Ask anyone to name a famous investor, and that person will probably answer “Warren Buffett.” Everyone seems to know Warren Buffett, presumably because he’s one of the wealthiest people in the world. That’s not the only reason that people around the world know his name. So, why is Warren Buffett famous?
Warren Buffett Was Benjamin Graham’s Best Student
Benjamin Graham (1894-1976) and Warren Buffett crossed paths at Columbia Business School, where Graham taught classes on value investing.
Buffett chose to attend Columbia specifically because he knew that Graham taught there. Buffett had been influenced by Graham’s 1949 book, The Intelligent Investor, and he wanted to learn more from the famed investor and educator.
Buffett credits Graham with teaching him how to think about investing wisely.
By 30, Warren Buffett Was a Millionaire
Warren Buffett’s father served four terms in the United States Congress, so the family had plenty of connections. Warren, however, didn’t become a millionaire just because of his family’s political and financial ties.
Buffett worked hard and used his mathematical abilities to start making money at a young age. During school, he sold small items to earn money. He and a friend bought a used pinball machine and put it in an Omaha barbershop. It didn’t take long for them to collect enough money to buy more pinball machines. Soon, they were collecting quarters from barbershop pinball machines all over town.
Creative thinking and hard work paid off throughout Buffett’s life. By his mid-20s, Buffett had amassed a net worth of at least $174,000. During his early 30s, he poured nearly all of his savings into an investment partnership. A decade later, his stake of the partnership was worth $1.8 million!
How many people can say that they became millionaires by 30? It was just the beginning for Buffett.
Buffett Turned Berkshire Hathaway Around
Berkshire Hathaway has been in business since 1839. The company started as a textile manufacturer that eventually expanded into managing investments.
During the 1960s, Buffett noticed something odd about Berkshire Hathaway’s stock price. When the company shut down one of its mills, the price would decline. Clearly, Berkshire Hathaway didn’t have reliable management. It was just a matter of time before the company failed.
Buffett kept his eyes on the business, in which he owned stock. Things came to a head in 1964 when Berkshire Hathaway offered to buy back Buffett’s stock at $11.50 per share.
Since Buffett didn’t believe the company could turn itself around, he agreed. When the paperwork arrived, though, it listed the price as $11.375 per share.
The small difference irked Buffett. In retaliation, he began purchasing more of the company’s stock. Eventually, he had so much stock that he controlled Berkshire Hathaway. Now, he could make changes that would lead to financial success.
By the late 1960s, Warren Buffett had turned the company around by moving away from the textile industry and expanding into insurance.
Buffett Is a Notoriously Good Dealmaker
Although Buffett took over Berkshire Hathaway partially because the company’s management made him mad, Buffett is a notoriously good dealmaker who doesn’t usually act on emotion.
His Bank of America deal shows how well he finds bargains. In 2011, Buffett negotiated a deal where Berkshire Hathaway would buy $5 billion of stock in Bank of America with a 6% dividend.
At the time, Bank of America shares didn’t have good prospects, so Buffett probably saw an opportunity for serious growth as the economy continued to rebound from the Great Recession.
As part of the deal, Berkshire Hathaway retained the right to buy Bank of America stock for $7.14 a share until 2021. Considering that the stock wasn’t worth that much at the time, Bank of America happily agreed.
By 2017, Bank of America stock prices had grown more than three times the 2011 value. Buffett took advantage of his deal and bought 700 million shares at $7.14 each. Suddenly, Berkshire Hathaway became the bank’s biggest shareholder.
Buffett Is Extremely Frugal
How would you live if you were one of the world’s richest people? Would you enjoy lavish vacations? Own a fleet of race cars? Spend your afternoons wearing luxury clothes on one of your yachts?
If you think those options sound like a good way to spend money, then you don’t have much in common with Buffett. He’s extremely frugal.
Some of his famously frugal habits include:
- Living in the Omaha house he bought in 1958 for $31,500.
- Eating the same breakfast nearly every morning… from McDonald’s.
- Driving the same car until his daughter makes him get a newer model.
- Owning about 20 suits… that he was given as gifts.
- Spending most of his day reading books and playing bridge.
He’s not exactly someone who would get highlighted on Lifestyles of the Rich and Famous.
Warren Buffett Is Insanely Rich
As of July 2020, Warren Buffett has a net worth of $72.2 billion. That’s a staggering amount of money that’s hard to conceptualize.
Think of it this way, the average full-time American worker earns $44,720 per year. At that rate, it would take the average person more than 1.6 million years to make as much money as Buffett.
Here’s another way to think about Buffett’s wealth that will blow your mind. Buffett net worth is bigger than New York City’s entire budget in 2014. Buffett could have literally run New York City for a whole year and still have a couple of billion remaining.
Buffett has grown his wealth by following a few relatively simple principles.
First, he knows how to spot good investment opportunities. Regardless of economic booms or busts, Buffett buys stocks based on their merits to produce cash flow long into the future.
Second, Buffett keeps most of his money in the market. He doesn’t need much money to live, so he keeps reinvesting. Keeping money in the market means that his earnings increase exponentially.
From his perspective, it makes more sense to leave a million dollars in the market for a few years so it can become several million dollars. Not everyone can live this way, but Buffett has always worked hard, so he has enough cash to let his money work for him.
Finally, Buffett doesn’t spend money on unnecessary things. He makes money from the capitalistic nature of the stock market, but he isn’t much of a consumer. In other words, he keeps his money, where it will benefit him. Owning a bigger house would only mean spending more money. It wouldn’t add to his wealth.
Warren Buffett’s Annual Meeting Is an Extravaganza
Berkshire Hathaway holds an annual meeting where stakeholders can gather, listen to a speech from Warren Buffett, and participate in other activities.
The meeting has become such an event that it can take hours to get into the door. Once inside, shareholders can view products from many companies owned by Berkshire Hathaway. It’s so crowded that it’s impossible to tell the difference between shoppers and people waiting in line.
Many of the “stores” inside the convention center feature limited edition products. For example, Heinz once sold bottles of ketchup and mustard that said “The Perfect Pair” and featured drawings of Buffett and Charles Munger.
It’s a wild weekend – Woodstock for Capitalists – that attracts people from all over the world.
Buffett Is Friends With Bill Gates
It’s not surprising that Warren Buffett and Bill Gates are friends. Their relationship doesn’t exist just because they’re billionaires, though. Buffett and Gates love playing bridge.
The two have such a close friendship that Buffett always picks up Gates at the airport when he visits Omaha.
Some billionaires feel threatened by each other, which makes them competitive. Buffett and Gates seem to enjoy spending time together. It’s almost like the money doesn’t have an effect on their friendship.
Oddly enough, Warren Buffett doesn’t use email. It’s funny to think that Bill Gates, one of the most tech-savvy people in the world, pals around with a guy who doesn’t even write emails. Buffett would rather pick up the phone, send a letter, or meet in person. When you’ve been doing business without email for decades, it probably doesn’t seem like a necessity.
Buffett Is an Investing Teacher
Buffett isn’t afraid to give people investing advice. His annual newsletter has some of the best advice for investors at all levels. He also gives frequent talks that teach investors how to identify and take advantage of opportunities.
Don’t expect to find Buffett teaching at a college anytime soon. He loves his work at Berkshire Hathaway. He’s still an investing teacher, though. Anyone who follows his advice stands a better chance of increasing their wealth. You might not become a billionaire, but you can still make quite a bit of money.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.