Life and Success of Warren Buffett – The Oracle of Omaha

Warren Buffett will likely go down as the most influential and successful investors in history. Buffett has shown the world how well patience pays off. This patience, along with hard work and his education in financial business, has allowed Buffett to become one of the world’s richest men at a net worth of $87.6 billion. Obviously, with a net worth and track record as Buffett has, many of books and documentaries have been made about him detailing his life and successes in addition to annual speeches he delivers to many aspiring investors at his Value Investors Conference in his hometown of Omaha, Nebraska. This paper explores the life and leadership of Warren Buffett and how it has made him who he is today. Who Is Warren Buffett?

For several years, the question, “who is Warren Buffett,” was a valid one to ask. The average person would probably only be able to tell you that Buffett is wealthy Wall Street billionaire. Investing nerds, like myself, would make sure you understand that is not all there is to it. Buffett is what every investor dreams of becoming. While many self-proclaimed “Wall Street insiders” have claimed they can help you find magical stocks that double over night and went with the flow of the market, over the course of Buffett’s lifetime, he has quietly built a jaw dropping fortune by “being greedy when others are fearful, and fearful when others are greedy”. Today, Warren Buffet currently sits behind Jeff Bezos and Bill Gates as the third richest man in the world. He has obtained this wealth through investing in companies that are priced close to what their company is valued, but with an exponential amount of growth potential. He handles the transactions of these investments through the company in which is the chairman of, Berkshire Hathaway. Berkshire Hathaway, located in Omaha, Nebraska, is a diversified holdings company. According to the company’s 2016 annual report, the company has averaged an annual 19% gain whereas the Standard & Poor’s 500 market index, also known as the S&P 500, has averaged an annual 9.7% percent gain over the same course of 1965 to 2016. Needless to say, the company has been very successful under Buffett’s leadership.

Though making a profit is always important in business, especially when your company’s business is making money, Buffett is not as money-obsessed as many would think. Since the turn of the century, we have been able to see how generous of a philanthropist Buffett is. In 2010, Warren Buffet announced that he would pledge, “More than 99% of his wealth will go to philanthropy during his lifetime or at death,” in response to his friends’, Bill and Melinda Gates, campaign ‘The Giving Pledge’. This was in addition to his 2006 commitment to gradually giving all of his Berkshire Hathaway stock to charitable organizations. Since then, the campaign has expanded to where multiple billionaires have promised to donate 50% of their fortunes to charitable organizations and causes. The Path Of Warren Buffet

Warren Buffett’s Childhood

Though his father was a congressman for the state of Nebraska, Warren Buffett’s fortune is more of a self-made wealth than an inherited one. According to a Forbes article by Jane Levere, one could say Buffett’s wealth began when he was seven years old and picked up a book called One Thousand Ways to Make $1000 (2017). This book inspired Buffett to begin practicing what he had read. Buffett’s childhood businesses included selling gum, Coca-Cola bottles, and delivering newspapers and magazines on paper routes. Buffett’s businesses would take a brief hiatus when his father, Howard Buffett, announced that he had lost his job at the local bank due to the Great Depression. Later on in Hagstrom’s The Warren Buffet Way, we read where Buffett’s grandfather essentially bailed out the Buffett family by funds from his grocery store. This led to Howard Buffett finding a job at a stock brokerage — a place where a young Warren Buffett would roam in search for clues of how markets worked. In 1941, at age eleven, Buffett purchases six shares of Cities Services — his first of many stocks that he would go on to buy in his lifetime.

