Warren Buffett: a name synonymous with capitalism, the American dream and financial success. But how did a poor boy growing up in the Great Depression go on to become one of the richest men in the world? Hello, and welcome to The Infographics Show- today we’re taking a look at an American financial legend and how he made his fortune.
Warren Buffet was born August 30th, 1930 in Omaha, Nebraska. Exposed to the brutal reality of the American Great Depression, Buffet learned to respect the value of money early in life. In the grip of one of the worst financial crisis in American history, his family lost all of their savings as the bank where they kept their money closed just before his first birthday.
Living in poverty, Buffet would grow up watching his mother skip dinner so that his exhausted father, working any jobs he could find, could eat a full portion. He would also endure the shame of his family skipping church because of mandatory tithing they could not afford. Rather than languish in hardship however, a young Warren boldly declared one night at the dinner table that he would make his first million dollars by age 35, or he would throw himself off the tallest building in Omaha.
From a young age Warren Buffet showed an incredible talent for math and numbers. He was specially interested in patterns, and would play games where he recorded the license plate numbers of passing cars and then that night would write them all down and figure out which number came up most often. This finely honed talent for pattern recognition eventually drew him to a new game that would foreshadow the life to come- one day as he watched men buying soda from a machine, he became curious and started gathering up the discarded bottle caps.
That evening he returned home and counted up all the bottle caps he had collected, then repeated the process for an entire week, thus learning which brand of soda had the best sales and which flavors were preferred. His mind drawn to numbers, patterns and finances, Warren soon graduated to recording stock prices from his father’s newspaper, repeating his soda pop diligence to figure out high-performing stocks. Feeling like he was watching the world of finance through a glass cage without being allowed to participate, a young Warren dreamed of that first million dollars and the opportunity to invest it.
With the Great Depression ending, Warren watched as his father, leery of rising inflation following the financial boom of a post-WWII America, invested what little money he had into tangible assets such as gold coins, a crystal chandelier and sterling silver dinnerware. This would go on to influence Warren’s preference of tangible over intangible assets, and an investment philosophy that preferred businesses with tangible assets and proven earning power.
At age 13, he would go on to his first job as a paperboy where he realized he could maximize his earnings by diversifying his product line. To that effect he began to sell magazine subscriptions to his paper route customers, preferring to sell subscriptions just as they were about to expire to guarantee a quick second sale. His paper route would go on to earn him $175 a month, or $3,000 in today’s dollars.
By the time he was 15, Warren used his earnings to buy a 40-acre farm in Nebraska and hired a laborer to work on the land. After graduating from high school, he used the profits from the farm to pay his way through earning a Bachelor of science degree from the University of Nebraska. Rejected by the prestigious Harvard Business School, Warren instead applied to and was accepted at Columbia Business School, where he would study under legendary value investor Benjamin Graham.
As he left home to New York for business school, the ever-frugal Warren opted to stay at a local YMCA for free rather than pay for room and boarding elsewhere. He picked up a paper route again, but invested his money into pinball machines which he would place at local barbershops. Afraid that the mob owned the gaming industry though, Warren purposefully kept his operation small. It would be his pinball days that would teach Buffet more practical business lessons than school: convenience and service fetches higher prices, location is everything, efficiency determines profit margins, and the practical limitations of scalability for business.
After graduating from Columbia Business School, Warren briefly returned to Omaha and studied public speaking while teaching investing at the University of Nebraska. In 1954, his old teacher and mentor, Benjamin Graham, offered him a job as an investment salesman and securities analyst. By 1956, Buffet had bought a home for his wife and young daughter, and had $174,000 in savings- or just over one and a half million in today’s dollars.
Believing that he could live comfortably from his earnings on his investments alone, Warren decided to retire at age 26. The young Warren however quickly grew restless as his childhood dream of being a millionaire stirred in his head once more. Deciding he would have to be far more active to meet his goal, Warren came out of retirement in 1956 and started Buffet Partnership Limited.
Building on the lessons of his youth, Warren grew his wealth by sticking to investing in businesses with proven earning potential and tangible assets. His most influential deal however would be the acquisition of Berkshire Hathaway in 1964. Originally established in 1839 as the Valley Falls Company, Berkshire Hathaway would go on to become a highly successful textile manufacturer. However with declining sales following a drop in global textile sales after World War I, the financial future of the company looked to be on the decline.
Ever savvy, Warren Buffet noticed that its stock prices would improve dramatically after closing down a mill, and thus in 1962 he invested heavily hoping for short-term gain. In 1964, CEO Seabury Stanton offered to buy back Warren’s shares at $11.50 per share, to which Warren agreed. However when he received the offer in writing he saw that the price had been surreptitiously dropped to $11.37. Furious at this undercutting, Warren instead decided to buy more of the stock and took control of the company, immediately firing Stanton.
This however put him in a situation where he owned a failing textile manufacturer, so while he initially maintained the core business of textiles, by 1967 he began to invest company money into insurance and media. Eventually, he would shut down the entire manufacturing side of the new Berkshire Hathaway, focusing mainly on investments, insurance, utilities and energy. In just a few short years, Warren Buffet had turned a failing business around and by the age of 30 had achieved his goal of earning one million dollars- five years earlier than planned.
Berkshire Hathaway would go on to become his flagship for all business investments, and despite it being very successful, Warren decided to dissolve his firm, Buffet Partnership, in order to focus all his efforts on developing Berkshire Hathaway. After phasing out the textile business, Warren focused on buying assets in media such as The Washington Post, oil and energy company Exxon, and the insurance giant Geico. In 1979 Berkshire Hathaway began trading at $775 a share, reaching $1310 by year’s end- this would skyrocket Warren Buffet’s net worth to a whopping $620 million.
Not content to rest on his laurels however, Warren had a new goal: $1 billion dollars. The same year his personal worth reached over $600 million, he directed Berkshire Hathaway to acquire stock in the television network ABC. Partnering with Capital Cities, a media company worth approximately ¼ of ABC’s net worth, Buffet helped finance a $3.5 billion dollar deal in exchange for a 25% stake in the combined company. This deal would rock the media industry as the substantially smaller Capital Cities purchased and then merged with the juggernaut ABC.
Edging ever closer to his billion-dollar-goal, Warren began buying Coca-Cola stock in 1988, eventually amassing 7% ownership in the company- one of Berkshire Hathaway’s longest and still-held investments. With Berkshire Hathaway’s share of Coca-Cola stock alone worth $1.02 billion, Warren Buffet at last reached his goal of becoming a billionaire as Berkshire Hathaway stocks closed at $7,175 a share on May 29th, 1990.
And careful investments built on his lessons learned as a child: preference for businesses with tangible assets and proven earning power, Berkshire Hathaway would go on to become one of the most powerful and profitable companies in the world. With Warren Buffet at its head, he would grow his personal fortune 17 times over just six years after earning his first billion, earning $17 billion by age 66. Reaching an astonishing $84. 7 billion at age 87, his real value would be exponentially higher today had he not given away more than $27 billion to charitable causes in the last decade alone, and although he is one of the world’s richest men, he remains an astonishingly frugal man who prefers a mid-2000s style flip phone over a smart phone and often has McDonalds for breakfast.
From dirt-poor to one of the wealthiest men on earth, Warren Buffet is a true capitalism success story and hero of the free market. Yet with today’s widening wealth gap, skyrocketing health care costs, and the difficulty for lower-income families to find credit at affordable rates, is Warren Buffet’s incredible success story still possible today? Let us know your thoughts in the comments section below, and as always if you enjoyed this video don’t forget to Like, Share, and Subscribe for more great content!