Buffett was born in Omaha , Nebraska , to Howard Buffett, a stockbroker and member of Congress, and Leila Buffett. Buffett has two sisters, Doris and Bertie. His grandfather owned a grocery store in Omaha, where Charlie Munger, the current Vice Chairman of Berkshire H.
He began working at his father's brokerage at the age of 11, and that same year made his first stock purchase, buying Cities Services preferred shares for $38 each. He sold them when the price reached $40, only to see them rocket to $200 a few years later. This taught him the importance of investing in good companies for the long term. His entrepreneurial spirit was present even as an adolescent. At the age of 14 he spent $1,200 he had saved up from two paper routes to buy 40 acres of farmland which he then rented to tenant farmers.
He attended the University of Nebraska (transferring there from the Wharton School at the University of Pennsylvania ). There he began to fall in love with investing after reading Benjamin Graham's "The Intelligent Investor", the so-called bible of value investors, and obtained a Master's degree in economics at Columbia Business School, studying under Benjamin Graham, alongside other budding value investors like Walter Schloss and Irving Kahn. Another influence on Buffett's investment philosophy was the well known investor and writer Philip Fisher.
First career steps
After receiving the only A+ Benjamin Graham ever handed out to a student in his security analysis class, Buffett wanted to work at Graham-Newman but was turned down. He went to work at his father's brokerage as a salesman. A stock he pushed was GEICO. Buffett picked GEICO after noticing Graham was a director and had a large position in it. Never one to buy a stock on a whim, Buffett visited GEICO's head office on a weekend to investigate further. He knocked until someone opened the door, he was led to the future president of GEICO. Buffett introduced himself as Graham's student and was given a crash course on the insurance business and what gave GEICO an advantage over their competitors. Buffett was exposed to the economics of selling direct, and perhaps more importantly to the benefits of insurance "float", that is the funds which an insurance company holds and is able to invest for its own profit. Over the long term the insurance industry makes minimal profits on underwriting policies, but float can make it a lucrative business to be in, providing the managers are skillful investors. Buffett places great emphasis on this point in his annual shareholders' letters.
Buffett married Susan Thompson in 1952. They had three children together, Susie, Howard, and Peter. The couple began living separately in 1977 but remained married until Thompson's death in July 2004.
In 1954, Graham invited Buffett to Graham-Newman. There, he worked closely with Graham and Walter Schloss. Graham, a tough man to work for, was adamant that a stock provide a wide margin of safety after weighting the tradeoff between its price and intrinsic value. Graham's demand that a stock be worth more than its price made sense to Buffett, but it also made him question whether the criteria were too stringent, causing them to miss out on some big winners that had more qualitative values.
Investment partnership
Buffett returned to Omaha in 1956 after two years. He had no specific career plans in mind until he met his first major client, who sought Buffett's expertise to manage investments for him. This paved the way for Buffett to establish his investment partnership, financed with his own money together with money from friends and family.
He ran the partnership out of his bedroom, adhering closely to Graham's investment approach and compensation structure. The partnership was named Buffett Partnership Limited (BPL). BPL made approximately 30% gains year-over-year between 1956 to 1969, in a market where 7% to 11% was the norm.
His partnership employed a three-pronged approach:
Generals: undervalued securities that possess margin of safety and meet expected risk/return characteristics
Arbitrages: company events that are not related to broader market changes such as mergers and acquisitions, liquidation, etc.
Controls: build sizable holdings, ally with other shareholders or employ proxies to effect changes in companies
In 1962, BPL established a position in Berkshire Hathaway, a large manufacturing company in the declining textile industry that was selling below its working capital. Buffett and Seabury Stanton, the President of Berkshire and a large shareholder at the time, differed in the buy back price by three-eighths. Negotiations broke off and BPL purchased every share in sight until it established a 49% position and installed Ken Chace as President.
Berkshire Hathaway
Buffett would dissolve all partnerships to focus on running Berkshire Hathaway. Charlie Munger, Berkshire's Vice Chairman, has remarked that purchasing the company was a mistake, due to the failure of the textile industry; Berkshire, however, became one of the largest holding companies in the world.
As the bull market continued to roar, Buffett was strained to come up with investment ideas. In 1969, Buffett decided to liquidate his Partnership, he gave his limited partners a choice between cash or Berkshire shares (the one of two holdings he decided to keep).
Buffett redirected the cash not required to maintain the textile business to acquire private businesses and stocks of public companies. At the core of his strategy was to purchase or build insurance or reinsurance companies and use them as super margin accounts to buy equities. Berkshire chooses managers who demonstrated unwavering underwriting discipline and cost consciousness throughout their careers. To align the interest with Berkshire shareholder's, insurance managers are compensated for underwriting profit and not for meeting revenue growth targets.
Buffett currently lives in Omaha with long-time partner Astrid Menks, introduced to him by Susan Thompson when she separated from Buffett. His daughter Susie also lives in Omaha and does charitable work through her Susan A. Buffett Foundation and as a national board member of Girls Inc.
Buffett is currently working on an animated series with DiC Entertainment chief Andy Heyward. According to information by Buffett at the Berkshire Hathaway annual meeting on May 6, 2006, the series will feature Buffett and Munger in roles and the series will teach children healthy financial habits for life. Cartoon drawings of Buffett and Munger were displayed throughout the events during the weekend and the special movie before the meeting began was in animation form by Heyward.
