Warren Buffett: A Legendary Investor
Warren Buffett is a renowned investor who became one of the richest men alive by consistently winning on the stock market for over half a century. He built his fortune through his conglomerate Berkshire Hathaway, but his beginnings were humble, born in Omaha in 1930 during the Great Depression to a local stockbroker father, Howard Buffett.
Early Life and Career
Warren Buffett’s father was a successful businessman who provided for his family despite the economic crash. He even ran for Congress and won in 1942. As his father’s career took off, the family moved to Washington DC, where Warren felt lonely and spent his time doing math and reading investment books, developing his ambition to become rich. Warren started investing in the stock market while still in high school and explored various business ventures, including buying and selling Coca-Cola to his fellow students.
- Delivered the Washington Post in 1944 and filed his first tax return that year
- Used his earnings to buy pinball machines and later sold the business for over $1,000
- Used the money to buy a 40-acre farm, which he rented out to pay his way through the University of Nebraska
Education and Influences
Buffett was rejected from Harvard Business School, but attended Columbia Business School, where he met Benjamin Graham, a teacher who would greatly influence his life and investing philosophy. Benjamin Graham’s book outlined a step-by-step guide to investing successfully without speculating, focusing on finding decent companies at bargain prices.
- Warren Buffett adopted Graham’s methodology and later worked for Graham’s investment company, mastering security analysis
- After Graham’s retirement, Buffett started his own partnership with $175,000, applying Graham’s method to find undervalued companies
Investment Philosophy and Success
Warren Buffett invested in an insurance company that had been performing poorly, but had a valuable investment portfolio worth $65 per share, while its stock was trading at $45 per share. He bought the majority of the company’s stock and liquidated the portfolio, earning a 45% return with minimal risk. This investment philosophy helped his early investments outperform the stock market by a factor of four, making him a millionaire by age 32.
- Invested in a struggling textile company called Berkshire Hathaway
- Purchased stock in a textile company at $7, expecting the CEO to buy it back at a higher price, and eventually bought the entire company and fired the CEO
- Started investing in stocks through Berkshire Hathaway, leading to a change in his investment philosophy, shifting from searching for mediocre companies at low prices to looking for amazing companies at fair prices
Entry into the Insurance Business
Warren Buffett’s success in making astronomical returns was largely due to his entry into the insurance business, which he saw as a path to ultimate wealth. He started buying insurance companies in 1967, including National Indemnity and Geico, because they operate like banks, collecting premiums from thousands of people and holding a huge cash balance that can be invested.
- Generated significant returns by investing the cash balance from insurance companies
- Gained access to immense capital, which he invested wisely into great companies, and by 1983, Berkshire’s portfolio was worth over a billion dollars
Replicating Success and Educational Resources
Warren Buffett’s success can be replicated by understanding how the market works, and a series of educational videos on the stock market is available on Skillshare to help learn the ins and outs of investing. The speaker invites viewers to check out their class and provide feedback, and expresses hope to create more lessons on investing with the audience’s support.
- Check out the class on Skillshare to learn about investing and the stock market
- Provide feedback and support to create more educational content
- Consider liking and supporting the creator’s Patreon for early access to future content and other perks
Key Vocabulary
| Term | Definition | Example Usage |
|---|---|---|
| Conglomerate | A corporation that consists of several different companies, often in different industries. | Berkshire Hathaway is a conglomerate with interests in insurance, retail, and manufacturing. |
| Stock Market | A platform where publicly traded companies’ shares are bought and sold. | Warren Buffett made his fortune by consistently winning on the stock market. |
| Security Analysis | The process of evaluating a company’s financial statements and other data to determine its value and potential for investment. | Warren Buffett mastered security analysis while working for Benjamin Graham’s investment company. |
| Investment Portfolio | A collection of investments, such as stocks, bonds, and other assets, held by an individual or organization. | Warren Buffett’s investment portfolio was worth over a billion dollars by 1983. |
| Insurance Company | A business that provides financial protection to individuals and organizations against potential losses or risks. | Warren Buffett’s entry into the insurance business, including companies like Geico, was a key factor in his success. |
| Undervalued Companies | Companies whose stock prices are lower than their true value, making them attractive to investors. | Warren Buffett’s investment philosophy involves finding undervalued companies and holding them for the long term. |
| Speculating | The act of investing in a security with the expectation of making a quick profit, often based on market trends or rumors rather than fundamental analysis. | Benjamin Graham’s book advised against speculating and instead emphasized finding decent companies at bargain prices. |
| Great Depression | A global economic downturn that occurred in the 1930s, characterized by high unemployment, low economic output, and widespread poverty. | Warren Buffett was born in 1930, during the Great Depression, and his family’s financial situation was affected by the economic crisis. |
| Investment Philosophy | A set of principles and guidelines that guide an investor’s decisions and actions in the market. | Warren Buffett’s investment philosophy involves finding amazing companies at fair prices and holding them for the long term. |
| Capital | The funds or assets available for investment or use in a business or other venture. | Warren Buffett gained access to immense capital through his insurance companies, which he invested wisely in great companies. |
Watch The Video
Vocabulary Quiz
1. Which word means ‘a person who buys and sells stocks and shares’?
A) Entrepreneur
B) Investor
C) Stockbroker
D) Businessman
2. What does ‘conglomerate’ mean in the context of Warren Buffett’s business?
A) A small company with limited investments
B) A company that operates in a single industry
C) A large company that consists of several smaller companies with separate interests
D) A company with no investments
3. What is ‘speculating’ in the context of investing?
A) Investing in companies with a proven track record
B) Buying stocks at a low price and selling at a high price
C) Guessing which companies will be successful without doing research
D) Investing in a diversified portfolio
4. What does ‘undervalued’ mean in the context of investing?
A) A company that is overpriced and not worth investing in
B) A company that is worth more than its current stock price
C) A company that is performing poorly and will not recover
D) A company that has reached its peak value
5. What is ‘astronomical returns’ in the context of investing?
A) Returns that are lower than expected
B) Returns that are average and not impressive
C) Returns that are extremely high and impressive
D) Returns that are negative and result in a loss
Answer Key:
1. C
2. C
3. C
4. B
5. C
Grammar Focus
Grammar Focus: The Use of the Past Perfect Tense
Grammar Quiz:
Choose the correct answer for each question:
1. By the time Warren Buffett was 32, ____________________ a millionaire.
he has become
he became
he had become
he was becoming
2. Warren Buffett’s father ____________________ a successful businessman by the time Warren was a teenager.
3. Before Warren Buffett started his own partnership, ____________________ for Benjamin Graham’s investment company.
he works
he worked
he had worked
he was working
4. By the time Warren Buffett invested in Berkshire Hathaway, ____________________ in the stock market for many years.
he invests
he had invested
he was investing
he has invested
5. After Warren Buffett ____________________ his first tax return, he used his earnings to buy pinball machines.
files
had filed
was filing
filed
Answer Key:
1. a) he had become
2. a) had been
3. a) he had worked
4. a) he had invested
5. a) had filed