Normally, the big investor is portrayed as the hungry salivating wolf, with opportunistic appetites—taking enormous risks, looking for huge payouts, often willing to “bet the entire farm” on the “next biggest thing.” Warren Buffett never knew such a path. He chose to invest his winnings, rather than invest borrowed money. Buffett owns a diverse range of businesses which include: insurance, reinsurance, candy production, retail, home furnishings, encyclopedias, vacuum cleaners, jewelry sales, newspaper publishing, manufacturing, distribution of uniforms, importing and distribution of footwear, regional electric and gas utilities, and much more. What do these businesses all have in common? They were all carefully inspected by a leader who knows how to measure intrinsic value, and they were deemed to have durable competitive advantage, earning their place in this Assessing Leader’s portfolio. He started with very little, but with what little he had, he developed a habit of continually investing; and with each return on his investment, he would reinvest it. This sounds so simple, but his disciplined approach ultimately led him to become the wealthiest investor of all time. The remarkable ability Buffett possesses is the extraordinary skill to be able to assess value—he can measure the worth of whatever he inspects. Buffett is known as one of the greatest investors and businessmen of all time, and in his latter stage of life, he has also become a notable philanthropist by pledging to reinvest 85% of his fortune to the Bill & Melinda Gates Foundation.
Warren Buffett can assess the value on anything like no one else. This ability to calculate value with utter precision has made him the richest investor of all time. At the age of six, he started with selling soda pop, chewing gum, and magazines. He meticulously kept track of his earnings in his savings account, along with the money that his father gave him. As he got older, he became more ambitious and entrepreneurial. He gathered some boys to form a partnership to resell golf balls retrieved from the water. Warren had a natural knack for knowing the value of money. Starting from when he was fifteen, he filed his own taxes, claiming deductions for his bicycle and watch as business expenses for his newspaper route. In high school, he rented pinball machines to earn money. He learned how to start and grow a business, and he understood how to reinvest his earnings, and how to compound his money.
When Buffett first started his investment career, he invested in newspapers and textiles. As a kid, he delivered newspapers, and so he was well acquainted with how this business ran. Both of these industries were in major regression or consolidation. American textile manufacturing was moving to lower cost labor countries, and newspapers were facing competition from television and radio, and so smaller newspapers were fusing into larger monopolies in most major towns. These businesses were undervalued, and offered at bargain prices. While Wall Street showed no interest, Buffett found these opportunities to be attractive because assets were significantly discounted, and cash flow could be used to invest in other businesses. His formula was simple: Buy good businesses that you understand; Buy them at bargain prices; Leverage earnings to reinvest in other good businesses. His simple formula led him to buy shares of Berkshire Hathaway at $8.00 per share (stock price in 1962) and grow its value to $215,000.00 per share (stock price in 2015).
Warren has relied on experts from the very start. At age eleven, he devoured a book at the library by F.C. Minaker entitled, One Thousand Ways to Make $1000, through which, he adopted an appreciation for compound interest. Later he learned a related concept called, “coattail-riding” from Gordon Wattles. And he has had mentors such as Phil Graham, who wrote the Intelligent Investor. He went to Columbia where Graham taught, and adopted the approach to buying unloved, unappreciated, boring, and therefore, undervalued stocks that have a “margin of safety” built in to the stock price. He later met Charlie Munger, who was instrumental in refining Buffett’s approach. Through Munger, “durable competitive advantage” became a trademark way of assessing the value of a company. Buffett’s high regard for expertise helped him immensely to become the world’s greatest investor.
Buffet has always been a great judge of character, and has carefully assessed anyone he has brought on board. He is known to be unusually patient in grooming a person that has potential, but will do everything he can to remove anyone that is a barrier to success. He assigns responsibilities to those who have proven track records. When Buffett invested in Associated Retail Stores, he identified Ben Rosner, one of the original founders to run the company. Rosner was known to always have the business on his mind, even reading store records in his bathroom, and leaving social engagements early to address business problems that arose. Buffett saw in Rosner the same dedication that he had. And when he purchased the company, he made sure that Rosner would still continue to work for him, and gave him the responsibility to run the enterprise as he saw fit.
Warren Buffett loves facts. In making his decisions, he reviews and remembers the facts. While most CEOs focus on the forest rather than the trees, Buffett’s way of understanding the forest is to inspect all the trees. He read company reports as a daily discipline, and enjoyed doing it. During the holiday season, he tracked the daily numbers of every single See’s Candies store, Shaw Carpets, and Borsheim. He reviewed the internet sales growth of GEICO. He made sure to read and memorize any facts that would serve him well in making choices about his investments. You cannot make a sales pitch to Buffett. He is not swayed by heartfelt appeals or innovative ideas. For Warren Buffett, the facts, and the facts alone speak for themselves and can be trusted.