How a Paperboy Became the World’s Richest Investor- Warren buffet

Warren Buffett, one of the wealthiest individuals in the world, once said, “If you don’t find a way to make money while you sleep, you will work until you die.” Despite being a shy boy who sold Coca-Cola door-to-door, he is now worth over $100 billion. What sets him apart from other successful entrepreneurs is that he didn’t inherit his wealth, nor did he start any tech startup. So, how did he make his billions? Let’s explore his story in this blog of Billionaire Stories.

Early Life Of Warren Buffet-

Buffett’s journey began at an early age. He was born in 1930 in Omaha, Nebraska, during the Great Depression when many families were struggling with poverty. In his early childhood, he witnessed how people struggled to make ends meet due to the severe economic crisis. He realized the importance of money for daily survival. However, his father was a savvy businessman. When he lost his job, he started his own small investment business, which provided enough for the family.

Introvert, Reading Obsession, And Idea Of Bussiness

Warren was a reserved and introverted boy who spent most of his childhood alone, reading books from his father’s library. From these books, he developed an early interest in investing and the game of business. With ideas in his mind, he approached his grandfather, who owned a local grocery store, and asked if he could provide cold drinks so that he could sell them in the neighborhood. His grandfather agreed, and this is how one of the top 5 richest men today started selling Coca-Cola door-to-door, making 5 cents for every 6 packs. He soon added a few more items, and just a year later, Warren was selling chewing gum, magazines, and Coca-Cola while making a decent profit for himself.

By the time he was 11, he used all his savings to buy his first stock, purchasing three shares for himself in an oil and gas company called City Service. Each stock was valued at $38.25, but shortly after buying them, their price dropped to around $27 per share. This made him feel like a failure, but he waited until the value of the shares rose to $40 before selling them. Although he made a profit, he noticed that the same shares shot up to over $200. This really disappointed him, and he learned the greatest lesson of his life.

After a few years, Warren Buffett’s father was elected for the first term as a US Congressman. As a result, the entire Buffett family moved from Omaha to Washington DC. There, Warren got his first job delivering newspapers. However, he wasn’t satisfied with the money he earned, so he took another job with their competitors, The Times Herald, where he earned up to $179 per month, which would be worth $3000 in today’s currency.

Buffett later used his savings to buy a pinball machine, which he installed in a barbershop. Soon after, he bought two more machines, and at the end of each week, two of them split the profit. Eventually, they sold their machines for $1200. With the money earned, Warren Buffett bought 40 acres of land in Nebraska. The craziest thing about all of this is that Warren was just 15 years old when he bought the property on his own.

“THE MORE YOU LEARN THE MORE YOU EARN” – WARREN BUFFET 

High School and Getting a His First Job

After graduating from high school in 1947, Buffet was eager to begin his life as a full-time stockbroker. However, his father wanted him to go to college, so he enrolled in the University of Pennsylvania. He was able to pay his fees from the Nebraska farm, which he rented out. After finishing his Bachelor’s degree in Business Administration from the University of Nebraska, he applied for his master’s degree at Harvard but was rejected. However, this rejection turned out to be a blessing in disguise, leading him to Columbia Business School, where he met a teacher who changed his life – Benjamin Graham. Benjamin Graham was an economist and investor whose work and writing Buffet was already familiar with. In fact, in the same year they met, Graham published one of the most famous books in his career –

“THE INTELLIGENT INVESTOR”

 This was a step-by-step guide on how to invest successfully and consistently without speculating by buying undervalued stocks. Warren quickly became Graham’s best student.

According to Buffet, Benjamin Graham became one of the most influential men in his life after his father. After receiving his master’s degree in economics, Buffet was eager to kickstart his career and head towards the headquarters of the biggest investment firms in the US, located in Wall Street, home to the New York Stock Exchange. However, one major problem stood in his way. Despite having a wealth of management and business investment knowledge, Buffet was an introverted 21-year-old who had difficulty expressing himself as a charismatic business tycoon. He hesitated in talking with new people and, at times, became nervous as well. To overcome this, he signed up for a public speaking course, which turned out to be the best investment he ever made. Investing in oneself is the best investment.

After that, Benjamin Graham contacted Buffet to offer him a job at an investing firm in New York. Warren agreed gladly, and there he mastered the art of security analysis, learning how to see the value of a company based on its balance sheets. While Graham and Buffet shared mutual respect for each other, the differences in their philosophies soon became obvious. Buffet was more interested in understanding how companies worked and believed that company management should be part of the investment decision process. However, Graham disagreed. He was more concerned with a company’s numbers and balance sheets, and he was also a difficult man to work with, expecting strict compliance rules of investing, which Buffet’s young mind constantly questioned. Nevertheless, their disagreements did not matter because by 1956, Warren Buffet was on his own after Graham retired and shut down the partnership. However, the young man had built up his savings from $9,800 to $175000 dollars, and more importantly, he gained first-hand experience running a New York investment firm. He was now ready to publish his own partnership, making those who invested in him into millionaires while also transforming himself into one of the wealthiest people in the world.

