Currently the second wealthiest person in the world, Warren Buffett is also arguably the greatest investor in history. In five decades, he has parlayed a stake of less than $100,000 into $35 billion. Shares in his company Berkshire Hathaway trade in their tens of thousands of dollars, and Buffett himself has 474,998 of them - none of which he has ever sold.
His investing strategies have been extensively written about, but what broad lessons for success can we draw from the man himself? Lowenstein's biography is the only serious full-length portrait, and it is from this richly enjoyable book that we glean the following.
Seeds of a fortune
Omaha, Nebraska was wilderness until the 1850s, but grew into a town once Abraham Lincoln designated it the eastern terminal of the Union Pacific Railroad. Boiling in summer and freezing in winter, it had the reputation as a cultural wasteland.
The Buffetts had been in Omaha for over a century when Warren Buffett was born in 1930, into modest circumstances. Buffett's father Howard had wanted to be a journalist but worked in a bank, which retrenched him in the Depression. The family had so little money that Warren's mother often skipped her dinner to give her husband a full portion. This period of lack apparently had a big effect on Warren. The second of three children and the only son, he was obsessed with numbers and facts and confessed very early on his desire to be rich. A favourite boyhood book was One Thousand Ways to Make $1000.
Howard Buffett eventually ran a successful stock brokerage and also achieved a surprise election to Congress in 1942 as a Republican. Young Warren hated living in Washington, but took pleasure in building up newspaper rounds which, while he was still a teenager, were bringing in $175 a week (a regular adult wage); the $6,000 he saved was the seed of his fortune.
He did well in school, coming 16 out of 374, and attended the Wharton School of Finance at the University of Pennsylvania. He applied to Harvard for further study, but was turned down. This turned out to be a great blessing in disguise, because at his second choice, Columbia, was Benjamin Graham, the genius pioneer of stock market analysis.
Entering the fray
Until Graham, stock picking had basically been gambling, but the professor gave it a methodology that the young Buffett instantly 'got'. As Lowenstein puts it: "Investing without Graham would be like communism without Marx - the discipline would scarcely exist." Graham's method was the opposite of speculation; he looked for the underlying value of a stock and for discrepancies between this value and the stock price. If you bought a stock very cheaply, it could be virtually free of risk. The emphasis on research, analysis and looking only to the facts of a business, suited Buffett's personality perfectly; he could work alone.
Although Buffett's father warned him against entering the stock market, he started working in his father's brokerage. He also took a Dale Carnegie seminar in public speaking and at age 21 was giving a night course at the University of Omaha on 'Investment Principles' - to 40-something professionals. Later, he went to work for Graham's investment fund in New York, but knew he wanted to work for himself, with his own fund, and back to Omaha.
Begun with his own capital and that of local Omahans, by the end of the third year the fund had doubled in value; after five years, when the Dow stock market index had risen 74%, Buffet's fund had increased by a remarkable 251%.
Before he was 35, Buffett was managing $22 million and had a personal net worth of $4 million (in the 1960s this was rich). Yet his life hardly changed at all. He continued to live in the same unimpressive house he had bought in the 1950s for $31,500, and asked his wife Susie to buy a better car than their VW because 'it looked bad when he picked up visitors at the airport.' His drab office accommodation was on the same street where he lived, and he worked in total secrecy.
A large part of Buffett's success was that he did not think like the crowd. The key to being a good investor was to recognise the value of things when 'everyone' knew they weren't worth much. He never worried if the market price of a stock he had bought experienced a big drop because it was obvious to him that the fundamentals would see it rise again.
Indeed, as the 1980s boom got underway, the shares that Buffett had bought 'dirt cheap' during the Nixon years of stagflation began to rise; by 1983 he had entered the Forbes list of richest Americans and his 'value investing' had begun to attract a lot of attention. In an off-the-cuff talk, he said:
Buffett is a risk-taker in the sense that he is often willing to bet a quarter of Berkshire Hathaway on one stock, but not a gambler because he looks only for 'sure-fire things'. Buffett imagined the stock market as like having a lifetime punch card and you were only allowed 20 holes. With such restricted choice, you would make sure that the stocks you did invest in were right. He would sometimes bet a quarter of Berkshire's capital on one stock, so sure was he that its true value would see the stock rise. The most radical thing about Buffett is that once he chooses a stock he hangs on to it. Selling a stock you had held for a long time, Buffett said, was "like dumping your wife when she gets old." In short, Buffett highlighted the difference between the true investor and the 'trader'. As Lowenstein puts it: "Buffett had always craved, and had always felt enriched by, continuity: to work with the same people, to own the same stocks, to be in the same businesses. Hanging on was a metaphor for his life."
