Tuesday, March 22, 2011

The Legendary Money Machine - Warren Buffett

Warren Edward Buffett (pronounced /ˈbʌfɨt/; born August 30, 1930) is an American investor, industrialist and philanthropist. He is widely regarded as one of the most successful investors in the world. Often called the "legendary investor, Warren Buffett", he is the primary shareholder, chairman and CEO of Berkshire Hathaway.He is consistently ranked among the world's wealthiest people. He was ranked as the world's wealthiest person in 2008 and is the third wealthiest person in the world as of 2011.
Warren Buffett

Buffett speaking to students from the University of Kansas School of Business, May 6, 2005
BornWarren Edward Buffett
August 30, 1930 (age 80)
Omaha, Nebraska, U.S.
Alma materUniversity of Pennsylvania
University of Nebraska–Lincoln
Columbia University
OccupationChairman & CEO of Berkshire Hathaway,Investor
Net worthincreaseUS$50 billion (2011)
SpouseSusan Thompson Buffett (1952–2004)
Astrid Menks (2006–present)
ChildrenSusan Alice Buffett
Howard Graham Buffett
Peter Andrew Buffett
Buffett is called the "Oracle of Omaha" or the "Sage of Omaha" and is noted for his adherence to the value investing philosophy and for his personal frugality despite his immense wealth. Buffett is also a notable philanthropist, having pledged to give away 99 percent of his fortune to philanthropic causes, primarily via the Gates Foundation. He also serves as a member of the board of trustees at Grinnell College.
Buffett was born in 1930 in Omaha, Nebraska, the second of three children and only son of businessman & politician, Howard Buffett.

Warren Buffett was employed from 1951–54 at Buffett-Falk & Co., Omaha as an Investment Salesman, from 1954–1956 at Graham-Newman Corp., New York as a Securities Analyst, from 1956–1969 at Buffett Partnership, Ltd., Omaha as a General Partner and from 1970 – Present at Berkshire Hathaway Inc, Omaha as its Chairman, CEO.
In 1962, Buffett became a millionaire, because of his partnerships, which in January 1962 had an excess of $7,178,500, of which over $1,025,000 belonged to Buffett. Buffett merged all partnerships into one partnership. Buffett invested in and eventually took control of a textile manufacturing firm, Berkshire Hathaway.
Buffet's home in Omaha
Buffett became a billionaire on paper when Berkshire Hathaway began selling class A shares on May 29, 1990, when the market closed at $7,175 a share.

Buffett married Susan Buffett née Thompson in 1952. They had three children, Susie, Howard and Peter. 
Buffett's DNA report revealed that his paternal ancestors hail from northern Scandinavia, while his maternal ancestors most likely have roots in Iberia or Estonia.

In 1999, Buffett was named the top money manager of the twentieth century in a survey by the Carson Group, ahead of Peter Lynch and John Templeton. In 2007, he was listed among Time's 100 Most Influential People in the world. In 2011, President Barack Obama awarded him the Presidential Medal of Freedom. Most recently, Buffett, along with Bill Gates, was named the most influential global thinker in Foreign Policy's 2010 report.

Warren Buffett's writings include his annual reports and various articles. Buffett is recognized by communicators as one of the great story-tellers, as evidenced by his annual letters to shareholders. He warned about the pernicious effects of inflation:
The arithmetic makes it plain that inflation* is a far more devastating tax than anything that has been enacted by our legislatures. The inflation tax has a fantastic ability to simply consume capital. It makes no difference to a widow with her savings in a 5 percent passbook account whether she pays 100 percent income tax on her interest income during a period of zero inflation, or pays no income taxes during years of 5 percent inflation.
—Buffett, Fortune (1977)
*Quite interestingly, one of the fastest growing economies - INDIA, considered by most of the global economic analysts, and its Finance Minister Mr. Pranab Mukherjee never understands the impact of inflation. In India inflation runs in double digits (officially! which is always manipulated data like corrupted ministers of India) and food inflation is stable around 20%! Indian finance minister and all the union govt. ministers are competing each other to increase personal wealth! Investing in India is like accepting gambling as occupation!

In 2008 he was ranked by Forbes as the richest person in the world with an estimated net worth of approximately US$62 billion. In 2009, after donating billions of dollars to charity, Buffett was ranked as the second richest man in the United States with a net worth of US$37 billion with only Bill Gates ranked higher than Buffett. His net worth is up to $47 billion in the past 12 months.