Started His Own Associates

In 1956, at the age of 25, Warren Buffett returned to Omaha and started his own partnership called Buffett Associates Ltd. Despite having enough money to buy and rent an office, he made his bedroom his office. He received a sum of $105,000 from family and friends to invest and kickstart his partnership. Influenced by his mentor, Benjamin Graham, he began investing in undervalued stocks. He took Graham’s philosophy to the extreme by dealing with terrible performing companies that were ready to go bankrupt, buying them so cheap that even their liquidation value was worth more. This strategy is what he called the cigar butt. Anyone he picks up is a discarded cigar on the street, which can enjoy a few puffs that would cost him nothing. Cigar butt investing runs along the same line. He finds terrible underlying stocks that sell so cheap that he knows for a fact that they are worth more. After selling them at the appropriate price, the initial bargain purchase makes the puff all free. This method proved to be a masterstroke for Buffett, and over the next six years of his business, his partnership network increased from $105,000 to $7.2 million foundation. As his portfolio began to grow, so did the number of people who wanted to join. However, most of them never ended up in partnership with him because they could not trust an 18-year-old looking kid to manage all their money by himself, and they were right. Warren Buffett still had the looks of a teenager despite being in his 20s. For more than five years, he conducted his business all alone, writing all the checks, filing the tax returns, and taking delivery on stocks, causing many potential clients to doubt him. But those who were bold enough to invest in him saw the portfolio rise, averaging 29.5% compound annual interest.

From 1956 to 1969, Warren Buffet outperformed the stock market by a factor of four. During this time, he managed over $44 million in assets with his partner. Just three years later, these numbers rose to $104 million. However, when the market was booming, his partners were not happy with the return of their investments. Buffet was worried about the rising stock prices and lived by the motto, “Be fearful when others are greedy and greedy when others are fearful.” He found it too risky to invest with other people’s money and realized that the bull market they were experiencing was soon coming to an end. Therefore, by the end of 1969, he made the big decision to dissolve the business altogether and let his partners go. Nevertheless, he had built his own fortune all the way up to $25 million by the age of 39 and was ready to make his next move, turning Berkshire Hathaway into a billion-dollar empire.Smart investors like Warren Buffet know how to utilize uncertain times to their advantage,

HOW BERKSHIRE HATHAWAY OWNED BY WARREN BUFFET-

Berkshire Hathaway was once a struggling textile company that was on the verge of failing. In 1965, its stocks were trading at around $7, but its assets were worth at least $11. Warren Buffett saw an opportunity and purchased a lot of shares in the company at $7.50 per share, considering it as a “cigar butt” investment. Three years later, he arranged a deal with the owner to sell his shares at $11.50.

However, when the final offer came, the owner tried to cheat Buffett by buying his shares at $11.37. This infuriated Buffett, so in return, he bought out the whole company and fired the owner as a revenge. Although Buffett found himself stuck owning a declining company, instead of letting his investment go to waste, he decided to shift Berkshire Hathaway out of the textile industry and use it as a vehicle for investment.

Buffett’s recent bad experience in buying undervalued stock gave him cause to reconsider his investment strategy. Luckily, one of his business partners, Charlie Munger, influenced him to change his philosophy from buying fair companies at wonderful prices to buying wonderful companies at fair prices. This decision turned out to be a turning point in Buffett’s career. He began searching for companies that possessed an “economic moat” (a company’s ability to maintain a competitive advantage over the rest of the industry and still maintain its market share). One example of such a company was Coca-Cola, a brand that had been around for 100 years.

Using this new philosophy, Warren Buffett began buying large stakes in great companies such as American Express, The Washington Post, and Berkshire Hathaway itself, whose stock increased from $11 in 1965 to $290 in 1970. By then, Buffett’s personal net worth had increased to $240 million.

Yet, this new game-changing strategy was only a part of the reason for his growing success. What really allowed him to make his true wealth was getting into the insurance business. After tapping into billions of dollars from insurance companies over the years, Berkshire Hathaway has gone on to buy and hold many shares in grade-A companies such as Goldman Sachs and Bank of America, making it one of the most powerful and profitable companies in the world. And Buffett himself became the richest man on earth in 2008.