Warren Buffett — Investor Extraordinaire
Warren Buffett is undoubtedly the most successful investor of all times. Volumes have been written about him and his investment style. We're going to take a brief biographical look at his life, his investment style, and the nuggets of advice he has for beginning investors.
Early Life
Warren Buffett was born on August 30, 1930 in Omaha, Nebraska to Howard and Leila Buffett. Howard Buffett, a stock-broker who later ran successfully for Congress, was the most influential person in Warren Buffet's life. Buffett was an only son and the middle of three children.
Buffett displayed a strong aptitude for money and business at a very early age. People who knew him then recall his amazing ability to calculate columns of numbers in his head quickly.
When he was six, he bought 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. At age eleven 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. Buffett held his shares until they rebounded to $40. He promptly sold them happy at the whopping 48% return. But this was a mistake he would soon come to regret. Cities Service shot up to $200! This was his first major lesson in patience — a virtue he has become famous for today.
Education
After he graduated from high school at 17, Buffett displayed a reluctance to go to college. He was already making around $5,000 per year delivering newspapers.... around $42,000 in today's value. At his father's insistence, he finally attended the University of Pennsylvania's Wharton Business School. A couple of years later he transferred to the University of Nebraska-Lincoln. Working full-time, he managed to graduate in only three years with a B.S. in Economics.
The next stop was Graduate School. Once again, Buffett resisted, but was persuaded. He applied to Harvard Business School only to be rejected for being too young. He then applied to and was accepted at Columbia University. This move would change his life forever.
It was at Columbia that Buffett met Ben Graham — a professor at that time — whom Buffett came to idolize. In fact, Buffett was the only student ever who earned an A+ in one of Graham's classes.
Early Career
After graduating with a Masters in Economics, Buffett was eager to begin his Wall Street career by working for Ben Graham. But both his father and Graham advised against it. So eager was Buffett to work for Graham that he offered his services for free. Graham turned him down
Crushed, Buffett returned to Omaha to work at his father's brokerage firm. In 1952, Buffett married Susie Thompson, and a year later, they had their first child, also named Susie.
Then, in 1954, Buffett was finally offered a job at Ben Graham's partnership. The Buffet's moved to New York. The same year, the Buffet's had their second child, Howard.
Working with Ben Graham was a dream come true for Buffett. However, it wasn't long before differences between the thinking of these two men surfaced. Graham made investment choices based primarily on the numbers — the Financial Statements. Buffett, in addition to the financials, was keenly interested in what made a company superior to all its competitors. The company's management mattered a lot to Buffett, while Graham didn't really care who ran the company.
Between 1950 and 1956, Warren Buffett built his personal capital up to $140,000 from a mere $9,800. In 1956, Graham decided to retire and folded up the partnership. The Buffett's moved back to Omaha.
Buffett Associates Ltd.
On May 1, 1956, Warren Buffett created Buffett Associates Ltd., a partnership that included his sister, Doris, and his aunt, Alice, with $105,000 in capital. His contribution? A mere $100.
By the end of the year, he was managing around $300,000 in capital. Buffett had bigger plans. Over the next three years he created more partnerships — seven by 1960.
Buffet's performance during this time frame? An amazing 251.0% profit, while the Dow was up only 74.3%. Buffett was now a celebrity in his hometown.
By 1962, the partnership had capital in excess of $7.2 million, $1 million of which was Buffett's personal stake (his earning structure was a quarter of the profits above 4%, no fees). Buffett was now officially a millionaire.
He also had more than 90 limited partners across the United States. The partnerships were merged into a single entity called "Buffett Partnerships Ltd."
Berkshire Hathaway
In 1962, Buffett discovered a textile manufacturing firm, Berkshire Hathaway. Buffett's partnerships began purchasing shares at $7.60 per share. Later, in 1965, when Buffett's partnerships aggressively began purchasing Berkshire, they paid $14.86 per share while the company had working capital of $19 per share. This did not include the value of fixed assets (factory and equipment).
In May 1969, Buffett informed his partners that he was "unable to find any bargains in the current market". Buffett spent the remainder of the year liquidating most of his portfolio. He made two exceptions — Berkshire and Diversified Retailing. The shares of Berkshire were distributed among the partners. Buffett's personal stake in Berkshire was 29%.
On May 10, 1965, after accumulating 49% of the common stock, Buffett named himself Director. Next, he took control of Berkshire Hathaway at the board meeting and named a new president, Ken Chace, to run the company.
