Jargon Fridays: Who Is Warren Buffet?

Well, this isn’t exactly jargon, but I thought it would be useful to introduce Warren Buffet to you, since we will be using his wisdom in picking stocks in the Nairobi Stock Exchange. Keep checking the stocks category to see how that goes (though we just got started).

Warren Buffetis considered one of 20th Century’s greatest investors, something he started doing at a very early age. His bio on about.com:

At only six years old, Buffett purchased 6-packs of Coca Cola from his grandfather’s grocery store for twenty five cents and resold each of the bottles for a nickel, pocketing a five cent profit. While other children his age were playing hopscotch and jacks, Warren was making money.

Five years later, Buffett took his step into the world of high finance. At eleven years old, he purchased three shares of Cities Service Preferred at $38 per share for both himself and his older sister, Doris. Shortly after buying the stock, it fell to just over $27 per share. A frightened but resilient Warren held his shares until they rebounded to $40. He promptly sold them – a mistake he would soon come to regret. Cities Service shot up to $200. The experience taught him one of the basic lessons of investing: patience is a virtue.

Today, at 81 years old, Warren Buffet is one of Forbes billionaires, and is worth over $44 billion, wealth built using very little debt. Warren Buffet doesn’t believe in the popular mantra in finance circles:get rich with other people’s money. His investment company, Berkshire Hathaway is one of the greatest success stories of the Management Model where he invests in companies but doesn’t run them himself.

According to this letter to his shareholders, from 1965 to 2011, Berkshire Hathaway has made 19.8% returns to it’s shareholders, compared to 9.2% returned by the S&P Index (in simple terms, their equivalent of the NSE 20 share index). This means that if you invested 19 dollars in Berkshire in 1965, it would be worth close to a hundred thousand today. If 47 years seem like very long to you, imagine investing 19 dollars for your child when they’re 1 year old, and them inheriting one hundred thousand dollars 47 years later to pay their kids college fees.

I hope by now you see why we want to learn from this guy.

More important than building Berkshire, Warren Buffet has a few peculiarities, that make him an interesting study for anyone that wants to succeed financially:

1. He still lives in the same small 3 bedroom house in mid-town Omaha, that he bought after he got married 50 years ago. He says that he has everything he needs in that house. His house does not have a wall or a fence.

2.He drives his own car everywhere and does not have a driver or security people around him(his health has deteriorated significantly, so this might have changed but you get the point).

3. He never travels by private jet, although he owns the world’s largest private jet company. edit: he bought a jet in 1986 when he became too easily recognized in public

4. His company, Berkshire Hathaway, owns 63 companies. He writes only one letter each yearto the CEOs of these companies, giving them goals for the year. He never holds meetings or calls them on a regular basis.

5. He has given his CEO’s only two rules. Rule number 1: do not lose any of your share holder’s money. Rule number 2: Do not forget rule number 1.

6. He does not socialize with the high society crowd. His past time after he gets home is to make himself some pop corn and watch television.

7. edited Bill Gates did not think he had anything in common with Warren Buffet. So he had scheduled his meeting only for half hour. But when Gates met him, the meeting lasted for ten hours and Bill Gates became a devotee of Warren Buffet.

8. Warren Buffet does not carry a cell phone, nor has a computer on his desk.

9. His advice to young people: Stay away from credit cards and invest in yourself.

10. He actually finished school, and got a Masters from Columbia University. This is especially inspiring in an age where the coolest thing to do is drop out of school.

11. He views making money as an intellectual game, and plans to leave all his winnings to charity.

This is a man that has found meaning in something greater than money and possessions, and has spent a lifetime doing it.

We definitely should be interested in Warren Buffet!

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