In contrast to mutual fund supremos like Peter Lynch, Lowenstein observes, Buffett seems like something from another era. He has no computer in his office ('I am a computer' he once told an interviewer) or even a calculator, and spends most of his time reading (annual reports, newspapers) or talking with business partners and old friends. His 'one concession to modernity', the author notes, is a private jet dubbed The Indefensible. He acquired it only because he got tired of people asking him for stock tips when he was flying economy on commercial flights.
Buffett's favourite food is the cheeseburger, and he is famous for guzzling Cherry Cokes. Lowenstein says that his focus is so great that he either doesn't notice or doesn't have time for things that we normally associated with a well-rounded person. On a trip to Paris he wasn't the least bit interested in sight-seeing, and he would stay at his beachfront home in Laguna Beach in California for weeks on end without going near the water. He is continually amazed by the magic of compounding interest, and when his wife spent $15,000 on refurnishing their house, Buffett complained to a golfing partner, 'Do you know how much that is if you compound it over twenty years?'
For a self-made billionaire, Buffett is strangely liberal. He quit the Omaha Rotary Club (of which his father had been president) because he thought it racist and elitist, and also boycotted a local country club because it denied membership to Jews. Living in a predominantly white neighborhood, his household was also unusual in 1960s America in that he and Suzy often entertained black Americans.
When Buffett is asked what needs to be done to reform the welfare system, he prefers to talk about 'welfare for the rich'. He dislikes stock options for executives because they are over-generous at the expense of the shareholder. Many CEOs, with their hugely inflated compensation packages, were 'wards of the corporate state' - not true capitalists, he feels, but bureaucrats. Buffett also warned of corporate excesses a couple of years before Enron and other supposed corporate giants fell.
Although it needs updating to take account of Buffett's moves over the last ten years, why is Lowenstein's portrait of the great investor still so enjoyable? If you know nothing about investment, the book can educate you while telling a great story of one of the great minds of our time. Buffett is interesting because the way he lives and works is more akin to the style of an artist or philosopher; Berkshire is his 'canvas' and his relationship with his partners he sees as a sacred trust. Those who have invested with him tend to keep their shares for decades and consider themselves members of a 'privileged tribe', Lowenstein notes.
Before the Bill and Belinda Gates Foundation, The Buffett Foundation was going to be the richest charity in history, giving away at least $1 billion a year, but only after Buffett died. In the last couple of years, Buffett changed his mind and decided to give most of his fortune to the Gates Foundation, making it easily the largest ever created. Many were suprised, yet the move is consistent with Buffett's idea that the best returns come from leaving good people alone to do what they know best. Evidently, Buffett has great faith in his friends to heal the world of its many ills. Bill and Melinda Gates, in turn, have been humbled by what is effectively the gift of a lifetime's work.
Praise for 50 Success Classics:
"This incredible book gives you the best of success literature ever written - in one easy book that you can read and reread for years.”
Brian Tracy, author of
Goals and Million Dollar Habits
|"A highly readable collection! 50 Success Classics presents a smorgasbord of some of the best thinking on what success really means.”|
Kenneth Blanchard, co-author of
The One Minute Manager
|"I can't imagine needing any other success book after reading 50 Success Classics. It has every piece of wisdom you'll every need to make your life extraordinary.”|
Cheryl Richardson, author of
"Many thanks for 50 Success Classics...and for the inclusion of so many impressive and well-known success authors. Many of their works I have studied, enjoyed and learned from. It is a delight to see them all included in one volume, in which one can be exposed to numerous success ideas so conveniently. I shall be recommending this book to my readers worldwide.
