he did have two great entrepreneurial role models in his father Howard and grandfather Ernest, but the money, he had to grind for himself. He earned his first few bucks by going door to door selling chewing gums. He bought these packs from his grandfather’s grocery store and earned 2 cents in profit for each whole pack that he sold. Only 50 million packs to go before he could reach that first million! Another excursion into high-margin retailing was Buffett’s door to door selling of Coke. He purchased a pack of 6 for 20 cents and could sell it for 25 cents. As a young boy, Buffett said that if he couldn’t a mass a fortune of at least $1 million by age 35 he would jump off the tallest building in Omaha. We’re lucky that he eventually found other ways of making money than through chewing gums and Coca-Colas.
BUFFETT THE DETECTIVE (1936)
Buffett was a truly curious child, and was looking for an informational edge everywhere, just like a great investor does. One interesting example of this is that he was a collector of bottle caps. He gathered them in order to be able to know which soda was the most popular one. Judging by what he was selling, I guess he must have concluded that it was Coke.
Another, more amusing story, was when he and a friend began writing down the license plate numbers of cars on a particular road in his hometown Omaha. This road was the only one leading to the Douglas Country Bank. Warren said that, were the bank ever to be robbed, the police would need this information, and him and his friend would be the only ones sitting on it. Was this an early attempt at “cornering the market” perhaps?
BUFFETT THE MATH (1936)
wiz Warren Buffett loved everything about statistics and numbers. For example, he had found a huge record of historical composers and decided to use this information to determine whether it was worth being religious or not. How? Well, he compared the lifespan of the hymn composers (those that were writing about Christian worship) to all the others. Disappointed, Buffett’s math concluded that the faithful composers weren’t rewarded with longer lives than anyone else.
BUFFETT THE BOOKWORM (1936)
Warren Buffett spent much of his time as a kid at the Benson Library in Omaha. He was reading everything he could get his hands-on and one day he found a book that seemed particularly useful. It was called “One Thousand Ways to Make $1,000”. Multiplying 1,000 with itself, Buffett realized that if this book could keep its promise, this was everything he needed to make that first million. And perhaps it would be quicker than going door to door selling 50 million packs of chewing gums? The book conveyed an important message: Never before had the times been so favorable for someone with little capital to start his own business. But "You cannot succeed until you start. You must start today." By the way, this book was first published in 1936, and it was correct in saying that it was easier to start a business without much capital at that time than it had ever been before. But in today’s age of software and the internet, I’d say its at least 10x easier now than it was in the 1930s. But, just like the book says, you cannot succeed until you start. We’ve now come to the point where Buffett decided to make his first move in the stock market.
BUFFETT'S FIRST INVESTMENT (1942)
Thanks to his relentless efforts, Buffett had now amassed about $120. Before you scoff at that, consider that, due to inflation, $120 in 1941 is the equivalent of $2,125 today. At age 11, that is pretty damn impressive. Buffett had already understood the power of compound interest and he desperately wanted to get ahead of the curve. He knew that once that snowball of wealth started to roll, nothing would be able to stop it. Going pretty much all-in,
Buffet now bought his first few shares in the stock market. The company was called Cities Service, and he bought three of its preferred shares for a total of $114.75. The shares … immediately dropped. Not only had Warren invested all of his hard-earned money, he had also convinced his older sister Doris to invest with him. Doris picked on Buffett every day in school, reminding him that her shares were falling in value. Buffett felt terrible. At one point he got a chance to cash out at a $5 profit for both of them and so he did. Puh! Or perhaps not so puh. It didn’t take long for the Cities Service Preferred to soar to $202 a piece. Warren Buffett learned (at least) two valuable lessons from this experience: Firstly – do not fixate on what price you paid. Secondly – do not rush to grab a small profit. Considering that it took Buffett about 05 years to accumulate those first $120, you’d understand why he was grieving when he realized that he was sitting out on a $492 profit.
BUFFETT'S MOTIVATION (1943)
Howard Buffett, Warren’s father, was elected a Congressman to represent his state in Washington, and so, the Buffett family moved there in 1943. Warren didn’t like it there at all and insisted on being sent back to Omaha to live with his grandfather Ernest. His wish was granted. On the week-ends during this time, Buffett worked at his grandfather’s grocery store. Buffett later said about this experience: “I may have been the lowest-paid person to ever work in the grocery business. I didn’t learn anything – except that I didn’t like hard work.” Warren’s grandfather Ernest was hilarious by the way. In addition to running a grocery store, Ernest dreamed of one day becoming an author. He had written a book which he decided to call “How to run a grocery store and a few things I learned about fishing.” Luckily, Warren’s father, the stock broker and Congressman, had a greater influence on Warren than Ernest did.
