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Warren Buffett has built Berkshire Hathaway into one of the world's greatest wealth-building empires over the past 50 years. Yet Buffett has called his decision to purchase the namesake company as his biggest investing mistake. At the time, Berkshire Hathaway was a struggling textile manufacturer in an industry on the decline. Today, however, the textile industry in the U.S. is making a comeback, which makes one wonder whether Buffett will give it a second chance.
Matt DiLallo has the following options: long January 2017 $135 calls on Berkshire Hathaway and short January 2017 $145 calls on Berkshire Hathaway. The Motley Fool owns and recommends Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Why Buffett's original investment in the textile industry was a mistake
Ever the astute investor, Buffett saw an interesting trading pattern in Berkshire Hathaway's stock back in the early 1960s. He noticed that when Berkshire sold off an underperforming textile mill, the company would use the proceeds to buy back its own stock at a higher price. So when he saw that Berkshire Hathaway had sold a mill, he would buy its stock and then sell it back to the company through the buyback offer.

The big mistake comes when the company tried to shortchange Buffett on a buyback. In a fit of ego, he decided to buy control of the company so he could fire the CEO. However, in doing so he was buying control of a struggling company in an industry that was in a secular decline. No matter how much money Buffett pumped into the company, and he pumped a lot into it, he couldn't turn it around because its industry wasn't coming back. Textile jobs were being lost overseas to places such as China, as U.S. producers simply couldn't be competitive in a global market. So Buffett wasted a lot of time and money on a business that he ended up shuttering two decades later.

The textile industry is making a comeback
Now, the textile industry that proved to be one of Buffett's biggest investing blunders is making a comeback in the United States. After much of the textile industry went out of business in the 1970s and 1980s as factories closed and jobs moved overseas, we're seeing the opposite these days. Currently, the textile industry employs about 233,000 people, or 2% of the U.S. manufacturing workforce, well off the industry's peak employment of 1.3 million in 1948. Still, the textile industry these days isn't trivial: It generates $54 billion in shipments each year, with a growing portion of its goods being exported around the globe. In fact, the U.S. textile industry's exports surged 45% between 2009 and 2014, hitting $18.3 billion last year -- good enough to rank fourth globally.

This resurgence is coming to a textile industry that's different from the one of yesteryear. Long gone are labor-intensive mills that just couldn't compete with cheap labor in developing countries. Instead, today's mills are technologically advanced. The industry is plowing a lot of money, including $1.6 billion in total capital spending in 2013, to create 21st-century mills. These fully automated mills have increased textile productivity and make U.S. textile production much more competitive globally. In fact, in a unique turn of events, a Chinese cotton-spinning company is investing $218 million to build a 230,000-square-foot yarn factory in a former textile manufacturing hub in rural South Carolina, of all places, creating more than 500 jobs. It's one of several new textile plants being built in the U.S. as the industry comes back from the grave.

Why the textile industry won't make a comeback in Berkshire Hathaway
Despite the automation-driven cost improvements, the textile industry is unlikely to make a comeback within Berkshire Hathaway. Buffett tends not to like to repeat his investing mistakes. The main drawback of the textile industry back when Buffett tried to revive Berkshire Hathaway, aside from the industry's decline, was the capital-intense nature of the business, and that's still the industry's main drawback. So Buffett will probably watch the textile industry's renaissance from afar, content to make his money elsewhere.

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The Textile Industry Has Changed a Lot Since Warren Buffett's Big Mistake

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Warren Buffett has built Berkshire Hathaway into one of the world's greatest wealth-building empires over the past 50 years. Yet Buffett has called his decision to purchase the namesake company as his biggest investing mistake. At the time, Berkshire Hathaway was a struggling textile manufacturer in an industry on the decline.

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It would almost be easier to list the industry sectors in which Omaha-based Berkshire Hathaway Inc. ( BRK.A) doesn't turn gargantuan profits.

Railroads? Hardly. BNSF Railway, the 2 nd-largest freight line in North America, is a wholly owned Berkshire Hathaway subsidiary. How about auto insurance? GEICO, No. 2 in its industry, is also fully under Berkshire Hathaway control. Even unmentionables are worthy of mention: Berkshire Hathaway's Fruit of the Loom, Inc. sells more men's underwear in the United States than anyone else does. Business jet rental (NetJets), jewelry (Borsheim's Fine Jewelry, Helzberg Diamonds, Ben Bridge Jeweler, Inc.), furniture (RC Willey Home Furnishings, CORT), candy (See's Candies), trucking (McLane Co., Inc.), modular houses (Clayton Homes), newspapers ( The Buffalo News). There's seemingly no limit to the number of diverse businesses under the $490 billion Berkshire Hathaway umbrella.

Founded in the 19 th Century as two separate Massachusetts cotton mills, Berkshire Fine Spinning Associates and Hathaway Manufacturing Co. merged in 1955. Warren Buffett first bought into the declining company in the early '60s and eventually ended up in control of it on May 10, 1965. Two years later, Buffett officially made Berkshire Hathaway a conglomerate, using textile proceeds to purchase National Indemnity, the first of what would be the many insurance companies that provided Berkshire Hathaway's lifeblood and enabled it to continue acquiring.

Berkshire's Big War Chest

That lifeblood has an industry-specific name: float. Also known as "available reserve," it refers to money paid to Berkshire Hathaway's insurance subsidiaries in premiums but that has yet to be paid out to cover any claims. Technically this money doesn't belong to the insurance company, but it remains on hand to be invested as its managers see fit. Berkshire Hathaway's float of over $100 billion is not only one of the largest in the world, but 50 times what it was a generation ago. It's allowed Berkshire Hathaway to make quick purchases of temporarily wounded companies and breathe life into them. Case in point: Fruit of the Loom, purchased for a mere $835 million in 2002 after its stock had lost 97% of its value.

One of the prime tenets held by Buffett's mentor, Benjamin Graham, is that dividends are an investor's secret weapon. Many of the Fortune 500 companies that Berkshire Hathaway has large positions in - International Business Machines Corp. ( IBM), The Coca-Cola Co. ( KO), American Express Co. ( AXP) - each have a steady history of maintaining or increasing dividends every year. Coca Cola has increased its annual dividend 55 years in a row.

While imprudent speculators chase hot stocks whose prices are rising, those speculators' patient brethren instead load up on the stocks of companies with fundamentals formidable enough to allow regular cash payments to shareholders.

For some reason financial news outlets rarely showcase dividend data the way they do stock price and price movement figures, even though dividends provide one of the surest measures of a company's potency. After all, management will hand cash over to owners only when operations turn a large enough profit to make said payments feasible. As much as any other factor, the company chairman's love for receiving dividends has made Berkshire Hathaway so consistently successful.

But Pay A Dividend? No Way!

Somewhat unsurprisingly, the same Warren Buffett who advocates investing in companies that pay dividends eschews paying them out to his own company's investors.

At first, this seems so self-evident that it barely counts as an observation - it makes sense to take the cash that other companies offer you, but never to pay cash out yourself unnecessarily. Berkshire Hathaway has actually paid a dividend once before. In 1967 the company paid its only dividend of 10 cents a share. To this day, Buffett claims that he must have been in the bathroom when the dividend was authorized.

That being said, it would take galactic-class chutzpah for any Berkshire Hathaway shareholder to complain about the company's refusal to pay dividends. The stock price has skyrocketed over the past 51 years, trading at $275 in 1980, $32,500 in 1995, and over $290,000 today, a track record that lacks a meaningful comparison.

Berkshire Hathaway's rationale is simple, and hard to assail: If you're an investor, would you rather have a dividend payment for you to spend or invest at your peril, or would you rather that money be reinvested by the team that turned a humble textile investment into one of the largest, most respected and most financially robust companies in existence?

Since a single share of Berkshire Hathaway Class A stock (that's the class quoted above) is equivalent to several years' worth of the average American salary, it's no wonder that shares trades infrequently: maybe 300 or 400 change hands a day. Buffett has never entertained the notion of a Class A split, arguing that to do so would invite speculation.

However, he did authorize the creation of Class B ( BRK.B) stock several years ago, valued at 1/30 the value of Class A stock. After a 50-for-1 split of the former in 2010, and Berkshire Hathaway's purchase in toto of Standard & Poor's 500 component Burlington Northern and Santa Fe, the Class B stock replaced BNSF on the index. The lower price and concomitant liquidity make Class B stock suitable to be included in an index that attempts to gauge the value of the market. Class A stock is too expensive and too sparsely held to make an effective index component.

The Bottom Line

Some investors look for value, then purchase shares of companies that fit their criteria. Berkshire Hathaway does largely the same thing, only instead of buying a few shares, it buys the entire company. After 40+ years of applying that strategy, the result is the creation of a conglomerate without peer.

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How Warren Buffett made Berkshire Hathaway

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It would almost be easier to list the industry sectors in which Omaha-based Berkshire Hathaway Inc. ( BRK.A) doesn't turn gargantuan profits. Railroads? Hardly. BNSF Railway, the 2 nd-largest freight line in North America, is a wholly owned Berkshire Hathaway subsidiary. How about auto insurance? GEICO, No.

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Warren Buffett's Berkshire Hathaway beat profit forecasts for the second quarter, in part thanks to hiking car insurance premiums at its Geico division.

The 7 per cent year-over-year increase in average premiums helped Geico dig itself out from the effects of the increase in accident payouts, which has plagued the auto insurance industry.

Geico's improved performance was part of a wider bounceback in Berkshire's sprawling insurance empire, which helped offset continuing weakness in the company's railroad arm.

Mr Buffett's conglomerate reported net income for the three months to June 30 of $5bn, up from $4bn in the same period last year. The company's operations span insurance underwriting, railroads, utilities, manufacturing and retail, and it also holds a portfolio of stock market investments.

Underwriting profits at the insurance division were $337m in the quarter, compared to a forecast from Barclays of $253m and up from $38m last year. Berkshire Hathaway Reinsurance returned to profit in the quarter, and Geico's underwriting profit rose to $150m from $53m last time.

"It is pretty competitive out there," said Jim Shanahan, analyst at Edward Jones, "so it is positive they have been able to push through premium increases and still maintain market share."

Mr Buffett told attendees at Berkshire's annual meeting in April that he suspected an increase in "distracted driving" was behind last year's surge in accidents, along with the increased numbers of miles driven that come with an improved economy. Geico was improving its "basic underwriting", he said.

Revenues across Berkshire rose 6 per cent to $54.5bn, partly thanks to the addition of Precision Castparts, an aerospace industry supplier, and Duracell batteries, two recent acquisitions. Book value, the measure on which Mr Buffett urges shareholders to judge his performance, is up 6.9 per cent on a year ago, to $160,009 per share.

A weak spot in the second-quarter earnings, released after the closing bell on Friday, was Berkshire's railroad business BNSF. Its revenues declined 15 per cent and pre-tax profits were down 19 per cent to $1.2bn. BNSF operates approximately 32,500 route miles of track in 28 US states and three Canadian provinces.

Related article

The industry is overhauling its business model after being badly affected by low interest rates

The division has been hit by falling freight volumes, and it warned that it saw no likelihood of much improvement later this year. Revenues from transporting coal were down 41 per cent in the second quarter, and from transporting industrial products were down 5 per cent.

US oil producers are increasingly transporting oil by pipeline rather than rail, Berkshire said. "With oil at low production levels, along with pipeline displacement, we expect comparative volume declines in petroleum-related categories for the remainder of 2016."

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Geico lifts Berkshire Hathaway's earnings

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Warren Buffett's Berkshire Hathaway beat profit forecasts for the second quarter, in part thanks to hiking car insurance premiums at its Geico division. The 7 per cent year-over-year increase in average premiums helped Geico dig itself out from the effects of the increase in accident payouts, which has plagued the auto insurance industry.

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On May 10, 1965 Warren Buffett, through his investment partnership, famously took over the management and control of Berkshire Hathaway Inc., a then large but struggling New England textile maker. His investment partnership had accumulated about 49% of the shares starting in 1962 and culminating with heavy purchases in early 1965.

In explaining why he bought it, Buffett was quoted at the time as saying "we bought Berkshire Hathaway at a good price". My research has uncovered that this "good price" did not involve a low price to trailing earnings multiple. Instead, it refers to a good price in relation to the value of the assets. It may also have referred to a good price to expected forward earnings but that is not clear.

In later and in recent years Buffett has said that buying Berkshire was a mistake because back then it was only involved in the textile business. Textiles were a declining industry in 1965. It tied up a lot of his money in a poor business.

In his 1989 annual letter, Buffett said, under the topic "Mistakes of the First Twenty-Five years":
"My first mistake, of course, was in buying control of Berkshire. Though I knew its business -textile manufacturing - to be unpromising, I was enticed to buy because the price looked cheap. Stock purchases of that kind had proved reasonably rewarding in my early years, though by the time Berkshire came along in 1965 I was becoming aware that the strategy was not ideal. If you buy a stock at a sufficiently low price, there will usually be some hiccup in the fortunes of the business that gives you a chance to unload at a decent profit, even though the long- term performance of the business may be terrible. ..."
Even if it was a mistake, Buffett had his reasons to buy Berkshire and those reasons, including exactly in what way "the price looked cheap" seem worthy of further exploration. This article will review some of the previously published reasons for this historic purchase and will add a more detailed exploration of Berkshire's 1964 and 1965 financial statements which provide insight into Buffett's probable reasons for the purchase and why it appeared to be under-valued in the market as Buffett was buying it.

Buffett's policy was to keep his investments secret until the buying was completed. Accordingly, his limited partners did not even know about the purchase of a controlling interest in Berkshire Hathaway until some time after it was completed. In his July, 1965 letter to his investment partners, Buffett noted that the partnership had gained a control position in one of its investments. Only later was it revealed that this was Berkshire Hathaway.

In his January 1966 letter, further details were provided. Buffett described how the partnership had been accumulating shares in Berkshire Hathaway since 1962 on the basis that it was trading significantly below the value to a private owner. The first buys were at a price of $7.60. The discounted price reflected the large losses Berkshire had recently incurred.