Catherine Ponder, author of The Dynamic Laws of Prosperity
|"I only wish this book had been available years ago - it could have saved me countless hours sifting through the dross by instead pointing me to the really inspirational works. Very highly recommended.”|
Vice-President of The Speakers Association
"Buffett's genius was largely a genius of character - of patience, discipline and rationality. These were common enough virtues, but they were rare in the heat of financial passions, and indispensable to anyone who would test his mettle in the stock market."
While himself the owner of Berkshire Hathaway stock, Lowenstein did not interview Buffett for the book, talking only with Buffett family, friends and business associates. A Wall Street Journal reporter, he lives in New Jersey.
--- parameterHolder: symfony/default: action: show edit: false module: sfSimpleCMS slug: making-of-an-american-capitalist attributeHolder: symfony/default: culture: en
--- app_sfAssetsLibrary_upload_dir: media app_sf_guard_plugin_remember_key_expiration_age: 259200 mod_sfsimplecms_enabled: 1 mod_sfsimplecms_is_internal: mod_sfsimplecms_view_class: sfPHP propel_behavior_actasnestedset_sfSimpleCMSPage_columns: left: sf_simple_cms_page.TREE_LEFT right: sf_simple_cms_page.TREE_RIGHT parent: sf_simple_cms_page.TREE_PARENT scope: sf_simple_cms_page.TOPIC_ID sf_admin_web_dir: /sf/sf_admin sf_app: frontend sf_app_config_dir: /var/www/cms/apps/frontend/config sf_app_config_dir_name: config sf_app_dir: /var/www/cms/apps/frontend sf_app_i18n_dir: /var/www/cms/apps/frontend/i18n sf_app_i18n_dir_name: i18n sf_app_lib_dir: /var/www/cms/apps/frontend/lib sf_app_lib_dir_name: lib sf_app_module_action_dir_name: actions sf_app_module_config_dir_name: config sf_app_module_dir: /var/www/cms/apps/frontend/modules sf_app_module_dir_name: modules sf_app_module_i18n_dir_name: i18n sf_app_module_lib_dir_name: lib sf_app_module_template_dir_name: templates sf_app_module_validate_dir_name: validate sf_app_module_view_dir_name: views sf_app_template_dir: /var/www/cms/apps/frontend/templates sf_app_template_dir_name: templates sf_apps_dir_name: apps sf_autoloading_functions: sf_available: 1 sf_base_cache_dir: /var/www/cms/cache/frontend sf_bin_dir: /var/www/cms/batch sf_bin_dir_name: batch sf_cache: sf_cache_dir: /var/www/cms/cache/frontend/prod sf_cache_dir_name: cache sf_calendar_web_dir: /sf/calendar sf_charset: utf-8 sf_check_lock: sf_check_symfony_version: sf_compressed: sf_config_cache_dir: /var/www/cms/cache/frontend/prod/config sf_config_dir: /var/www/cms/config sf_config_dir_name: config sf_data_dir: /var/www/cms/data sf_data_dir_name: data sf_debug: sf_default_action: index sf_default_module: default sf_doc_dir: /var/www/cms/data/doc sf_doc_dir_name: doc sf_enabled_modules: - default - sfGuardAuth - sfSimpleCMS sf_environment: prod sf_error_404_action: error404 sf_error_404_module: default sf_error_reporting: 341 sf_escaping_method: ESC_ENTITIES sf_escaping_strategy: bc sf_etag: 1 sf_i18n: sf_i18n_cache_dir: /var/www/cms/cache/frontend/prod/i18n sf_in_bootstrap: 1 sf_lib_dir: /var/www/cms/lib sf_lib_dir_name: lib sf_log_dir: /var/www/cms/log sf_log_dir_name: log sf_logging_enabled: sf_logging_history: 10 sf_logging_level: err sf_logging_period: 7 