In 1970, Buffett named himself Chairman of the Board of Berkshire Hathaway and for the first time, wrote the letter to the shareholders. By this time, Buffett had partnered with Charlie Munger, who had moved back to his native Omaha from California. These two intellectual equals began a friendship that still endures.
The traditional Berkshire textile mill was in steady decline. Buffett, however, used it as a holding company to purchase several other companies over the years that did extremely well under him. His most prominent acquisitions included See's Candy, The Pampered Chef, National Indemnity Company, The Buffalo News, Nebraska Furniture Mart, NetJets, Borsheim's Fine Jewelry, Geico, Fruit of the Loom, and Dairy Queen.
In addition, Berkshire owns sizable stake in The Washington Post Company, Burlington Northern Santa Fe Corp., American Express, Anheuser-Busch, The Coca-Cola Company, ISCAR International, and Procter & Gamble.
Warren Buffet's Investment Style
Several books have been written about Buffett's investment style. On the whole, his investment philosophy is fairly easy to understand. His genius lies in how he uses these principles to identify investment opportunities with resounding success.
So let's take a look at what Warren Buffett looks for in a company:
Circle of competence: Buffett restricts himself to businesses he can understand and analyze.... businesses within his "circle of competence". In order to forecast how a business is going to perform in the future, you have to know it intimately. Buffet's circle of competence? The companies Berkshire has purchased show a trend — banking, insurance, consumer goods for the most part.
Quality of Management: Buffett looks for how rationally the management of a company behaves ... how good it is in generating shareholder value. He also looks at management's honesty to shareholders — how good it is in admitting mistakes. Finally, he looks for companies where the management thinks for itself and does not blindly follow its competitors.
Financial Condition: Buffett always looks for what he calls "wide moat" companies. These are businesses with a clear competitive advantage who have built a moat around them keeping others far away. The wide moat is reflected in their strong financial position — outstanding return on equity, free cash flow, profit margins; minimal leverage.
Value: Buffett values companies based on a projection of how much free cash flow they will generate in the future. Once he arrives at their instrinsic value, he applies a margin of safety to calculate a price he thinks is reasonable.
Once he finds a company that meets these requirements, Buffett is known to purchase a significant amount of stock in them .... a focused investing approach that puts meaningful amounts of money in a few companies.
What Beginning Investors Can Learn From Warren Buffett
Let's summarize the take home advice from this profile of one of the most successful investors in the world:
Invest in what you know: It's absolutely essential that you understand the business you're investing in. Remember .... you are investing and not speculating.
Stay away from leverage: It's a bad idea to borrow money to invest in stock.
Buy outstanding businesses: You're looking for wide moat companies — companies with a durable, competitive advantage.
Always use a margin of safety: No matter how thorough your valuation of a business, there is always a chance that the future may not be in line with your predictions. Therefore, having a margin of safety in your estimate is absolutely essential.
Learn to think independently: How often have you been tempted to dive into a stock purchase based on what the "talking-heads" and so called "experts" on TV recommend? It's a lot easier to leave the thinking to the experts. But remember ... it's your money and you have the biggest stake in it. So a little effort now will reap rich returns later.
Take advantage of the irrationality of the market rather than being fearful of it: Every now and then the stock market prices outstanding businesses at attractively low prices. Buffett's philosophy, if he already owns the stock, is to buy more at this low price rather than sell (assuming, of course, that he determines that there is nothing seriously wrong with the company). It takes courage to go against the market, but that's where your ability to think independently comes in handy.
Buy for the long-term: Buffett's take on buy and hold? "Only buy something that you'd be perfectly happy to hold if the market shuts down for ten years." This long-term perspective forces you to focus on the quality and long-term economics of a business when you're evaluating companies to invest in. Buffet is famous for saying, "The best time to sell a stock is ..... never." This is just another way of saying that when you buy a stock, make sure you've done your research and approach it like you're buying a business and not trading baseball cards.
We've covered a lot of ground here. This is priceless, fundamental advice that we all can benefit from. We find it particularly useful to review this in times of market uncertainty when our fundamental approach to buying and holding stock is questioned.
Before we end, there's one valuable resource that you should make good use of ... Warren Buffett's annual letters to the Berkshire Hathaway shareholders. This is Warren Buffet at his teaching best.
http://www.berkshirehathaway.com/letters/2011ltr.pdf
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There is also a possibility this to be a quick correction wave before shooting up to 66XX reason being the 1st correction looks a bit flatter...that would be a boost and may i use the term BEAR TRAP......sorry sellers 
Is this the TUG O WAR..... we have been contemplating....
