How Warren Buffett Made His Fortune
Transcript:
(00:00) the first role in investment is don't lose and the second rule of investment is don't forget the first rule and that's all the rules there are i mean that if you buy things for far below what they're worth and you buy a group of them you basically don't lose money warren buffett is reportedly worth over a hundred billion dollars from a shy boy selling coca-cola door-to-door to molding berkshire hathaway into a billion dollar empire the oracle of omaha has remained as one of the richest men in the world but what
(00:31) makes him so unique among the wealthy is that he didn't inherit his fortune nor did he acquire it by innovating technology but rather he grew his wealth by winning consistently in the stock market so how did he do it what did he do differently where so many others have failed in this video we're going to learn how warren buffett beat the stock market and became a self-made investment billionaire starting from the very beginning warren buffett was born in omaha nebraska in august of 1930 just one year after the great depression hit the
(01:14) country in his early childhood he noticed how people struggled to make a living due to the severe economic crisis and quickly learned about the importance of money luckily his father was a smart businessman and although he had recently lost his job from a local bank he used what little savings he had to open his own company selling stocks and bonds and from this was able to provide enough for his family growing up warren was a shy and quiet boy who spent most of his childhood alone often reading books from his
(01:48) father's library and it was from this library where he developed an early obsession with investing and the game of business eager to put his new knowledge to use he approached his grandfather who owned a local grocery store and asked him if he could provide warren with drinks so that he could go and sell them around the neighborhood his grandfather agreed and so at the young age of six warren started his first business selling coca-cola door-to-door and making five cents for every six-pack he soon added a
(02:21) few more items to his small business and just a year later warren was selling chewing gum magazines and coca-cola while making a decent profit for himself by the time he was just 11 the boy used all of his savings to buy his first stock purchasing three shares for himself in an oil and gas company called cities service with each stock valued at 38.
(02:47) 25 but shortly after buying them their value dropped to around 27 per share despite the anxiety he felt he held on tight and waited until their value rose to 40 dollars before selling them although he had successfully turned a profit he noticed that those same shares later shot up to over two hundred dollars the news of his missed opportunities stung but it taught him an important lesson 75 years have gone by and i've never known what the market is going to do the next day that's not my game my game is to decide whether i'm in the
(03:23) right economy and by owning good companies for long periods of time these experiences and mistakes helped young warren become much wiser than the average boy his age a few years later his father was elected to serve his first term as a u.s congressman and as a result the whole buffett family moved from omaha to washington d.
(03:47) c there warren buffett would get his first real job at the age of 14 delivering newspapers for the washington post however he wasn't satisfied with the money he earned so he took another job with one of their competitors the times herald and began delivering the newspapers simultaneously earning 179 dollars per month which would be just over three thousand dollars in today's currency buffett later used his earnings and savings to buy a pinball machine with a friend of his and installed it at a barber shop soon after they bought two more pinball
(04:21) machines and at the end of each week they would split the profits between themselves and the owners who ran the shop they later sold their machines for twelve hundred dollars and with the money earned warren buffett bought his first property a 40-acre plot of land in nebraska the craziest thing about all of this was that warren was just 15 when he bought the farm even at his young age it was clear that this boy from omaha was on to something big [Music] after graduating from high school in 1947 buffett was eager to begin his life
(05:02) as a full-time stockbroker however his father wanted him to go to college and so warren enrolled at the university of pennsylvania and was able to pay for his studies with the earnings from his nebraska farmland which he rented out after obtaining his bachelor's degree in business administration from the university of nebraska he was later rejected by harvard when he applied for his master's degree this rejection however turned out to be a blessing in disguise leading him to enroll at the columbia business school
(05:33) where he met a teacher who would change his life benjamin graham benjamin graham was an economist and investor whose work and writings buffett was already familiar with in fact the same year that they met graham had just published one of the most famous books of his career the intelligent investor in simple terms the book was a step-by-step guide on how to invest successfully and consistently without speculating by buying stocks that were undervalued warren quickly became one of benjamin graham's best students and according to
(06:08) buffett graham would go on to become one of the most influential men in his life after his father after receiving his master's degree in economics buffett was eager to kick-start his career and yearned to work near the headquarters of the biggest investment firms in the country and home of the historic new york stock exchange wall street however one major problem stood in his way despite his wealth of knowledge in business management and investing warren buffett was still an introverted 21 year old who couldn't present himself as the
