If you are asked to name a personality from the world of finance or a well-known billionaire, there is a good chance that the name of Warren Buffett will come to mind!
We are going to tell you the highlights in the life of this living finance legend, and why he still inspires investors around the world today.
The journey of Warren Buffett
(Very) early beginnings
Warren Buffett was born on August 30, 1930 in Omaha, Nebraska, in the central United States. His father Howard was a stockbroker and congressman, a rather inspiring home environment for little Warren, who sometimes accompanies his dad to work.
At 11, while visiting his father’s brokerage firm, he made his first investment: 6 shares of Cities Service Company for $38. This will be an opportunity for him to learn his first lesson, and know his first sweats: the action fell to $27 before bouncing back to $40. Warren will then sell his shares, without knowing that their valuation will explode a few weeks later, reaching $200.
He then understands the shortfall that can result from a too hasty exit from a good investment. But he is not discouraged, quite the contrary!
Warren Buffett paved the way for many investors and learned his trade “on the job”, learning from his mistakes. If you want to save time and avoid rookie mistakes, I invite you to read our guide to getting started on the stock market 😉
An adolescence full of promise
It takes 20 years to build a reputation and five minutes to destroy it. If you think about it, you will act differently.
Quote from Warren Buffett
In 1943, the young Warren is 13 years old and overflowing with ambition: he declares that he will be a millionaire at 30 , or that he will jump from the tallest building in Omaha if he fails! And he spares no effort: in parallel with his father’s brokerage company, he works as a newspaper deliveryman and will therefore have to complete his first tax return.
Smart, he won’t forget to deduct his $35 bicycle from his taxes, as a professional expense.
The risk comes from not knowing what you are doing.
Quote from Warren Buffett
In early 1945, Warren was 14 and made his first big investment: $1,200 of farmland leased to farmers.
He followed that up in 1947 with a more modest investment of $25 in a second-hand pinball machine, made with a friend. Sensing the attraction potential of this new technology, Warren installs the machine on a street in Omaha, near a hairdresser.
It’s a cardboard! He then quickly invests in 3 other pinball machines, for a total of $100. He will sell his small business less than a year later, for 12 times his initial investment, or $1,200.
The Oracle of Omaha
It’s better to hang out with people who are better than you. Pick associates with better behavior than yours and you’ll drift in that direction.
Quote from Warren Buffett
Upon entering the University of Nebraska, he believes he already has more knowledge than his professors and will try to integrate the famous Harvard Business School . Faced with the refusal of his application, he will then turn to the Columbia Business School because the famous analysts Benjamin Graham and David Dodd teach there. This time accepted, Graham will become his mentor and working partner, until his retirement in 1956. Warren Buffett is then 26 years old and will create his first company: Buffett Associates, Ltd.
In 1962, Warren managed six investment funds and managed more than 7 million dollars, including 1.025 million in his name. These funds are consolidated into one: Buffett Partnership Limited , whose headquarters building can still be seen in Omaha today (even though the company no longer exists). It was also that year that he became interested in an industrial company specializing in textiles: Berkshire Hathaway .
At a meeting of Berkshire Hathaway ‘s board of directors in 1965, Warren Buffett took control and appointed a new leader. He will be able to concentrate on his Buffett Partnership Limited investment fund by making targeted investments in companies such as Walt Disney , American Express and the insurer National Indemnity . When the fund had its best year in 1969, it was dissolved in favor of the partners and the largest share went to Berkshire Hathaway .
Warren Buffett then has a personal wealth of more than 25 million dollars, at 39 years old.
The Berkshire Hathaway Empire
I try to buy the stocks of companies so wonderful an idiot could run them. Because sooner or later it will happen.
Quote from Warren Buffett
From 1970, Warren will concentrate on Berkshire Hathaway , of which he owns 29% of the shares, by appointing himself president of the company. He will, in just ten years, transform this former textile industry company into a banking, insurance and, above all, investment giant.
It was in 1986 that Warren Buffett will reach his first billion dollars , but he continues to limit his personal expenses or those of his companies as much as possible. Very thrifty, some would say stingy, he prefers to constantly reinvest in safe stocks, and dominant companies in stable and unsurprising sectors such as Coca-Cola for example (7% of the company), which was one of his best investments.
And apparently, he found the right strategy because in 1999 he was elected best investor of the 20th century, just that!
Only buy things you’ll be perfectly happy to own if the market crashes for 10 years.
Quote from Warren Buffett
And now ?
Our preferred investment horizon is: forever.
Quote from Warren Buffett
Now 92 , Warren Buffett continues to write his famous letter to Berkshire Hathaway shareholders every year , in which he shares his advice and vision for the global economy. He is now looking for one or more successors to take over as head of Berkshire Hathaway because his main partner, Charlie Munger , is 6 years his senior!
Warren Buffett’s Strategy
Value Investing
Value investing is Warren Buffett’s main strategy: it consists of investing in companies that are undervalued on the market, generally when they suffer a temporary and disproportionate drop in their stock market valuation, or if their value does not reflect the fundamentals of the market. the company (growth, EBITDA , profit, dividends , etc…). In this case, investing in these stocks can represent a great opportunity.
