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Warren Buffett is known today as the world's best investor, having generated 20% annual returns in his company, Burkshire Hathaway, since 1965. No one else even comes close. And the more you study him, the more you realize just how irreplicable his success really is.
But how did the Oracle of Omaha do it? What were the decisions he made, strategies he used, and investments he bought that ultimately snowballed $1,000 into more than 160 billion?
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Buffett's money-making odyssey began surprisingly early in life. Born in 1930 in Omaha, Nebraska, young Warren had an insatiable appetite for business. One of his early inspirations was a library book he discovered at age seven, A, Thousand Ways to Make $1,000. Soon, little Warren was selling chewing gum and Coca-Cola door too, earning pennies per pack.
But it was age 11 that Buffett took his first step into the stock market. I know, age 11. He had saved up $114.75. And with that money, he bought three shares of City Service Preferred Stock at $38 per share. Almost immediately though, he got a crash course in stock volatility. The price tanked to about $27, testing the young investor's nerves. But luckily, Warren held on until it rebounded to $40 where he sold, pocketing a small profit, but a very big lesson. Because no sooner than he sold the shares, City Service stock shot up to over $200 a share, teaching Buffett how costly impatience can be. But he wasn't too fast. In his own words, "I'd become a capitalist, and it felt good."
Buffett's entrepreneurial spirit continued through high school, buying a used pinball machine with a friend for $25 and installing it at a local barber shop. As the quarters started rolling in, they expanded to three machines in different locations. And at age 16, Buffett and his buddies sold that business for $1,200. Warren's cut from the pinball profits plus his other side hustles helped him finally clear that $1,000 milestone.
In fact, by age 15, thanks to his multiple paper routes in Washington DC, where his family moved, Buffett had saved about $2,000, which is equivalent to over $35,000 today. At 14, Buffett took $1,200 of his hard-earned cash and did what every young teenager would, naturally, buying 40 acres of farmland in Nebraska, partnering with a local farmer who worked the land. Ever the capitalist, Buffett had amassed $9,800 in savings, roughly 180 grand in today's dollars by the time he finished college.
Buffett's first $1,000 and indeed his first 10,000 came from sheer hustle and an uncanny knack for spotting profitable business opportunities. But by his early 20s, he needed a more scalable method to multiply his money. In 1950, he read Ben Graham's seminal book, The Intelligent Investor, which had such a profound impact on him, he enrolled in Colombia Business School just to learn under Graham directly. Graeme's philosophy was value investing, but a very different style to what we know today. Buffett described Graeme's approach as cigar butt investing, buying shares in beaten down businesses that might be nearly spent, but it's so cheap that even a little improvement or liquidation could give investors one last profitable path.
After earning his masters under Graham, Buffett went to work for his mentors investment firm, Graham Newman Corp, where he got valuable hands-on experience in deep value investing. enough to return to Omaha in 1956 and at 25 years old start his own investment partnership. He rounded up roughly $105,000 from a handful of partners, his sister, his aunt, his father-in-law, and close friends. But he only put in $100 of his own money. Turns out he didn't need to chuck in any of his own cash as even the incredibly fair fee structure, that being zero management fees, zero fees on the first 6% annually and then 25% of the gains over that hurdle, would still generate plenty of cash for Buffett, that would ultimately take his net worth from thousands to millions.
With his partner's capital, Buffett went treasure hunting in the stock market's bargain bin. His strategy in those years was pure Grahamstyle cigar butt investing and oh boy did it work. Over the years the Buffett partnership achieved a jaw-dropping compounded annual return of 25.9% turning heads in the investment world. What kind of stocks was he buying though? Often tiny unloved companies whose shares were ridiculously cheap relative to their assets or earnings.
For example, one of Buffett's early legendary plays was Sandborn Map Company. Sanborn Map was a declining business. They made maps for insurance companies, but crucially, it held a valuable portfolio of cash and investments on its balance sheet. Buffett realized Sanborn's stock was trading at about $45 per share, while the value of its cash and investment portfolio alone was worth $65 per share. So, in essence, Wall Street was pricing Sanborn like a dying map maker and completely ignoring that it had a massive pile of securities in its vault. Seeing a classic dollar for50 scenario, Buffett's partnership bought up as many Sanborn shares as possible, eventually owning 43% of the company. Then Buffett went full activist. He got on Sanborn's board and pushed management to unlock that value. After some wrangling, he convinced them to repurchase stock from shareholders at $65 per share, extracting the value of those investments. The result, a 44% gain for Buffett's partnership and a successful last puff from that cigar butt.
