Biography of Warren Buffett
Warren Edward Buffett
Date of Birth:
August 30, 1930
Location of Birth:
Omaha, Nebraska, U.S.
University of Pennsylvania
University of Nebraska–Lincoln
Chairman & CEO, Berkshire Hathaway, Investor
US$47 billion (2010)
Susan Thompson Buffett (1952–2004) (deceased)
Astrid Menks (2006–)
Susan Alice Buffett
Howard Graham Buffett
Peter Andrew Buffett
Warren Edward Buffett was born August 30, 1930. He is an American investor, businessman, and philanthropist. Buffett is one of the most successful investors in the world and is the primary shareholder and CEO of Berkshire Hathaway.
Buffett is often called the “Oracle of Omaha” or the “Sage of Omaha” and is noted for his adherence to the value investing philosophy and for his personal frugality despite his immense wealth.
Buffett is also a notable philanthropist, having pledged to give away 85 percent of his fortune to the Gates Foundation. He also serves as a member of the board of trustees at Grinnell College. Warren Buffett is on the list of the world’s richest people.
Warren Buffett’s Early life
Buffett was born in Omaha, Nebraska, the second of three children and only son of Leila (née Stahl) and businessman/politician Howard Buffett.
Buffett began his education at Rose Hill Elementary School in Omaha. In 1942 his father was elected to the first of four terms in Congress and after moving with his family to Washington, D.C., Warren finished elementary school, attended Alice Deal Junior High School, and graduated from Woodrow Wilson High School.
Even as a child Buffett displayed an interest in making and saving money. He went door to door selling chewing gum, Coca-Cola, or weekly magazines. For a while he worked in his grandfather’s grocery store. While still in high school, he carried out several successful money-making ideas: delivering newspapers, selling golfballs and stamps, and detailing cars among them.
It is reported that Buffett Filed his first income tax return in 1944 and that he took a $35 deduction for the use of his bicycle and watch on his paper route. In
1945, in his sophomore year of high school, Buffett and a friend spent $25 to purchase a used pinball machine, which they placed in the local barber shop. Within months, they owned several machines in different barber shops.
Buffett’s interest in the stock market and investing also dated to his childhood, to the days he spent in the customers’ lounge of a regional stock brokerage near the office of his father’s own brokerage company. On a trip to New York at the age of ten he made a point to visit the New York Stock Exchange. And about this same time he purchased shares of Cities Service for himself and his sister.
While in high school he invested in a business owned by his father and bought a farm worked by a tenant farmer. By the time he finished college, Buffett had accumulated more than $90,000 in savings measured in 2009 dollars.
Buffett entered college in 1947 at the Wharton School of the University of Pennsylvania (1947–49). After two years he transferred to the University of Nebraska–Lincoln, where in 1950, at the age of nineteen, he finished his studies for a B.S. in Economics.
Buffett enrolled at Columbia Business School after learning that Benjamin Graham (author of “The Intelligent Investor” – one of his favorite books on investing) and David Dodd, two well-known securities analysts, taught there. He received a M.S. in Economics from Columbia Business School in 1951. Buffet also attended the New York Institute of Finance.
In Buffett’s own words regarding Benjamin Graham and Phil Fisher:
“I’m 15 percent Fisher and 85 % Benjamin Graham.” The basic ideas of investing are to look at stocks as business, use the market’s fluctuations to your advantage, and seek a margin of safety. That’s what Ben Graham taught us. A hundred years from now they will still be the cornerstones of investing.
Buffett was employed from 1951–54 at Buffett-Falk & Co., Omaha as an Investment Salesman, from 1954–1956 at Graham-Newman Corp., New York as a Securities Analyst, from 1956–1969 at Buffett Partnership, Ltd., Omaha as a General Partner and from 1970 – Present at Berkshire Hathaway Inc, Omaha as its Chairman, CEO.