The Buffett partnership's average share purchase price was $14.86 reflecting very heavy purchases in early 1965 as Buffett took control of the company in the Spring of 1965. Buffett reported to his partners that at the end of calendar year 1965, Berkshire had a net working capital (without placing any value on plant and equipment) of about $19 per share.

Warren Buffett had begun accumulating shares in Berkshire Hathaway on the basis that it was trading at a significantly lower price than the value to a controlling private owner. Buffett had earlier made a number of investments on this basis and the usual outcome was to later sell the block of accumulated shares in the market or to another single buyer. In this case however Buffett ended up taking control of the company.

During this period one of the three categories of investments that the Buffett partnership was making was called a control situation, where Buffett would take control or become active in the management of the company. In a 1963 letter he said: Because results can take years, "in controls we look for wide margins of profit - if it looks at all close, we pass." He also said he would only become active in the management when it was warranted.

On at least one previous occasion Buffett had taken full control of a public company. The Buffett partnership had purchased 70% of Dempster Mills Manufacturing in 1961. Buffett brought in a new manager at Dempster and had the manager reduce inventory and Buffett then had Dempster invest in marketable securities. If Buffett had not sold Dempster in 1963 it seems quite possible that it would have been Dempster that became his corporate investment vehicle rather than Berkshire.

Buffett noted that back in 1948 Berkshire had had 11 mills and 11,000 workers but by the time Buffett took control it had only 2 mills and 2,300 employees. Buffett also noted that in "a very pleasant surprise" existing management employees were found to be excellent. Ken Chace, he said, was now running the business in a first-class manner and it also had several of the best sales people in the business. Before taking control, Buffett knew that Ken Chace was available to manage it.

Buffett indicated that Berkshire was not going to be as profitable as the likes of Xerox but that "it was a very comfortable sort of thing to own" and "a delight to own".
Berkshire Hathaway's 1964 Balance Sheet
A recently published book put together by Max Olson has compiled all of Buffett's letters to Berkshire Shareholders and it includes previously hard to obtain information on Berkshire Hathaway's 1964 balance sheet as follows:

Buffett had therefore taken control of Berkshire Hathaway for the partnership at an average price that was 76% ($14.86 / $19.46) of book value. The cash, accounts receivables, and inventories of $20.8 million were, after deducting total liabilities of $5.7 million, worth $15.1 million or $13.30 per share. In effect one could argue that Buffett had purchased the company at approximately the value of its current assets minus all liabilities

He was therefore paying almost nothing for the property, plant and equipment and any going concern value of the business. There was at least some market value in the property plant and equipment. And there was some value as a going concern.

The book value of $19.46 per share, at the end of fiscal 1964, can be broken down, on a percentage basis, as follows:

Cash 3%
Accounts Receivable and Inventory 69%
Net Property, Plant and Equipment 27%
Other Assets 1%

This indicates that the assets which were purchased for 76% of book value were relatively high quality assets. Most of the assets were relatively liquid (assuming that the inventory could be sold for cash at close to its stated value). It is possible that there was land that was worth more than its balance sheet value. However it is also possible that the plant and equipment was worth far less than book value. However, the $7.6 million net value of the property plant and equipment had already been reduced on the 1964 balance sheet to reflect an expected $4.2 million loss on a property expected to be sold.

The Balance Sheet reveals that Berkshire Hathaway was ostensibly attractive given the price of 76% of book value. And it turns out that the 1964 balance sheet was in effect missing an important hidden financial asset in terms of available past losses that could be used to eliminate substantial future income taxes. Subsequently, Berkshire did make substantial profits in 1965 and 1966 that benefited greatly from a lack of income taxes. The extent to which Buffett valued the potential use of the past tax losses is unknown.

In his 1979 letter to Berkshire shareholders Buffett said "It probably also is fair to say that the quoted book value in 1964 somewhat overstated the intrinsic value of the enterprise, since the assets owned at that time on either a going concern basis or a liquidating value basis were not worth 100 cents on the dollar." Even though, as we calculated just above, Buffett paid an average of 76 cents on the dollar this 1979 statement arguably contradicts the notion that the price looked cheap in 1965. (Paying 76 cents on the dollar for assets worth somewhat less than a dollar might not fit Buffett's definition of being cheap.)
Berkshire Hathaway's Earnings at the Time of Buffett's Purchase
Next we will look at Berkshire's earnings at the time of Buffett's purchase.

There was certainly no strong history of profits to make Berkshire Hathaway attractive or "cheap". In fact it had lost a total of $10.1 million in the nine years prior to the 1964 balance sheet depicted above. The company was shrinking rapidly as its assets fell from $55.5 million in 1955 to $28.9 million in 1964. Despite the $10.1 million in losses it had paid out $6.9 million in dividends and paid out $13.1 million to repurchase shares. This was funded, in part through asset sales and also through non-cash depreciation expenses since investments in new and replacement equipment were likely less than the depreciation amount. Selling textile mills as they were closed down generated cash even if the mills were sold at a loss.

The company had earned only $0.126 million in 1964. This was approximately 11 cents per share. This suggests that Buffett's $14.86 average purchase price represented a P/E ratio of 135 times trailing earnings! On a cash flow basis the ratio may have looked better since capital spending was apparently lower than the depreciation expense.

However, the company earned $2.279 million in the year ended October 2, 1965. This was $2.11 per share. This suggests that the purchase at $14.86 represented an attractive P/E ratio of 7.0. The company's equity at the end of 1965 was $24.5 million or $24.10 per share. Before an apparently discretionary charge equivalent to income taxes, the actual net income for 1965 was $4.319 million and earnings per share were about $4.00. Buffett apparently did not consider the $4.319 million in earnings to be representative since it reflected zero income taxes due to temporary deductions available. Still, it is a fact that the P/E ratio based on the $14.86 price paid and this $4.00 per share earnings was only about 3.7! The fact that the actual earnings of Berkshire in 1965 were about $4.00 per share is consistent with a figure of $4.08 pre-tax indicated for 1965 in Buffett's 1995 letter to shareholders given that the GAAP income tax was apparently zero in 1965.

Berkshire's profit (before the discretionary allowance for income taxes that were not actually payable due to past tax losses) in 1965 at $4.3 million was considerably higher than it had made in recent years. It's not clear to what extent this was due to strong profit margins in the industry that year, a reduction in overhead costs, the closing and sale of an unprofitable textile mill, or what. Possibly Buffett became aware that 1965 was going to be an exceptionally profitable year. He had undoubtedly studied the industry and would have been aware if this cyclic industry was entering a period of higher profitability. Or, possibly it was his actions in controlling the company in the last five months of fiscal 1965, including any influence before taking control, that led to the sudden profit. The 1965 letter to shareholders does not shed much light on the reasons for the increased profits but does say that the company made substantial reductions in overhead costs during 1965. It seems likely that while the reduction in overhead costs was partly or fully due to Buffett, 1965 was probably going to be at least a reasonably profitable year in any event.

The surge in earnings in fiscal 1965 was not due to investments in stocks. It does not appear that Buffett had already started to accumulate any significant stock market gains for Berkshire in its first few months under his control - the vast majority of the marketable securities at the end of 1965 were in short-term certificates of deposit.

It is certainly not clear what earnings Buffett might have expected Berkshire to earn going forward. In his 1985 letter, Buffett stated that at the time of the purchase he had expected Berkshire's textile operations to be much better ran under Buffett's chosen manager than had been the case in the past. And we know that it ended up earning an impressive $4.89 per share in 1966. Recall that Buffett paid an average of $14.86 per share to take control of Berkshire. These 1966 earnings would have been lower but still reasonably strong at $2.71 per share if not for past tax losses that were available to eliminate income taxes.
Other Reasons for the Purchase
Alice Schroeder's book (The Snowball) indicates that Buffett was initially attracted to Berkshire simply due to the fact that he could buy about $19 worth of book value for $7.50. A friend of Buffett's at that time suggested that the whole company could be purchased and liquidated. Buffett later met with Berkshire management and offered to let the company buy back his shares for $11.50. Apparently, management promised to do so but then formally offered only $11.375. Apparently, Buffett was incensed and decided to buy control of the company and oust the current management. By the time Buffett bought the company he had picked one of the employees to run it and he had toured its operations and become familiar with it. He promised that he had no intention of liquidating the business.

The then 34 year old Buffett may also have been attracted to the idea of gaining control of a company with 2300 employees. There was, presumably, a certain amount of "psychic income" in that. It is also likely that he wanted to "show" the outgoing management and everyone else that he could run the company far more profitably than they had. Keep in mind that Buffett is an extremely competitive man.
Advantages of Controlling Ownership of a Corporation
In this section, we explore certain advantages of owning Berkshire apart from its book value and its earnings. These advantages may have also factored into Buffett's decision to purchase Berkshire.

There are certain advantages that are associated with purchasing a controlling but not full ownership of any corporation. And these advantages are magnified by purchasing a controlling interest at less than book value. These advantages are not unique to Berkshire.

It is therefore important to note that Buffett did not buy 100% of Berkshire. He got control of Berkshire by purchasing about 49% of the shares. As controlling owner he controlled 100% of Berkshire's book value and assets. He had paid about $8.3 million (49% of 1.138 million shares at an average purchase price of $14.86). But Buffett now controlled all of Berkshire's $22.1 million in equity capital. And he controlled all of its $27.9 million in assets. In effect this was a way of getting an extra $13.8 million ($22.1 - $8.3) in investor capital under his management without actually having to raise that capital from investors.

Furthermore, and perhaps very importantly, this was investor capital that the public shareholders of Berkshire had no ability to extract. Shareholders could sell their shares to others but the capital would remain with Berkshire. In contrast, in Buffett's partnership operation, investors were free to withdraw their capital at the end of any calendar year which would have required Buffett to maintain a significant cash balance rather than investing all of the partnership's assets.

In his 1964 letter, written four months before the takeover of Berkshire, Buffett noted that his limited partners had complained about their income tax liabilities. These would have arisen mostly as the partnership sold securities it had invested in at large capital gains. Buffett may have considered the fact that if the investments were made through a corporation in which his "partners" owned shares then all capital gains and other income would be taxed only in the hands of the corporation. As long as there were no dividends to the shareholders, and as long as they did not sell their shares, his investees would not face personal tax liabilities.

In the ten years prior to 1964, Berkshire had raised substantial cash by selling off property (textile mills). Much of this cash had gone to paying dividends and buying back stock. Just prior to Buffett taking control in May 1965, Berkshire was in the process of or had recently sold another mill. While it was sold at a loss it nevertheless generated some cash. Buffett may have planned to divert any cash previously used for dividends and buybacks to investing in marketable securities.

Buffett apparently stopped Berkshire's long-standing practice of buying back shares. That practice had been draining capital (money) from the company. Buffett apparently felt that he could find better uses for that money than repurchasing shares. No shares were repurchased in fiscal 1966, the first full year under Buffett's control..

There was also additional leverage associated with Berkshire's $5.7 million of debt and accounts payable. In total Buffett now had control over Berkshire's $27.9 million of assets by investing $8.3 million.

The purchase of of 49% of Berkshire Hathaway also brought in the owners of the remaining 51% as new participants and "audience" members for Buffett's wealth building and for his investment writings. He might also have considered that ownership of a publicly traded company would bring him more public notice. It seems likely that even at this time Buffett immensely enjoyed the process of making his partners (including minority shareholders) rich and he enjoyed the public notice that came along with that. Purchasing Berkshire therefore added to his enjoyment.

Buffett also likes history and was interested in and intrigued by Berkshire's long history. Roger Lowenstein in his book about Buffett recounts how Buffett was excited to find that copies of Berkshire's financials going back to the 1920's were were available.
Disadvantages of Investing in a Corporation
Offsetting the advantages of investing in corporate form which are described above, there is an income tax disadvantage. Buffett has explained that investing in a corporate form has certain disadvantages for the owners as opposed to investing directly or through a partnership. Those who invest through a corporation are subject to a certain amount of double taxation. The corporation pays income taxes and then its owners pay income taxes on dividends and, if they sell their shares, capital gains. Buffett limited this disadvantage in several ways. Berkshire itself often holds shares for decades which defers capital gains taxes. And Berkshire does not pay any dividend which eliminates the personal tax on dividends. A shareholder who buys and holds Berkshire for decades does not incur any personal tax until the shares are sold.
Conclusion
In the end, it appears that there were several reasons that contributed to Buffett wanting take control of Berkshire Hathaway. The initial purchases were based on the fact that the shares were selling well below the value to a controlling owner. It appears that taking full control later became the best way to realize value on the initial investments.

The purchase, below book value, of about 50% of this publicly traded company provided leverage and allowed Buffett to control an additional $28 million of assets for an investment of $8 million. It also brought the public shareholders into his "tent" enlarging his audience and helped to bring Buffett to the attention of the wider public. Buffett was likely excited to be taking control of a company with 2300 employees. And, it appears that he thought that it would make at least a reasonable profit as an operating business. He likely knew that Berkshire had entered a cyclic period of higher profitability. And he would have been aware of the value of past tax losses in reducing income taxes payable on any anticipated profits.

It's not clear to what extent he had immediate plans to attempt to extract cash from Berkshire by some combination of increasing profits, reducing inventory, and continuing to harvest depreciation cash flows and plans to then invest that cash in more profitable businesses and in stocks and bonds. Buffett's 1995 letter to shareholders does indicate that he and Charlie Munger "knew in a general way what we hoped to accomplish" in regards to growing both marketable securities and operating earnings.

In part, the controlling purchase was motivated by a conflict with the existing management that led to his conclusion that management needed to be changed. Like most investments it was probably based partly on emotion and partly on numerical analysis. Knowing Buffett, it seems likely that the purchase was fully justifiable on the numbers alone.

In part, the purchase is explained by Buffett's longstanding habit of being a man of action. In Berkshire he saw the opportunity to improve his return by taking control and changing management. As is his habit, he acted swiftly. Having decided that the best course of action was to take control, he did so. Despite Buffett's decades later comment that the purchase of Berkshire was a mistake it certainly ended up working out rather well, most especially for the remaining public shareholders of Berkshire Hathaway.
END
Shawn Allen, CFA. CMA, MBA, P.Eng.
President, InvestorsFriend Inc.
January 4, 2014 (With minor edits to December 1, 2017)
Prologue and lessons learned:
Despite Buffett's comments that purchasing Berkshire was a mistake, it's hard to agree with that assessment.