Warren Buffett’s Education

As he was graduating high school, Buffett was urged by his father, Howard, to attend college at the prominent Wharton School of Finance and Commerce at the University of Pennsylvania in Philadelphia. Not long afterwards, Buffett dropped out of Wharton, due to not learning anything from the professors, and transferred close to home at the University of Nebraska at Lincoln. In only one year at the University of Nebraska, Buffett graduated and went back to his hometown of Omaha. It was there that he would find the next book that would change his life — The Intelligent Investor. This book had reignited Buffett’s passion for investing and he began searching for graduate school’s to attend to enhance his knowledge of the world of investments since the previous institutions he attended failed to do so. His first choice was the prestigious Harvard Business School. Believe it or not, however, Buffett was denied admission. Soon after that, Buffett had learned the author of his new favorite book, Benjamin Graham, was actually a professor in at the Columbia University Graduate School of Business. This is where Warren Buffett would learn a majority of his investment education and become the genius he is known as today. Buffett would go on record many times saying that the majority of what he learned about investing came from Graham. One of the famous lines from Graham that is still echoed to this day is, “There are two rules to investing. The first rule is ‘Don’t lose’. The second rule is: ‘Don’t forget the first rule.” One can only imagine that it was simple yet powerful lessons such as these that taught a young Buffett to remember how it is always better to sell a stock early and miss out on a large profit than to hold a stock too long and suffer a huge loss. Graham and Buffett quickly develop a strong mentor-student relationship and Buffett would go on to receive the first A+ that Graham would award as a professor.

Warren Buffett’s Early Professional Career

Upon graduation from Columbia University, Buffett was given the opportunity to work with Benjamin Graham at his brokerage Graham-Newman. However, soon afterwards Graham retired and the company was disbanded. Taking what he had learned from his experience at the brokerage, in 1956, he went home and started his own business — the Buffett Partnership Ltd. Warren Buffett was blessed to have friends and family assist him in the starting of his business by contributing $105,000 dollars. With this money, he invested some into stocks and used the other to add more partnerships to his arsenal. In just two years after he moved home, in 1958, he doubled his partners’ contributions. In the sixties, an opportunity arose for Buffett to grow his partners’ profits further when American Express, among other banks, felt the impact of what is known as the “Salad Dressing Scandal”. American Express’ stock price lost more than 50% of its value. This is when Buffett saw the door for opportunity. After receiving consumer sentiment about the company by asking individuals’ opinion, Buffett invested $13 million dollars into the company — Buffett was demonstrating how to be greedy when others were fearful. As you can imagine how most of his investments end up, this was a very profitable move by Buffett that resulted in a $20 million dollar profit over the two years after the purchase. Not long after this, Buffett came across a textile mill in New England called Berkshire Hathaway and purchased a significant amount of shares in the company. Contrary to what you may think, Buffett called this investment one of the worst that he ever made. Regardless, the size of the investment purchased by Buffett made him a majority stakeholder in the company. This effectively meant that Buffett ran Berkshire Hathaway and the Buffett Partnership Ltd. As the majority stakeholder, Buffett instructed Berkshire Hathaway to acquire National Indemnity Insurance due to Berkshire’s cotton sales slowly declining on a year to year basis. Buffett, as many other businessmen, liked the insurance business because it provided him a consistent monthly income with few incidents in which he would have to pay customers large sums of money.

In 1968, The Buffett Partnership Ltd. Had its most successful year raking in $40 million dollars in profit. The next year, however, Warren Buffett closes his partnership and liquidates all of his assets associated with The Buffett Partnership Ltd. Buffett, still in control of Berkshire Hathaway as majority shareholder names himself the chairman of the company. Buffett goes on to make the company — originally a textile mill — more money from its investments, banking, and insurance than its sales by the seventies. However, the honeymoon stage was not meant to last. From 1973 through 1974, the stock market began to slide, and with it came Berkshire Hathaway and Warren Buffett’s portfolio. It is also important to note for later that during this time frame, Buffett began to purchase stock in The Washington Post. Nonetheless, this short bear market — a term used by investors to signify an overall drop in stocks — caused Warren Buffett’s personal wealth to go down 50 percent. As you may have already guessed, this did not stop Buffett. This setback was just another obstacle to overcome. He and his family did survive and thrived following the Great Depression, and Buffett was willing to set his emotions of wealth insecurity aside to overcome this challenge as well. After a few years of successful purchasing and selling of stocks, Warren Buffett had led Berkshire Hathaway to new heights as the company’s stock itself was trading at a whopping $290 dollars per share. And though, as being majority stakeholder and chairman of the Berkshire increased his personal wealth to roughly $140 million, Buffett realized the importance of reinvesting funds in the company and only allowed himself to take home a $50,000 dollar annual salary. Because of Buffett’s knowledge of how the business of journalism works, Berkshire Hathaway began to purchase shares of American Broadcasting Companies — yes, the news station ABC. Later on in 1985, Buffett would be a key facilitator in the Capital Cities Communications acquisition of American Broadcasting Companies. This was a very notable event for the American public since it was the largest merger of two companies in that time. Buffett’s involvement in the merger granted him three million shares in the new company and the title of director as a board member for the company.

