Audio Summary –
Listen to the audio summary
Text Summary –
Warren Buffett and the Business of Life
The book discusses the life of Warren Buffett, the famous investor, and businessman also known as the “Oracle of Omaha” or the “Sage of Omaha”. The book explores his early life, business ventures, and current status as an American business sage. Buffett’s story provides insights into the world of business and offers an intriguing and educational read.
Warren Buffett was born in Omaha, Nebraska, in 1930, shortly after the stock market crash of 1929. His father, a successful stockbroker, provided financial stability for the family during the Great Depression. However, his mother was an overbearing and unpredictable parent who frequently shamed and blamed her children. As a result, Warren sought refuge in numbers and statistics, finding solace in school and spending time at his father’s office. His interest in numbers was encouraged by family members, and he received books on baseball statistics and bridge, which became lifelong obsessions. Numbers provided a comforting escape from his tumultuous home life.
Warren Buffett’s fascination with money started at a young age. He began selling gum, Coca-Cola, and peanuts as a child and was inspired by a book titled One Thousand Ways to Make $1000 . By age 11, he had saved $120 and made his first investment in Cities Service Preferred. In high school, he continued odd jobs and began delivering newspapers. He earned a high income from delivering papers and collecting subscription fees from senators living in apartment buildings. At age 14, he filed his first tax return and deducted his watch and bicycle, paying a total of $7.00.
After studying accounting and business at the University of Nebraska, he applied to Harvard Business School but was rejected and went to Columbia University instead, where he studied under Benjamin Graham, the author of Intelligent Investor. Graham taught Buffett valuable lessons about intrinsic value and how to investigate companies thoroughly before investing in them.
Warren Buffett was shy and awkward around girls during his college years, but he eventually met Susie Thompson and won her over with his charming vulnerability. They got married in 1952, and Buffett started working at his father’s investment firm while teaching classes. In 1953, their first child was born, and Buffett landed his dream job at Graham-Newman. Despite becoming a rising star there, Buffett soon realized that he hated being a stockbroker and began plotting his own partnership. In 1956, he launched Buffett Associates, Ltd. with the idea of including only friends and relatives and having simple rules for investments. Buffett’s reputation received a boost from his mentor and former boss, Ben Graham, who recommended him to his clients when he retired.
In his first year as his own boss, Warren Buffett began a series of eight partnerships based on different sets of friends who gave him money to invest. He made sure everyone understood his investment philosophy, which involved investing in undervalued stocks and reinvesting earnings back into those same stocks. His patient consistency paid off, and by the start of the 1960s, Buffett was managing over a million dollars. He still searched for undervalued companies and earned a seat on the board to ensure wise investments. In 1962, he dissolved all of his individual partnerships into a single entity: Buffett Partnership, Ltd. His success was expanding beyond Omaha to Wall Street, but some established investors remained skeptical.
Despite initial skepticism, his investments consistently outperformed the market, and he eventually gained recognition as one of the most successful investors of his time. The book also describes Buffett’s friendship and eventual business partnership with Charlie Munger, as well as his decision to dissolve his individual partnerships into a single entity, the Buffett Partnership Ltd. It highlights Buffett’s investment in American Express after a soybean scandal and his subsequent acquisition of Berkshire Hathaway, a textile manufacturer, which would go on to define his investment career. Finally, by 1965, Buffett had achieved his goal of becoming a millionaire by age 35.
The book explains how Warren Buffett’s investment in Berkshire Hathaway was a problematic decision as the textile manufacturer had high costs and outdated machinery. Buffett never wasted money, so he was hesitant to invest more in a company with no real promise of turning a profit. However, he kept it alive by buying winning stocks in its name, creating one of the world’s best stock portfolios. Despite this success, Buffett closed his investment partnership and tightened his investment rules. He made a new rule of never buying stock in a company that he didn’t fully understand and avoided businesses with potential or proven “human problems.”
Buffett valued reliable management and made sure that the businesses he acquired were run by good people. He often sat down with company managers to get to know them well and make sure he could trust them. By the end of 1966, his investment partnership was doing better than ever, outperforming the market by 36%. Buffett regarded the managers of these businesses and his investment partners as family, and he began offering to buy out his partners as the 1960s came to a close. Meanwhile, Susie pursued a singing career and got involved in social issues, and Warren briefly entered politics in 1967.