Everything that Berkshire has grown into today came from the very wise way in which Buffett reinvested the profits and cash flows of the original textile operation in highly profitable ways.

Berkshire's book value at the end 2012 was a staggering 8,654 times higher than it had been just prior to Buffett's purchase. That's an increase of 865,400%. Meanwhile the share count had increased by only 44%. The shares that existed at the end of 1964 still accounted for 69% of the ownership in 2012 and these shares had increased in book value by 586,817%. The only new capital that has come into Berkshire occurred when Berkshire very occasionally issued shares in making acquisitions. Fully 69% ($132,196 million) of Berkshire's equity capital at the end of 2012 of $191,588 million can be traced solely to the growth of the initial equity of $22 million that Buffett started with.

Buffett's first major move in re-deploying Berkshire's equity came within two years of assuming control of Berkshire. In early 1967 Berkshire Hathaway purchased a pair of property insurance companies for $8.6 million million. A key characteristic of insurance companies is that the insurance premiums which are ultimately ear-marked to pay claims can meanwhile be invested.

The cash for this purchase came mostly from Berkshire's unusually high profits in 1965 and 1966, which totaled $9.3 million. The cash did not come primarily from reducing inventories, receivables or assets of the textile operation, although as indicated in Buffett's 1985 letter that was partly the source of the cash for the purchase. Buffett was careful not to pour much additional capital, including profits from the textile business, into the textile business. Instead, he extracted much of its profits for other purposes. But it is not the case that he materially reduced the capital in the textile business. Berkshire Hathaway's textile business remained operational under Buffett's control for 20 years until 1985.

Reviewing Buffett's 1965 purchase of Berkshire Hathaway is interesting enough just for its historical significance. But it also may offer some important lessons for today's investors and investment managers.

What might today's investment managers learn from Buffett's purchase?

They might learn to look for investments that could work out in several ways. Buffett's purchase price was cheap in relation to book equity and also in relation to the profitability that occurred in the years immediately after the purchase. In the case of the earliest purchases, Buffett also knew that the company itself might repurchase his shares at a substantial gain.

Buffett's Berkshire purchase illustrates how a large investor can gain complete control of a company by purchasing a controlling but not full interest.

Most importantly, Buffett's purchase of Berkshire and its subsequent operation provides valuable lessons in how the profits and cash flows of a sub-par business can be redeployed into much more lucrative investments.

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Why Did Warren Buffett Buy Berkshire Hathaway in 1965?

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Why did Warren Buffett Buy Berkshire Hathaway in 1965? On May 10, 1965 Warren Buffett, through his investment partnership, famously took over the management and control of Berkshire Hathaway Inc., a then large but struggling New England textile maker. His investment partnership had accumulated about 49% of the shares

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This weekend, Warren Buffett released his 50th annual letter to Berkshire Hathaway shareholders. Over that half-century, Buffett took the failing textile company and turned it into a legendary conglomerate.

Using historical price data for Berkshire Hathaway class A shares from a retrospective analysis of Buffett's outsized returns and from Yahoo! Finance, we calculated how much $1,000 of Berkshire stock would be worth today if you invested that money at different times during Buffett's tenure.

That $1,000 invested in 1964, when Buffett took over the company and shares cost just $19, would be worth about $11.6 million dollars today, based on the last available closing price of $221,180 on February 27. $1,000 invested in 1990 would be worth $33,136 today.

Here's a chart showing the current value of Berkshire Hathaway stock bought at different times in the last fifty years:

Business Insider/Andy Kiersz, data from Statman and Scheid 2002 and Yahoo! Finance

Investing in the first couple decades of Buffett's stewardship would have lead $1,000 to grow to several million dollars by today. After about 1980 or so, those gains were much more modest, although still extremely impressive.

To get a better handle on the last thirty or so years of Berkshire Hathaway, here's the same chart using a logarithmic scale, in which the vertical axis is incremented in powers of ten, making it easier to compare the large range of price returns we're looking at:

Business Insider/Andy Kiersz, data from Statman and Scheid 2002 and Yahoo! Finance

Finally, here's a table showing the current value of $1,000 of Berkshire stock purchased in a given year:

Business Insider/Andy Kiersz, data from Statman and Scheid 2002 and Yahoo! Finance

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Here's how rich you'd be if you had bet $1,000 on Warren Buffett way back when

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This weekend, Warren Buffett released his 50th annual letter to Berkshire Hathaway shareholders. Over that half-century, Buffett took the failing textile company and turned it into a legendary conglomerate. Using historical price data for Berkshire Hathaway class A shares from a retrospective analysis of Buffett's outsized returns and from Yahoo!

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Berkshire Hathaway shareholders this weekend voted down a proposa l that would have prodded Warren Buffett's conglomerate to pay a dividend. It's no wonder.

For one thing, Buffett himself controls a hefty chunk of the shareholder voting power. "Now, you may think that I stuffed the ballot box," he said during the question-and-answer session at this weekend's shareholder meeting, the New York Times reported. "I did."

But the other reason that shareholders squelched the proposal is simply because they trust Buffett, the world's most accomplished investor, to put their money to good use. That's why they gave it to him in the first place. They don't want it back.

On the other hand, they don't want it just sitting in Berkshire's bank account either. And finding a productive place to put all that money is no easy matter. Berkshire Hathaway's cash hoard has surged 30%, to more than $48 billion, since the end of 2011.

You can see from the chart above that Berkshire's cash pile has returned to heights not seen since before a notable decline during the worst of the Great Recession starting around 2008. And that's just classic Buffett.

During the market meltdown and recession of that period Buffett was buying, using cash to help make a spate of giant deals. He gobbled up preferred shares in blue chips like Goldman Sachs and General Electric. He made Berkshire's largest ever acquisition, the $26.7 billion purchase of the Burlington Northern Santa Fe railroad.

Those deals were enabled by the fact that Berkshire had an ample supply of dry powder. "It's been an ideal period for investors: a climate of fear is their best friend," Buffett wrote in his annual shareholder letter recounting the story of 2009, when the company's cash balances fluttered around recent lows of around $26 billion.

A similar dip in Berkshire's cash came in late 2011, as the company announced large investments in chemical maker Lubrizol and Bank of America. And the cash pile shrank in early 2013, as Berkshire bought American ketchup giant Heinz.

But as the mood of the financial markets improved in recent years, it's been tougher to find the bargains that are the foundation of Buffett's value investing strategy. (Value investors emphasize buying assets that are significantly undervalued because of market conditions, and then holding those investments for long periods of time.)

Buffett has said that the company will maintain a cash cushion of about $20 billion. Cash in excess of that amount is available for acquisitions. Investors would be silly to force Berkshire to give that cash back now. Buffett is merely rebuilding his supply of dry powder and waiting for the buying opportunity the market might offer. And as long as the 83-year-old Buffett is in charge at Berkshire, shareholders should be patient too.

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A brief history of Warren Buffett's Berkshire Hathaway, as told through its giant cash pile

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Berkshire Hathaway shareholders this weekend voted down a proposal that would have prodded Warren Buffett's conglomerate to pay a dividend. It's no wonder. For one thing, Buffett himself controls a hefty chunk of the shareholder voting power. "Now, you may think that I stuffed the ballot box," he said during the question-and-answer session at this weekend's shareholder meeting,...

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Berkshire Hathaway is #2 on the 2017 Fortune 500 list. Find the latest news, stock prices and financial information for Berkshire Hathaway on Fortune.com.

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What is 'Berkshire Hathaway'

Berkshire Hathaway is a holding company for a multitude of businesses, run by its famous Chairman and CEO, Warren Buffett. Berkshire Hathaway is headquartered in Omaha, Nebraska, and began as a group of textile milling plants. When Buffett became the controlling shareholder in the mid-1960s, he began a progressive strategy of diverting cash flows from the core business into other investments. In 2017, Berkshire Hathaway had a market capitalization of close to $488 billion, one of the top five largest publicly traded companies worldwide.

Insurance subsidiaries tend to represent the largest pieces of Berkshire Hathaway, but the company now manages hundreds of diverse businesses all over the world.

BREAKING DOWN 'Berkshire Hathaway'

Because of Berkshire Hathaway's long history of operating success and keen stock market investments, the company has grown to be one of the largest in the world in terms of market capitalization. Berkshire stock trades on the New York Stock Exchange in two classes, A shares and B shares. The A shares are noted for their very high prices - in excess of $250,000 per share in 2017.

Early in his career Buffett came across the novel idea to use the "float" from his insurance subsidiaries to invest elsewhere, mainly into focused stock picks that would be held for the long term. Buffett has long eschewed a diversified stock portfolio in favor of a handful of trusted investments that would be overweighted in order to leverage the anticipated return. Over time, Buffet's investing prowess became so noted that Berkshire's annual shareholder meetings became a mecca for value investing proponents and the focus of intense media scrutiny.

In 2017, Berkshire Hathaway subsidiaries included GEICO, Dairy Queen, BNSF Railway, Lubrizol, Fruit of the Loom, Helzberg Diamonds, Long & Foster, FlightSafety International, Pampered Chef, and NetJets. In addition the holding company has a 38.6% stake in Pilot Flying, a 26.7% stake in the Kraft Heinz Company, a ~17% minority holding in American Express, 9.4% minority stake in The Coca-Cola Company (9.4%), and 2.5% minority stake in Apple, among other well known firms.

The Future of Berkshire Hathaway

Nearing his 80th birthday in May 2010, CEO and Chairman Warren Buffet announced he would be succeeded at Berkshire Hathaway by a team, comprised of one CEO and 2-4 investment managers. In 2011, it was announced that Castle Point hedge fund manager Todd Combs would become one of these investment managers; along with Peninsula Capital Advisors Ted Weschler. Buffet has yet to name his CEO replacement.

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Berkshire Hathaway is a holding company for a multitude of businesses, run by its famous Chairman and CEO, Warren Buffett. Berkshire Hathaway is headquartered in Omaha, Nebraska, and began as a group of textile milling plants. When Buffett became the controlling shareholder in the mid-1960s, he began a progressive strategy of diverting cash flows from the core business into other investments.

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Forbes magazine estimated that Buffett was then worth about $62 billion, a value that has since taken a hit in the economic downturn, but is still in the neighborhood of $40 billion or so.
Although Buffett was a well-known figure and even famous in the business community dating to the 1960s, he was not generally known elsewhere. Even through the 1970s and 1980s, Buffet was not the economic "rock star" he has become today. In recent years, however, Warren Buffett has "crossed over" from purely business stardom to more full-blown, mainstream celebrity. It's not clear precisely when this arrival occurred, but the process began in the 1980s, especially as his name rose into the upper reaches of the Forbes 400 "richest Americans" list. Then, in the mid-1990s, a popular book on Buffett's investing method - The Waren Buffett Way, by Robert Hagstrom - became a national bestseller, raising Buffett's visibility among millions of existing and would-be stock market investors. By 2003, prime-time "Buffet celebrity" grew to a much higher level, reaching a crescendo of sorts in mid-summer 2006 after he announced plans to give away most of his wealth through a series of donations - the biggest share of which would go to the Bill and Melinda Gates Foundation. More on that later.
By 2008 there were other signs of Buffett's growing celebrity. He appeared, for example, on the September 7th, 2008 cover of the widely circulated Parade magazine, the Sunday supplement magazine that typically features a Hollywood celebrity of some kind on its cover. Parade is found in tens of millions of American homes every Sunday morning. The cover story promised to reveal Buffett's secrets "that can work for you."
Mr. Buffett's rising celebrity, however, has not yet made him a Saturday Night Live host, but he has made cameos in a TV soap opera, and in 2008 he began making a cartoon series for kids to help teach them about money. Buffett has also appeared on countless business magazine covers, as well as avant garde publications such as Vanity Fair's special-edition Africa issue of June 2007 (above and below) which featured various combinations of Annie Leibovitz-photographed celebrities on some 20 different covers.
Warren Buffet, however, for much of his career, was anything but a celebrity. He stuck to his knitting, so to speak, laboring in the "back office" of business investment and market analysis, quietly making his stock picks, amassing wealth and knowledge. Nor has Warren Buffett lived most of his life in prime-time media country, or for that matter, prime-time Wall Street. Buffet chose to live much of his life in mid-America: Omaha, Nebraska. This was largely by self design; wanting to live a quiet, average, if-not-frugal life style in Omaha where he could devote his attention to investing - at least a first. But as more attention came to his investment savvy and his growing wealth, so did more popular notice. In fact, the world, or at least a portion of its investors, was soon beating a path to Omaha to hear the master's voice. Still, Buffett's celebrity came slowly at first, rising with his "oracle" and "wealthiest American" stature. By the late 1990s he had begun to permeate the mainstream press and media - first on the covers of business magazines and business-related cable television, and later, more widely throughout the mainstream press and network television. Certainly by the 2000s, Warren Buffett was famous simply because he was "Warren Buffett." Buffett's story provides a look at how business celebrities - when they reach a certain level of wealth, power and circulation - can "cross over" into mainstream celebrity.
True, Buffett's popular notice is, on one level, no different than that of other wealthy business barons from other eras - Andrew Carnegie, Henry Ford, John D. Rockefeller, and others who rose to fame and infamy in their day.

Yet Buffett's rise has its unique aspects - rising to wealth as an investor rather than industrial mogul, for one. And his popular notice has been aided certainly by today's "always-on-everywhere" mainstream and digital media.