BUFFETT THE NEWSPAPER BOY (1944 - 1947)
Buffett’s reunion with Omaha didn’t last for long though as in late 1943, he was called back to his family in Washington. He still didn’t like it. But he liked to earn money, and so he started to deliver multiple newspapers. Once again, Buffett showed his determination to get ahead of the curve. He was no longer earning pennies either. By the end of 1944, at age 14, he was the proud owner of $1,000,or $14,795 in today’s money. This year, he also filed his first tax return. We can see that Buffett was quickly gaining momentum, increasing his income from the newspaper routes from $42 in July 1944 to $86 in November & December during the same year. Buffett deducted his bicycle and wrist watch, which he knew was kind of questionable. He paid a total of $7 in taxes that year. By age 16 he was making $175 a month from his newspaper routes. To put that number in perspective, the average engineer in 1946 could expect to earn about $392 monthly. Even through I do not doubt that Buffett was quite efficient when delivering his newspapers, he was basically working a full-time job while in high school.
BUFFETT THE BODYBULIDER? (1944 - 1945)
You clearly can’t have everything in life, and what Buffett had in his wallet, he lacked in the girls department. Like many other boys before and after him (yours truly included), he decided that the answer to this dry spell must be to start on a weight lifting routine. Inspired by Bob Hoffman and his magazine “Strength and Health”, Buffett bought a set of dumbbells and a barbell to keep in the family basement. He was disappointed though and said that no matter how many curls he did, his arms didn’t become much larger.
BUFFETT THE FARM(OWN)ER (1945 - 1950)
Doubling his money in a year, now at $2,000 at age 15, Buffett became the owner of a forty-acre farm in Nebraska for $1,200. In other words, he put 60% of his net worth into this stuff, quite a bold move. With smaller sums of money, you can afford not to diversify so much. Buffett shared the profits with the tenant farmer who worked there. Remembering the days at the grocery store, Buffett thought he had made a tremendous deal here. He didn’t have to do any of the physical work himself! Warren sold the farm in 1950 at 2x the price he had paid for it and in the meantime, he had received profits from the land for 5 years. Impressive stuff.
BUFFETT THE ENTERPRENEUR (1946)
One of the ideas in the book “One Thousand Ways to Make $1,000” stood out to Buffett. This was the idea of buying a scale and having people pay to weigh themselves. It wasn’t specifically the weighing machines that Buffett was impressed with, but the exponential growth that could occur if the money was reinvested in buying new scales. If it took 30 days to buy the second scale with profits from the first one, it took just 15 days to buy a 3rd one. 10 days to buy the 4th,7.5 days for the 5th, and so on. Buffett never bought any scales, perhaps he decided that it would be too difficult to collect the money, but he used the idea in forming his first business partnership with his friend Don Danly. They decided to buy pinball machines. The business plan looked like this: - Warren would buy old pinball machines, “fixer-uppers” at the price of $25. The new ones were $300, so the old ones would have a much greater return on capital - Don Danly would repair these machines - The machines would then be placed at local barbershops and profits would be split with the barber. Warren and Don had to convince the barbers that repairing pinball machines was an art, truly difficult, so that the barbers wouldn’t start to compete with the boys. Buffett and Danly quickly built up a small empire of machines, and everybody in high school knew about this at the time, so Buffett and Danly were the cool kids for a while. Buffett was able to sell this business for $1,200 before graduating from high school.
BUFFETT'S HIGH SCHOOL PROMISE (1947)
It wasn’t entrepreneurship that seemed the most alluring at the time though. When Warren Buffett graduated from high school he put “future stockbroker” under his picture in the yearly school book.