Philanthropy [A quality corrupt Indians never possess. India is a country without any moral or social or lawful values among people. NEVER INVEST IN INDIA]

The following quotation from 1988 highlights Warren Buffett's thoughts on his wealth and why he long planned to re-allocate it:
I don't have a problem with guilt about money. The way I see it is that my money represents an enormous number of claim checks on society. It's like I have these little pieces of paper that I can turn into consumption. If I wanted to, I could hire 10,000 people to do nothing but paint my picture every day for the rest of my life. And the GDP would go up. But the utility of the product would be zilch, and I would be keeping those 10,000 people from doing AIDS research, or teaching, or nursing. I don't do that though. I don't use very many of those claim checks. There's nothing material I want very much. And I'm going to give virtually all of those claim checks to charity when my wife and I die. (Lowe 1997:165–166)
From a NY Times article: "I don't believe in dynastic wealth", Warren Buffett said, calling those who grow up in wealthy circumstances "members of the lucky sperm club". Buffett has written several times of his belief that, in a market economy, the rich earn outsized rewards for their talents:
A market economy creates some lopsided payoffs to participants. The right endowment of vocal chords, anatomical structure, physical strength, or mental powers can produce enormous piles of claim checks (stocks, bonds, and other forms of capital) on future national output. Proper selection of ancestors similarly can result in lifetime supplies of such tickets upon birth. If zero real investment returns diverted a bit greater portion of the national output from such stockholders to equally worthy and hardworking citizens lacking jackpot-producing talents, it would seem unlikely to pose such an insult to an equitable world as to risk Divine Intervention.
His children will not inherit a significant proportion of his wealth. These actions are consistent with statements he has made in the past indicating his opposition to the transfer of great fortunes from one generation to the next. Buffett once commented, "I want to give my kids just enough so that they would feel that they could do anything, but not so much that they would feel like doing nothing".
In June 2006, he announced a plan to give away his fortune to charity, with 83% of it going to the Bill & Melinda Gates Foundation. He pledged about the equivalent of 10 million Berkshire Hathaway Class B shares to the Bill & Melinda Gates Foundation (worth approximately US$30.7 billion as of 23 June 2006), making it the largest charitable donation in history, and Buffett one of the leaders of philanthrocapitalism. The foundation will receive 5% of the total donation on an annualised basis each July, beginning in 2006. (Significantly, however, the pledge is conditional upon the foundation's giving away each year, beginning in 2009, an amount that is at least equal to the value of the entire previous year's gift from Buffett, in addition to 5% of the foundation's net assets.) Buffett also will join the board of directors of the Gates Foundation, although he does not plan to be actively involved in the foundation's investments.