But Buffett's story also shows that once he arrived in the media glare, he moved to use his fame - and the media machine that comes with it - to reach a broader audience on a few selected social and economic issues of concern to him, pushing his message and lobbying for changes as he saw fit. And certainly with his recent philanthropy, Warren Buffett has spoken in a way few people ever can.
Business Boy
Warren Buffett was born in Omaha in 1930. He began selling things as a young boy - Juicy Fruit gum, Coca-Cola, Liberty magazine, the Saturday Evening Post, and even used golf balls. In the mid-1930's, at about age 6, he started buying six-packs of Coke for 25 cents and reselling single bottles at a nickel each. He also worked at his grandfather's grocery store. At age 11 he had made his first stock investments and also announced that he would be a millionaire by the time he was 35. At around age 10 or so he concluded that money could give a person independence, and thereby, the means to do whatever he wanted with his life. So, at age 11 he announced he would be a millionaire by 35.

Buffet's father was a stockbroker, and young Warren often visited his office, sometimes chalking in stock prices on the brokerage's blackboard. At age 11 he made his first stock investment - three shares of Cities Service oil company at $38 per share. The stock dropped to $27, but the young Buffett held his marks, selling only when they reached $40 a share. Later, Cities Services' shares rose to nearly $200 a share, leaving Buffett with an early lesson in patient investing that he never forgot. By age 13, Buffett was running his own businesses as a paperboy and also selling his own horse-racing tip sheet. On his first tax return that year, he claimed his bike as a tax deduction.

In 1942, Buffett's father was elected to the U.S. House of Representatives, the family moved to Fredricksburg, Virginia near Washington. Buffett attended high school in Washington but also worked at side businesses. When Buffett received his college degree at age 20, his side businesses had earned nearly $10,000. With a friend he purchased a used pinball machine for $25, installed it in a barbershop and within a few months they had made enough money to buy and install two more machines at other locations, then selling their little business for $1,200. At age 16, Buffett reluctantly enrolled at the University of Pennsylvania to study business, but after two years, moved to the University of Nebraska. It was at Nebraska where he discovered a book by Benjamin Graham titled the The Intelligent Investor, which taught the importance of "value investing" - going after undervalued stocks with good names and holding them for long periods, as opposed to running after the "hot stock " of the day. By the time Buffett finished his degree at age 20, his side businesses had earned him nearly $10,000. Buffet next went to Columbia University for an advanced degree after being turned down at Harvard Business School. At Columbia he studied under his idol Benjamin Graham, and would later work with him in New York for a couple of years and also at his father's brokerage back in Omaha.

"The Investable Float"
A Money Lesson

One of Buffett's early epiphanies about how to use other people's money to make millions for himself and his investors, came with his introduction to the insurance indus- try. Sometime in the 1950s he noticed that his mentor, Benjamin Graham held lots of stock in an insurance company named GEICO - where Graham would also serve as chairman. Buffett decided to visit GEICO's offices one weekend, and by chance happened upon a rising officer of the company who pro- ceeded to give him a crash course on insurance.

Buffet learned about GEICO's nice little corner of the insurance world, where it sold insurance to a group of statistically safe drivers - govern- ment employees - and sold to them direct by mail. By doing so, it cut out agent commissions and made low-priced policies possible, while the pool of generally safe drivers it selected kept claims and pay outs low. But the big thing that Buffett learned about the insurance industry that day, and GEICO in particular, was the horde of ready cash that insurance companies could gener- ate. Lots of liquid cash coming in from premiums that was not needed to cover a low outlay of costs for claims. This was big-time money - "the float," the difference between money in and demand on money out; money that could be used for other things, like investing. The benefits of the insurance company "float" were real and could translate into buying leverage and big profits for a studious investor. Buffett, then still in graduate school, invested a portion of his savings in GEICO. And throughout his investing career thereafter, insurance companies would become a key part of his investment strategy, making minimal profits on insurance underwriting, but using the "insurance company float" to leverage hundreds of millions for other investments and continuing profits elsewhere.

In 1956, with the money of a few investors and some of his own, he formed the Buffett Partnership in his hometown of Omaha. He began purchasing stocks with the goal of beating the Dow Jones Industrial Average by 10 percent a year - and he proceeded to do just that. His investment success was fueled in part buying undervalued companies whose stocks steadily rose. By 1962, the Buffett Partnership, which began with $105,000, rose in worth to $7.2 million, about $1 million of which was owned by Buffett and his wife, Susie. But their assets continued to grow.

Buffett would typically buy when others were running for the exits. In 1964 when American Express shares fell to $35 due to a fraud scandal and everybody was selling, Buffett began buying the shares en masse. A year later AmEx shares were selling for double the price he paid for them. In 1965, after a personal meeting with Walt Disney, Buffett bought $4 million worth of the Disney Co., then equal to about five percent of the company. Buffett by this time was being noticed in the financial and investment communities. In March 1966, Buffett explained his firm's strategy to the New York Times, saying: "We have no formal program of acquisitions, but as a private investment partnership, we like to put our money into things with good value and good management." The Buffett Partnership ended in 1969. It had been wildly successful making about 30 percent gains year-over-year between 1956 to 1969. This in a market in which 7- to-11 percent gains were the norm. With his first venture a success, Buffett began forming a new investment vehicle.

In 1962, he began acquiring shares of Berkshire Hathaway, a textile mill in New Bedford, MA. As the U.S. textile industry withered in the face of foreign competition, Buffett began redeploying Berkshire's capital into an array of other businesses, including insurance. He bought his first insurance companies in 1967, learning how to use their up-front cash flow and "float" (see sidebar at right) to make other, longer-term growth investments. Insurance companies would become a key part of Buffett's businesses and investment strategy throughout his career. He would eventually sell off the textile portion of Berkshire Hathaway, but use the company structure as his investment vehicle. By 1970 at age 40, Warren Buffett was chairman of Berkshire Hathaway.

Through the 1970s he continued pursuing the same investment strategy that had made him a millionaire in the 1960s. When stock prices began to drop in 1973, Buffett became a buyer for the long term. In 1973, one of the stocks Berkshire began acquiring was The Washington Post Co. Throughout the 1970s, Buffett's name would surface on the business pages of regional and sometimes national newspapers. "Buffett Is Said to Take Stake of 10-15% in GEICO," read the New York Times headline on August 13, 1976. That short story - about Buffet's investment in the insurance business - ran in the back pages of the newspaper, but noted that Buffett had "a reputation as one of the country's most astute investors."

In 1977, Berkshire indirectly purchased the Buffalo Evening News for $32.5 million. About this time, he and his wife / business partner, Susie, began living apart, though remaining married. Susie, in fact, introduced him to Astrid Menks, a woman who worked in Omaha and who would eventually move in with Buffett and later become his second wife. By 1979, Berkshire continued buying up stocks it regarded as values, then beginning to buy shares of the ABC television network, among others. Berkshire shares about this time were trading at $290 each. Buffett's personal wealth was then about $140 million, although he was only taking an annual, modest salary of $50,000.

The Washington Post
1970s & Beyond

In addition to buying up shares of the Washington Post in the 1970s, Warren Buffett also became, by 1974, a board member at the company. In fact, Katharine "Kay" Graham, who then ran the Post, would come to regard Buffett as a friend and trusted business counsel. But in 1973, Graham did not know Buffett when he first bought up some 230,000 shares of the company. There had been one prior encounter in 1971 when Buffett and partner Charlie Munger had approached Graham and the Post about possibly doing a deal together to acquire The New Yorker magazine. But nothing came of that venture. Once Graham had established that Buffett's investment intentions with the Post were honorable, the two became fast friends. She would later credit Buffett with providing her key business advice and a broader vision. Graham, for her part, would introduce Buffett to a broader social world of Washington culture and beyond.
Others at the Post, however didn't always trust Buffett, some feeling threatened by his influence on Graham. One internal fight at the Post flared in 1977 over whether the Post should buy the New York Magazine Co., then the publisher of three magazines - New York, The Village Voice, and New West. In that contest, the Post was bidding against Rupert Murdoch, who eventually took the prize, but some inside the Post were opposed to Graham's bidding for those properties, feeling it would hurt profits and weaken their own operation. In the process, Graham had sought Buffett's counsel and others, but not that of Larry Israel, then the Post's president, who was forced out. Buffett remained a close Graham advisor and friend thereafter, continued on the board and also continued to buy Post stock.
In 1986, however, Buffet had to leave the Washington Post board following the merger of ABC with Capital Cities Communications Co. Buffett had helped Cap Cities acquire ABC and would then have a seat on the Cap Cities / ABC board. Government rules then prohibited dual media company board seats. The Washington Post Co., meanwhile, in separate action, would acquire some Cap Cities properties, spending $350 million in January 1986 to buy 53 cable TV systems from Cap Cities which the Post added to its own cable business; an expansion which helped the Washington Post Co. move up in its Fortune 500 ranking - to No. 263 on the 1986 and 1987.

Warren Buffett, meanwhile, would return to the Washington Post board a decade later, in 1996, after Disney acquired Cap Cities. By 2003, Buffett's long-held stake in the Washington Post Co. of more than 30 years had grown considerably - from an $11 million investment to $1.2 billion. As of year's end 2009, The Washington Post Co. was still among Berkshire Hathaway's top 15 holdings of publicly-traded companies. Berkshire then held about 1.7 million Washington Post shares, or roughly 18 percent of the company.

In 1982, Forbes magazine began publishing its annual "Forbes 400" - the 400 richest people in America. Daniel Ludwig, a shipping magnate, was then the richest person on the list at $2 billion. Warren Buffett also made that first list, at an estimated $250 million in wealth. Although not then in the top reaches of the list in 1982, Buffett was just beginning his rise into the upper tiers of the super rich.

In fact, in 1983, Berkshire Hathaway shares had begun the year at $775 per share, but by year's end they were worth at $1,310 per share. Buffett's personal net worth at this point is $620 million. Berkshire now had some $1.3 billion in its corporate stock portfolio. Berkshire was making money buying up lesser known by solid companies such as Blue Chip Stamps and Nebraska Furniture Mart, the latter for $60 million in 1983. But by 1985, Buffett became a key player in some more well known businesses, helping to bring about a merger between ABC and Cap Cities, a major media play. Then in 1987, Buffett got Wall Street's attention when Berkshire Hathaway purchased 12 percent stake in Salomon Brothers investment bank, making Berkshire the largest single shareholder and Buffett the director. Berkshire's $700 million stake in Salomon helped rescue it from corporate raider Ronald Perelman. (Buffett would return to Salomon in 1990, after a scandal erupted there over trading rules, with Buffett coming in to run the company for a time after top management resigned. The company was eventually sold). Buffet's name by this time also was appearing regularly in the business press. In October 1987, when the stock market crashed, Buffett and Berkshire took big hits, but both would recover.

"Warren's Woodstock"
The Annual Meeting
During the 1970s, Buffett and his partner Charlie Munger began holding annual meetings for their Berkshire Hathaway shareholders in Omaha, Nebraska. At first, these were low-keyed "drop-by-if you're-in town" affairs with very few attendees. If any of Buffett's investors happened to be in the neighborhood, they were invited to join Buffet and Munger for dinner at a local restaurant and hear the company report. Maybe a dozen or so attended in those early days. By 1981, twenty-two people attended the Berkshire Hathaway conference. By 1985 attendance was up to 250. But soon, the Berkshire Hathaway annual meeting and conference would draw thousands to Omaha, becoming something of a national business and finance event. Today, for some investors, the Berkshire Hathaway annual meeting in Omaha is an annual pilgrimage - with the "Oracle," Warren Buffett, being the main attraction. At least one book has been written about the meetings. Buffett, in fact, would later call these bigger, media-worthy gatherings with thousands of attendees, a "Woodstock for capitalists." In May 1998, Business Week also used the Woodstock description, calling the annual gathering, "Warren Buffett's Woodstock Weekend Love-In." At the 2008 Berkshire Hatahaway annual meeting there were 31,000 attendees.
For some years now, Buffett has also drawn national press attention for his unique writing in the annual Berkshire Hathaway "letter" he sends to his stockholders, noted for its uncorporate style. Buffett's annual Berkshire letter, in fact, has become something of a business literary event, praised for its colorful and pithy style, while also revealing something of Buffett's "aw shucks, dumb-as-a-fox" media savvy.

"...Better With Coke" In 1988, Buffett began buying shares of Coca-Cola, and soon had a sizeable position with millions of shares. This surprised some on Wall Street, especially since Coca-Cola stock had gained almost 20 percent a year for eight years, with many analysts thinking it was over-valued. But Buffett was not among them, and in fact took the opposite view. Wall Street thought "he was crazy." Yet Buffett had his own metrics. He saw Coca-Cola as a "cash cow" in 1988, a company with steady shareholder equity growth and an incredibly well-known brand, globally. Buffett believed he was buying Coke at a discount price, compared to a reasonable valuation of the company and its future prospects. Buffett began buying stock in Coca-Cola Company, eventually spending about $1 billion for seven percent of the company. By March 1989, Buffett's Berkshire held close to 22.35 million shares of Coca-Cola.
"We like businesses we understand," Buffett told the "We like businesses we understand," Buffett told the New York Times. "Coke is like Mom and apple pie." And with companies like Coke, he explained, "our favorite holding period is forever." Buffett also explained that Berkshire didn't buy companies they didn't understand. "We buy very few things but we buy very big positions," he said. In addition to Coke, Berkshire also then held about 12 percent of Salomon Inc., the Wall Street investment firm; 42 percent of GEICO insurance, 18 percent of Capital Cities/ABC Inc., the broadcasting and publishing company; and 13 percent of the Washington Post Company. Buffett said at the time these were among Berkshire's "permanent" common stock holdings - those the company would hold for a long time. New York Times. "Coke is like Mom and apple pie." And with com- panies like Coke, he said, "our favorite holding period is forever." By the end of 1989, Coca Cola represented 35 percent of Berkshire common stock portfolio. It was a bold move. But with time, Coke would prove to be one of Berkshire's most lucrative investments, turning a $1 billion purchase into a $10 billion holding that would also generate more than $250,000 a year in dividends.

Another standard mainstream company Buffett would invest in during the late 1980s was the razor blade maker Gillette. "It's pleasant to go to bed every night knowing there are 2.5 billion males in the world who have to shave in the morning," Buffett would later tell a Forbes reporter. "A lot of the world is using the same blade King Gillette invented almost 100 years ago. These nations are upscaling the blade. So the dollars spent on Gillette products will go up." Buffet also noted in answer to a question about why he did not invest in foreign stocks: "I get $150 million earnings pass-through from the international operations of Gillette and Coca Cola. That's my international portfolio."

