Bought first stock at age 11
Invested savings into farmland
Had pinball machine business and
sold fora profit
Attended Columbia University
where Ben Graham was a
professorat the time
Worked forBen Graham for
$12,000 a year
Opened his own partnership in Omaha
By 1961, he had 5 partnerships
In 1962, he merged partnerships to
make Buffett Partnerships, Ltd.
Bought stock forBerkshire Hathaway at
Bought Amex stock afterfraud scandal
Took control of Berkshire in 1965
Closed partnership in 1969
and worth millions personally
In 1974 lost over50% of
In 1981 Buffett and Munger
create Berkshire Charitable
Crash of ‘87 lost $342 million
Buffett worth $44 billion today
Berkshire has $248 billion in assets
Charles Munger, vice-chairman
Met in 1959
Goal to increase 15% a year
85% of wealth given to
Bill and Melinda Gates Foundation
Health and learning
$1.5 billion annually
The rest to foundations run by his
children and founded by late wife
Buffett’s three management tenets concern
the evaluation of management quality
Is management rational?
Is management candid?
Does management resist the institutional
If a company generates high returns on equity,
the duty of management is to reinvest those
earnings back into the company, forthe benefit
If the earnings cannot be reinvested at high
rates, management has three options:
ignore the problem and continue to reinvest at below-average
return the money to the shareholders, who then might have a
chance to reinvest the money elsewhere at higherrates
In Buffett’s mind, only one choice is rational,
that is option 3
Buffett believes that a managerwho
confesses mistakes publicly is more likely
to correct them
Managers who discusses the failures of
the company with shareholders are
Resisting the Institutional
What is the institutional imperative?
the lemming-like tendency of corporate
management to imitate the behaviorof other
managers, no matterhow irrational it may be
Buffett points out that thinking independently
and charting a course based on rationality and
logic are more likely to maximize the profits of
the company than a strategy that can best be
described as “follow the leader”
He will not interfere with the running of the
He will be responsible forhiring and setting
the compensation of the top executive.
Capital allocated to the business will have a
price tag (a hurdle rate) attached.
Some Management Tips
Review annual reports from a few years back, paying
special attention to what management said then about
strategies forthe future.
Compare those plans to today’s results: How fully were
Compare the strategies of a few years ago to this
year’s strategies and ideas: How has the thinking
Compare the annual reports of the company you are
interested in with reports from similarcompanies in the
same industry. It is not always easy to find exact
duplicates, but even relative performance comparison
What type of investor is
What is a value
investor, and what
makes Warren “the
The Buffett Way
Do what is the best foryou,
not what people think you
should be doing.
So you say Ican
Class A shares vs. S&P 500
Class A & B shares vs. S&P 500
1. Has the company consistently performed
1. Has the company avoided access debt?
Small amount of debt indicating that earnings growth is
being generated from equity as opposed to borrowed
1. Are profit margins high? Are they increasing?
Look back at least 5 years
4. How long has the company been public?
At least 10 years
Recent IPO is not a target
5. Do the company’s product rely on commodity?
Characteristics must be hard to replicate –
competitive advantage, or“economic moat”
Product must be distinguishable
Must not rely solely on commodity
W. Buffett’s most important skill!!!W. Buffett’s most important skill!!!
6. Is the stock selling at 25% discount orat its real
Determine intrinsic value by analyzing business
Include analysis of earnings, revenues and assets
Usually higherthan its liquidation value
Compare company’s intrinsic value to its current
If intrinsic value is at least 25% higher–
company has value
Complete understanding of the
Value investing (based on fundamental analysis)
Longevity (in established businesses, forlong-term)
Great Buffet Quotes:
"Someone's sitting in the shade today because someone
planted a tree a long time ago."
"Wall Street is the only place that people ride to in a Rolls
Royce to get advice from those who take the subway."