Warren Buffett: The Oracle of Omaha
As if he even needs an introduction , Buffett was born in 1930 in Nebraska. After graduating high school, he attended Columbia Business School where he studied under, who else, Benjamin Graham. Buffett would credit Graham's teachings for his successful investment career for the rest of his life. After running several successful investing partnerships, Buffett eventually disbanded them and invested in Berkshire Hathaway Inc. (NYSE:BRK-A)(NYSE:BRK.B), a textile manufacturing company. In the mid-1960s, Buffett took control of the company after aggressively buying shares and turned it into a diversified holding company, a corporate umbrella under which largely independent companies run their businesses separate from each other. Berkshire's market cap, the total market value of a company's outstanding shares, is now near $500 billion.
Despite his incredible success, Buffett still lives in the same house in Omaha that he purchased in 1957 for $31,500. To this day, he "only" makes $100,000 a year in salary for performing his CEO duties at Berkshire. Due to his incredible investing success, however, his estimated net worth is about $87.5 billion, making him the third richest person on earth.
Investment track record: From 1965 to 2017, shares in Berkshire Hathaway had annual returns of 20.9% compared to the S&P 500 index's 9.9% return. To put that into perspective, in 2015 the New York Times calculated that, since 1965, shares in Berkshire Hathaway had gained a cumulative 1,826,163%! The company is a longtime shareholder of stalwarts like American Express Company (NYSE:AXP), Coca-Cola Co (NYSE:KO), and Wells Fargo & Co (NYSE:WFC).
Important lesson: Enough ink has been spilled distilling Buffett's investing wisdom to fill a large library, but my personal favorite comes from Buffett's 1989 shareholder letter. In this letter, he wrote, "Time is the friend of the wonderful business, the enemy of the mediocre... It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."
Buffett first followed what he called a "cigar butt" approach to investing, trying to find a company that was good for a last few puffs before disposing of it. Later, he came to understand that buying quality companies, defined as businesses with substantial economic moats, and holding them for long periods of time was a far superior approach to investing. This method allowed the magic of compound interest to do the heavy lifting. Compound interest is not only gains on the original principle, but also gains on accumulated interest. While this sounds trivial, over time, it exponentially powers returns.
As he put it, "Time is the friend to the wonderful business." Indeed.
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