Buffett's biggest win of the 1960s, however, hinted at a future shift in his style. In 1964, American Express was rocked by the infamous salad oil scandal. A subsidiary had lost millions on fraudulent collateral, tanks of water passed off as soybean oil, and Amex's stock plummeted as investors feared the company would be on the hook for the damages. But Buffett looked past the panic. He saw that Americans were still using their green charge cards in restaurants and shops. You know, the core franchise of Amex, its brand and its trust was still intact. So, while others fled, Buffett pounced, eventually putting 40% of his partnership's capital into Amex stock. It was a bold, concentrated bet, not unlike his cigar butts in spirit, but very much a quality business at heart. Sure enough, Amex survived and thrived, and within a few years, the stock multiplied, netting Buffett's partnership a hefty profit. This was a hint of Buffett's evolution. He was willing to pay more for a great business facing temporary troubles.
By 1962, Buffett's partnerships had grown so much that Warren's personal share of the fund made him a millionaire for the first time. Specifically, the partnership's assets were over $7 million and Buffett's cut exceeded a million. At 32 years old, he had turned that initial $100 and investor capital into a 7 figure personal fortune. And it was at this time he began looking for bigger plays, the kinds of investments that could move the needle for a now multi-million dollar fund.
One such play came in 1962. Buffett noticed a New England textile company, Berkshire Hathaway, selling at a deep discount to its assets. True to form, he started buying shares as a classic value investment. But this investment would end up changing Buffett's life in ways he didn't expect, and not entirely for the better, at least initially. After then CEO Sabb Stanton tried to rip Buffett off on a share buyback promise, Buffett turned on the offensive, buying enough stock to control the company, then firing Mr. Stanton in anger. This is one of the few times in his career that Buffett's emotions actually got the better of him. And he paid for it, too, because he was now the chairman and CEO of a failing textile business.
At this point of his life, the late60s, Buffett had a problem that very few of us will ever experience. Too much money to manage, relatively speaking, and too few cigar butts to buy. Bargains had become harder to find after a long bull market. And in 1969, feeling the market was overvalued and good deals were scarce. Buffett took the drastic step of closing his partnership and paying out his partners. He often quips that in 1970 he gave up his lucrative career to become a full-time chairman of Berkshire Hathaway, a position that he still holds.
But truthfully, this was a turning point. Buffett was about to shift from being a micro cap stock picker to the architect of a vast conglomerate. By 1970, Buffett had already made millions. But the next leg of his journey required a new approach. And this is where Charlie Mer enters our story in a big way. Charlie Munger, a sharp-minded investor and Buffett's longtime friend, had been chatting with Warren since the late 1950s. But by the 1970s, he became Buffett's key partner in strategy. Charlie had one overriding message for Warren. No more cigar butts. It's time to buy great businesses. Manga believed that some businesses were worth paying up for for a long-term advantage. Essentially saying, it's better to buy a wonderful company at a fair price than a fair company at a wonderful price. It was this change in strategy that would serve as the single biggest turning point in Warren Buffett's investment career.
After taking over the failing textile manufacturer in Berkshire Hathway, Buffett quickly realized he needed to diversify away from textiles in order to save that company. Berkshire Hathway then became Warren's new investment vehicle. And after his purchase of national indemnity back in 1967, it was in 1972 that Buffett had the opportunity to buy Seas Candies, an investment opportunity that would really put Buffett's new strategy to the test. Seize, a famous West Coast chocolate maker, was a great business, a beloved brand with devoted customers and the ability to raise prices a little bit every year. What we now call pricing power. But according to the old Buffett playbook, C's looked expensive. The seller wanted 30 million for a company with only 8 million in net tangible assets and about 2 million in annual profit. That was way above the kind of asset bargain Buffett was used to. He was hesitant. 30 million for a regional candy company. It sounded like too much. Ma, however, was adamant. He and Buffett's colleague at Blue Chip Stamps argued that CE's brand moat was so strong it warranted the premium. This was a test. Could Warren break out of the Ben Graham mindset and trust the power of a quality franchise? Buffett did negotiate hard. He refused to go above 25 million even at the risk of losing the deal. The seller luckily caved and accepted 25 million. A decision that would make Birkshire Hathaway billions in the long run.