In April 1952, Buffett discovered Graham was on the board of GEICO insurance. Taking a train to Washington, D.C. on a Saturday, he knocked on the door of GEICO’s headquarters until a janitor allowed him in. There he met Lorimer Davidson, Geico’s Vice President, and the two discussed the insurance business for hours. Davidson would eventually become Buffett’s life-long friend and a lasting influence and later recall that he found Buffett to be an “extraordinary man” after only fifteen minutes. Buffett graduated from Columbia and wanted to work on Wall Street, however, both his father and Ben Graham urged him not to. It is reported that he offered to work for Graham for free, but Graham refused.
Buffett returned to Omaha and worked as a stockbroker while taking a Dale Carnegie public speaking course — using what he learned, he felt confident enough to teach an “Investment Principles” night class at the University of Nebraska-Omaha. The average age of his students was more than twice his own. During this time he also purchased a Sinclair Texaco gas station as a side investment. However, this did not turn out to be a successful business venture.
In 1952 Buffett married Susan Thompson and the next year they had their first child, Susan Alice Buffett. In 1954, Buffett accepted a job at Benjamin Graham’s partnership. His starting salary was $12,000 a year (approximately $97,000 adjusted to 2008 dollars). There he worked closely with Walter Schloss. Graham was a tough man to work for. He was adamant that stocks provide a wide margin of safety after weighting the trade-off between their price and their intrinsic value. The argument made sense to Buffett but he questioned whether the criteria were too stringent and caused the company to miss out on big winners that had more qualitative values. That same year the Buffetts had their second child, Howard Graham Buffett. In 1956, Benjamin Graham retired and closed his partnership. At this time Buffett’s personal savings were over $174,000 and he started Buffett Partnership Ltd., an investment partnership in Omaha.
In 1957, Buffett had three partnerships operating the entire year. He purchased a five-bedroom stucco house in Omaha, where he still lives, for $31,500.
In 1958 the Buffett’s third child, Peter Andrew Buffett, was born. Buffett operated five partnerships the entire year.
In 1959, the company grew to six partnerships operating the entire year and Buffett was introduced to Charlie Munger.
By 1960, Buffett had seven partnerships operating: Buffett Associates, Buffett Fund, Dacee, Emdee, Glenoff, Mo-Buff and Underwood. He asked one of his partners, a doctor, to find ten other doctors willing to invest $10,000 each in his partnership. Eventually eleven agreed, and Buffett pooled their money with a mere $100 original investment of his own.
In 1961, Buffett revealed that Sanborn Map Company accounted for 35% of the partnership’s assets. He explained that in 1958 Sanborn stock sold at only $45 per share when the value of the Sanborn investment portfolio was $65 per share. This meant that buyers valued Sanborn stock at “minus $20” per share and were unwilling to pay more than 70 cents on the dollar for an investment portfolio with a map business thrown in for nothing. This earned him a spot on the board of Sanborn.
Path to wealth
In 1962, Buffett became a millionaire, because of his partnerships, which in January 1962 had an excess of $7,178,500, of which over $1,025,000 belonged to Buffett.
Buffett merged all partnerships into one partnership.
Buffett invested in and eventually took control of a textile manufacturing firm, Berkshire Hathaway. Buffett’s partnerships began purchasing shares at $7.60 per share. 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). Buffett took control of Berkshire Hathaway at the board meeting and named a new president, Ken Chace, to run the company. In 1966, Buffett closed the partnership to new money.
Buffett wrote in his letter:
unless it appears that circumstances have changed (under some conditions added capital would improve results) or unless new partners can bring some asset to the partnership other than simply capital, I intend to admit no additional partners to BPL.
In a second letter, Buffett announced his first investment in a private business — Hochschild, Kohn and Co, a privately owned Baltimore department store.
In 1967, Berkshire paid out its first and only dividend of 10 cents.
In 1969, following his most successful year, Buffett liquidated the partnership and transferred their assets to his partners. Among the assets paid out were shares of Berkshire Hathaway.
In 1970, as chairman of Berkshire Hathaway, Buffett began writing his now-famous annual letters to shareholders.
Despite great wealth through his company’s assets, Buffett lived solely on his salary of $50,000 per year, and his outside investment income. In 1979, Berkshire began the year trading at $775 per share, and ended at $1,310. Buffett’s net worth reached $620 million, placing him on the Forbes 400 for the first time.
