New Internationalist

Warren Buffet

January 2007

Warren Buffet is a worldbeater in the best sense of the word, if there is one.

Warren Buffet is a worldbeater in the best sense of the word, if there is one. He is in real danger of giving this, the Golden Age of Philanthropy, his own good name. So far as is known, he has no vices, Napoleonic delusions, diabolic inclinations, secrets or enemies. Since 2000 he has raised money for the Glide Foundation through online auctions, where bidders have donated up to $620,100 for the chance to have one meal with the Oracle of Omaha.

You might catch up with him more easily, however, in his favourite local steak house near the modest home in Nebraska where he has lived most of his life. When he bought a corporate jet in 1989 he named it The Indefensible, since he had often berated the things himself. A patron of worthy causes – including a woman’s right to choose – he likes to quote Mae West and does not believe in inherited wealth. ‘I want to give my kids enough so that they could feel that they could do anything,’ he says, ‘but not so much that they could do nothing.’

‘I always knew I was going to be wealthy,’ claims the prodigious Mozart of the markets. Born in Omaha, Nebraska, in 1930, by the age of 11 he was working in his father’s brokerage and had 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 for the long term. At the age of 14 he spent $1,200 he had saved up from two paper rounds to buy 16 hectares 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 his interest in investing was stimulated by Benjamin Graham’s The Intelligent Investor. He established Buffett Associates, his first investment partnership, in 1956. It was financed by $100 from Buffett and $105,000 from seven limited partners consisting of his family and friends.

In 1962 he began purchasing shares in Berkshire Hathaway, a large manufacturing company in the declining textile industry that was selling up for a price below its working capital. Buffett would eventually dissolve all his partnerships to focus on running Berkshire Hathaway. It became one of the largest holding companies in the world.

At the core of his strategy were insurance companies, due to their large cash reserves. He then began to focus on high-quality businesses with enduring competitive advantages. He described these advantages as a ‘moat’ that kept rivals at a safe distance. 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. Investment in such businesses became a hallmark of Berkshire Hathaway. It now owns a large number of dominant players in their respective industries.

Buffet’s salary is a mere $100,000, compared with the average for a top corporate CEO in the US, which is about $10 million. His enormous wealth lies in his Berkshire Hathaway shares. In June 2006 he announced plans to give some 10 million Berkshire Hathaway Class B shares to the Bill & Melinda Gates Foundation. The shares were worth about $30 billion, which made it the largest charitable donation in history. An additional $6.7 billion went to the Susan Thompson Buffett Foundation (named after his wife) and to other foundations headed by his three children. The bulk of the estate of his wife, valued at $2.6 billion, went to that foundation when she died in 2004.

So that’s it. If you’re happy with capitalism then Warren Buffet is probably your man – provided you have $620,100 to donate to good causes. And who is not happy with capitalism now? After all, during the last Golden Age of Philanthropy in the US, almost exactly 100 years ago, the Rockefellers, Carnegies and Guggenheims were known as the Robber Barons. Now we have the Oracle of Omaha.

Warren Buffet Fact File
Monetary unit
Main exports
Warren Buffet Fact File
Warren Buffet
CEO and largest shareholder in the investment company Berkshire Hathaway
The Oracle of Omaha; the world’s second-richest person turned biggest philanthropist
Sense of humour
‘I don’t have a problem with guilt about money... It’s like I have these little pieces of paper that I can turn into consumption. If I wanted to, I could hire 10,000 people to do nothing but paint my picture every day for the rest of my life. And the GNP would go up. But the utility of the product would be zilch, and I would be keeping those 10,000 people from doing AIDS research, or teaching, or nursing. I don’t do that though. I don’t use very many of those claim checks. There’s nothing material I want very much.’
Low cunning
‘I personally think that society is responsible for a very significant percentage of what I’ve earned. If you stick me down in the middle of Bangladesh or Peru or someplace, you find out how much [my] talent is going to produce in the wrong kind of soil.’
Sources: Janet C Low, _Warren Buffett Speaks: wit and wisdom from the world’s greatest investor_, 1997;

This column was published in the January 2007 issue of New Internationalist. To read more, buy this issue or subscribe.

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This article was originally published in issue 397

New Internationalist Magazine issue 397
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