BUFFETT AND COLLEGE (1947 - 1950)
Buffett attended Wharton School at the University of Pennsylvania in 1947. He didn’t actually want to go to college himself, he thought it was only going to slow him down as he was already making enough money. However, Howard wanted him to go, and he couldn’t defy his father on something so important. Buffett’s favorite class at Wharton was “Industry101” where the course curriculum included the ins and outs of running a business within a few of the largest industries at the time such as Textiles, Steel and Petroleum. Howard Buffett didn’t become re-elected in 1948, so the family moved back to Omaha and for Warren’s final year of college, he chose to go to the University of Nebraska. There, he took classes in accounting, which he now refers to as “The language of business”. It would be an understatement to say that Warren Buffett thinks that any ambitious investor must learn to speak this language fluently. At fraternity night parties Buffett was very shy when discussing topics such as girls and sex and he didn’t like either drinking or small talk. He did attract attention though, and could almost always be seen sitting with a small crowd in a corner, lecturing about subjects such as Stocks, Money, Business & Politics. Up until the age of 19, Buffett had devoured every book he could get his hands on within the field of investing. He read classics such as “New Methods for Profit in the Stock Market” and “Technical Analysis of Stock Market Trends”. He had been lead astray more than a few times, trying to master the arts of technical analysis and candlestick charts. Yes, even Warren Buffett tried to be a trader at one point. I guess we all have to go through such a phase. That was about to change.
BUFFETT THE INTELLIGENT INVETOR (1949)
With a net worth of around $9,000 Buffett was probably the richest among his friends, but he had built this fortune primarily through selling newspapers and through his entrepreneurial endeavors, not through investing in the stock market. I repeat: That was about to change. In 1949 Benjamin Graham released the book "The Intelligent Investor". Graham had long been a successful “value investor”, pretty much the polar opposite of a technical trader, and his fund The Graham-Newman Corporation had outperformed the Dow consistently since its inauguration in 1936. The Intelligent Investor pushed three big ideas about the stock market which Buffett instantly connected with: -
Intrinsic Value: A stock is apiece of a business which means that it has an intrinsic (or real) value
Mr Market: The stock market swings from too pessimistic to too optimistic. A true investor is not swayed by Mr Market’s unpredictable moods and merely sees rising and falling prices as an opportunity, not as a conveyor of information.
Margin of Safety: Decisions in the stock market must always be made with a built-in margin of safety. This means that you should insist on buying stocks with a large discount to the intrinsic (or real) business value.
Something in Buffett just clicked with this. He had seen the light. During this time Warren did something which, in the long run, became one of his greatest assets. He started to study individual companies to build up an internal and mental library of stocks. He read the Moody’s and Standard & Poor’s Manuals page by page, learning about several hundreds of companies. The Moody’s Manual he even read twice. In addition, he looked at something called the Pink Sheets, a weekly which gave information about companies too small to be traded on a stock exchange. There was also the National Quotation book, with an edition every six months, which presented companies so small they couldn’t even make it into the Pink Sheets. This is also important. For the investor with a small account, smaller companies are important to consider, there’s just so much less competition there.
BUFFETT: THE A+ STUDENT (1950 - 1951)
During high school and (lower) secondary school, Buffett wasn’t doing too well as a student. He didn’t exactly flunk, but he didn’t live up to his father Howard’s expectations either. Howard even threatened Warren that he’d have to give up his newspaper routes if he didn’t improve his grades at one point. That of course, had the effect Howard wished for. Warren was NOT going to give up his largest stream of income. After graduating from college Buffett had set his eyes on Harvard Business School. He was rejected though, as he was not deemed to be a future “Leader" still, still too boyish for his age. This turned out to be one of the happiest misfortunes of Warren’s life as he had now learned that his favorite investor – Benjamin Graham – was teaching at Columbia Business School. Buffett decided to try his luck by applying there instead. Even though his application arrived after the deadline, he was accepted to the school, without an interview. When Buffett started at Columbia in 1950 he had $12,500 to his name, of which $500 was a scholarship and $2,000 came from his father Howard, some kind of combination of a graduation gift and a deal not to start smoking. Before his introductory course at Columbia, “Finance 111-112: Investment management and security analysis”, Buffett had already read the course material, which was Benjamin Graham and David Dodd’s masterpiece - Security Analysis. David Dodd, who kind of acted as the junior partner of Graham, and who was teaching the first course, loved Warren for this. Buffett basically knew the book better than its authors did. Benjamin Graham wasn’t just a teacher at Columbia, he was also a partner in a fund, some would call it the first hedge fund, Graham-Newman. One thing that I find quite funny is that Graham used to teach using real-world examples in his class at Columbia, and in that, he was giving away a few of Graham-Newman’s best investment ideas. The students would then rush to buy these stocks, so that they became too expensive and were no longer worth acquiring. The other partner in the firm, Jerome Newman was furious about this. But apparently, Benjamin Graham thought that they were making enough money already so, who cares? Nonetheless, Graham-Newman did beat the Dow by an average of 2.5% per year over its 20 years of existence, a record that few can compete with.