In 2006, Buffett announced in June that he gradually would give away 85% of his Berkshire holdings to five foundations in annual gifts of stock, starting in July 2006. The largest contribution would go to the Bill and Melinda Gates Foundation.
In 2007, in a letter to shareholders, Buffett announced that he was looking for a younger successor, or perhaps successors, to run his investment business. Buffett had previously selected Lou Simpson, who runs investments at Geico, to fill that role. However, Simpson is only six years younger than Buffett.
In 2008, Buffett became the richest man in the world dethroning Bill Gates, worth $62 billion according to Forbes, and $58 billion according to Yahoo. Bill Gates had been number one on the Forbes list for 13 consecutive years. In 2009, Bill Gates regained number one of the list according to Forbes magazine, with Buffett second. Their values have dropped to $40 billion and $37 billion respectively, Buffett having (according to Forbes) lost $25 billion in 12 months during 2008/2009.
Measured by market capitalization in the Financial Times Global 500 Berkshire Hathaway as of June 2009 was the eighteenth largest corporation on earth.
In 1973, Berkshire began to acquire stock in the Washington Post Company. Buffett became close friends with Katharine Graham, who controlled the company and its flagship newspaper, and became a member of its board of directors.
In 1974, the SEC opened a formal investigation into Warren Buffett and Berkshire’s acquisition of WESCO, due to possible conflict of interest. No charges were brought.
In 1977, Berkshire indirectly purchased the Buffalo Evening News for $32.5 million. Antitrust charges started, instigated by its rival, the Buffalo Courier-Express. Both papers lost money, until the Courier-Express folded in 1982.
In 1979, Berkshire began to acquire stock in ABC. Capital Cities’ announced $3.5 billion purchase of ABC on March 18, 1985 surprised the media industry, as ABC was some four times bigger than Capital Cities was at the time. Berkshire Hathaway chairman Warren Buffett helped finance the deal in return for a 25 percent stake in the combined company. The newly merged company, known as Capital Cities/ABC (or CapCities/ABC), was forced to sell off some stations due to FCC ownership rules. Also, the two companies owned several radio stations in the same markets.
In 1987, Berkshire Hathaway purchased 12% stake in Salomon Inc., making it the largest shareholder and Buffett the director. In 1990, a scandal involving John Gutfreund (former CEO of Salomon Brothers) surfaced. A rogue trader, Paul Mozer, was submitting bids in excess of what was allowed by the Treasury rules. When this was discovered and brought to the attention of Gutfreund, he did not immediately suspend the rogue trader. Gutfreund left the company in August 1991. Buffett became Chairman of Salomon until the crisis passed; on September 4, 1991, he testified before Congress.
In 1988, Buffett began buying stock in Coca-Cola Company, eventually purchasing up to 7 percent of the company for $1.02 billion. It would turn out to be one of Berkshire’s most lucrative investments, and one which it still holds.
In 1998, he acquired General Re (Gen Re), (in a rare move, for stock). In 2002, Buffett became involved with Maurice R. Greenberg at AIG, with General Re providing reinsurance. On March 15, 2005, AIG’s board forced Greenberg to resign from his post as Chairman and CEO under the shadow of criticism from Eliot Spitzer, attorney general of the state of New York. On February 9, 2006, AIG and the New York State Attorney General’s office agreed to a settlement in which AIG would pay a fine of $1.6 billion. In 2010, the federal government settled with Berkshire Hathaway for $92 million in return for the firm avoiding prosecution in an AIG fraud scheme, and undergoing ‘corporate governance concessions’.
In 2002, Buffett entered in $11 billion worth of forward contracts to deliver U.S. dollars against other currencies. By April 2006, his total gain on these contracts was over $2 billion.
In 2009, Warren Buffett invested $2.6 billion as a part of Swiss Re’s raising equity capital. Berkshire Hathaway already owns a 3% stake, with rights to own more than 20%.
In 2009, Warren Buffett acquired Burlington Northern Santa Fe Corp. for $34 billion in cash and stocks. Alice Schroeder author of Snowball stated that a reason for the purchase was to diversify Berkshire Hathaway from the financial industry.