sf_logging_purge: sf_logging_rotate: 1 sf_login_action: signin sf_login_module: sfGuardAuth sf_max_forwards: 5 sf_model_dir_name: model sf_model_lib_dir: /var/www/cms/lib/model sf_module_cache_dir: /var/www/cms/cache/frontend/prod/modules sf_module_disabled_action: disabled sf_module_disabled_module: default sf_no_script_name: 1 sf_orm: propel sf_path_info_array: SERVER sf_path_info_key: PATH_INFO sf_plugins_dir: /var/www/cms/plugins sf_plugins_dir_name: plugins sf_prototype_web_dir: /sf/prototype sf_rich_text_js_dir: js/tiny_mce sf_root_cache_dir: /var/www/cms/cache sf_root_dir: /var/www/cms sf_routing_defaults: sf_culture: en sf_secure_action: secure sf_secure_module: sfGuardAuth sf_standard_helpers: - Partial - Cache - Form sf_strip_comments: 1 sf_suffix: . sf_symfony_data_dir: /var/www/cms/config/../data/symfony sf_symfony_lib_dir: /var/www/cms/config/../lib/symfony sf_template_cache_dir: /var/www/cms/cache/frontend/prod/template sf_test: sf_test_cache_dir: /var/www/cms/cache/frontend/prod/test sf_test_dir: /var/www/cms/test sf_test_dir_name: test sf_timeout: 1800 sf_unavailable_action: unavailable sf_unavailable_module: default sf_upload_dir: /var/www/cms/web/uploads sf_upload_dir_name: uploads sf_url_format: PATH sf_use_database: 1 sf_use_flash: 1 sf_use_process_cache: 1 sf_use_security: 1 sf_validation_error_class: form_error sf_validation_error_id_prefix: error_for_ sf_validation_error_prefix: ↓ sf_validation_error_suffix: ↓ sf_web_debug: 1 sf_web_debug_web_dir: /sf/sf_web_debug sf_web_dir: /var/www/cms/web sf_web_dir_name: web
--- cookie: env: files: get: post: server: CONTEXT_DOCUMENT_ROOT: /var/www/cms/web CONTEXT_PREFIX: DOCUMENT_ROOT: /var/www/cms/web GATEWAY_INTERFACE: CGI/1.1 HTTP_ACCEPT: text/html,application/xhtml+xml,application/xml;q=0.9,*/*;q=0.8 HTTP_ACCEPT_ENCODING: x-gzip, gzip, deflate HTTP_ACCEPT_LANGUAGE: en-us,en-gb,en;q=0.7,*;q=0.3 HTTP_HOST: butler-bowdon.com HTTP_USER_AGENT: CCBot/2.0 (http://commoncrawl.org/faq/) PATH: /usr/local/sbin:/usr/local/bin:/usr/sbin:/usr/bin:/sbin:/bin PHP_SELF: /index.php QUERY_STRING: REDIRECT_STATUS: 200 REDIRECT_URL: /making-of-an-american-capitalist REMOTE_ADDR: 184.108.40.206 REMOTE_PORT: 51795 REQUEST_METHOD: GET REQUEST_SCHEME: http REQUEST_TIME: 1422653301 REQUEST_TIME_FLOAT: 1422653301.063 REQUEST_URI: /making-of-an-american-capitalist SCRIPT_FILENAME: /var/www/cms/web/index.php SCRIPT_NAME: /index.php SERVER_ADDR: 220.127.116.11 SERVER_ADMIN: [no address given] SERVER_NAME: butler-bowdon.com SERVER_PORT: 80 SERVER_PROTOCOL: HTTP/1.0 SERVER_SIGNATURE: | <address>Apache/2.4.7 (Ubuntu) Server at butler-bowdon.com Port 80</address> SERVER_SOFTWARE: Apache/2.4.7 (Ubuntu) session: lang: home
--- php: 5.5.9-1ubuntu4.5 os: Linux butler-bowdon 3.13.0-37-generic #64-Ubuntu SMP Mon Sep 22 21:28:38 UTC 2014 x86_64 extensions: - Core - date - ereg - libxml - openssl - pcre - zlib - bcmath - bz2 - calendar - ctype - dba - dom - hash - fileinfo - filter - ftp - gettext - SPL - iconv - mbstring - session - posix - Reflection - standard - shmop - SimpleXML - soap - sockets - Phar - exif - sysvmsg - sysvsem - sysvshm - tokenizer - wddx - xml - xmlreader - xmlwriter - zip - apache2handler - PDO - json - mysql - mysqli - pdo_mysql - readline - mhash - Zend OPcache