Finally, Buffett had found teachers who were teaching something interesting and useful to him. While he produced mostly Bs, Cs and Ds in upper secondary school and high school, he was the first person ever to receive an A+ in one of Benjamin Graham’s courses. Buffett was the greatest student to ever take the course.
BUFFETT THE INSURANCE KING (1951)
Well, perhaps would be insurance king. During his time at Columbia, Warren Buffett had found out that Benjamin Graham was the chairman of a company called Governmental Employees Insurance Company. I’m not sure if it was Buffett’s skills as a detective which revealed this or if Graham just spilled the beans in class. Anyhow, does it sound familiar? That’s because this is the company which was later renamed GEICO, and eventually became Warren Buffett’s greatest investment of all time, in terms of perceptual returns. On his 1976-1980 purchases, GEICO became a 1000 bagger for Buffett. An important step in Buffett’s career was on a Saturday morning in January 1951, when he decided to travel down from Columbia in New York, to GEICO’s headquarters in Washington. He wanted to learn more about the company and about the insurance business itself. Buffett simply went to the office and knocked on its doors. There, he met Lorimer Davidson, who was an assistant to the president of the company. Upon understanding that Buffett was an unusual kid, who had prepared himself well for this meeting Davidson decided to give Buffett some four hours of his time instead of the initially planned 5 minutes. Buffett just kept asking questions and he soon learned about what’s important in the insurance industry, why GEICO was gaining in market share and which competitors the company had.
Buffett decided to bet big. By year-end 1951, Buffett had 65% of his net-worth in GEICO. The share quickly rose 50% in 1952 so Buffett decided to sell off and switch into another insurer, Western Insurance Securities, a company which was trading at a P/E of just above 1. Buffett notes: "a p/e ratio that for some reason caught my eye.” GEICO itself was, at the time, selling at about eight times its earnings. But yeah, Buffett would return for more later.
BUFFETT AND SUSIE (1951 - 2004)
Buffett had had some difficulties in the girls' department up until this point in his life. He was sad to see that girls didn’t want to hear about Benjamin Graham or concepts such as Mr Market and a Margin of Safety (I know that feel). However, times were about to change in the summer of 1950 when his younger sister Roberta set him up on a date with a girl named Susan(or Susie) Thompson. Problem was that Susie was already kind of taken, by a guy named Milton Brown. Luckily for Buffett, Susie’s father, Bill Thompson, didn’t approve of this Milton-guy. Buffett, on the other hand, started dating Susie’s father almost as much as the girl herself, and that proved to be the winning strategy. In September 1951, Buffett and Susie became a couple and Buffett reckons that this was partly due to the influence of Bill Thompson. “It was two against one” he later said about the situation. In April 1952 Warren and Susie got married, and Buffett allegedly spent 6%of his net worth on a wedding ring. Buffett has said that this was the best investment of his life, so apparently there are times when it pays to not be so damn frugal. On the cross-country car trip that was their honeymoon, Buffett had loaded up the car with readings, including his mistresses- the Moody’s Manuals.
In 1958 Buffett and Susie purchased their first home together. Up until that point they had been renting and living with their parents. They paid $31,500 for the house and Buffett promptly began referring to it as “Buffett’s Folly”. He knew that he could earn much better returns in the stock market than what he could hope for from appreciation in housing prices. Consider that Buffett thought this was a stupid move even though the house only represented some 10% of his net worth at that point - not 500% like it does for most first home buyers today.
BUFFETT THE STOCKBROKER (1951 - 1954)
After graduating from Columbia Business School in 1951, Buffett wanted to work for his favorite teacher-investor, Benjamin Graham. He even offered to take the job without a salary. However, during this time, there was still some prejudice against Jews, perhaps especially on Wall Street, so Graham, who came from a Jewish family, had decided that he was only hiring Jews. Because of this, in 1951, Buffett returned to Omaha to work at his father’s brokerage firm. He didn’t feel too good at this job though. As a broker, you must sell. Buffett felt like a man selling prescriptions. He didn't earn based on how good his tips were but based on turnover. In other words, he wasn’t looking to cure his patients, just to sell them as many pills as possible. He also thought he didn’t get the respect he deserved from his clients. And to be honest, who could blame them? Not every 21-year old working at their father’s brokerage firm is a wonderchild.