In the 1990s, Warren Buffett began to become more visible in the mainstream business press and other media. In October 1993, for example, he was now featured on the cover of the annual "Forbes 400" issue.

"Warren Buffett - $8 Billion and Counting," said the cover's tag line. Buffett was then No.1 on the Forbes list worth an estimated $8.3 billion, besting other financial superstars such as fellow billionaires Bill Gates of Microsoft ($6.1 billion), John Kluge of Metromeida ($5.9 billion), Sumner Redstone of Viacom ($5.6 billion), and five Walton family members of Wal-Mart wealth ($23 billion together).

Buffett reported to Forbes at the time that he was very happy with his life, coming across to writer Robert Lenzner as a guy who didn't need to rub shoulders with celebrities - or be one himself. Buffett had then received an invitation from his Washington Post friend Kay Graham to dine with her and President Bill Clinton on Martha's Vineyard in the summer of 1993, but Buffet turned it down. "I have in life all I want right here," he told Lenzner who came to Omaha for the interview. "I love every day. I mean, I tap dance in here and work with nothing but people I like. I don't have to work with people I don't like."

Warren Buffett and Bill Gates met for the first time during the July 4th holiday of1991. Bill Gates, the 35 year-old founder and CEO of Microsoft, the world's largest computer software company, was then ranked at No. 38 on the 1990 Forbes list of the world's billionaires, with Gates' estimated worth then placed at $2.5 billion. Warren Buffett then ranked higher on that list at No. 32 with a net worth at $3.8 billion.
Buffet was then visiting with Katharine Graham, chairman of the Washington Post, and her editorial page editor and friend, Meg Greenfield, at Greenfield's house on Bainbridge Island, a short ferry ride away from Seattle. Also on the agenda that weekend was a planned visit to the nearby four-house compound of the Bill Gates family. A dinner was planned with all of them plus Bill Gates' parents, Bill senior and Mary Gates, and several other friends. Neither Buffet nor Bill Gates was excited by the prospect, as both were known to be bored with small talk and looked for the exits when they were with folks they didn't care for. In fact, on the drive to the Gates compound, Buffett reportedly said: 'What the hell are we going to spend all day doing with these people? How long do we have to stay to be polite?'" Gates too, had complained to his mother about having to make the visit, claiming he was too busy and had to work. But Gates did want to meet Kay Graham of the Washington Post. So he reluctantly agreed, arriving by helicopter so he could depart quickly later that evening. As for Buffett, Gates remarked to his mother, "I don't know about a guy who just invests money and picks stocks. I don't have many good questions for him; that's not my thing..." So, for the two principals, it looked like it might not be the best gathering. When Buffett and Gates were introduced, Buffett skipped the small talk and immediately asked Gates about the computer business. Was IBM going to do well in the future was it a competitor of Microsoft? Computer companies seemed to come and go, he offered, and why was that so? Gates began his explanation and along the way advised Buffett to buy two stocks, Intel and Microsoft. Then Gates asked Buffett about the economics of newspapers, and Buffett gave him the scoop there, telling him the prospects were not good given the rise of other media. Within minutes the two men were intently engaged in extended conversation with each other - to the exclusion of others attending the gathering and the chagrin of their hosts.
"We talked and talked and talked and talked and paid no attention to anybody else," recalled Gates. "I started asking him a whole bunch of questions about his business, not expecting to understand any of it. He's a great teacher, and we couldn't stop talking." Buffett recalled that Gates tried to convince him to get a computer. and even agreed to send someone to teach him how to use it. Buffet declined, not sure how he would make good use of it saying he wasn't the kind who incessantly had to check his stocks, and that he did his income taxes in his head. In any case, a fast friendship was in the making. By the time they reached the dinner table, Bill Gates, Sr. put a questioned to his guests: What factor did people feel was the most important in getting to where they were in life? Both Buffett and Bill Gates said "focus." Later, as the helicopter departed, Gates was not on it.

Warren's Way By the mid-1990s, Buffett was soon thrust into the limelight from another direction. In November 1994, the publication of the book,The Warren Buffett Way by author Robert G. Hagstrom, helped make Warren Buffett a much more widely known person. The book sold over a million copies and spent 21 weeks on the New York Times hardcover nonfiction bestseller list. Hagstrom, a Philadelphia money manager, revealed no great secrets, but rather, described how Buffett went about picking companies and what he looked for. Hagstrom writes: "When Buffett invests, he sees a business. Most investors see only a stock price." Hagstrom found that Buffett gave high grades to managers who increase value for shareholders with their decisions. For example, companies that bought their own stock back - reducing the shares outstanding and raising their value - were high on Buffett's list. Capital Cities/ABC, in which Berkshire had a $1.7 billion stake, bought back nearly 2 million of its 18 million outstanding shares between 1988 and 1992. Other Berkshire holdings that did stock buybacks included the Washington Post Co., GEICO, and PNC Bank. Hagstrom's book also noted that Buffett liked big businesses that had sizeable shares of their markets or were shielded from competition so they could earn higher profits - companies like Coca-Cola and Gillette - as well as others that had simple but good business plans, like GEICO. These and other Buffett methods were covered in Hagstrom's book, which not only stayed on best-seller lists for several months, selling over 1 million copies, but also helped fuel a price surge in Berkshire Hathaway's stock. Priced at $16,000 a share in mid-1994, Berkshire's stock rose to a then-record $25,000 a share in early 1995. Readers of the book who wanted to own, and subsequently purchased, a share or two of Buffett's company were believed responsible for the price increase. After the book's popular rise, the mainstream press began covering Buffett somewhat more intently as well. Hagstrom, meanwhile set up a mutual fund based on Buffett's investment strategies, a fund that was later acquired by Legg Mason. Hagstrom would also write two additional Buffett books - "The Warren Buffett Portfolio" in 1999, and "The Essential Buffett" in 2001.

"Disney, Buffett & ABC"
The Sun Valley Deal

In 1995, Warren Buffett was attending the annual gathering of business and media moguls in Sun Valley, Idaho - a gathering of the rich and powerful for schmoozing, seminars, and sharing ideas in a relaxed setting. Michael Eisner, then chairman of the Walt Disney Company, was there, as well as a number of other Hollywood and media notables. In one talk about his company, Eisner used a letter he had received from Warren Buffett two years earlier to drive home a point about Disney's rising value. In 1993 Buffett had written Eisner explaining: "In 1965, I bought 5 percent of Disney for approximately 4 million dollars. That's the good news. The bad news is that I sold it two years later [1967] at about a $2 million profit."
Eisner then explained that he couldn't resist replying to Buffett - rubbing salt in the wound, more or less - that if Buffett had held his position in Disney through 1993, it would have been worth $552 million. "Since Warren is here today," continued Eisner in his Sun Valley talk, "I just thought I'd bring him up to date. If he had held on to that original investment over all these years, today his $4 million would be worth $869 million." But Eisner was quick to tell his audience they shouldn't feel too badly for Buffett, adding: "If Disney had purchased $4 million worth of Warren's Berkshire Hathaway stock in 1965...it would be worth in excess of $6 billion today."
Warren Buffett, meanwhile, would get another shot at Disney - though this time from a different direction - with the deal-making occurring right there in Sun Valley shortly after Eisner had given his talk. More on that in a moment; first a little background.

In 1979, Warren Buffett's Berkshire Hathaway began to acquire stock in the ABC television network, adding to and holding those shares for the next several years. In March 1985, a company named Capital Cities Communications made a surprising $3.5 billion acquisition of ABC, a stunning media buy as ABC was then some four times bigger than Capital Cities. Warren Buffett and Berkshire Hathaway, it turned out, helped finance the deal. In return, Buffett and Berkshire got a 25 percent stake in the new Cap Cities/ABC colossus, then one of the biggest media concerns on the scene. Buffett, it would turn out, would be right in the middle of some of the biggest media deals of the 1980s and 1990s - and making a few bucks in the process. In 1995, by the time Warren Buffett and Michael Eisner and others were convening at the Sun Valley media fest, Warren Buffett owned 13 percent of Capital Cities/ABC.

After Eisner finished his Sun Valley talk, he happened to run into Warren Buffett in the parking lot. The conversation between the two turned to some current media mergers then in play, as Disney was then considering a move to acquire the CBS television network, also being sought by the Westinghouse Corporation. But then Eisner, of Disney, said to Buffett - "...Unless, of course, you want to sell us Cap Cities [and ABC] for cash." To Eisner's surprise, Buffett responded, "sounds good to me," who then suggested they both go talk to Tom Murphy about it. Murphy was head of Cap Cities and Buffett at that moment happened to be on his way to meet him and Bill Gates of Microsoft. "I'm just going to meet him," Buffet told Eisner. "We have a date to play golf with Bill Gates. Why don't you walk over with me."

Eisner walked along with Buffett and upon meeting Murphy, Buffett made introduction: "Michael wants to pay cash for Cap Cities," said Buffett to Murphy. "I think he's right. Any time we ever bought anything at Berkshire that worked out, it was in cash. What do you think, Tom?" Eisner recalled that Murphy then seemed taken aback by Buffett's direct manner on such a major deal. "...Here we were, standing together in a parking lot in the middle of Idaho, talking about a $20 billion transaction."
- Michael Eisner, Disney CEO In fact, Disney and Cap Cities three months earlier had held unsuccessful negotiations about such a deal. But Eisner and Murphy then proceeded to talk about a new deal while still in the parking lot. Eisner, only a few minutes earlier, had a chance encounter with Larry Tisch, chairman of CBS, who had also passed by. In that conversation, Eisner mentioned to Tisch that Disney was still interested in CBS. So when Eisner next spoke to Murphy, he made sure to casually mention that he had just talked to Tisch, wanting Murphy to know that Disney was looking elsewhere too, i.e., at CBS. Murphy told Eisner he would give the Cap Cities "sale-for-cash" idea more thought, and the two men agreed to talk the next week by phone when they returned to their offices. Eisner later marveled at the serendipity of the whole improbable series of chance meetings that day in Idaho - with all the requisite players coming together within minutes by happenstance to talk about a potential major media deal: "Here we were, standing together in a parking lot in the middle of Idaho, talking about a $20 billion transaction."

After Eisner and Murphy later returned to their offices, they began a series of telephone calls and negotiations, essentially agreeing to a deal after some days of back and forth - and without lots of middle men and lawyers involved. The deal made eminent sense to Buffett-merging the No.1 content company, Disney, with the No.1 distribution company, Cap Cities / ABC. Although at first, Eisner and Disney were still nominally in the running to acquire CBS - and Eisner used that as a point of leverage in his talks with Murphy - CBS would be bought by Westinghouse. Disney then made the deal with Cap Cities/ABC - at $19 billion; then the second largest acquisition in corporate history.

Warren Buffett, as a Cap Cities director, was a major influence on Cap Cities' decision to accept Disney's bid. And Buffett was a very happy camper by the time the deal closed in New York. Berkshire's 20 million shares of Cap Cites fetched a pre-tax return in the neighborhood of $2.1 billion. Buffett took his payment in all Disney stock rather than cash, showing his and Berkshire's confidence in Disney. Buffett had also been buying up additional Disney shares. At the news conference in New York announcing the deal, Buffett, then 64, sat on the dais with Disney Chairman Michael Eisner and Cap Cities/ABC Chairman Thomas Murphy. Eisner repeatedly referred to how much Warren Buffett approved of the deal. Buffett, for his part, added: "This deal makes more sense than any other deal I have seen except for the [1986] Cap Cities and ABC deal. It is a merger of the No. 1 content company [Disney] with the No. 1 distribution company [ABC]."

The Buffett Millionaires
Further enhancing the "pop persona" bona fides of Warren Buffett, were the national press stories that began appearing in the mid-and late-1990s of average people who became fabulously rich courtesy of "Warren's Way." In May 1997, for example, the story of Rabbi Myer Kripke and his wife Dorothy appeared. The Kripke's, who had become friends to Buffett in the 1960s, gave him a $65,000 inheritance at that time to invest. By 1996, Buffet had turned that $65,000 into $25 million. And the Kripkes were not alone. In July 1998 another Buffet-made-millionaire story emerged featuring Polytechnic University professor Donald Othmer and his wife, Mildred, who some decades ago invested most of their savings with Buffett, an old family friend. After the couple passed away - he in 1995 and she in April 1998 - it was learned that they left most of their money to their favorite charities. However, their level of giving was astounding, and clearly distinguished from the typical academic couple, leaving a combined estate of $750 million.
By the late 1990s as well, Buffett's annual gatherings in Omaha were drawing a lot more attention. Berkshire Hathaway's stock value was up a walloping 50 percent, so everybody at those meetings was very happy. By the end of 1998, Berkshire Hathaway had amassed shareholder equity worth $57 billion. This was a staggering sum of money and an awesome accomplishment for Buffett that placed Berkshire ahead of General Electric, Microsoft, and every other U.S. corporation. In fact, worldwide, Berkshire ranked second behind only Royal Dutch/Shell Group. But Buffett and Berkshire showed no signs of slowing down. That year, Berkshire completed the purchase of General Reinsurance for $22 billion, Buffett's largest such deal then to date. By 1999, with insurance giants such as GEICO and General Re at his disposal, Buffett's steady flow of low-cost investment dollars courtesy of the "float" was bigger than ever - then placed at about $21 billion. Meanwhile, those who had invested $10,000 with Berkshire in 1965 would by 1999 have $51 million. By comparison, that same amount invested in the Standard & Poor's 500 stock index over the same time period would have fetched just under $500,000
In late November 1999, Buffett, now 69 years old, was named "investor of the century" in a survey by the Carson Group, placing him ahead of other well-known investors such as Peter Lynch and John Templeton. But not everyone agreed that Buffett was the most astute investor, especially as the high-tech craze overtook Wall Street.
"Warren's Lost It"
In 1999, after Berkshire reported a very small net increase per share for its investors, several newspapers ran stories about the demise of Warren Buffett. As the high-tech stock run up continued into 2000, Warren Buffett was considered by some of the more "go-go" investors of that day as something of a "has been" - an investor who had peaked who was even called "extinct" for staying out of high tech stocks. He was seen as a "your-father's-Oldsmobile" investor at a time when all the kids were buying up those hot, high-tech Lamborghini type stocks. Buffett was skeptical of high-tech stocks and how they made money. Buffett's remarks, though politely received, were seen as out of touch with the "new paradigm" of high technology and ever-rising internet stock valuations. He warned of an overvalued market that was heading for trouble. In fact, at that famous summer gathering of media, technology and financial moguls at Sun Valley, Idaho, Warrren Buffett was asked to give the concluding talk in July 1999. His remarks, though politely received, supported the view among the smart set that Buffett was out of touch with the "new paradigm"of high technology and ever-rising internet stock valuations.