In Buffett's words, "I almost blew the seas purchase. Fortunately, the seller caved. Otherwise, I would have bogged and that 2 billion would have gone to somebody else." Indeed, over the decades since, Se's Candies has delivered more than 2 billion in pre-tax profits to Berkshire, an investment return of over 8,000% from the initial 25 million. Sees taught Buffett and Munger firsthand that a great business can be worth far more than its raw assets. It's solidified their shift to focusing on businesses with durable competitive advantages, aka Moes. As Buffett later described, sees was their prototype of the dream business, one with an enduring brand, loyal customers, low capital needs, and the ability to churn out cash.
Buffett didn't abandon his value discipline. He still cared about price, but after seas, he was willing to pay up for quality, and this opened the door to some of Bergkshire's most famous investments in the 1970s and 1980s. For example, in 1973, during a market downturn, Buffett scooped up a large stake in the Washington Post for about 10 million. The Washington Post was a media powerhouse that was temporarily undervalued in a bare market. Buffett trusted the strength of its franchise, and that $10 million stake would eventually grow to be worth over $1 billion by the 1990s.
Another example, Geico. In 1976, Geico hit hard times and was verging on insolveny. Buffett knew Geico inside and out, and he was convinced of its core business, direct consumer auto insurance, and its moat of low costs. So he poured money in to help recapitalize Geico, eventually making it a big holding. Geico, as we know, survived and went on to thrive, becoming a cornerstone of Burkshire Hathaway's current success. This was classic Buffett, be greedy when others are fearful, but now with an emphasis on companies that could dominate once the panic passed.
All these moves were setting Buffett up for an extraordinary run in the 1980s. Berkshire Hathaway by now was a compounding machine taking profits from insurance and businesses like C's and snowballing them into new investments. One of the biggest snowballs started rolling in 1988. Buffett made what was then his largest stock investment ever, the Coca-Cola Company. In the late 80s, Coca-Cola had stumbled after the 1987 market crash. Even though its business, selling sugary drinks the world loves, was still as solid as ever. Buffett had a longtime love affair with Coca-Cola. Cherry Coke is his drink of choice. and he recognized Coke as the type of unbeatable brand that comes along maybe once in a century. He began buying Coca-Cola stock in 1988, ultimately spending over 1 billion to acquire 6.2% of the company. That was a bold move. A billion dollars was a huge portion of Burkshire's portfolio at the time, making KO its single largest holding. But Buffett saw KO's global mode, its brand, distribution, and addictive product. He was betting that Coke would keep growing worldwide and keep raising its dividend. And he was right.
Within just a few years, the value of Bergkshire's Coke stake tripled. By the end of 1989, Burkshire owned 23.35 million Coke shares, worth about $1.8 billion. And fast forward to today, Burkshire still holds every share of Coca-Cola. That $1 billion investment is now worth over $25 billion. And get this, Buffett's annual dividends from KO are roughly $700 million, which means every year KO pays him more than half what he initially paid to buy the stock. It's one of the greatest examples of long-term compounding in Buffett's career. But more importantly, it underscored his evolved approach. Finding an outstanding business with a wide mode, buying as much as he can at a reasonable price, and then just sitting back and letting compounding do the work.
In 1986, at age 56, Warren Buffett officially became a billionaire on paper as Bergkshire's stock price surged. The Oracle of Omaha was now one of the richest people in America, though not yet the global icon he would become. His transformation from scrappy stock picker to the head of a multi-billion dollar conglomerate was complete. By changing the game, largely influenced by Charlie Munger, shifting away from just buying cheap companies to buying great companies, he snowballed his fortune and set the stage for the final chapter of his journey where he would set investing records unlikely to be matched.
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Reaching a billion dollars might seem like the finish line, but for Warren Buffett, it was really just a stepping stone. From the 1990s through to the 2020s, though, Buffett faced a new challenge, deploying even larger sums of money while staying true to his value principles. Berkshire Hathaway had become so large that Buffett joked about needing to find elephants to buy. Small investments simply no longer move the needle. So Buffett started hunting larger game. sometimes buying entire large companies outright. This era was all about scaling up and fortifying that reputation as the world's greatest investor.