Late 2000s recession
Buffett ran into criticism during the subprime crisis of 2007–2008, part of the late 2000s recession, that he had allocated capital too early resulting in suboptimal deals. “Buy American. I am.” he wrote for an opinion piece published recently in the New York Times.
Buffett has called the 2007—present downturn in the financial sector “poetic justice”.
Buffett’s Berkshire Hathaway suffered a 77% drop in earnings during Q3 2008 and several of his recent deals appear to be running into large mark-to-market losses.
Berkshire Hathaway acquired 10% perpetual preferred stock of Goldman Sachs. Some of Buffett’s Index put options (European exercise at expiry only) that he wrote (sold) are currently running around $6.73 billion mark-to-market losses. The scale of the potential loss prompted the SEC to demand that Berkshire produce, “a more robust disclosure” of factors used to value the contracts.
Buffett also helped Dow Chemical pay for its $18.8 billion takeover of Rohm & Haas. He thus became the single largest shareholder in the enlarged group with his Berkshire Hathaway, which provided $3 billion, underlining his instrumental role during the current crisis in debt and equity markets.
In October 2008, the media reported that Warren Buffett had agreed to buy General Electric (GE) preferred stock. The operation included extra special incentives: he received an option to buy 3 billion GE at $22.25 in the next five years, and also received a 10% dividend (callable within three years).
In February 2009, Warren Buffett sold part of Procter & Gamble Co, and Johnson & Johnson shares from his portfolio. In addition to suggestions of mistiming, questions have been raised as to the wisdom in keeping some of Berkshire’s major holdings, including The Coca-Cola Company (NYSE:KO) which in 1998 peaked at $86. Buffett discussed the difficulties of knowing when to sell in the company’s 2004 annual report:
“That may seem easy to do when one looks through an always-clean, rear-view mirror. Unfortunately, however, it’s the windshield through which investors must peer, and that glass is invariably fogged”.
In March 2009, Buffett stated in a cable television interview that the economy had “fallen off a cliff… Not only has the economy slowed down a lot, but people have really changed their habits like I haven’t seen”. Additionally, Buffett fears we may revisit a 1970s level of inflation, which led to a painful stagflation that lasted many years.
In 2009, Buffett divested his failed investment in ConocoPhillips, saying to his Berkshire investors “I bought a large amount of ConocoPhillips stock when oil and gas prices were near their peak. I in no way anticipated the dramatic fall in energy prices that occurred in the last half of the year. I still believe the odds are good that oil sells far higher in the future than the current $40-$50 price. But so far I have been dead wrong. Even if prices should rise, moreover, the terrible timing of my purchase has cost Berkshire several billion dollars”.
In 2009 – Buffett poposed a merger with the Burlington Northern Santa Fe Railway (BNSF), to close upon BNSF shareholder approval in 1Q 2010. This deal is valued at approximately $34 billion and reflects an increase of a previously existing stake of about 22%.
Also in 2009, Buddett purchased stock in Verisk- before Verisk (ISO) went public, Buffett owned about 5%. When Verisk went public in May 2009, Buffett purchased 6% more of Verisk.
Buffett married Susan Buffett née Thompson in 1952. They had three children, Susie, Howard, and Peter. The couple began living separately in 1977, although they remained married until her death in July 2004.
Their daughter, Susie, lives in Omaha and does charitable work through the Susan A. Buffett Foundation and is a national board member of Girls, Inc.
In 2006, on his seventy-sixth birthday, Warren married his never-married longtime-companion, Astrid Menks, who was then sixty years old. She had lived with him since his wife’s departure in 1977 to San Francisco. It was Susan Buffett who arranged for the two to meet before she left Omaha to pursue her singing career. All three were close and holiday cards to friends were signed “Warren, Susie and Astrid”. Susan Buffett briefly discussed this relationship in an interview on the Charlie Rose Show shortly before her death, in a rare glimpse into Buffett’s personal life.
Warren Buffett disowned his son Peter’s adopted daughter, Nicole, in 2006 after she participated in the Jamie Johnson documentary, The One Percent. Although his first wife had referred to Nicole as one of her “adored grandchildren”, it is reported that Buffett wrote her a letter stating, “I have not emotionally or legally adopted you as a grandchild, nor have the rest of my family adopted you as a niece or a cousin.” He signed the letter “Warren.”
