“Time is the friend of wonderful companies and the enemy of mediocre ones.”

Warren Buffett

 

The first investment

In the early 40’s, a young boy, son of a stockbroker in Omaha, Nebraska, barely 11 years old, after studying the daily stock quotes, bought his first shares at a price of $38 dollars per share.

Sometime later, the price of these shares fell to $27 dollars, the boy was a little disappointed, but aware of the ups and downs of the stock market, he waited until the price rose to $40 dollars and immediately sold them.

This decision would haunt him for the rest of his life, and even begin to change the way he thought about investing. Although he made his first profit on the sale of those shares, a few years later the price of the shares Warren sold would reach $200 per share.

This fact teaches Warren Buffett two important lessons: the difference between value and price, and that he must be patient enough to achieve extraordinary results. Thus began “the oracle of Omaha” his journey in the financial world.

Home and school

Born on August 30, 1930, in Omaha, Nebraska, just at the beginning of the Great Depression, Warren Edward Buffett is the only boy in a family of three brothers. The son of Howard Homan Buffett, financier and politician, and Leila Buffett, his early life was marked by poverty resulting from the Financial Crash of 1929.

Although it sounds like something that many children pursue, living in poverty for the first six years of his life made Warren’s decision to become wealthy. Unlike other children his age, he began to take action to achieve this goal.

From a very young age, he started with entrepreneurial actions such as selling gum, soda and lemonade, the latter in the street of a friend’s house because he noticed that there were more people circulating in that street, which would allow him to have more sales.

When his father became a congressman and they had to move to Washington, Warren didn’t like the idea and started delivering newspapers, earning as much as $175 a month, which he planned to use to return home to Omaha.

At the age of 13, Warren filed his first tax return and, at 14, invested $1,200 in acres of farmland in his native Nebraska, once he returned to live with his grandfather and finish school.

Before starting his college stint, he launched a pinball machine business, starting by placing the first one in a local barbershop so that by the end of the month he had placed three machines and, shortly thereafter, seven machines.

This earned him about $50 a week (in addition to his other businesses), a situation that made him hesitate about continuing his university studies, because at some point he felt that his entrepreneurial vision was enough to start working full time at it.

Influenced by his father, he decided to enter The Wharton School, however, he had a brief stay in this school, because, for him, the professors had nothing new to contribute. He eventually finished his studies at the University of Nebraska. He then applied to graduate school at Harvard Business School but was rejected.

Far from getting depressed, he looked for options and realized that Benjamin Graham, writer of the book “The Intelligent Investor”, was teaching at Columbia University, and successfully applied to Columbia University.

The rise of the “Oracle of Omaha”

Having finished graduate school and having built a solid friendship with his mentor and hero, despite having been rejected on one occasion, Warren Buffett finally entered the Graham-Newman Partnership firm in 1954, where, he realized that despite agreeing on value investing as an investment doctrine, they differed greatly in the depth and dimension of investments.

In 1956, Graham closed his firm and Buffett, back in Omaha, decided to start his own company with $105,100 from seven partners (family and friends), of which only $100 belonged to Warren.

In 1961, Buffett Associates made its first major purchase, the Dempster Mill farm products company, with which it had problems that it could not solve on its own.

To resolve the conflicts in this company, Buffett called in Charlie Munger, whom he met in 1959, and in turn recommended someone who would bring order to Buffett’s new acquisition. In 1963 he sold the company for $2.3 million.

By 1962, Buffett’s company was managing $7.2 million and grew to 90 partners across the country. In 1967 he bought most of the textile company Berkshire Hathaway, which Buffett himself claims was his worst investment.

Despite being a mediocre business, Buffett began to use Berkshire Hathaway as his investment vehicle, to the extent that he decided to close his firm, Buffett Associates, in 1970. During this decade, Buffett and Munger redefined their investment approach and began acquiring well-known companies with transient problems but strong fundamentals.

The winning strategy: value investing

Influenced by his friend and business partner, Charlie Munger, but maintaining his value investing style, Buffett redefined his investment parameters and developed the philosophy of finding “great companies at a fair price rather than great companies at a great price.

This means that it is better to look for solid companies, with strong fundamentals, that have a reputation and track record but that are going through a temporary problem that has caused their share price to fall, because in the long term they will more than recover.

Basically, it is a matter of maintaining the doctrine learned by his mentor, Benjamin Graham, value investing, adjusted to the new parameters that Buffett and Munger found along the way.

Warren Buffett today

Today, the oracle of Omaha remains in the top 10 of the richest men in the world, although he has already announced that 99% of his fortune will be donated to various causes.

Warren Buffett has established himself as the legendary investor par excellence and his company currently has the highest share price in the stock market. He is also an influence and example for thousands of people who know that, despite his fortune, he lives austerely, in great physical and mental shape, keeping control of his emotions and with great humility.