Warren Buffett: The Oracle of Omaha

Overview

Known as the Oracle of Omaha, 84-year-old Warren Buffett has parlayed a patient, value-oriented investment strategy into a fortune of over $73 billion. Credited with having a gift for finding investment diamonds in the rough, he has made his long-term investors wealthy.

Charming and unconventional, Buffett wows shareholders and stock analysts at his Woodstock for Capitalists, an annual meeting hosted by his company Berkshire Hathaway. The firm's succinct annual report, which Buffett writes himself, is filled with his insights on good and bad business, and on the economy in general. 

Buffett has maintained a low-profile throughout his life, as well as a commonsense image that befits his long-term investment strategies. Dubbed the world's second richest man by Forbes magazine, he believes massive pools of wealth should ultimately be used to benefit society as a whole. Follow the journey of this prolific investor through the sharp reporting and analysis of The Associated Press. 

Introduction

Oracle of Omaha

Billionaire investor Warren Buffett speaks in Omaha, Neb. Buffett said that a shareholders vote April 30 on Class B voting and economic rights in event of a merger, stock split or stock dividend, is a tidying up and does not presage any major moves by Berkshire Hathaway Inc., February 4, 2005. (AP Photo/Nati Harnik)

Buffett’s Beginnings

September 29, 1987

By Bill Menezes

After a career in which he parlayed a $100,000 stake into a multibillion- dollar empire and became an investment legend, Warren E. Buffett's purchase of a major stake in Wall Street's biggest investment banker seems only natural.

Buffett's Berkshire Hathaway Inc. has agreed to pay $700 million for a 12 percent stake in Salomon Inc., the parent of the investment banking house Salomon Brothers Inc.

The transaction announced Sunday (September 27, 1987), if approved by Salomon's board of directors, would bring one of Wall Street's venerable investment houses together with a man widely regarded as one of the greatest and richest investors the nation ever has seen.

Salomon will gain a chunk of new capital while Buffett will gain stock that, if past patterns hold true, is ripe for healthy future gains.

The 56-year-old Buffett, known as much for his folksy wisdom and unpretentious lifestyle as his financial acumen, has combined a patient, value-oriented stock strategy with a knack for finding investment diamonds in the rough.

The results: years of sturdy growth in value for shareholders of Omaha, Neb.-based Berkshire - of which Buffett holds about 45 percent - and personal wealth that Forbes magazine estimates at about $1.4 billion.

''Mr. Buffett has been highly regarded in your investment community as someone who seeks good long-term value in his investments,'' said Perrin Long of Lipper Analytical Services. ''His track record has been excellent.''

That track record seems to have strengthened non-stop since childhood, when Buffett hustled magazine subscriptions, sold newspapers and retrieved and sold golf balls while growing up in Omaha and Washington, D.C.

Buffett, the son of U.S. Rep. Howard Buffett, graduated from the University of Nebraska in Lincoln and earned a master's degree from Columbia University by age 20.

Buffett sold securities for his father's investment firm before going to Wall Street, where he worked for Benjamin Graham, a Columbia business professor who helped pioneer the ''value-investing'' strategy of stock buying.

The strategy focuses on purchases of stocks trading at prices that are low relative to their book value in anticipation the market eventually will recognize the underlying value and push the stocks higher.

The childhood home of Warren Buffett is seen in Omaha, Neb., where he lived with his parents and sisters until he was 6, April 11, 2012. (AP Photo/Nati Harnik)

Buffett returned to Omaha in 1956 and, pooling $100,000 from friends and relatives, established Buffett Associates Ltd. Relying chiefly on a value- investing strategy and Buffett's acumen, the partnership inflated the original stake into assets valued at an estimated $100 million by the time the partnership was dissolved in 1969.

Four years earlier Buffett had acquired Berkshire Hathaway, a Massachusetts cloth milling concern with $10 million in assets. Since then he has turned it into a diversified holding company with about $2 billion in assets.

Most of Berkshire's operating revenue comes from insurance operations. Over the years the company also has grown to include the publisher Buffalo News Inc.; a home furnishings concern; a chain of candy stores; and Scott & Fetzer Co., the maker of Kirby vacuum cleaners and World Book Encyclopedia.

Berkshire had a profit of $106.7 million in the first six months of 1987, including investment gains of $3.6 million, compared with a profit of $209.4 million, including a whopping $141.6 million in investment gains, a year earlier.

In 1986, the company's net worth rose by 26.1 percent.

Much of the profits from the business operations have been used to buy stocks picked by Buffett, who consistently has reaped the benefits of his long-term strategy.