Buffett's talk - complete with stock market history, slides and charts, careful Warren Buffett reasoning, and a share of corny examples - delivered a message that most of his high-tech listeners and their financial sidekicks were not keen to hear. There was no "new paradigm," Buffett said. The market could only yield what the economy produced, and this market was way out of sync in that respect. The next seventeen years, he explained, might not look much better than the dismal 1964-to-1981 period when the Dow had gone exactly nowhere. "If I had to pick the most probable return over that period," he said, "it would probably be six percent." But many investors - including those listening to Buffett's words - expected much higher returns, more in the neighborhood of thirteen to twenty-two percent. Buffett's message that day was largely ignored - until March 2000, when the "dot com" bubble began to implode. Much of Buffett's message that day was ignored and dismissed - until March 2000, when the "dot com"bubble began to implode. Yet for a time, Buffett was considered by the smart money as "out of it" and "losing his edge;" a guy who had missed the high-tech moment and was now rationalizing his mistake.

But Warren Buffett was still a businessman the nation would turn to in time of crisis. After the terrorist attacks of September 11, 2001, Buffett appeared on the Sunday CBS television news magazine, 60 Minutes, as one of three then prominent business figures - along with former General Electric CEO Jack Welch, Jr. and Robert E. Rubin, former U.S. Secretary of Commerce - to help calm the public and assure the nation that the economy could weather the terrorists' attack on New York's financial center.

Warren Buffett has been guided throughout life by a certain set of business values that shaped his investment strategy - tough-minded capitalist tendencies for the most part, the kind that can often be insensitive to worker, community, and other social values. On occasion, Buffett made statements that cast him as uncaring capitalist, focused primarily on financial gain. But he also had experiences that moved him to address the side effects of his investments as well as the general excesses of market capitalism.

Buffett Politics
1950s-2010

Warren Buffett's father, Howard, was a Republican, and a three-term member of U.S. Congress from 1943 to 1949. Like his father, Warren Buffett was a Republican, too - for a time. By the early 1960s, however, he switched parties. "I became a Democrat basically because I felt the Democrats were closer by a considerable margin to what I felt in the early 60s about civil rights," explained Buffett in 1993 comments to a Forbes reporter. "I don't vote the party line. But, I probably vote for more Democrats than Republicans." He has, however, been bipartisan in his political campaign giving.

In 1987, he made donations to the presidential campaign of Senator Bob Dole, Republican of Kansas. He has also supported fellow Nebraskans in their political endeavors, including the 1992 presidential campaign of Democratic Senator Bob Kerrey, and the campaign of Rep. Tom Osborne, Republican and former football coach at the University of Nebraska. In 2000, he gave money to the presidential campaign of former Senator Bill Bradley, Democrat of New Jersey and supported the U.S. Senate campaign of Hillary Clinton, Democrat of New York. In 2003, Buffett donated to the presidential campaign of Senator Bob Graham, Democrat of Florida. He has also supported Senator Russell D. Feingold, Democrat of Wisconsin, and Representative Christopher Shays, Republican of Connecticut, leaders in the fight for campaign finance changes.

In August 2003, Buffett was named an adviser to Republican Arnold Schwarzenegger who became California's governor that October in a special recall election to replace then-Governor Gray Davis. In the 2008 national election, Buffett endorsed Barack Obama for president, stating that he was at odds with Republican candidate Senator John McCain's views on social justice issues.

Early on, in the late 1950s, Buffett had an experience in which he received a dose of bad press as a result of some of his investments. The bad notice came in 1958, after he bought a small windmill-maker in Beatrice, Nebraska called Dempster Mill Manufacturing. In this deal, he proceeded to milk this company's assets and put up the remains for sale. Local papers called it like it was: heartless, big-city financier does a number on local business. Buffett discovered then that he had little stomach for that kind of social critique; he did not like being attacked or painted the ogre. The incident proved a turning point, or at least one that made him more sensitive to repercussions of his money making. Buffett wanted to be a good guy, loved and admired, but he also wanted to become one of the world's richest businessmen. How to do that was the real trick, and he didn't always succeed.

In the mid-1960s, he established the Buffett Foundation, which began disbursing a small portion of money for various causes, mostly to family-planning clinics. In the late 1960s, he worked to integrate Omaha's segregated country clubs, and in the 1970s, through Nebraska newspapers he owned, became involved in bringing the spotlight on Nebraska famous Boy's Town and some questionable uses and expenditures of its endowment. The papers, in fact, won a Pulitzer for the stories.

In 1982, Berkshire instituted a corporate philanthropy program that allowed share- holders to direct a portion of the company's charitable contributions. With this policy, Buffett said he hoped to foster an "owner mentality" among shareholders, who responded enthusiastically, with more than 95 percent participating each year since the program's inception.

In 1986, when he could have made his business a private equity fund, and closed to public scrutiny for the purpose of avoiding certain tax consequences, Buffett chose instead to keep Berkshire Hathaway a public company, paying a tax cost of some $185 million. Some observe that this was part of Buffett's wanting favorable public notice, and that he had "exchanged cash for an audience," as Michael Lewis put it in a 2009 New Republic review of the Buffett biography, Snowball.

Still, at times Buffett would act as an old-fashioned capitalist- exploiting weakness, being insensitive to workers, driving hard bargains, or otherwise not worried about consequences. In 1987, for example, he said of investing in tobacco: "I'll tell you why I like the cigarette business. It costs a penny to make. Sell it for a dollar. It's addictive. And there's fantastic brand loyalty." Buffett would later soften his views on tobacco, noting at his annual shareholder meeting in 1994 that investments in tobacco were "fraught with questions that relate to societal attitudes...." and that he would "not like to have a significant percentage of my net worth invested in tobacco businesses." He added that although the economy of the tobacco business may be fine, "that doesn't mean it has a bright future." Buffett would also use his annual letter to shareholders to speak out on issues of the day, or to criticize certain practices, as he did in March 1999 when he accused fellow CEOs of manipulating earnings figures with accounting tricks, praising efforts by then SEC chairman Arthur Levitt to end such practices.

In October 2002, Buffett announced he would give the Nuclear Threat Initiative $2.5 million over five years and become adviser to its board. The group, founded by Ted Turner and former Sen Sam Nunn, aims to reduce the threat of nuclear, biological and chemical weapons.
More Love, Less Money In 2003, life changed for Warren Buffett. His wife and long time partner, Susie Buffett, was diagnosed with cancer at the age of 72 and would pass away a year later. Buffett began thinking differently then, and according to some observers, he became much more public. Alice Schroeder, writes in her book on Buffett,The Snowball:
"...Before 2003 Buffett's need for attention had been satisfied by a few interviews a year and the shareholder meeting. He had always been careful and strategic in his cooperation with the media (if not always forthcoming about just how cooperative he had been). But starting around the time of Susie's illness, for whatever reason, he had begun to need the mirror of media attention, television cameras especially, almost like a drug. The intervals he could tolerate without publicity were growing shorter. He cooperated with documentaries, spent hours talking to Charlie Rose [moderator of the late night PBS Charlie Rose Show], and became such a regular on CNBC that it started to prompt puzzled queries from his friends."

"Basically, when you get to my age," Buffett would say to a group of business school students around 2003, "you'll really measure your success in life by how many of the people you want to have love you actually do love you." Buffett added that he knew people who had a lot of money, and who got testimonial dinners and hospital wings named after them. "But the truth is that nobody in the world loves them." Warren Buffett wanted people to love him.
The Big Give
In June 2006, Buffett announced that he gradually would give away 85 percent of his Berkshire holdings to five foundations in annual gifts of stock, starting in July 2006. The largest contribution would go to the Bill and Melinda Gates Foundation. Buffett pledged to give the foundation approximately 10 million Berkshire Hathaway Class B shares spread over multiple years through annual contributions - a total 2006 value of approximately $30 billion. The Gates foundation is focused on world health, improving U.S. libraries, and high school education. Bill and Melinda Gates, in fact, credit Buffet with helping to inspire their thinking about giving money back to society. With the dramatic announcement of Buffett's gift, there came a round of news stories and media appearances, some made jointly with Bill and Melinda Gates, and a number by Buffett alone.

In addition to his own philanthropy, Buffett has also occasionally prodded America's wealthiest to do more. In October 2007, he issued a challenge to members of the Forbes 400 richest Americans list, saying he would donate $1 million to charity if the collective group (or a significant number of them) would admit they pay less taxes, as a percentage of income, than their secretaries. Days after issuing the challenge, Buffett appeared before Congress to encourage it to keep the estate tax. Armed with a few Forbes 400 issues at the ready, he told the hearing that "dynastic wealth, the enemy of a meritocracy, is on the rise." He has also spoken out on the market system and wealth distribution: "The market system is not perfect in any kind of distribution of wealth, and taxation is a way you get to the excesses of what the market system produces and where you take care of the people that get the short straws. In a country as prosperous as we are, nobody should get a really short straw."
Buffett, of course, isn't alone among wealthy Americans who have given back to society. Nor is Buffett the first to challenge America's richest to do more. Ted Tuner in 1996, for example, suggested that there be a "400" list for those who gave away the most money, which New York Times columnist Maureen Dowd promptly wrote about in a piece titled "Ted's Excellent Idea."Other Issues
In 2007, Buffett and Berkshire demonstrated some sensitivity to environmental concerns when PacifiCorp, a subsidiary of his MidAmerican Energy Company, cancelled six proposed coal-fired power plants. The cancellations came in the wake of pressure from regulators and citizen groups, including a petition drive organized by Salt Lake City real estate broker Alexander Lofft and directed at Buffett personally. Some 1,600 petitioners - citizens, business owners, public servants, and others - appealed to Buffett in a letter explaining that further coal generation in Utah would compromise health, obscure viewsheds, contaminate watersheds, thin the snowpack, and compromise local economic gains and property values.
Other protests have also targeted one or more Buffett or Berkshire investment from time to time, as in the case of human rights activists in 2007 targeting Buffett's investment in Petro China and that company's role in Darfur; or Native Americans from the Pacific Northwest at odds with MidAmerican Energy dams on the Klamath River; or a Buffett-Berkshire held Fruit of the Loom subsidiary implicated in National Basketball Association products made in Chinese sweatshops.
Money's tendrils, it seems, can lead to some unpleasant places, even as Buffett tries to do the right thing.

"A-Rod & LeBron"
Buffett & Sports Stars
Warren Buffett has also befriended a few sports superstars in recent years, among them, New York Yankee slugger Alex Rodriguez and Cleveland Cavaleirs' LeBron James. Buffett has known Rodriguez on a personal basis for some years now and is a big fan of A-Rod, believing he will eventually set the all-time home run record. "A couple years ago, he got in touch with me and wanted to come in and talk," Buffett explained to a New York Times reporter in 2007. "We hit it off very well." Rodriguez, for his part, says he contacted Buffett because, "I just always admired him as an American icon more than anything... I have so much respect for everything he's accomplished and how humble he's stayed despite all of his success." Before A-Rod and Buffett had become acquainted on a personal level, and earlier in A-Rod's career, in 2000 when Rodriguez had singed his monster 10-year, $252 million contract with the Texas Rangers, one or more of Buffett's insurance companies bought disability insurance on him. "It was a big policy," Buffett later explained, "so big that no one else would write it. I think it was a $260 million permanent disability policy." In November 2007, when Rodriguez was having difficulty in his negotiations with the Yankees over a new contract, he took the advice of Buffett when he bypassed his agent and directly contacted the Yankees for talks. Buffett has an autographed jersey from Rodriguez hanging in his office. Buffett has also befriended and advised Cleveland Cavaliers superstar basketball player LeBron James. They first met in September 2006 when James traveled to Omaha to have lunch with Buffett and his daughter. James, who has stated he has "great respect for Mr. Buffett," has sought Buffett's advice on business maters. LeBron James was drafted by the NBA right out of high school, and has since landed a number of high-powered endorsement deals with Nike and others. But beyond endorsements, James is also interested in putting his money to work in an investment sense, and Buffett can certainly offer guidance and advice on that score. James has expressed an interest in becoming the first billionaire athlete - that is, in terms of the total value his related businesses might generate. James also has endorsement deals with Coca-Cola, a company in which Berkshire Hathaway holds a sizeable stake. Buffett has credited James with the right outlook on his business future. In March 2007, Buffett came to Cleveland to sit courtside as a guest of James at a Cavaliers-Denver Nuggets game. More recently, in July 2009, James attended the Allen & Co. media-mogul fest at Sun Valley, Idaho where he played golf with Buffett, Bill Gates and Charlie Rose.
In 2008, Buffett was then 77, and he had become richest man in the world that year, worth $62 billion according to Forbes, then beating out his old friend Bill Gates who had been No. 1 on the Forbes list for 13 consecutive years. Buffett was now more in the public eye than ever. As Adam Shell of USA Today reported in June 2008:
"...The billionaire investor is out talking to cable TV anchors. To magazines. To share- holders. To Congress. To foreign investors. To a former Wall Street analyst who is writing a book about him.
He's generating newsy sound bites at press conferences. On airplanes. In impromptu TV interviews outside his home. Even in faraway places such as China, South Korea and major cities in the euro zone, where he just got back from a "European Tour."
He's even popped up in a CNBC documentary, The Billionaire Next Door: All Access, which delves into all things Buffett. Not to mention a recent guest appearance on the daytime soap opera All My Children ....