BUFFETT & PUBLIC SPEAKING (1952 - 1958)
In January 1952 Buffett completed a Dale Carnegie speaking course. He still keeps a certificate of this on his wall in his Omaha office and has said about the course: “That’s the most important degree that I have”. Long before the course, Buffett had read Dale Carnegie’s book “How to Win Friends and Influence People” and he knew that if he were to get any where in this world, he would need to learn how to handle people. And how to speak well in front of an audience. To practice his skills, he started teaching an evening course in investing and personal finance at the University of Nebraska. He enjoyed emulating his idol Benjamin Graham. Buffett was teaching until 1958 I think, although he was at three different universities during this period. In 1956 he was teaching a class called “Investment Analysis for Men Only”. I understand were Buffett came from, but I’m glad to hear that he later decided to expand to also teach a course called “Investing for Women”. From 1951-1954 Buffett sent stock tips to Graham-Newman and occasionally dropped by their office. It took him three years before Graham changed his mind about Buffett’s employment. But finally, Warren became Graham-Newman’s first employee with a non-Jewish background.
BUFFETT & HIS DREAM JOB (1954 - 1956)
Buffett arrived in New York, where the Graham-Newman office was situated, in August 1954, a whole month before his actual starting date. His salary was $1,000 per month. He quickly became the golden boy of the company through his wits and absolute dedication to stocks. In 1956 he was offered to take over the fund when Graham wished to retire and when he didn’t accept the offer, Graham-Newman decided to shut down. Without Graham, Buffett thought that he might as well go his own way.
BUFFETT'S FIRST PARTNERSHIPS (1956 - 1961)
At age 26, Buffett had accumulated something like $174,000 and he had now moved back to Omaha from his two years in New York. He talked about “Retiring” as he knew that his family could sustain on something like $12,000 per year. Apparently, Buffett thought that investing and handling a few other peoples’ money equaled retirement, because that’s exactly what he chose to do at this point. On May 5th 1956, when Buffett was 25 years old, he formed Buffett Associates, Ltd., an investment partnership similar to Graham-Newman. It was much smaller though, consisting of only seven partners among family and friends. Buffett was the general partner, meaning that he was in charge. The seven limited partners had contributed a total of $105,000. Buffett himself added just $100.
There are some conflicting data about the fees of the partnership, and it seems a few of the most popular books about Buffett have got this wrong. The deal was not that the limited partners would be guaranteed a 4% interest and that Buffett and the partners then split the profits. In truth, during the period when he operated multiple partnerships between 1956-1961 there were various deals to opt for, as stated in Buffett’s partnership letter in July 1961. In 1962, when he combined all of these separate partnerships into a single larger one, the deal was a 6% interest and Buffett took ¼ of all profits, as stated during Berkshire Hathaway’s annual shareholder meeting of the year 2000.
There were some additional interesting rules. The limited partners could basically only add or withdraw money once each year, during the month of December. Buffett didn’t want people in and out of the partnership. Moreover, he wasn’t going to tell the many thing about what he invested in, as Buffett didn’t want people to bid up the prices of the stocks he was interested in. Because of this secrecy, some people in Omaha came to think that Buffett was running a Ponzi-scheme. Those that were dubious about Buffett’s skills and trustworthiness were missing out. During the period 1957-1961, Warren managed to beat the Dow-Jones Industrials by as much as 16% per year, or a compounded 177%. Even after Buffett’s fees, this allowed the limited partners to beat the index by an average of 10.2% per year, a compounded 107%. Buffett’s competencies as an asset manager got more attention, and by the end of 1961, he managed a total of 10 different partnerships, plus he also had one with his father.
