This Is How Warren Buffett REALLY Made 95 Billion Dollars

This Is How Warren Buffett REALLY Made 95 Billion Dollars

Warren Buffett had an interest in being rich from an early age. He said he read all the books about finance from the Omaha public library by the age of ten years old, and some twice.

He tried many small business ventures as a kid selling chewing gum, collecting glass Coca-Cola bottles to return for the deposit money, and also selling weekly magazines door to door. He also worked part-time in his grandfather’s grocery store.

In high school he delivered newspapers, sold golf balls he recovered from a local golf course, sold stamps, and washed and detailed cars. He and a friend formed one of his first business partnerships to buy used pinball machines and place them in barbershops.

Buffett went to college and studied value investing under Benjamin Graham both in class and later worked for him. Buffett also started a friendship with Philip Fisher and learned about his growth investing strategy.

Warren Buffett’s investing strategy was primarily value investing from the start but evolved into a hybrid of both Graham and Fisher as he started to look for great long-term companies at a good price compared to future cash flow value.

Warren Buffett’s first professional investment firm was Buffett Partnership, Ltd that he created in 1956 at 26 years old. He looked to buy companies at low prices that would revert to their fundamental values over short periods of time. He was very successful with his first investments.

From 1957 to 1968, the Buffett Partnership earned a 31.6% annual return, with zero losing years, compared to 9.1% for the Dow. [1]

By January of 1962, the Buffett Partnership had a value of over $7 million, with Buffett’s personal share being worth more than $1 million. Buffett closed his partnership in 1969, saying that he was out of good investment ideas. He became a millionaire in his late twenties and retired in his early thirties.

In 1962, when Warren Buffett was just 30 years old he became a millionaire in net worth. 

Which stock made Warren Buffett rich?

Warren Buffett’s net worth was built from his ownership of Berkshire-Hathaway shares. 

He started acquiring shares of Berkshire-Hathaway at $7.60 in for his investment partnership. The Buffett partnership’s average purchase price was $14.86 a share as he made heavy purchases in early 1965 and took control of Berkshire in early 1965.[2]

Berkshire-Hathaway was a textile manufacturer in a dying U.S. industry that was in decline and on the verge of bankruptcy. Originally Buffett saw a pattern that the Berkshire-Hathaway stock would go up when the company closed a mill.

Buffett did understand at the time that Berkshire’s fundamentals were not going to improve as it slowly went out of business but what he saw was an opportunity for a gain as its stock price was below its book value and money could be made as it liquidated its assets.

Berkshire was a value stock play for Buffett that turned into a takeover play after Buffett was offended by an offer to purchase his shares because it was below a verbal agreement. After this slight instead of selling his shares for a great short term profit he chose in 1964 to buy more stock.

He gained control of the company through a majority ownership and fired the guy who didn’t honor the verbal agreement that was made to buy Buffet’s shares at a higher price. This put Buffett in the situation of being the majority shareholder of a failing textile business he never wanted in the first place. He let a quick trading opportunity for a large profit turn into an investment. This really shows that no one, even Buffett, is above having ego problems.

He spent years transforming Berkshire-Hathaway from a textile manufacturing company to an insurance, portfolio company, and underwriting operation. Buffett kept the original name and transformed it into a diversified holding company over the years.

He was able to use the cash flow generated from the insurance companies it owned to purchase cash flowing businesses with growth and sustainability. Buffett also began to manage a corporate investment portfolio built with great growth companies he bought at good prices. Berkshire Hathaway Inc. continued to acquire and grow until it became the fifth biggest company in the world.

Buffett has said in a CNBC interview that Berkshire-Hathaway was “The dumbest stock I ever bought.”

Buffett said “Because Berkshire Hathaway was carrying this anchor, all these textile assets. So initially, it was all textile assets that weren’t any good. And then, gradually, we built more things on to it. But always, we were carrying this anchor. And for 20 years, I fought the textile business before I gave up. If instead of putting that money into the textile business originally, we just started out with the insurance company, Berkshire would be worth twice as much as it is now.”

Buffett was the richest man in the world despite his Berkshire-Hathaway purchase not because of it. His hunger for knowledge and passion for investing had destined him for success whatever path he chose.

Warren Buffett first became a billionaire in 1986 at only 56 years old. 

His salary with the company for being president was only $50,000 at the time he became a billionaire, showing the power in stock ownership versus even a large paycheck.

Almost all of Buffett’s fortune is derived from his ownership of about 37% of the Class A shares in Berkshire Hathaway as a publicly traded company. Berkshire has delivered a compounded annual gain in per share market value of 20% since 1965, according to its 2022 letter to shareholders.[3]

How Much Has Warren Buffett Lost in 2022?

Warren Buffett’s peak net worth in March of 2022 was over $125 billion.[4] Berkshire-Hathaway stock topped out at $539,000 on March 21, 2022 which he holds the majority of his net worth in. Warren Buffett’s current net worth is $93.6 billion meaning he has currently lost $31.4 billion in wealth from his peak net worth in March of this year. 

If we count from the beginning of the calendar year his $108.6 billion net worth at the beginning of January has fallen by $15 billion year to date.

Warren Buffett continues to be the greatest investor of all time. His returns and wealth speak for their self.

This Is How Warren Buffett REALLY Made 95 Billion Dollars
Picture created by Holly Burns