But then came the economic crisis of September 2008. In some ways, the crisis helped put Buffett on even more of a celebrity track - now using his reputation to help explain the crisis, provide some perspective, and again help to reassure the nation. Buffett's "dance card" for interviews, counsel, and economic assistance filled up with ever more appointments. Not the least of these were CEO callers from Fortune 500 companies in some distress, such as General Electric, a one-time Buffett darling.

During the 2008 economic meltdown on Wall Street, the venerable General Electric corporation became part of the carnage, and Warren Buffet's "business celebrity," as well as his deep pockets, were tapped to help ease G.E.'s pain. On September 30, 2008, in an early morning phone call with G.E. CEO Jeffery Immelt, Buffet agreed to help G.E. to the tune of $3 billion - in return for which Buffett received a new issue of preferred stock and warrants which would allow Berkshire to buy an equal amount of common stock over the next five years. As Fortune magazine writers Geoff Colvin and Katie Benner explained in an October 2008 article "GE Under Siege," the special preferred shares issued to Buffett carried a 10 percent coupon, which is paid out by GE from after-tax profits, making it some of the most expensive capital GE could then acquire. But G.E.'s Jeffrey Immelt - who had gone to Omaha for meetings with Buffett and had consulted with him often, according to Fortune's Colvin and Benner - "was willing to pay a steep price for the reassurance the famed investor's endorsement would bring." Buffett soon appeared in advertisements for the company, lending his name, image and a personal endorsement over his signature for GE and its future. In one ad, shown above, the copy that ran with Warren Buffett's photo offered the following: "Warren Buffett says... 'GE is the symbol of American business in the world... I am confident that GE will continue to be successful in the years to come'." Buffett and Berkshire also invested $5 billion in Goldman Sachs a week earlier, with Buffett praising Goldman in a press release and TV interviews. He also appeared on a variety of business and talk shows during the economic crisis, including CNBC a number of times, The Charlie Rose Show, and others.
Throughout 2009 and early 2010, Warren Buffett continued to appear in the media, or otherwise make news with a Berkshire Hathaway move of one sort or another. In April 2009, he appeared on the cover of Fortune magazine as a champion of electric car technology. In November 2009, CNBC featured Buffett and Bill Gates in a two man cable TV special aired with an audience of business students at Warren's alma mater, Columbia Business School in New York City. Buffett and Gates answered questions from students in an hour-long show hosted by Becky Quick on the state of the economy, America's status as a financial superpower, the American Dream, corporate social responsibility and more.
Buffett and Berkshire would continue to surface in the business and mainstream press throughout 2009 and 2010 whenever a major deal was announced, as in Berkshire's acquisition of the Burlington Northern / Sante Fe railroad, a huge acquisition and "bet on the future" as Buffett called it - at $44 billion in total stake, the largest acquisition in Berkshire Hathaway history. Berkshire and Buffett also made news in January 2010 when the company was added to the Standard & Poors' flagship S&P 500 stock index.
As of early 2010, Warren Buffett was still a man on a mission, still in the public eye, and still trying to make a difference with his money. Time was short, of course, but he was determined to get things done. History will likely judge him kindly; as a man who generated wealth from a certain kind of knowledge, putting the proceeds, for the most part, to good and beneficial purposes, making the world a better place.
Since this story was first written in early 2010, Warren Buffett and Bill Gates have launched " The Giving Pledge," a campaign to encourage America's wealthiest families to commit to giving away most of their money to philanthropic causes. The campaign targets billionaires and was made public by Buffett and Gates in June 2010. As of December 2010, more than 50 billionaires - including Paul Allen, Michael Bloom- berg, George Lucas, T. Boone Pickens, Ted Turner, and Mark Zuckerberg - have signed on.

For additional stories at this website on business history and related topics, see for example: "Empire Newhouse, 1920s-2012" (the rise of Sam Newhouse and family as newspaper/magazine/publishing powers and "culture makers," with magazines such as Vanity Fair and The New Yorker, among others); "Murdoch's NY Deals, 1976-1977″ (Rupert Murdoch's newspaper & magazine growth, including his takeover of Clay Felker's New York Magazine); "Ted Turner & CNN, 1980s-1990s" (Ted Turner biz bio & rise of cable TV industry, mergers with Time-Warner and AOL, Jane Fonda, etc.); and, "Wall Street's Gekko, 1980s-2010" (the 1987 Hollywood film, ethics lessons learned?, and subsequent use of Gekko character in business press). Thanks for visiting - and if you like what you find here, please help to support this website with a donation. Thank you. - Jack Doyle

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Date Posted: 26 February 2010
Last Update: 28 January 2018
Comments to: jdoyle@pophistorydig.com

Article Citation:
Jack Doyle, "Celebrity Buffett, 1960s-2010,"
PopHistoryDig.com, February 26, 2010.

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Forbes magazine estimated that Buffett was then worth about $62 billion, a value that has since taken a hit in the economic downturn, but is still in the neighborhood of $40 billion or so. Although Buffett was a well-known figure and even famous in the business community dating to the 1960s, he was not generally known elsewhere.

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PacifiCorp, a unit of Berkshire Hathaway Inc. BRK.B, recently announced its intention to invest $3.5 billion on clean energy projects, according to a media release. Per reports, the company is likely to put in funds for 3 gigawatts of wind and solar farms. The company will develop 1.1 gigawatts of wind projects, mainly in Wyoming, as well as upgrade 900 megawatts of present wind capacity by 2020. This apart, PacifiCorp will build 859 megawatts of wind power and more than 1 gigawatt of solar farms between 2028 and 2036.

Per sources, PacifiCorp will also begin construction on a 140-mile transmission line to send power from wind farms in southwestern Wyoming.

The announcement of this huge investment reinstates bullishness on clean energy. We remind investors that the prospects of Barack Obama's Clean Power Plan has been lurking in uncertainty since Donald Trump's campaign days when he continuously endorsed fossil fuel (primarily coal). In fact, Trump forged ahead with his plans and signed the Energy Independence Executive Order in the last week of March.

Per the U.S. Energy Information Administration (EIA) release, Wind energy capacity is expected to be 95 GW by year-end 2018. Solar power, with total utility-scale capacity of 31 GW by the end of 2018, is expected to account for 1.4% of total utility-scale electricity generation in the year. Investment in clean energy seems a strategic endeavor by Berkshire Hathaway to capitalize on the opportunity.

In a separate development, a newspaper chain owned by Berkshire Hathaway, announced its decision to do away with about 289 positions. The job cuts are intended to lower cost as advertising and circulation revenues are decreasing. Stiff competition due to the shift toward digitization is likely to the main reason for the waning revenues.

Apparently, Berkshire Hathaway is leaving no stone unturned to ramp up its growth profile. The company increased its investment in Apple (increasing stake fourfold) and in the four biggest U.S. airlines (increasing sevenfold) in Feb 2017, exuding confidence in the improving business environment under the new President.

Shares of this Zacks Rank #3 (Hold) insurer gained 17.79% in a year's time, outperforming the Zacks categorized Property and Casualty Insurance industry's increase of 17.12%. We expect Berkshire Hathaway to benefit from its growing Insurance, Manufacturing, Service and Retailing, and Finance and Financial Products segments amid an improving economy. Strategic acquisitions should also boost growth.

Stocks to Consider

Some better-ranked stocks from the insurance industry are American Financial Group, Inc. AFG, The Progressive Corporation PGR and Radian Group Inc. RDN.

American Financial Group engages primarily in P&C insurance with focus on specialized commercial products for businesses. Shares of the company gained 40.72% in a year's time. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

Progressive offers personal and commercial P&C insurance, and other specialty P&C insurance and related services, primarily in the U.S. Shares of the company gained 12.88% over the last year. The stock has a Zacks Rank #1.

Radian Group supports homebuyers, mortgage lenders, loan servicers and investors with a suite of private mortgage insurance and related risk-management products and services. Shares of the company gained 50.30% in a year's time. The stock carries a Zacks Rank #2 (Buy).

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Berkshire Hathaway's Strategic Endeavors to Boost Growth

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PacifiCorp, a unit of Berkshire Hathaway Inc. BRK.B, recently announced its intention to invest $3.5 billion on clean energy projects, according to a media release. Per reports, the company is likely to put in funds for 3 gigawatts of wind and solar farms. The company will develop 1.1 gigawatts of wind projects, mainly in Wyoming, as well as upgrade 900 megawatts of present wind capacity by 2020.

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These are the publicly-traded U.S. stocks owned by Warren Buffett's holding company Berkshire Hathaway, as reported to the Securities and Exchange Commission in filings made available to the public. There are times when Berkshire asks for, and receives, the SEC's permission to temporarily withhold data on some stock holdings.

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Warren Edward Buffett was born on August 30, 1930, to his mother Leila and father Howard, a stockbroker-turned-Congressman. The second oldest, he had two sisters and displayed an amazing aptitude for both money and business at a very early age. Acquaintances recount his uncanny ability to calculate columns of numbers off the top of his head - a feat Warren still amazes business colleagues with today.

At only six years old, Buffett purchased 6-packs of Coca-Cola from his grandfather's grocery store for twenty-five cents and resold each of the bottles for a nickel, pocketing a five cent profit. While other children his age were playing hopscotch and jacks, Warren was making money. Five years later, Buffett took his first step into the world of high finance.

At eleven years old, he purchased three shares of Cities Service Preferred at $38 per share for both himself and his older sister, Doris. Shortly after buying the stock, it fell to just over $27 per share. A frightened but resilient Warren held his shares until they rebounded to $40. He promptly sold them - a mistake he would soon come to regret. Cities Service shot up to $200. The experience taught him one of the basic lessons of investing: patience is a virtue.

In 1947, Warren Buffett graduated from high school when he was 17 years old. It was never his intention to go to college; he had already made $5,000 delivering newspapers (this is equal to $42,610.81 in 2000). His father had other plans and urged his son to attend the Wharton Business School at the University of Pennsylvania.

Buffett only stayed two years, complaining that he knew more than his professors. When Howard was defeated in the 1948 Congressional race, Warren returned home to Omaha and transferred to the University of Nebraska-Lincoln. Despite working full-time, he managed to graduate in only three years.

Warren Buffett approached graduate studies with the same resistance he displayed a few years earlier. He was finally persuaded to apply to Harvard Business School, which, in the worst admission decision in history, rejected him as "too young". Slighted, Warren then applied to Columbia where famed investors Ben Graham and David Dodd taught - an experience that would forever change his life.

Ben Graham had become well known during the 1920s. At a time when the rest of the world was approaching the investment arena as if it were a giant game of roulette, Graham searched for stocks that were so inexpensive they were almost completely devoid of risk. One of his best-known calls was the Northern Pipe Line, an oil transportation company managed by the Rockefellers.

The stock was trading at $65 a share, but after studying the balance sheet, Graham realized that the company had bond holdings worth $95 for every share. The value investor tried to convince management to sell the portfolio, but they refused. Shortly thereafter, he waged a proxy war and secured a spot on the Board of Directors. The company sold its bonds and paid a dividend in the amount of $70 per share.

When he was 40 years old, Ben Graham published Security Analysis, one of the greatest works ever penned on the stock market. At the time, it was risky; investing in equities had become a joke (the Dow Jones had fallen from 381.17 to 41.22 over the course of three to four short years following the crash of 1929). It was around this time that Graham came up with the principle of "intrinsic" business value - a measure of a business's true worth that was completely and totally independent of the stock price.

Using intrinsic value, investors could decide what a company was worth and make investment decisions accordingly. His subsequent book, The Intelligent Investor, which Warren celebrates as "the greatest book on investing ever written", introduced the world to Mr. Market - the best investment analogy in history.

Through his simple yet profound investment principles, Ben Graham became an idyllic figure to the twenty-one-year-old Warren Buffett. Reading an old edition of Who's Who, Warren discovered his mentor was the Chairman of a small, unknown insurance company named GEICO. He hopped a train to Washington D.C. one Saturday morning to find the headquarters. When he got there, the doors were locked. Not to be stopped, Buffett relentlessly pounded on the door until a janitor came to open it for him. He asked if there was anyone in the building.

As luck (or fate) would have it, there was. It turns out that there was a man still working on the sixth floor. Warren was escorted up to meet him and immediately began asking him questions about the company and its business practices; a conversation that stretched on for four hours. The man was none other than Lorimer Davidson, the Financial Vice President. The experience would be something that stayed with Buffett for the rest of his life. He eventually acquired the entire GEICO company through his corporation, Berkshire Hathaway.

Flying through his graduate studies at Columbia, Warren Buffett was the only student ever to earn an A+ in one of Graham's classes. Disappointingly, both Ben Graham and Warren's father advised him not to work on Wall Street after he graduated. Absolutely determined, Buffett offered to work for the Graham partnership for free. Ben turned him down. He preferred to hold his spots for Jews who were not hired at Gentile firms at the time. Warren was crushed.

Returning home, he took a job at his father's brokerage house and began seeing a girl by the name of Susie Thompson. The relationship eventually turned serious and in April of 1952, the two were married. They rented out a three-room apartment for $65 a month; it was run-down and the young couple shared the space with a family of mice. It was here their daughter, also named Susie, was born. In order to save money, they made a bed for her in a dresser drawer.

During these initial years, Warren's investments were predominately limited to a Texaco station and some real estate, but neither were successful. It was also during this time he began teaching night classes at the University of Omaha (something that wouldn't have been possible several months before. In an effort to conquer his intense fear of public speaking, Warren took a course by Dale Carnegie). Thankfully, things changed. Ben Graham called one day, inviting the young stockbroker to come to work for him.

Warren was finally given the opportunity he had long awaited.

Warren and Susie moved into a house in the suburbs of New York. Buffett spent his days analyzing S&P reports, searching for investment opportunities. It was during this time that the differences between the Graham and Buffett philosophies began to emerge.

Warren became interested in how a company worked - what made it superior to competitors. Ben simply wanted numbers whereas Warren was predominately interested in a company's management as a major factor when deciding to invest, Graham looked only at the balance sheet and income statement; he could care less about corporate leadership. Between 1950 and 1956, Warren built his personal capital up to $140,000 from a mere $9,800. With this war chest, he set his sights back on Omaha and began planning his next move.