Members of Congress listen to President Truman’s radio announcement of complete Allied victory over Germany as they eat breakfast in the House office building restaurant. In group are left to right are: Rep. Edith Nourse Rogers (R-Mass); Rep. Howard H. Buffett (R-Nebr); Rep. A.L. Miller (R-Nebr); Rep. Karl Stefan (R-Nebr); Sen. Hugh Butler (R-Nebr); Rep. Carl T. Cortis (R-Nebr), May 8, 1945. (AP Photo)

Berkshire's $517.5 million investment in Capital Cities-ABC Inc., regarded as a key element in the 1986 merger of the two media companies, now is worth about $1.26 billion.

A 13 percent holding in Washington Post Co. worth about $205 million at the end of 1985 is valued now at about $445 million, and a 41 percent stake in GEICO Corp., worth $595.9 million at year-end 1985, is valued at nearly $823 billion.

The plaudits earned by such successes have been as lofty as the investment performance: Fortune magazine has called Buffett ''the wizard of Omaha''; commentator Adam Smith, the pen name of J.W. Goodman, called Buffett ''easily the outstanding money manager of our generation''; and author A. David Silver in a 1985 book named Buffett one of the greatest entrepreneurs of the past 25 years.

The GEICO mascot, left, appears next to Banking and Insurance Commissioner Holly C. Bakke and Warren Buffett during a news conference at the Mary G. Roebling Building in Trenton, N.J. Earlier Bakke announced GUCCI will begin selling private passenger automobile insurance Monday, August 16, 2004. (AP Photo/Brian Branch-Price)

Throughout, Buffett has maintained a low-profile, common sense image that befits his long-term investments strategies. He still lives in Omaha, and was described by his son Howard, one of his three children, in a 1985 interview as ''the most sincere and honest person I've ever known.''

Buffett's observations in Berkshire's annual reports are anticipated as eagerly as the numbers themselves, and may quote Mae West as readily as a corporate ledger in attempting to prove a point.

The 1987 version was typical, with Buffett criticizing the short-term outlook and ''hyperkinetic'' activities of some investment managers.

''The term 'institutional investor' is becoming one of those self-contradictions called an oxymoron, comparable to 'jumbo shrimp,' 'lady mudwrestler' and 'inexpensive lawyer,''' he stated.

Warren Buffett shrugged off concerns about his Berkshire Hathaway conglomerate, which has trailed the overall market, and told shareholders Saturday (May 3, 2014) to remain optimistic about his company, as well as the American economy.

Tough Questions, Tough Answers

May 3, 2014

By Josh Funk

More than 30,000 people descended on the annual gathering to listen to Warren Buffett and Berkshire Vice Chairman Charlie Munger, who faced tough questions about Berkshire's prospects for growth and acquisitions, and also how Buffett came to handle a vote on pay packages crafted for Coca-Cola executives, a company in which Berkshire holds a major stake.

Buffett abstained from voting Berkshire's 400 million shares against the compensation plan last week, though he has long advocated against exorbitant executive pay, and after he described Coca-Cola's package as excessive.

I thought this was the most effective way of behaving at Berkshire, Buffett said Saturday.

Buffett said he told Coke's CEO privately that he opposed the compensation plan, but didn't want to criticize the company publicly or join another Coke investor's very public campaign to curtail that pay.

We made a clear statement about the excessiveness of the plan, but we didn't go to war with Coke in any way, Buffett said.

Shareholder Jake Kamm said the explanation Buffett offered initially for not voting against the pay package was not convincing.

It's a little bit of spin, said Kamm, who teaches finance at Baldwin Wallace University near Cleveland, Ohio.

Buffett said the true test will come when Coke reveals its pay packages over the next year.

Buffett's son, Howard Buffett, serves on Coke's board and supported the compensation plan, which raised some hackles among Berkshire shareholders because he is on the shortlist to take a powerful position at the company on Buffett's departure.

But Buffett said Berkshire shareholders shouldn't worry about his preference that his son one day become Berkshire's chairman.

Buffett also defended joining with investment firm 3G Capital last year to buy H.J. Heinz Co. That $23.3 billion deal represents a shift in Buffett's investing style because Berkshire usually operates alone and leaves the companies it acquires largely unchanged.

I do think 3G does a magnificent job running a business, Buffett said.

Since the acquisition, 3G has announced plans to eliminate roughly 2,000 jobs and close three manufacturing plants to improve efficiency. Buffett said he doesn't expect Berkshire to use 3G's approach, but the two may pair up on future deals and he expects Heinz profits to improve significantly.

Debbie Eisenberg, who works for Berkshire Hathaway subsidiary GEICO, poses with cutouts of Warren Buffett, left, and his right-hand-man Charlie Munger, right, in Omaha, Neb. Berkshire Hathaway shareholders who are in town for the annual shareholders meeting which takes place on Saturday, May 2, 2014. (AP Photo/Nati Harnik)

Inevitably, there were rumblings about Berkshire's failure to beat