Despite his initial social awkwardness, Buffett eventually found his place at the Washington Post, even offering advice to Graham on business decisions. And when the paper became embroiled in the Watergate scandal, Buffett stood by it.
Buffett continued to invest in the Post and its parent company, the Washington Post Company, which owned other media outlets like Newsweek and television stations. He saw potential in the Post and its ability to adapt to the changing media landscape.
Buffett’s investment in the Washington Post Company turned out to be a wise one, and by the early 1980s, he had made over $100 million on it.
But in typical Buffett fashion, he didn’t let his success go to his head. He remained grounded and committed to his core principles of investing in good businesses run by trustworthy people.
As he later put it, “I just sit in my office and read all day.”
It’s true that being an active investor can sometimes lead to trouble, and Warren Buffett and Charlie Munger certainly experienced this with Blue Chip Stamps and Wesco. Blue Chip Stamps was struggling and Munger tried to help by buying 8% of undervalued savings and loan company Wesco. But when Santa Barbara Financial Company wanted to merge with Wesco, Buffett saw them as overvalued and convinced the surviving member of Wesco’s founding family to call off the merger. This caused Wesco’s stock to plummet and Santa Barbara Financial filed a complaint with the SEC claiming that Buffett and Munger overpaid for Wesco to ruin the planned merger.
The SEC launched an investigation into the complex structure of over 30 companies owned by Buffett and Munger, but in the end, they only issued a warning for a disclosure violation in Blue Chip’s past and no individuals were named.
The legal battle with the Courier-Express was not the only challenge that Buffett faced in the late 1970s. In 1979, the US economy was in a recession, and the stock market was struggling. Berkshire Hathaway’s stock price had dropped by 50 percent, and many investors were abandoning the company.
Buffett remained confident, however, and continued to invest in undervalued companies. He also made a significant investment in the Washington Post Company, which he saw as undervalued due to its ownership of a cable television business.
Buffett’s investment in the Post brought him even closer to Kay Graham, and the two began to spend more time together. However, they remained just friends, and Buffett continued to date other women.
Despite the challenges he faced, Buffett remained focused on building Berkshire Hathaway into a successful company. He continued to acquire new businesses and invest in the stock market, and by the early 1980s, his strategy began to pay off. Berkshire Hathaway’s stock price began to rise, and investors once again began to take notice of the company.
In 1983, Buffett made one of his most significant investments when he acquired a significant stake in the Nebraska Furniture Mart. The company was owned by Rose Blumkin, a Russian immigrant who had built the business from scratch. Buffett was impressed by Blumkin’s dedication and business acumen and saw the company as a valuable addition to Berkshire Hathaway’s portfolio.
Over the next few years, Buffett continued to acquire new businesses and invest in the stock market. He also continued to build his reputation as one of the world’s most successful investors. By the early 1990s, Berkshire Hathaway’s stock price had soared, and Buffett’s net worth had reached billions of dollars.
Buffett’s philanthropy continued throughout the 2000s and 2010s. He partnered with Bill Gates to launch The Giving Pledge in 2010, which encouraged the world’s wealthiest individuals to give away the majority of their fortunes to charitable causes.
Buffett also continued to invest in companies that he believed had strong fundamentals and a clear sense of purpose, such as Coca-Cola and American Express.
Buffett continued to live a simple life, residing in the same Omaha home he’d lived in for decades, and eating at McDonald’s for breakfast every day. He still went to work every day, and despite his immense wealth, continued to draw a salary of $100,000 per year.
In his later years, Buffett continued to share his wisdom with investors and business leaders, often through his annual letters to Berkshire Hathaway shareholders.
He also remained active in philanthropy, encouraging other billionaires to give away their fortunes through the “Giving Pledge,” a commitment to give away at least half of their wealth to charitable causes.
As of 2021, Buffett is still the chairman and CEO of Berkshire Hathaway and is widely regarded as one of the most successful investors of all time.
His life serves as a reminder that even the most successful people have their ups and downs, and that true success is about more than just making money – it’s about finding happiness and meaning in your life, and using your resources to make the world a better place.
About the Author –
Alice Schroeder began her career as an insurance analyst before taking Warren Buffett’s suggestion and becoming a full-time writer. She is currently a columnist for Bloomberg News. The Snowball was named one of the ten best books of 2008 by Time magazine.