  • Price is what you pay. Value is what you get.
    • 2008 Letter to Shareholders
  • We have tried occasionally to buy toads at bargain prices with results that have been chronicled in past reports. Clearly our kisses fell flat. We have done well with a couple of princes - but they were princes when purchased. At least our kisses didn't turn them into toads. And, finally, we have occasionally been quite successful in purchasing fractional interests in easily-identifiable princes at toad-like prices.
    • 1981 Chairman's Letters to Shareholders
  • Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good results.
    • 1974 Letter to Shareholders
  • Investors making purchases in an overheated market need to recognize that it may often take an extended period for the value of even an outstanding company to catch up with the price they paid.
    • Berkshire Hathaway 1998 Annual Meeting
  • If you're an investor, you're looking on what the asset is going to do, if you're a speculator, you're commonly focusing on what the price of the object is going to do, and that's not our game.
    • 1997 Berkshire Hathaway Annual Meeting
  • When they open that envelope, the first instruction is to take my pulse again.
    • 2001 Annual Meeting after mentioning that the instructions of his succession are sealed in an envelope at headquarters.
  • Those who attended (the annual meeting) last year saw your Chairman pitch to Ernie Banks. This encounter proved to be the titanic duel that the sports world had long awaited. After the first few pitches...I fired a brushback at Ernie just to let him know who was in command. Ernie charged the mound, and I charged the plate. But a clash was avoided because we became exhausted before reaching each other.
    • 1999 Letter to Shareholders
  • We've long felt that the only value of stock forecasters is to make fortune tellers look good. Even now, Charlie and I continue to believe that short-term market forecasts are poison and should be kept locked up in a safe place, away from children and also from grown-ups who behave in the market like children.
    • 1992 Berkshire Hathaway Chairman's Letter
  • In a bull market, one must avoid the error of the preening duck that quacks boastfully after a torrential rainstorm, thinking that its paddling skills have caused it to rise in the world. A right-thinking duck would instead compare its position after the downpour to that of the other ducks on the pond.
    • Letter to Berkshire Hathaway shareholders, 1997
  • A girl in a convertible is worth five in the phonebook.
    • Berkshire Hathaway 2000 Chairman’s Letter.
  • We're more comfortable in that kind of business. It means we miss a lot of very big winners. But we wouldn't know how to pick them out anyway. It also means we have very few big losers - and that's quite helpful over time. We're perfectly willing to trade away a big payoff for a certain payoff.
    • 1999 Berkshire Hathaway Annual Meeting
  • The most common cause of low prices is pessimism - some times pervasive, some times specific to a company or industry. We want to do business in such an environment, not because we like pessimism but because we like the prices it produces. It's optimism that is the enemy of the rational buyer.
    • 1990 Chairman's Letter to Shareholders
  • Success in investing doesn't correlate with I.Q. once you're above the level of 125. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing.
    • BusinessWeek Interview June 25 1999
  • Our future rates of gain will fall far short of those achieved in the past. Berkshire's capital base is now simply too large to allow us to earn truly outsized returns. If you believe otherwise, you should consider a career in sales but avoid one in mathematics (bearing in mind that there are really only three kinds of people in the world: those who can count and those who can't).
    • 1998 Chairman's Letter to Shareholders
  • Time is the enemy of the poor business and the friend of the great business. If you have a business that's earning 20%-25% on equity, time is your friend. But time is your enemy if your money is in a low return business.
    • 1998 Berkshire Annual Meeting
  • Ben's Mr. Market allegory may seem out-of-date in today's investment world, in which most professionals and academicians talk of efficient markets, dynamic hedging and betas. Their interest in such matters is understandable, since techniques shrouded in mystery clearly have value to the purveyor of investment advice. After all, what witch doctor has ever achieved fame and fortune by simply advising 'Take two aspirins'?
    • 1987 Chairman's Letter to Shareholders
  • We will reject interesting opportunities rather than over-leverage our balance sheet.
    • Berkshire Hathaway Owners Manual
  • "If you expect to be a net saver during the next 5 years, should you hope for a higher or lower stock market during that period?"Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall."This reaction makes no sense. Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices.
    • 1997 Chairman's Letter to Shareholders
  • We don't get paid for activity, just for being right. As to how long we'll wait, we'll wait indefinitely.
    • 1998 Berkshire Hathaway Annual Meeting
  • The stock market is a no-called-strike game. You don't have to swing at everything--you can wait for your pitch. The problem when you're a money manager is that your fans keep yelling, 'Swing, you bum!'
    • 1999 Berkshire Hathaway Annual Meeting
  • The strategy we've adopted precludes our following standard diversification dogma. Many pundits would therefore say the strategy must be riskier than that employed by more conventional investors. We disagree. We believe that a policy of portfolio concentration may well decrease risk if it raises, as it should, both the intensity with which an investor thinks about a business and the comfort-level he must feel with its economic characteristics before buying into it.
    • 1993 Chairman's Letter to Shareholders
  • If you understood a business perfectly and the future of the business, you would need very little in the way of a margin of safety. So, the more vulnerable the business is, assuming you still want to invest in it, the larger margin of safety you'd need. If you're driving a truck across a bridge that says it holds 10,000 pounds and you've got a 9,800 pound vehicle, if the bridge is 6 inches above the crevice it covers, you may feel okay, but if it's over the Grand Canyon, you may feel you want a little larger margin of safety...
    • 1997 Berkshire Hathaway Annual Meeting
  • You leave yourself an enormous margin of safety. You build a bridge that 30,000-pound trucks can go across and then you drive 10,000-pound trucks across it. That is the way I like to go across bridges.
    • Financial World, June 13, 1984.
  • Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.
    • widely attributed
  • Our favourite holding period is forever.
    • Letter to Berkshire Hathaway shareholders, 1988
  • First, many in Wall Street - a community in which quality control is not prized - will sell investors anything they will buy.
    • 2000 Letter to Shareholders
  • An irresistable footnote: in 1971, pension fund managers invested a record 122% of net funds available in equities - at full prices they couldn't buy enough of them. In 1974, after the bottom had fallen out, they committed a then record low of 21% to stocks.
    • 1978 Chairman's Letter to Shareholders
  • When returns on capital are ordinary, an earn-more-by-putting-up-more record is no great managerial achievement. You can get the same result personally while operating from your rocking chair. just quadruple the capital you commit to a savings account and you will quadruple your earnings. You would hardly expect hosannas for that particular accomplishment. Yet, retirement announcements regularly sing the praises of CEOs who have, say, quadrupled earnings of their widget company during their reign - with no one examining whether this gain was attributable simply to many years of retained earnings and the workings of compound interest.
    • 1985 Chairman's Letter to Shareholders
  • [The] stock market serves as a relocation center at which money is moved from the active to the patient.
    • "Letter to Shareholders 1991"
  • Just as work expands to fill available time, corporate projects or acquisitions will materialize to soak up available funds... any business craving of the leader, however foolish, will be quickly supported by detailed rate-of-return and strategic studies prepared by his troops.
    • "Chairman's letter - 1989'"
  • It's class warfare, my class is winning, but they shouldn't be.
    • CNN Interview, May 25 2005, in arguing the need to raise taxes on the rich.
  • There's class warfare, all right, but it's my class, the rich class, that's making war, and we're winning.
    • New York Times, November 26, 2006.
  • It's got to be the best intellectual exercise out there. You're seeing through new situations every ten minutes…In the stock market you don't base your decisions on what the market is doing, but on what you think is rational….Bridge is about weighing gain/loss ratios. You're doing calculations all the time.
    • Forbes. June 2, 1997.
  • The approach and strategies are very similar in that you gather all the information you can and then keep adding to that base of information as things develop. You do whatever the probabilities indicated based on the knowledge that you have at that time, but you are always willing to modify your behaviour or your approach as you get new information. In bridge, you behave in a way that gets the best from your partner. And in business, you behave in the way that gets the best from your managers and your employees.
    • Buffett on Bridge
  • I wouldn't mind going to jail if I had three cellmates who played bridge.
    • Buffett on Bridge
  • I'll tell you why I like the cigarette business. It costs a penny to make. Sell it for a dollar. It's addictive. And there's fantastic brand loyalty.
    • Where should I invest my savings?