Warren Buffett’s Career from the 1990’s to present.

According to Hagstrom, by the year 1994, Berkshire Hathaway informed its shareholders that the company was the majority stakeholder of the insurance company GEICO. In 1996, Berkshire purchased the remaining outstanding shares to become the whole owner of GEICO for $2.3 billion dollars. This move was highly ridiculed due to the company’s poor track record in the 1970’s when the company nearly went bankrupt. However, we know today that this acquisition has been a very profitable venture for Buffett, Berkshire and its investors. In Berkshire Hathaway’s 2013 10-K financial statement, we read that GEICO earned $1.8 billion dollars in premiums alone. In 2003, Berkshire Hathaway acquired a company that originated from west Tennessee — Clayton Homes. Clayton Homes, started by Jim Clayton of Finger, Tennessee, was originally a home construction company. By 1983, when the company went public on the New York Stock Exchange, the company had added a manufacturing and mortgage division of the business. For $1.7 billion dollars, Warren Buffett, impressed by both the owner and the company, added the company to Berkshires’ control where it has remained ever since. Even though everything listed does not include every major occurrence in Buffett’s life, these aforementioned events can help us see his leadership style.

Key Traits Of Buffett’s Leadership

In this section, one can reasonably come to the conclusion of Warren Buffett’s leadership style based off of his character traits, events in his life, and interpretation of leadership styles based off of past research.

Will To Learn

One assumption anyone can make about anyone who attends the Wharton School of Business or Columbia University, is that the individual is knowledgeable. Based off of his history, we are most definitely correct to assume that Warren Buffett is a smart person. However, Buffett of course was not born with a God given gift to pick winning stocks. Buffett used his resources to learn as much as he can. As mentioned earlier, Buffett claims that certain books are what put him on the path to becoming the investor he is today. If he would have never read The Intelligent Investor, Buffett never would have had his eyes opened to Benjamin Graham’s assessment of the stock market. He also would not have known to apply to Columbia to attend his lectures in graduate school. Of course, if he would not have read One Thousand Ways To Make $1000, he may not have had the entrepreneurial drive to have attend college for a business degree.

Ability To Go Against The Flow

If Buffett’s quote of, “Be greedy when others are fearful, and fearful when others are greedy,” did not convince you of this, then you do not know Buffett. In several occasions during the start of his investment career, Buffett was told how insane he was for purchasing or selling large quantities of certain companies’ stock. However, in every circumstance, Buffett was willing and able to ignore the outside noise and listen to his proven guidelines when making these decisions. For instance, when the economy has entered bear markets and several investors were frightened and decided to sell what stocks they had, Warren Buffett was not troubled by the selloff as long as the companies he held were still on the right track. Sometimes in these occasions, Buffett was willing to buy more shares of stock since it was available at a “discounted price”.

Being Humble Despite His Fortune

As stated earlier, Warren Buffett is the third richest billionaire in the world. So, why do most people not know much about him in comparison to people like Jeff Bezos, Bill Gates, and Mark Zuckerberg? Other than the fact that you probably use the other guys’ businesses more often than Buffett’s, I would credit it to his inspiring humility. It is a fairly well known fact that Buffett is frugal with his money. For instance, he has lived in the same five bedroom house in Omaha since 1957 that he bought for $31,500. Additionally, The Buffett Partnership Ltd., and eventually Berkshire Hathaway, have both shared the same lackluster building in which Buffett’s office has resided from 1962 to present day. Of course, many people today, myself included, can only imagine what having a million dollars, much less a billion, would be like. It is easy for us to criticize Buffett for not buying a bigger house, a bigger office building, or at least a couple of really fast and expensive cars. However, it is easy for Buffett to criticize us for being foolish and thinking it is better to spend that imaginative money on luxury rather than investing that money to grow and work for us. Additionally, it is also famously well known that Buffett does not invest in what he does not understand. In other words, Buffett would rather purchase stock in McDonalds than a semiconductor computer chip company sense he understands the business of selling food much easier than the industry technology business. I think it is easy to see why Buffett’s level of humility is something we should strive to match.

