Buffett was born in Omaha, Nebraska, to Howard Buffett, a stockbroker and United States
Representative, and Leila Buffett. He began working at his father's brokerage at the age
of 11, and that same year made his first stock purchase, buying Cities Services shares
for $38 each. He sold them when the price reached $40, only to see them rocket to $200 a
few years later. This taught him the importance of investing in good companies for the
long term. At the age of 14 he spent $1,200 he had saved up from two paper routes to
buy 40 acres of farmland which he then rented to tenant farmers.
Buffett initially attended the Wharton School at the University of Pennsylvania, then
transferred to the University of Nebraska. There he began his interest in investing after
reading Benjamin Graham's The Intelligent Investor. He obtained a Master's degree in
economics in 1951 at Columbia Business School, studying under Benjamin Graham, alongside
other future value investors including Walter Schloss and Irving Kahn. Another influence on
Buffett's investment philosophy was the well known investor and writer Philip Fisher. After
receiving the only A+ Benjamin Graham ever handed out to a student in his security
analysis class, Buffett wanted to work at Graham-Newman but was initially turned down. He
went to work at his father's brokerage as a salesman until Graham offered him a position
in 1954. Buffett returned to Omaha two years later, when Graham retired.
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Buffett established Buffett Associates, Ltd., his first investment partnership, in 1956.
It was financed by $100 from Buffett, the general partner, and $105,000 from seven limited
partners consisting of Buffett's family and friends. Buffett created several additional
partnerships which were later consolidated as Buffett Partnership Limited. He ran the
partnerships out of his bedroom, adhering closely to Graham's investment approach and
compensation structure. These investments made in excess of 30% compounded annually between
1956 to 1969, in a market where 7% to 11% was the norm. Buffett employed a three-pronged approach:
In 1962 Buffett Partnerships began purchasing shares of Berkshire Hathaway, a large manufacturing
company in the declining textile industry that was selling below its working capital. Buffett
would eventually dissolve all his partnerships to focus on running Berkshire Hathaway. At the time,
Charlie Munger, Berkshire's current Vice Chairman, remarked that purchasing the company was a
mistake, due to the failure of the textile industry. Berkshire, however, became one of the largest
holding companies in the world, as Buffett redirected the company's excess cash to acquire
private businesses and stocks of public companies. At the core of his strategy were insurance
companies, due to the large cash reserves ("float") they must keep on hand to pay out future
claims. Essentially, the insurer does not own the float, but may invest it and keep any proceeds.
Under the influence of his friend and business partner Charlie Munger, Buffett's investment
approach moved away from a strict adherence to Graham's principles, and he began to focus on
high-quality businesses with enduring competitive advantages. He described such advantages as a
"moat" that kept rivals at a safe distance, as opposed to commodity businesses, which sell
undifferentiated products and face direct competition. A classic example of a wide-moat company is
Coca-Cola, because consumers are willing to pay more for a Coke than for a generic beverage
with a similar taste. On the other hand, salt is considered a commodity product because consumers
generally have no preferences for one brand of salt over another.
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Investment in wide-moat businesses has become a hallmark of Berkshire Hathaway, particularly when
buying whole companies rather than public stocks. As a result, it now owns a large number of
businesses which are dominant players in their respective industries, specialize in various niche
markets, or possess other unique characteristics to separate them from their competitors.
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