Few More Warren Buffett Quotes

"[The US economic system] has unleashed potential as no other system has and will continue to do so. America's best days lie ahead."
          - Berkshire Hathaway 2008 Chairman's Letter

"We'll have more people moving more goods 10, 20, 30 years from now.  I just believe this country will prosper."
          - CNBC Television, ref. International Business Times 

"[The perfect amount of money to leave children is] enough money so that they would feel they could do anything, but not so much that they could do nothing."
          - Richard I. Kirkland Jr., "Should You Leave It All to the Children?", Fortune, 29 September 1986.

"[Gold] gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head."
          - Harvard, 1998

"If I was running $1 million today, or $10 million for that matter, I'd be fully invested. Anyone who says that size does not hurt investment performance is selling. The highest rates of return I've ever achieved were in the 1950s. I killed the Dow. You ought to see the numbers. But I was investing peanuts then. It's a huge structural advantage not to have a lot of money. I think I could make you 50% a year on $1 million. No, I know I could. I guarantee that."
          - "Homespun Wisdom from the 'Oracle of Omaha'", BusinessWeek, 5 July 1999.

"You only find out who is swimming naked when the tide goes out."
          - Berkshire Hathaway 2001 Chairman's Letter

"Someone's sitting in the shade today because someone planted a tree a long time ago."
          - As quoted in The Real Warren Buffett : Managing Capital, Leading People (2002) by James O'Loughlin

"Investors should remember that excitement and expenses are their enemies. And if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy when others are fearful."
          - Berkshire Hathaway 2004 Chairman's Letter

"I've reluctantly discarded the notion of my continuing to manage the portfolio after my death – abandoning my hope to give new meaning to the term 'thinking outside the box.'"
          - Berkshire Hathaway 2007 Chairman's Letter

"If you're in the luckiest 1 per cent of humanity, you owe it to the rest of humanity to think about the other 99 per cent."
          - "Buffett blasts system that lets him pay less tax than secretary", Times Online, 28 June, 2007.

"Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down." **

"Putting people into homes, though a desirable goal, shouldn’t be our country’s primary objective. Keeping them in their homes should be the ambition." **

"We never want to count on the kindness of strangers in order to meet tomorrow’s obligations. When forced to choose, I will not trade even a night’s sleep for the chance of extra profits." **

"Upon leaving [the derivatives business], our feelings about the business mirrored a line in a country song: “I liked you better before I got to know you so well.”" **
          - ** Berkshire Hathaway 2008 Chairman's Letter

"I try to buy stock in businesses that are so wonderful that an idiot can run them. Because sooner or later, one will."
          - In a panel discussion after the premier of the 2008 documentary I.O.U.S.A.
          - "Panel at the Premier", 0:05:42ff., DVD extras, I.O.U.S.A. (2008)

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