His 2006 annual salary was about $100,000, which is small compared to senior executive remuneration in comparable companies.
In 2007, and 2008, he earned a total compensation of $175,000, which included a base salary of just $100,000. He lives in the same house in the central Dundee neighborhood of Omaha that he bought in 1958 for $31,500, today valued at around $700,000 (although he also does have a $4 million house in Laguna Beach, California).
In 1989 after having spent nearly 10 million dollars of Berkshire’s funds on a private jet, Buffett sheepishly named it “The Indefensible”. This act was a break from his past condemnation of extravagant purchases by other CEOs and his history of using more public transportation.
He remains an avid player of the card game bridge, which he learned from Sharon Osberg, and plays with her and Bill Gates. He spends twelve hours a week playing the game. In 2006, he sponsored a bridge match for the Buffett Cup. Modeled on the Ryder Cup in golf, held immediately before it, and in the same city, a team of twelve bridge players from the United States took on twelve Europeans in the event.
He is a dedicated, lifelong follower of Nebraska football, and attends as many games as his schedule permits. He supported the hire of Bo Pelini following the 2007 season stating, “It was getting kind of desperate around here”. He watched the 2009 game against Oklahoma from the Nebraska sideline after being named an honorary assistant coach.
Warren Buffett worked with Christopher Webber on an animated series with chief Andy Heyward, of DiC Entertainment, and then A Squared Entertainment. The series features Buffett and Munger, and teaches children healthy financial habits for life.
Buffett was raised Presbyterian but has since described himself as agnostic when it comes to religious beliefs. In December 2006 it was reported that Buffett does not carry a cell phone, does not have a computer at his desk, and drives his own automobile, a Cadillac DTS.
Buffett wears tailor-made suits from the Chinese label Trands; earlier he wore Ermenegildo Zegna.
Buffett’s DNA report revealed that his paternal ancestors hail from northern Scandinavia, while his maternal ancestors most likely have roots in Iberia or Estonia. On his mother’s side he is a distant cousin of singer Harry Chapin. Despite widespread suggestions to the contrary, and the casual friendship which has developed between their families, Buffett has no clear relation to the well-known singer Jimmy Buffett.
In 1999, Buffett was named the top money manager of the twentieth century in a survey by the Carson Group, ahead of Peter Lynch and John Templeton. In 2007, he was listed among Time’s 100 Most Influential People in the world.
In addition to other political contributions over the years, Buffett has formally endorsed and made campaign contributions to Barack Obama’s presidential campaign. On July 2, 2008, Buffett attended a $28,500 per plate fundraiser for Obama’s campaign in Chicago hosted by Obama’s National Finance Chair, Penny Pritzker and her husband, as well as Obama advisor Valerie Jarrett. Buffett backed Obama for president, and intimated that John McCain’s views on social justice were so far from his own that McCain would need a “lobotomy” for Buffett to change his endorsement. During the second 2008 U.S. presidential debate, candidates John McCain and Barack Obama, after being asked first by presidential debate mediator Tom Brokaw, both mentioned Buffett as a possible future Secretary of the Treasury. Later, in the third and final presidential debate, Obama mentioned Buffett as a potential economic advisor. Buffett was also finance advisor to California Republican Governor Arnold Schwarzenegger during his 2003 election campaign.
Warren Buffett’s writings include his annual reports and various articles. Buffett is recognized by communicators as one of the great story-tellers, as evidenced by his annual letters to shareholders
He warned about the pernicious effects of inflation:
“The arithmetic makes it plain that inflation is a far more devastating tax than anything that has been enacted by our legislatures. The inflation tax has a fantastic ability to simply consume capital. It makes no difference to a widow with her savings in a 5 percent passbook account whether she pays 100 percent income tax on her interest income during a period of zero inflation, or pays no income taxes during years of 5 percent inflation.”