Buffett’s Will To Give

As mentioned earlier, Buffett knows what it is like to have little to no money and has given back to multiple charities because of this. To many individuals, it is easy for us to assume that it is not that hard to donate money to charities when you have billions of dollars. This is an unfortunate, misleading mindset. If Warren Buffett were only donating his wealth to charitable foundations for the recognition, he would more than likely not be working still. However, it is important to remember in 2010 that Buffett pledged to donate 99 percent of his wealth to philanthropic causes during his life or at death. Doing this means he will not let his children and grandchildren inherit billions of dollars without having to work in there lifetime. Additionally, the fact that he is still working means that he is doing his best to increase his wealth so that he may donate the most amount of money possible to charitable foundations rather than his current wealth status. Buffett’s Leadership Style Conclusion. With the aforementioned traits and previous research in mind, I have come to the conclusion that Buffett is a transformational leader. Warren Buffett is a leader who brings his best to the workplace every day. He also expects the best from his employees. However, though Buffett may expect efficiency, he also wants to know his employees opinions because of what they can contribute to his research. Additionally, Buffett is not the type of leader to declare that he is in charge and knows everything. Buffett is willing to admit when he is wrong and when he does not know something. Warren Buffett is also someone who puts others first. Buffett believes that the shareholders are the owner of the business—not the employees, the board, or chairmen. Believing this, Buffett not only generously donates himself, but in 1981, he allowed investors to donate $2 to any charity for every share they owned and therefore encouraged others to provide generous contributions to those who need it. Though there was limited information available to come to this conclusion, I believe that the transformational leadership style was an appropriate judgement for Warren Buffett when considering these traits and his professional history.

Author’s Takeaways

As someone entering the field of finance and passionate about investments, I chose to research Warren Buffett so that I could learn something from him and apply it to myself. I am glad to report that I have learned some new ideas and was able to reinforce other ways of thinking that I had previous to the assignment. The first lesson I was able to learn was Buffett’s emphasis to live within my means. Of course, I have heard this before in my lifetime. However, from my research I have been able to see the benefits of accomplishing this. By living within my means, I know that it will be harder for me to be engulfed in debt compared to someone who spends money carelessly. It will also allow me to have money to invest. Though investing may be completely speculative or scary to some, there are practical ways for people to invest money knowing that they are guaranteed to receive a constant annual payment. From this idea, one could say, “it is better to be in the position where your money to works for you, than it is for you to work for money.” Secondly, I have been reaffirmed the importance of reading. I think it is common for people today to prefer to watch a video to learn information than to read a book to learn the same information. However, there always seems to be a significantly greater reward for the one who reads than the person who watches the video. In the past few weeks, I have begun to read books that will give me more knowledge about investing to prepare me for next semester when I join Freed-Hardeman’s Clayton Investment Team. I have given myself the goal to follow the market, learn new investment techniques, and stay on top of my studies so that I may be in a prosperous situation by the time I graduate in the spring of 2020. Through my research, Buffett has only added to my list of books to read so that I may have more tactical resources when it comes to choosing stocks in the fall and throughout my life. I have also learned from my research the value of taking advantage of entrepreneurial opportunities. When people have a need, they intend for it to be filled. Whether it will catch your eye or not does not matter as long as it is something profitable that you can do better than someone else. By this, I have learned to look for these opportunities and then attempt to determine how I can solve them rather than allow someone else to take advantage of the chance to make money.

Conclusion

This paper is beneficial for anyone who would like to be informed of Warren Buffett, his leadership, and what one can gain from his wisdom. Though I cannot confirm that Warren Buffett is a 100 percent transformational leader. I believe his leadership traits fits the criteria the most when only able to define his leadership by one style. In true Warren Buffett fashion, one final takeaway I would like for anyone that reads is this: Buffett may have riches beyond our wildest dreams, but he knows and has been able to teach me that money does not buy happiness. Money may buy financial security or a temporary status, but love, friendship, and community are what buys and preserves happiness.