Buffett's Early Decades
With well over US$100b in investment capital under his control, Warren Buffett is the world’s most influential investor. Let’s dive into this self-made man's early years and see how those foundations were built.
Warren Buffett is arguably the world’s most famous investor, but how did he get there? It all started when he made his first investment at the tender age of 11. But it wasn’t until 1956 that a 26-year-old Buffett took his 15 years of investing experience to form the investment firm Buffett Associates. The firm started small, with US$105,000 in Assets Under Management (AUM), and for his part Buffett only invested US$100.
Buffett was highly secretive about what stocks were purchased in the early years of the partnership – which sounds surprising in the age of transparency we live in. However, he would tell anybody that his guiding principle was buying companies well below their intrinsic value and holding them for as long as it took. In other words, Warren Buffett has always been a value investor at heart. As he explained in a letter to his partners, ‘This is the cornerstone of our investment philosophy: Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good results’.
By 1958, Buffett controlled five investment partnerships and had doubled his partners’ money. In 1959 he met the man who would become his true business partner, Charlie Munger. In 1962, all partnerships were merged into one, the Buffett Partnership. The rest of the 1960s would present some pivotal opportunities that Buffett would not miss.
In 1962, Buffett first became aware of a textile manufacturer called Berkshire Hathaway, and began buying shares when the price dropped to US$8. He would keep buying.
In 1963, American Express ($AXP) announced it had made a loan to a salad oil company that was a scam. This loan was so massive, American Express shares collapsed 40% as the market worried it would not survive. But after doing a deep dive into the financials and with his understanding of the brand, Buffett figured the loss was temporary and more than recoverable. He bought shares hand over fist and made a killing.
Another significant move came in 1965, when Buffett purchased 5% of Walt Disney ($DIS) for $4m, after a lengthy discussion with its legendary founder. Another classic example of how important the brand is to Buffett. The same year, he organises a coup at Berkshire Hathaway and instates a president who he can manage.
In 1967, Berkshire Hathaway starts to turn into a holding company and acquires its first insurance company, National Indemnity Insurance, at Buffett’s order. Insurance would quickly become the cornerstone of Buffett’s investing empire.
Come 1968, the Buffett Partnership earned US$40m, bringing its total value to US$104m. That’s when Buffett decides to close the partnership and liquidate its assets.
This marked the end of the early stage of his investment career, but Buffett was, of course, far from done. With 29% of shares outstanding in Berkshire Hathaway ($BRK.B | $BRK.A), he took over management of the company as chairman in 1970. The legend was just getting started.