In his article The Superinvestors of Graham-and-Doddsville, Buffett refuted the academic Efficient-market hypothesis, that beating the S&P 500 was “pure chance”, by highlighting a number of students of the Graham and Dodd value investing school of thought. In addition to himself, Buffett named Walter J. Schloss, Tom Knapp, Ed Anderson (Tweedy, Brown Inc.), Bill Ruane (Sequoia Fund, Inc.), Charles Munger (Buffett’s own business partner at Berkshire), Rick Guerin (Pacific Partners, Ltd.), and Stan Perlmeter (Perlmeter Investments).
In his November, 1999 Fortune article, he warned of investors’ unrealistic expectations:
“Let me summarize what I’ve been saying about the stock market: I think it’s very hard to come up with a persuasive case that equities will over the next 17 years perform anything like–anything like–they’ve performed in the past 17. If I had to pick the most probable return, from appreciation and dividends combined, that investors in aggregate–repeat, aggregate–would earn in a world of constant interest rates, 2% inflation, and those ever hurtful frictional costs, it would be 6%.”
In 2008 he was ranked by Forbes as the richest person in the world with an estimated net worth of approximately US$62 billion.
In 2009, after donating billions of dollars to charity, Buffett was ranked as the second richest man in the United States with a net worth of US$37 billion with only Bill Gates ranked higher than Buffett. His net worth is up to $47 billion in past 12 months.
The following quotation from 1988 highlights Warren Buffett’s thoughts on his wealth and why he long planned to re-allocate it:
“I don’t have a problem with guilt about money. The way I see it is that my money represents an enormous number of claim checks on society. It’s like I have these little pieces of paper that I can turn into consumption. If I wanted to, I could hire 10,000 people to do nothing but paint my picture every day for the rest of my life. And the GDP would go up. But the utility of the product would be zilch, and I would be keeping those 10,000 people from doing AIDS research, or teaching, or nursing. I don’t do that though. I don’t use very many of those claim checks. There’s nothing material I want very much. And I’m going to give virtually all of those claim checks to charity when my wife and I die.”
From a NY Times article:
“I don’t believe in dynastic wealth”, Warren Buffett said, calling those who grow up in wealthy circumstances “members of the lucky sperm club”.
Buffett has written several times of his belief that, in a market economy, the rich earn outsized rewards for their talents:
“A market economy creates some lopsided payoffs to participants. The right endowment of vocal chords, anatomical structure, physical strength, or mental powers can produce enormous piles of claim checks (stocks, bonds, and other forms of capital) on future national output. Proper selection of ancestors similarly can result in lifetime supplies of such tickets upon birth. If zero real investment returns diverted a bit greater portion of the national output from such stockholders to equally worthy and hardworking citizens lacking jackpot-producing talents, it would seem unlikely to pose such an insult to an equitable world as to risk Divine Intervention.”
His children will not inherit a significant proportion of his wealth. These actions are consistent with statements he has made in the past indicating his opposition to the transfer of great fortunes from one generation to the next.
Buffett once commented,
“I want to give my kids just enough so that they would feel that they could do anything, but not so much that they would feel like doing nothing”.
In 2006, he auctioned his 2001 Lincoln Town Car on eBay to raise money for Girls, Inc.
In 2007, he auctioned a luncheon with himself that raised a final bid of $650,100 for a charity.
In 2006, he announced a plan to give away his fortune to charity, with 83% of it going to the Bill & Melinda Gates Foundation.
In June 2006, Buffett gave approximately 10 million Berkshire Hathaway Class B shares to the Bill & Melinda Gates Foundation (worth approximately US$30.7 billion as of 23 June 2006) making it the largest charitable donation in history and Buffett one of the leaders in the philanthrocapitalism revolution. The foundation will receive 5% of the total donation on an annualised basis each July, beginning in 2006. Buffett also will join the board of directors of the Gates Foundation, although he does not plan to be actively involved in the foundation’s investments. This is a significant shift from previous statements Buffett has made, having stated that most of his fortune would pass to his Buffett Foundation.
The bulk of the estate of his wife, valued at $2.6 billion, went to that foundation when she died in 2004.
He also pledged $50-million to the Nuclear Threat Initiative, in Washington, where he has served as an adviser since 2002.