(06:41) charismatic business tycoon he's become today he was terrified of talking to new people and at times would even throw up out of pure nervousness nevertheless he summoned the courage and signed up for a public speaking course and that move turned out to be one of the best investments he ever made investing in yourself is the best thing you can do the more you learn the more you earn not too long after benjamin graham contacted buffett and offered him a job at his investing firm in new york to which the young man gladly agreed
(07:17) there he mastered the art of security analysis learning how to see the real value of a company based on their balance sheets but while graham and buffett shared a mutual respect for each other the differences in their philosophies soon became obvious buffett was more interested in understanding how companies worked and believed that the company's management should be part of the investment decision process but graham disagreed graham was more concerned with the company's numbers and balance sheets and it didn't help
(07:47) matters that he was also a difficult man to work with expecting strict compliance to the conventional rules of investing which buffett's young mind was constantly questioning but ultimately their disagreements wouldn't matter because by 1956 warren buffett was on his own after graham decided to retire and shut down the partnership nevertheless the young man had built up his savings from nine thousand eight hundred dollars to a hundred and seventy five thousand dollars and more importantly he gained first-hand
(08:19) experience running a new york investment firm he was now ready to establish his own partnership making those who invested in him into millionaires while also transforming himself into one of the wealthiest people in the world [Music] in 1956 at the age of 25 buffett returned to omaha and started his own partnership called buffett associates limited despite having more than enough money to rent an office space and hire some staff warren instead chose to use one of the bedrooms of his house and manage the business himself
(09:01) he got some of his friends and family to invest a total of a hundred and five thousand dollars and immediately after he kick-started his partnership influenced by his master graham warren buffett began investing in undervalued stocks but took its philosophy to the extreme by dealing with terrible performing companies that were ready to go bankrupt buying them so cheap that even their liquidation value was worth more this strategy is what he calls the cigar bud anyone who picks up discarded cigars on the street can enjoy a few puffs which
(09:35) would cost him nothing cigar butt investing runs along that same line you find a terribly undervalued stock that sells for so cheap you know for a fact it is worth more and after selling it at its appropriate price the initial bargain purchase makes the puff all free this method proved to be a master stroke for buffett and over the next six years of his business his partnership's net worth increased from a 105 000 venture to a 7.
(10:07) 2 million dollar foundation as his portfolio began to grow so did the number of people who wanted to join however most of them never ended up partnering with him because they couldn't trust an 18 year old looking kid to manage all their money by himself and they were right warren buffett still had the looks of a teenager despite being in his late twenties and for more than five years he conducted his business all alone writing all the checks filing the tax returns and taking delivery on stocks causing many potential clients to doubt him
(10:41) but for those who were bold enough to invest in him they would see their portfolios rise averaging a 29.5 compound annual return from 1956 to 1969 outperforming the stock market by a factor of four ten years into his partnership warren buffett was managing over 44 million dollars in assets and just three years later these numbers shot up to an astonishing 104 million dollars however while the market was booming and his partners were very happy with the return on their investments there was one thing that buffett worried about the
(11:19) rising stock prices there's a motto that warren buffett lives by that has always served him well be fearful when others are greedy and greedy when others are fearful you see it became difficult for him to keep making his cigar butt investments in an overvalued stock market and was well aware that the bull market they were experiencing would soon be coming to an end he found it too risky to continue investing with other people's money and so by the end of 1969 he made the big decision to dissolve the business all
(11:52) together and let his partners go still he had built his own fortune all the way to 25 million dollars by the age of 39 and he was ready to make his next move turning berkshire hathaway into a billion dollar empire now to amass such a fortune smart investors like warren buffett know how to utilize uncertain times to their advantage and it's no secret that we are definitely in uncertain times with inflation hitting a 40-year high and nearly 70 percent of economists surveyed by the financial times predicting a
(12:28) recession next year but institutions like buffett's berkshire hathaway may already be prepared because earlier this year bank of america's chief strategist recommended investors look at real assets like art as inflation heats up even bloomberg has reported that art can serve as an inflation hedge in almost any environment because the last time inflation was this high in the late 70s through the early 80s art had an average yearly appreciation of 33 percent according to masterworks all art index which is higher than gold and real
(13:04) estate the traditional inflation hedges during that same period which is why masterworks has seen increased demand this year masterworks allows anyone to invest in multi-million dollar contemporary artworks to hedge against inflation and potentially recoup some returns because since their inception masterworks has sold five paintings with an average net return of 26.