BUFFETT AND THE CIGAR BUTTS (1956 -1972)
So, how did he achieve these types of returns? At Columbia, Graham had taught Buffett an investing strategy which they referred to as “Buying cigar butts”. Such stocks were soggy, unloved and often just thrown away, but they were typically useful for at least one more “Puff”. Okay, enough with the analogies. The cigar butt strategy meant buying cheap companies, really cheap ones. Their stocks were typically trading at very low price to earnings ratios and/or at a low price compared to cash and assets. These mispricing's would often correct themselves in a few months or perhaps a year or two, when the stocks “Lit up”, and this represented the final “Puff”. Buffett would then sell the company and buy something that was cheaper. Buffett was screening through resources such as the before mentioned Moody’s Manuals, the Pink Sheets, and the National Quotation book for small companies which people in the stock market had forgotten about. Their market caps were often between $1-$10m, which would be the equivalent of $8-$80m today. It wasn’t unusual that the liquidity in these companies were so thin that Buffett had to meet the shareholders in person and negotiate prices with them. Two important examples of cigar butts that Warren Buffett bought early on in his career were:
- Sanborn Map and - Dempster Mill Sanborn Map was a company delivering detailed information of different structures in cities all over the United States, showing, among other things, the diameter of water mains underlying streets, the locations of fire hydrants and the composition of roofs, information which was of interest to a fire insurance company. Buffett put up 35% of his partnership’s money during the period 1958-1960. In 1958 you could buy a share of the company for $45, while it held $65 worth of blue-chip securities in its balance sheet. The business wasn’t performing great, as insurance companies were trying new techniques for their underwriting, but it was still cash flow positive and came with a dividend. And at this price, essentially, you got the Sanborn business for free. In addition to this, you were getting $20 worth of blue-chip stock. Not a bad deal, and Buffett earned about 50% on this investment over two years. Dempster Mill Manufacturing was a manufacturer of farm implements and water systems. Buffett started acquiring shares in 1956,although most of them were bought in 1961, when the company was selling at $30 per share and was breaking even on profits. It had earned good money in the past, but not anymore. What made Buffett salivate was the fact that the company had $75per share in book value. He realized that, could this value be unlocked, the current share price would allow for great returns. Buffett Associates acquired 73% of the company at an average of $28 per share and used about 21% of its assets to take control over the company and sell off assets to make it more efficient. Eventually, Buffett managed to sell Dempster to an acquirer in 1963 for 80$ per share, or a 185% return. If you wish to screen for similar companies today, I suggest using either Joel Greenblatt’s “Magic Formula”, Tobias Carlisle’s “Acquirer’s Multiple” or Benjamin Graham’s “Net-Net” stocks.
BUFFETT: COMLETELY FOCUSED (1956)
It’s clear that Buffett was fully occupied in his quest of accumulating wealth. He didn’t spend very much time with his kids, and when he did, he was often somewhere else mentally. On a vacation in California, he took the kids to Disneyland. While they were running around and having a grand time on their own, Buffett just sat on a bench reading. It’s also clear that Susie sustained Buffett, both emotionally, and practically in their household. Her husband didn’t have too many needs but she saw to it that they were always fulfilled: a light bulb in his reading lamp, some Pepsi in the refrigerator (yes, Buffett hadn’t switched to Coke yet), meat and potatoes for dinner, and ice cream in the freezer. And then there was everything else that a household requires to work of course.
BUFFETT AND CHARLIE MUNGER (1959)
Warren Buffett met Charlie Munger at a local dinner party. Munger was a Los Angeles Lawyer and “Book with legs”. The two truly hit it off intellectually and, well, the rest is history. Munger is the vice-chairman of Warren Buffett’s company Berkshire Hathaway and has been since 1978. Munger challenged Buffett’s beliefs about cheap companies. Prior to meeting Charlie Munger, Buffett focused on: “Investments in mediocre companies that traded at bargain prices” After being convinced by Munger, he instead started to focus on: “Great companies at fair prices” While both strategies are valid, Graham’s approach is more suitable for the investor with smaller amounts of capital, while Munger’s approach is more all-around. “Graham [his approach] was not scalable. I mean, you could not do it with really big money. ”Charlie Munger helped Buffett find companies such as See’s Candies and Coca Cola.
BUFFETT: BECOMING A MILLIONAIRE (1961)
By January 1962 Buffett had a total of 10 different partnerships, or 11 if you include the one he had with his father. These partnerships were all with different groups of people and Buffett now decided to combine them into a single larger one – Buffett Partnership Ltd. He had about $7.2m in assets under management and him and Susie’s interest in the new partnership was $1,025,000. Buffett was now a millionaire.
Here’s the quickest recap ever: Through grinding, reading, delivering newspapers, starting businesses, learning about value investing, going to business school, working for his idol and role-model, leveraging other peoples’ money, being on the constant lookout for cheap companies to invest in, and most of all, staying completely focused the whole time, Buffett became a millionaire at age 31.
Cheers guys, I hope you enjoyed this one and see you soon!