On 27 June 2008, Zhao Danyang, a general manager at Pure Heart China Growth Investment Fund, won the 2008 5-day online “Power Lunch with Warren Buffett” charity auction with a bid of $2,110,100. Auction proceeds benefit the San Francisco Glide Foundation.
Buffett’s speeches are known for mixing business discussions with humor. Each year, Buffett presides over Berkshire Hathaway’s annual shareholder meeting in the Qwest Center in Omaha, Nebraska, an event drawing over 20,000 visitors from both United States and abroad, giving it the nickname “Woodstock of Capitalism”.
Berkshire’s annual reports and letters to shareholders, prepared by Buffett, frequently receive coverage by the financial media. Buffett’s writings are known for containing literary quotes ranging from the Bible to Mae West, as well as Midwestern advice, and numerous jokes.
Other interesting Facts…
Buffett and tobacco…
During the RJR Nabisco, Inc. hostile takeover fight in 1987, Buffett was quoted as telling John Gutfreund:
“I’ll tell you why I like the cigarette business. It costs a penny to make. Sell it for a dollar. It’s addictive. And there’s fantastic brand loyalty.”
Speaking at Berkshire Hathaway Inc.’s 1994 annual meeting, Buffett said investments in tobacco are:
“fraught with questions that relate to societal attitudes and those of the present administration. I would not like to have a significant percentage of my net worth invested in tobacco businesses. The economy of the business may be fine, but that doesn’t mean it has a bright future.”
Buffett and coal…
In 2007, Buffett’s PacifiCorp, a subsidiary of his MidAmerican Energy Company, canceled six proposed coal-fired power plants. These included Utah’s Intermountain Power Project Unit 3, Jim Bridger Unit 5, and four proposed plants previously included in PacifiCorp’s Integrated Resource Plan. The cancellations came in the wake of pressure from regulators and citizen groups, including a petition drive organized by Salt Lake City commercial real estate broker Alexander Lofft and directed at Buffett personally. The 1,600 petitioners, who described themselves in a letter to Buffett as “a collection of citizens, business owners and managers, service professionals, public servants, and organization representatives … your friends and new customers here in Utah,” explained that, in their view, any further expansion of coal generation in Utah would “compromise our health, obscure our viewsheds, shrink and contaminate our watersheds, and thin out our most beloved snow pack,” concluding that “our attractiveness as a place to live and work is also threatened, and so is our economic competitiveness as a major metro area and a state, compromising our recent gains in income and property values”.
American Indian tribes and salmon fisherman sought to win support from Warren Buffett for a proposal to remove four hydroelectric dams from the Klamath River. He had David Sokol respond that the FERC would decide the question.
Buffett views the United States’ expanding trade deficit as a trend that will devalue the US dollar and US assets. He believes that the US dollar will lose value in the long run, as a result of putting a larger portion of ownership of US assets in the hands of foreigners.
In his letter to shareholders in March, 2005, Warren Buffett predicted that in another ten years’ time the net ownership of the U.S. by outsiders would amount to $11 trillion.
Americans … would chafe at the idea of perpetually paying tribute to their creditors and owners abroad. A country that is now aspiring to an ‘ownership society’ will not find happiness in — and I’ll use hyperbole here for emphasis — a ‘sharecropping society’.
Author Ann Pettifor has adopted the image in her writings and has stated: “He is right. And so the thing we must fear most now, is not just the collapse of banks and investment funds, or of the international financial architecture, but of a ‘sharecropper society, angry at its downfall”.
Dollar and gold…
This induced Buffett to enter the foreign currency market for the first time in 2002. However, he substantially reduced his stake in 2005 as changing interest rates increased the costs of holding currency contracts. Buffett continues to be bearish on the dollar, and says he is looking to make acquisitions of companies which derive a substantial portion of their revenues from outside the United States.
Buffett emphasized the non-productive aspect of a gold standard for the USD in 1998 at Harvard:
“It gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.”
In 1977 Buffett was also quoted as saying about stocks, gold, farmland, and inflation:
“stocks are probably still the best of all the poor alternatives in an era of inflation — at least they are if you buy in at appropriate prices.”