One hallmark of Buffett's post 1990 approach was his patience and discipline in the face of market mansions in the late 1990s as tech stocks soared in the dotcom bubble. Buffett largely sat it out. He didn't invest in flashy internet companies he didn't understand, which led some to call him out of touch. But when the bubble burst, Berkshire emerged unscathed, and Buffett's credibility only grew. He stuck to companies with clear earnings and strong moes. In fact, around this time, Buffett was investing in things like Coca-Cola, Gillette, American Express, Wells Fargo, the list goes on.
By the mid-200s, Buffett's cash pile was enormous, tens of billions, waiting for opportunities. And when the 2008 financial crisis hit, Buffett famously became a lender of last resort to blue chip companies. He negotiated sweetheart deals to inject cash into Goldman Sachs, General Electric, and others, getting preferred shares or highinterest loans, plus stock options. These deals were not only lucrative, they also cemented Buffett's image as a financial white knight during crisis.
However, the truly massive boost to Buffett's net worth in recent years came from an unlikely source, technology, a sector he had long shunned. Enter Apple. Yes, the guy who avoided tech stocks for decades ended up making one of the biggest tech investments ever and it paid off spectacularly. How did it happen? Around 2016, Buffett or more specifically his investing deputies Todd Combmes and Ted Wesler with Buffett's blessing began buying shares of Apple. Initially, many were surprised. Apple for Buffett for Berkshire, but he came to view Apple not just as a tech company, but as a consumer products company with an extremely sticky customer base. In other words, huge brand mode. iPhone users were loyal. The ecosystem, App Store, iPad, Mac, iCloud, and other services meant recurring revenue, and Apple had mountains of cash. It fit Buffett's criteria as a dominant business with pricing power.
So, Burkshire kept buying. By 2018, Burkshire Hathaway owned about 5% of Apple, having invested around $30 billion. That stake quickly became worth far more. Apple's stock surged in the late 2010s and into the 2020s. And at the end of Q4 2023, the Apple position had swelled to occupy half of Burkshire's then $350 billion stock portfolio. At one point, Burkshire's Apple holdings reached a value of $160 billion. The investment gains from Apple alone added tens of billions to Burkshire's balance sheet and consequently to Buffett's personal net worth. It was the ultimate validation that his principles focusing on brand moat and management can apply even in the high-tech world if you choose carefully.
In the last few years, thanks to the surging value of Bergkshire's investments, Apple included, and the compounding of his older bets, Warren Buffett's personal net worth crossed the historic $100 billion mark. In early 2021, Buffett joined the exclusive hundred billion club as Burkshire stock hit new highs. Today, Buffett's fortune is estimated at $165 billion. And the craziest part of his journey is that he never founded a giant tech company. He never took a huge salary. He never inherited a massive fortune. His billions are simply the product of investing acumen and patience. Pure and simple. The snowball rolling for almost 8 decades.
So, what can we learn? Buffett grew his wealth by sticking to one simple strategy. buying great businesses at sensible prices and holding them forever. But it wasn't just about picking the right companies. Buffett has shown incredible discipline, avoiding speculative frenzies and letting cash build when the right opportunities weren't there. His frugality and focus on reinvesting profits helped Berkshire grow exponentially, turning every dollar retained decades ago into something much, much more. Now worth over 150 billion, Buffett's journey proves that consistent principled investing combined with patience and discipline can and does create extraordinary wealth.
And one last thing before I sign off, if you enjoyed this video and you'd be interested in a full 7-hour step-by-step course that teaches you exactly Warren Buffett's approach talking through things like valuation methods he uses and mo stress tests you can run, definitely check out introduction to stock analysis down in the description of this video. that will bring you confidently up to speed on the Buffett value investing strategy. And it's also the best way to support what we do here on YouTube as well. We also have a free short course as well if that's something you'd like to watch through first to gauge whether or not you want to make that commitment to the longer 7-hour version. But apart from that, thanks very much for watching, guys. Please leave a like on the video if you did enjoy it. And I'll see you guys in the next one.
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