(13:30) 8 percent to their investors legally i have to add that past performance is not indicative of future results but that's during a bear market rising inflation and continued uncertainty with no end to inflation in sight the demand for masterworks remains high and there is a wait list but you can skip it just by clicking on the link in the description [Music] berkshire hathaway was a struggling textile company destined to fail its stocks were trading at around seven dollars in 1965 but its assets were worth at least 11 naturally warren purchased a lot of
(14:15) shares in the company as a cigar butt seven dollars and fifty cents each and three years later he arranged a deal with the owner to sell his shares at eleven dollars and fifty cents but when the final offer came the owner tried to cheat warren by buying his shares at 11.37 cents this infuriated buffett so in return he bought out the whole company and fired him although he got his revenge buffett now found himself stuck owning a company on the decline but instead of letting his investment go to waste he decided to
(14:51) phase berkshire hathaway out of the textile industry and use it instead as a holding firm to make his investments however his recent bad experience buying undervalued stocks had given buffett pause to rethink his investment strategy luckily one of his good business partners charlie munger influenced him to change his philosophy from buying fair companies at great prices to great companies at fair prices and that decision turned out to be another turning point in warren buffett's career he began searching for
(15:24) companies that he believed had an economic moat the word moat in this sense refers to a company's ability to maintain a competitive advantage over the rest of the industry and still maintain its market share one example of this is coca-cola whenever you think about soft drinks coca-cola will most likely come to mind it's a brand that has been around for more than a century and connected with billions of people around the world it's an advantage coca-cola has that makes it harder for other brands to compete
(15:55) against using this new philosophy warren buffett began buying large shares in grade a companies such as american express and the washington post through berkshire hathaway whose stock had increased from 11 per share in 1965 to over 290 dollars by the late 1970s by then buffett's personal net worth had increased to around 240 million dollars and yet this new game-changing investment strategy was only a part of the reason for his growing success what really allowed him to make his true wealth was getting into the insurance
(16:32) business you see insurance companies operate much more like banks as people regularly pay their insurance premiums company owners generally tend to have a great amount of cash on hand buffett realized he could use that cash to carefully buy and invest in a series of businesses essentially generating even more profit from those investments thus since 1967 warren started buying up insurance businesses starting with the national indemnity then followed by others such as central states indemnity and geico after tapping into billions of dollars
(17:07) from those insurance companies he began purchasing shares in businesses that he believed had a moat most notably acquiring seven percent of coca-cola's total stock from then on his berkshires portfolio skyrocketed so much so that by 1990 its stock was trading at around 7 000 and by the age of 60 warren buffett himself had a net worth over a billion dollars over the years berkshire hathaway has gone on to buy and hold shares in many grade a companies most recently large banks such as goldman sachs and bank of
(17:45) america making berkshire hathaway one of the most powerful and profitable companies in the world and buffett himself the richest man on earth in 2008 but even with all of his riches and achievements buffett still remains an astonishingly frugal man who can be seen driving his 2014 cadillac xts and often eating mcdonald's for breakfast it is clear that the oracle of omaha is a man who has lived by his principles and integrity but above everything he will be remembered as the man who understood the game of business and
(18:21) investment better than anyone else thank you all for watching make sure to subscribe and like the video until then i'll see you in the next one
Summarize the following in 5 bullet points with timestamp if it's transcript.
1. **Investment Principles and Early Life** (00:00 - 01:48)
- Warren Buffett emphasizes two core investment rules: avoid losing money and remember the first rule. He started from a young age, selling Coca-Cola door-to-door, learning early lessons about investing and money management from his father’s stock and bond business.
2. **Early Business Ventures and Education** (01:48 - 05:33)
- By age 15, Buffett had already bought a 40-acre farm and by 18, he had started making significant profits from various ventures. Despite an initial rejection from Harvard, he pursued a business degree and was significantly influenced by economist Benjamin Graham at Columbia Business School.
3. **Career Beginnings and Investment Philosophy** (05:33 - 09:35)
- Buffett worked under Graham, learning security analysis but eventually parted ways due to differing philosophies. He then established Buffett Associates Limited, where he successfully implemented a “cigar butt” investment strategy, significantly growing his partnership’s value.
4. **Strategic Shifts and Berkshire Hathaway** (09:35 - 15:24)
- Buffett transitioned from undervalued stocks to buying great companies at fair prices, influenced by his partner Charlie Munger. This shift, along with acquiring insurance companies, allowed him to leverage large amounts of cash for further investments, notably in Coca-Cola and other major firms.
5. **Success and Frugality** (15:24 - 18:21)
- Buffett’s strategy led to the massive growth of Berkshire Hathaway, making him one of the richest people in the world. Despite his wealth, he remains remarkably frugal, exemplified by his modest lifestyle and continued adherence to his investment principles.