Buffett stated that he only paid 19% of his income for 2006 ($48.1 million) in total federal taxes (due to them being from dividends & capital gains), while his employees paid 33% of theirs, despite making much less money. On the other hand in 2008 Berkshire Hathaway paid $1.9 billion in federal corporate income taxes on $7.5 billion in earnings (more than 26% in federal taxes alone).
Buffett favors the inheritance tax, saying that repealing it would be like “choosing the 2020 Olympic team by picking the eldest sons of the gold-medal winners in the 2000 Olympics”.
In 2007, Buffett testified before the Senate and urged them to preserve the estate tax so as to avoid a plutocracy. Some critics have argued that Buffett (through Berkshire Hathaway) has a personal interest in the continuation of the estate tax, since Berkshire Hathaway has benefited from the estate tax in past business dealings and had developed and marketed insurance policies to protect policy holders against future estate tax payments.
Buffett believes government should not be in the business of gambling, or legalizing casinos, calling it a tax on ignorance.
Expensing of stock options…
He has been a strong proponent of stock option expensing, on the Income Statement. At the 2004 annual meeting, he lambasted a bill before the United States Congress that would consider only some company-issued stock options compensation as an expense, likening the bill to one once passed by the Indiana House of Representatives that ‘changed’ Pi from 3.14159 to 3.2 .
“When a company gives something of value to its employees in return for their services, it is clearly a compensation expense. And if expenses don’t belong in the earnings statement, where in the world do they belong?”
Investment in China…
Buffett invested in PetroChina Company Limited and in a rare move, posted a commentary on Berkshire Hathaway’s website stating why he would not divest from the company despite calls from some activists to do so, due to its connection with the Sudanese civil war that caused Harvard to divest from the company in 2005. He did, however, sell this stake soon afterwards, sparing him the billions of dollars he would have lost had he held on to the company in the midst of the steep drop in oil prices beginning in the summer of 2008.
In October 2008, Buffett invested in new energy automobile business by paying $230 million for 10% of BYD Company(SEHK: 1211), which runs a subsidiary of electric automobile manufacturer BYD Auto. In less than one year, the investment has reaped him over 500% return of profit.
* The Essays of Warren Buffett : Lessons for Corporate America, Warren Buffett and Lawrence A. Cunningham, The Cunningham Group; revised edition (April 11, 2001), ISBN 978-0966446111
* The Essays of Warren Buffett: Lessons for Corporate America, Second Edition, Warren E. Buffett and Lawrence A. Cunningham, The Cunningham Group; 2nd edition (April 14, 2008), ISBN 978-0966446128
Books about Warren Buffett
Numerous books have been written about Warren Buffett and his investment strategies. In October 2008, USA Today reported that there were at least 47 books in print with Buffett’s name in the title. The article quoted the CEO of Borders Books, George Jones, as saying that the only other living persons named in as many book titles were U.S. presidents, major world political figures, and the Dalai Lama. Buffett said that his own personal favorite is a collection of his essays called The Essays of Warren Buffett, which he described as “a coherent rearrangement of ideas from my annual report letters” as edited by Larry Cunningham.
Some best-selling, or otherwise notable, books about Buffett:
* Roger Lowenstein, Buffett, Making of an American Capitalist
* Robert Hagstrom, The Warren Buffett Way.
* Alice Schroeder, The Snowball: Warren Buffett and the Business of Life. (Written with Buffett’s cooperation.)
* Mary Buffett and David Clark, Buffettology and four subsequent books. (Combined sales of more than 1.5 million copies.)
* Janet Lowe, Warren Buffett Speaks: Wit and Wisdom from the World’s Greatest Investor.
* John Train, The Midas Touch: The Strategies That Have Made Warren Buffett ‘America’s Preeminent Investor’.
* Andrew Kilpatrick, Of Permanent Value: The Story of Warren Buffett. (The longest of the books about Buffett, with 330 chapters, 1,874 pages and 1,400 photos, weighing 10.2 pounds.)
* Warren Buffett, Lawrence Cunningham (editor), The Essays of Warren Buffett. (A rearrangement of the Chairman’s letters by topic.)
* Janet M. Tavakoli, Dear Mr. Buffett: What An Investor Learns 1,269 Miles From Wall Street