In good French, the literal translation could be “invest in value” and I think that reflects the substance of the strategy well: you must not let yourself be carried away by fashions and trends, it is better to be interested in the fundamentals company and watch for opportunities to buy at the best price.
It also implies that this strategy is (very) long term, and based on patience. It takes the Market to correct the stock price to reflect its true value, and this can take months or even years. The same applies to seizing opportunities to buy at the best price: this requires a lot of upstream analysis work and daily monitoring, even if tools exist today to automate this monitoring, such as price alerts or limit orders.
It takes a stable personality, a temperament that derives no pleasure from being with the crowd or against the crowd
Quote from Warren Buffett
In conclusion, Warren Buffett’s strategy may seem obvious and rational, but not everyone is able to do like him: you already need to have iron discipline and unfailing patience to be able to wait for the right opportunities and maintain its positions over the long term.
You also need to have an in-depth knowledge of the companies in which you want to invest. And this is where Warren Buffett clearly has a head start: he does not hesitate to meet directly with the leaders of the large companies he covets, such as Walt Disney or Microsoft, in order to get the most relevant information. . He also became friends with Bill Gates with whom he plays Bridge, his other great passion.
Bill Gates could do what I do…but I couldn’t do what he does!
Quote from Warren Buffett
The last important point is that Warren Buffett today enjoys a huge investment capacity, including more than 100 billion in cash in reserve at Berkshire Hathaway. This allows him to invest in times of crisis and compensate for the main flaw in his strategy: the lack of diversification .
Indeed, it invests only in the financial markets, putting aside less volatile investments such as real estate, government bonds or precious metals. In the event of a stock market crash, he can lose a lot: like in 2008, when his personal fortune fell from 65 billion dollars to 37 billion at the beginning of 2009.
We will now analyze Warren Buffett’s portfolio to better understand his strategy
Minority interests
First in line in terms of valuation, Warren Buffett’s minority stake in Apple dates from 2016 and is now worth more than $155 billion, or around 5.55% of Apple’s capital at the start of 2022. True to his strategy, Buffett invested in the Apple brand when it experienced the first drop in iPhone revenue, causing its price to fall, something that hadn’t happened since 2001, or 15 years. When we tell you that you have to be patient!
This line alone represents 42.79% of Berkshire’s portfolio, which represents a rather risky lack of diversification!
Note also the holdings in other well-known companies such as Coca-Cola, American Express, the Goldman Sachs bank, the Washington Post, and more recently Activision-Blizzard or the Citigroup bank.
Last point to emphasize, the presence of ETFs at the bottom of the table, whose merits Warren Buffett regularly praises .
Takeovers or majority holdings
The best investment you can make is to bet on your own abilities
Quote from Warren Buffett
As he was able to do for Berkshire Hathaway, Warren Buffett misses no opportunity to take control of companies in difficulty, which he considers solid and profitable in the long term. This takeover can be partial or total, via board member positions for example, as was the case for Citigroup, Gillette Company or Graham Holdings Company.
Running your business like it’s your only asset for you and your family, and you can’t sell it for at least a century…
Quote from Warren Buffett
But this takeover is not by force or intimidation: Warren’s first action is a change in the composition of the board of directors and the remuneration of the directors. Having a horror of meetings, he respects the autonomy and independence of business leaders, while keeping a right of scrutiny over the investments of the companies under his control. Particularly in times of crisis, if companies experience a significant drop in income or during an event capable of damaging Berkshire’s image and reputation.
Insurance companies
How to explain the attraction of Warren Buffett for insurance companies? Company acquisitions include: GEICO, Cypress Insurance, General Re, Berkshire Hathaway Re, National Fire & Marine Insurance Co. and National Indemnity Co.
We don’t necessarily know it, but insurance companies are veritable “cash machines”: they collect premiums in advance and pay claims later, if there is a claim!
And that suits Berkshire’s business well, which can thus finance itself at a lower cost, via the insurance companies under its control. The holding company’s debt was also rated AAA between 1989 and 2009! Concretely, this means that Buffett’s investments are financed at a rate lower than the market rate.
Let’s take an example: for €100 of funds held, Berkshire is invested at €160, including €60 on credit with an advantageous rate. By borrowing at an interest rate below that of the market and having stock market returns in line with the latter, it logically obtains a higher return on its equity, including a leverage effect created by credit financing.
The scholarship is a way to transfer money from the impatient to the patients.
Quote from Warren Buffett
The personal fortune of Warren Buffett
Warren Buffett became, in 2022, the 5th richest man on the planet, passing Mark Zuckerberg, the founder of Facebook.
Although he started investing at the age of 11, Warren Buffett became a millionaire at 30 and a billionaire at 56. We are then in 1986, one year before the crash of October 87 which will melt his personal fortune by almost a third (-342 million dollars).
It was in March 2008, just before the subprime crisis, that Warren temporarily became the richest man in the world with a personal wealth of between 58 and 62 billion dollars. He was then 78 years old, and for the first time dethroned his friend Bill Gates.
As of May 30, 2023, Warren Buffett is the 5th richest man on the planet with a personal fortune estimated at 115 billion dollars, behind Elon Musk (1st, 224 billion), Jeff Bezos (139 billion), Bernard Arnault (133 billion ) and Bill Gates (123 billion).