Warren Buffett

Warren Buffett is probably the most famous investor alive, and arguably the most successful of the twentieth and twenty-first centuries. Over roughly sixty years running Berkshire Hathaway, he turned a failing New England textile mill into one of the largest companies in the world, while turning his own annual letters to shareholders into a kind of informal university course in value investing that millions of people have read.

Who He Was

Buffett was born on August 30, 1930, in Omaha, Nebraska, the son of a stockbroker-turned-congressman. He showed an entrepreneurial streak from childhood, running paper routes, selling golf balls and stamps, and buying his first stock at age eleven. He studied briefly at the Wharton School before finishing his undergraduate degree at the University of Nebraska, then went on to Columbia University for a master's degree in economics specifically because Benjamin Graham taught there. Graham's course, and the value investing framework laid out in Security Analysis and The Intelligent Investor, became the foundation of everything Buffett did afterward. After graduating, Buffett worked for a couple of years in the 1950s as a securities analyst at Graham's investment firm, Graham-Newman.

In 1956 Buffett returned to Omaha and began pooling money from family and friends into a series of investment partnerships, collectively known as Buffett Partnership Ltd., which he ran through the 1960s with strong returns. In 1965 the partnership took control of Berkshire Hathaway, at the time a struggling textile manufacturer. Rather than winding the company down, Buffett kept the corporate shell and redirected its capital into insurance, and later into a widening array of wholly owned businesses and large equity stakes — including household names such as Coca-Cola, American Express, and Apple. He served as Berkshire's chairman and chief executive for decades, transforming it into one of the largest and most diversified holding companies in the world, and his long-time partnership with Charlie Munger, who joined him in the late 1950s and became Berkshire's vice chairman, pushed Buffett's own thinking well beyond Graham's original, narrowly quantitative approach.

Key Ideas

Buffett did not invent value investing, but he extended and popularized it in ways that changed how a generation of investors think about businesses.

• Economic moats. Buffett popularized the idea of judging a business by the durability of its competitive advantage — its capacity to fend off rivals and sustain high returns for years or decades — using the memorable image of a castle protected by a moat.
• Capital allocation. Buffett argued that the single most important job of a company's management is deciding what to do with the cash the business generates — reinvest it, acquire other businesses, pay it out as dividends, or repurchase shares — and that shareholders should judge management chiefly on how skillfully they make that decision over time.
• Wonderful companies at fair prices. Early in his career Buffett followed Graham's method closely, buying statistically cheap, often mediocre businesses purely because their price was low relative to their assets. Under Munger's influence, he gradually shifted toward a different rule: it is better to own a truly excellent, durable business bought at a fair price than a middling one bought merely because it is cheap.
• Circle of competence. Buffett has long emphasized that investors should stick to businesses whose economics they can genuinely understand, and pass on everything else — no matter how promising it looks — rather than stretching into unfamiliar territory.

Buffett has also credited Phil Fisher, whose qualitative approach to evaluating management and growth prospects complemented Graham's quantitative rigor, as a meaningful influence on his own thinking, once describing his overall approach as a blend of the two men's methods. Buffett's investing temperament is often summarized by his own description of buying fear and selling euphoria: "Be fearful when others are greedy, and greedy when others are fearful."

Buffett's influence now extends well past his own investment results. Berkshire Hathaway's annual shareholder letters and the folksy, plain-spoken commentary at its annual meetings have shaped how ordinary investors, professional fund managers, and business students alike think about ownership, patience, and risk. Few individuals in financial history have done more to popularize the idea that investing well is less about clever formulas than about temperament, patience, and buying good businesses run by good people.