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Investment Whiz Kid: Buffett Amasses a Fortune

Article Overview: With $100 of his own money and $105,000 from friends and family, Buffett created Buffett Associates, Ltd. in 1956. By the end of the year, he was managing over $300,000 in capital from a small office out of his new home. It was a lot of money, but for Buffett, it wasn’t enough.

Investment Whiz Kid: Buffett Amasses a Fortune

With $100 of his own money and $105,000 from friends and family, Buffett created Buffett Associates, Ltd. in 1956. By the end of the year, he was managing over $300,000 in capital from a small office out of his new home. It was a lot of money, but for Buffett, it wasn’t enough.

Adhering to the Graham principles of investment, Buffett began honing his skills. He started to look for undervalued ‘cigarette butts’, companies that had been written off but that he believed still had one or two puffs left in them. He also began paying attention to non-market activities, such as company mergers and liquidations in order to forecast a company’s future. Between 1956 and 1969, in a market where 10% was the norm, Buffett’s investments were making 30% gains on a yearly basis. By the end of that period, Buffett’s assets had risen to over $100 million.

In 1969, Buffett informed his partners that he was “unable to find any bargains in the current market,” and he began liquidating his portfolio. He did, however, hold on to his 29% share of Berkshire Hathaway, a large manufacturing company in the textile industry that Buffett believed was selling below its value. In 1965, Buffett had made himself director and set out to improve its management and profits. Two years later, he purchased the whole company on the spot, costing him over $8 million.

In 1970, Buffett made himself Chairman of the Berkshire Hathaway Board. With that, Buffett set out to make Berkshire Hathaway one of the largest holding companies in the world. He used whatever money wasn’t required to maintain the textile business to acquire public stocks or private companies. While the company’s textile profits continued to dwindle, Buffett’s insurance and banking efforts brought in over $2 million in his first year. With no other personal investments, Berkshire Hathaway became Buffett’s sole holding.

The company’s first major investment came with the purchase of See’s Candy, a gourmet chocolate maker based in California that Buffett bought out for $25 million in cash. In 1976, Buffett became involved in GEICO, the Government Employees Insurance Company, on the Board of which sat Benjamin Graham’s mother. It was experiencing high losses, but Buffett believed this was primarily due to poor management and he set out to fix the company. He was soon reaping the profits.

By the late 1970s, Buffett’s reputation was such that even the slightest rumor of Buffet’s purchase of a stock was enough to shoot its price up 10%. Despite being worth over $140 million, Buffett never sold a single share of the company, relying solely on his $100,000 annual salary. The company continued to expand its list of acquisitions, including Nebraska Furniture Mart and Scott & Fetzer until the market crash of 1987. One-fourth of Berkshire Hathaway’s market cap was wiped out.

Buffett plowed on. In 1988, he began purchasing Coca-Cola stock and soon owned 7% of the company. Within a few years, Buffet’s shares were worth more than the entire value of Berkshire Hathaway at the time of his investment. His worth continued to soar until the dot-com boom in the 1990s, which Buffett did not take part in. Dismissed as having lost touch, Buffett prevailed when the technology market busted and Berkshire Hathaway’s shares recovered to their previous levels. Buffett had finally cemented his position as a legend in the investment world.

Today, the ‘Oracle of Omaha’ still lives in the $30,000 house he first purchased down the street from his headquarters and continues his impressive work as Chairman and CEO of Berkshire Hathaway.

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Article Tags: 100 million, assets, bargains, berkshire hathaway, buffett, candy, cigarette butts, company mergers, current market, liquidations, manufacturing company, norm, paying attention, personal investments, private companies, profits, public stocks, textile business, textile industry, whiz kid



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