On May 1, 1956, Warren Buffett rounded up seven limited partners which included his sister Doris and Aunt Alice, raising $105,000 in the process. He put in $100 himself, officially creating the Buffett Associates, Ltd. Before the end of the year, he was managing around $300,000 in capital.

Small, to say the least, but he had much bigger plans for that pool of money. He purchased a house for $31,500, affectionately nicknamed "Buffett's Folly", and managed his partnerships originally from one of the home's bedrooms, then later, a small office. By this time, his life had begun to take shape; he had three children, a beautiful wife, and a very successful business.

Over the course of the next five years, Buffett's partnerships racked up an impressive 251.0% profit, while the Dow was up only 74.3%. A somewhat-celebrity in his hometown, Warren never gave stock tips despite constant requests from friends and strangers alike. By 1962, the partnership had capital in excess of $7.2 million, of which a cool $1 million was Buffett's personal stake (he didn't charge a fee for the partnership - rather Warren was entitled to 1/4 of the profits above 4%).

He also had more than 90 limited partners across the United States. In one decisive move, he melded the partnerships into a single entity called "Buffett Partnerships Ltd.", upped the minimum investment to $100,000, and opened an office in Kiewit Plaza on Farnam street.

In 1962, a man by the name of Charlie Munger moved back to his childhood home of Omaha from California. Though somewhat snobbish, Munger was brilliant in every sense of the word. He had attended Harvard Law School without a Bachelor's Degree. Introduced by mutual friends, Buffett and Charlie were immediately drawn together, providing the roots for a friendship and business collaboration that would last for the next forty years.

Ten years after its founding, the Buffett Partnership assets were up more than 1,156% compared to the Dow's 122.9%. Acting as lord over assets that had ballooned to $44 million dollars, Warren and Susie's personal stake was $6,849,936. Mr. Buffett, as they say, had arrived.

Wisely enough, just as his persona of success was beginning to be firmly established, Warren Buffett closed the partnership to new accounts. The Vietnam war raged full force on the other side of the world and the stock market was being driven up by those who hadn't been around during the depression. All while voicing his concern for rising stock prices, the partnership pulled its biggest coup in 1968, recording a 59.0% gain in value, catapulting to over $104 million in assets.

The next year, Warren went much further than closing the fund to new accounts; he liquidated the partnership. In May 1969, he informed his partners that he was "unable to find any bargains in the current market". Buffett spent the remainder of the year liquidating the portfolio, with the exception of two companies - Berkshire and Diversified Retailing.

The shares of Berkshire were distributed among the partners with a letter from Warren informing them that he would, in some capacity, be involved in the business, but was under no obligation to them in the future. Warren was clear in his intention to hold onto his own stake in the company (he owned 29% of the Berkshire Hathaway stock) but his intentions weren't revealed.

Buffett's role at Berkshire Hathaway had actually been somewhat defined years earlier. On May 10, 1965, after accumulating 49% of the common stock, Warren named himself Director. Terrible management had run the company nearly into the ground, and he was certain with a bit of tweaking, it could be better managed.

Immediately Mr. Buffett made Ken Chace president of the company, giving him complete autonomy over the organization. Although he refused to award stock options on the basis that it was unfair to shareholders, Warren agreed to cosign a loan for $18,000 for his new President to purchase 1,000 shares of the company's stock.

Two years later, in 1967, Warren asked National Indemnity's founder and controlling shareholder Jack Ringwalt to his office. Asked what he thought the company was worth, Ringwalt told Buffett the company was worth at least $50 per share, a $17 premium above its then-trading price of $33.

Warren offered to buy the whole company on the spot - a move that cost him $8.6 million dollars. That same year, Berkshire paid out a dividend of 10 cents on its outstanding stock. It never happened again; Warren said he "must have been in the bathroom when the dividend was declared".

In 1970, Buffett named himself Chairman of the Board of Berkshire Hathaway and for the first time, wrote the letter to the shareholders (Ken Chace had been responsible for the task in the past). That same year, the Chairman's capital allocation began to display his prudence.

Textile profits were a pitiful $45,000, while insurance and banking each brought in $2.1 and $2.6 million dollars. The paltry cash brought in from the struggling looms in New Bedford, Massachusetts had provided the stream of capital necessary to start building Berkshire Hathaway into what it has become today.

A year or so later, Warren Buffett was offered the chance to buy a company by the name of See's Candy. The gourmet chocolate maker sold its own brand of candies to its customers at a premium to regular confectionary treats. The balance sheet reflected what Californians already knew - they were more than willing to pay a bit "extra" for the special "See's" taste.

The businessman decided Berkshire would be willing to purchase the company for $25 million in cash. See's owners were holding out for $30 million, but soon conceded. It was the biggest investment Berkshire or Buffett had ever made.

Following several investments and an SEC investigation (after causing a merger to fail, Warren and Munger offered to buy the stock of Wesco, the target company, at the inflated price simply because they thought it was "the right thing to do" - not surprisingly, the government didn't believe them), Buffett began to see Berkshire Hathaway's net worth climb.

From 1965 to 1975, the company's book value rose from $20 per share to around $95. It was also during this period that Warren made his final purchases of Berkshire stock. (When the partnership dolled out the shares, he owned 29%.

Years later, he had invested more than $15.4 million dollars into the company at an average cost of $32.45 per share.) This brought his ownership to over 43% of the stock with Susie holding another 3%. His entire fortune was placed into Berkshire. With no personal holdings, the company had become his sole investment vehicle.

In 1976, Buffett once again became involved with GEICO. The company had recently reported amazingly high losses and its stock was pummeled down to $2 per share. Warren wisely realized that the basic business was still intact; most of the problems were caused by an inept management team.

Over the next few years, Berkshire built up its position in this ailing insurer and reaped millions in profits. Benjamin Graham, who still held his fortune in the company, died in in September of the same year, shortly before the turnaround. Years later, the insurance giant would become a fully owned subsidiary of Berkshire.

It was shortly thereafter one of the most profound and upsetting events in Buffett's life took place. At forty-five, Susan Buffett left her husband - in form. Although she remained married to Warren, the humanitarian/singer secured an apartment in San Francisco and, insisting she wanted to live on her own, moved there.

Warren was absolutely devastated; throughout his life, Susie had been "the sunshine and rain in [his] garden". The two remained close, speaking every day, taking their annual two-week-long New York trip, and meeting the kids at their California beach house for Christmas get-togethers.

The transition was hard for the businessman, but he eventually grew somewhat accustomed to the new arrangement. Susie called several women in the Omaha area and insisted they go to dinner and a movie with her husband; eventually, she set Warren up with Astrid Menks, a waitress. Within the year, she moved in with Buffett, all with Susie's blessing.

By the late '70s, his reputation had grown to the point that the rumor Warren Buffett was buying a stock was enough to shoot its price up 10%. Berkshire Hathaway's stock was trading at more than $290 a share, and Buffett's personal wealth was almost $140 million. The irony was that Warren never sold a single share of his company, meaning his entire available cash was the $50,000 salary he received. During this time, he made a comment to a broker, "Everything I got is tied up in Berkshire. I'd like a few nickels outside."

This prompted Warren to start investing for his personal life. According to Roger Lowenstein's book, Buffett, Warren was far more speculative with his own investments than he was with Berkshire's. At one point he bought copper futures which were unadulterated speculation. In a short time, he had made $3 million dollars. When prompted to invest in real estate by a friend, he responded: "Why should I buy real estate when the stock market is so easy?"

Later, Buffett once again showed his tendency of bucking the popular trend. In 1981, the decade of greed, Berkshire announced a new charity plan which was thought up by Munger and approved by Warren. The plan called for each shareholder to designate charities which would receive $2 for each Berkshire share the stockholder owned.

This was in response to a common practice on Wall Street of the CEO choosing who received the company's hand-outs (often they would go to the executive's schools, churches, and organizations). The plan was a huge success and over the years the amount was upped for each share. Eventually, the Berkshire shareholders were giving millions of dollars away each year, all to their own causes.

The program was eventually discontinued after associates at one of Berkshire's subsidiaries, The Pampered Chef, experienced discrimination because of the controversial pro-choice charities Buffett chose to allocate his pro-rated portion of the charitable contribution pool. Another important event around this time was the stock price which hit $750 per share in 1982. Most of the gains could be attributed to Berkshire's stock portfolio which was valued at over $1.3 billion dollars.

For all the fine businesses Berkshire had managed collect, one of the best was about to come under its stable. In 1983, Warren Buffett walked into Nebraska Furniture Mart, the multi-million dollar furniture retailer built from scratch by Rose Blumpkin. Speaking to Mrs. B, as local residents called her, Buffett asked if she would be interested in selling the store to Berkshire Hathaway.

Blumpkin's answer was a simple "yes", to which she added she would part for "$60 million". The deal was sealed on a handshake and a one-page contract was drawn up. The Russian-born immigrant merely folded the check without looking at it when she received it days later.

Scott & Fetzer was another great addition to the Berkshire family. The company itself had been the target of a hostile takeover when an LPO was launched by Ralph Schey, the Chairman. The year was 1984, and Ivan Boesky soon launched a counter offer for $60 a share (the original tender offer stood at $50 a share - $5 above market value).

The maker of Kirby vacuum cleaners and World Book encyclopedia, S&F was panicking. Buffett, who had owned a quarter of a million shares, dropped a message to the company asking them to call if they were interested in a merger. The phone rang almost immediately. Berkshire offered $60 per share in cold, hard, cash.

When the deal was wrapped up less than a week later, Berkshire Hathaway had a new $315 million dollar cash-generating powerhouse to add to its collection. The small stream of cash that was taken out of the struggling textile mill had built one of the most powerful companies in the world. Far more impressive things were to be done in the coming decade. Berkshire would see its share price climb from $2,600 to as high as $80,000 in the 1990s.

In 1986, Buffett bought a used Falcon aircraft for $850,000. As he had become increasingly recognizable, it was no longer comfortable for him to fly commercially. The idea of the luxury was a lifestyle that was hard for him to accept, but he loved the jet immensely. The passion for jets eventually, in part, led him to purchase Executive Jet in the 90s.

The 80s went on with Berkshire increasing in value as if on cue, the only bump in the road being the crash of 1987. Warren, who wasn't upset about the market correction, calmly checked the price of his company and went back to work. It was representative of how he viewed stocks and businesses in general. This was one of " Mr. Market's" temporary aberrations. It was quite a strong one; fully one-fourth of Berkshire's market cap was wiped out. Unfazed, Warren plowed on.

A year later, in 1988, he started buying up Coca-Cola stock like an addict. His old neighbor, now the President of Coca-Cola, noticed someone was loading up on shares and became concerned. After researching the transactions, he noticed the trades were being placed from the Midwest.

He immediately thought of Buffett, whom he called. Warren confessed to being the culprit and requested they don't speak of it until he was legally required to disclose his holdings at the 5% threshold. Within a few months, Berkshire owned 7% of the company or $1.02 billion dollars worth of the stock. Within three years, Buffett's Coca-Cola stock would be worth more than the entire value of Berkshire when he made the investment.

By 1989, Berkshire Hathaway was trading at $8,000 a share. Buffett was now, personally, worth more than $3.8 billion dollars. Within the next ten years, he would be worth ten times that amount. Before that would happen, there were much darker times ahead (read The Solomon Scandal).

During the remainder of the 1990s, the stock catapulted as high as $80,000 per share. Even with this astronomical feat, as the dot-com frenzy began to take hold, Warren Buffett was accused of "losing his touch". In 1999, when Berkshire reported a net increase of 0.5% per share, several newspapers ran stories about the demise of the "Oracle of Omaha".

Confident that the technology bubble would burst, Warren Buffett continued to do what he did best: allocate capital to great businesses that were selling below intrinsic value. His efforts did not go unrewarded. When the markets finally did come to their senses, Warren Buffett was once again a star. Berkshire's stock recovered to its previous levels after falling to around $45,000 per share, and the man from Omaha was once again seen as an investment icon.

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Learn About the Life and Business of Billionaire Warren Buffett

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Warren Edward Buffett was born on August 30, 1930, to his mother Leila and father Howard, a stockbroker-turned-Congressman. The second oldest, he had two sisters and displayed an amazing aptitude for both money and business at a very early age.

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Warren Buffett's name is practically synonymous with his biggest success: Berkshire Hathaway ( BRK.A). Warren became an integral part of Berkshire Hathaway in the early 1960s and helped the company expand into one of the largest conglomerates in the world. In 1956, his path to success began to accelerate when he moved back to Nebraska with his family.

Buffett's First Partnership

Before working for Benjamin Graham, Warren had been an investment salesman - a job that he liked doing, except when the stocks he suggested dropped in value and lost money for his clients. To minimize the potential of having irate clients, Warren started a partnership with his close friends and family. The partnership had unique restrictions attached to it: Warren himself would invest only $100 and, through re-invested management fees, would grow his stake in the partnership. Warren would take half of the partnership's gains over 4% and would repay the partnership a quarter of any loss incurred. Furthermore, money could only be added or withdrawn from the partnership on December 31 st, and partners would have no input about the investments in the partnership.

By 1959, Warren had opened a total of seven partnerships and had a 9.5% stake in more than a million dollars of partnership assets. Three years later, Warren was now a millionaire and merged all of his partnerships into a single entity.

Buying Berkshire Hathaway

In 1962, Warren saw an opportunity to invest in a New England textile company called Berkshire Hathaway and bought some of its stock. Warren began to aggressively buy shares after a dispute with its management convinced him that the company needed a change in leadership. Ironically, the purchase of Berkshire Hathaway is one of Warren's major regrets. (For more, see: Always Bet On Berkshire Hathaway.)

Understanding the beauty of owning insurance companies - clients pay premiums today to possibly receive payments decades later - Warren used Berkshire Hathaway as a holding company to buy National Indemnity Company (the first of many insurance companies he would buy) and used its substantial cash flow to finance further acquisitions.

As a value investor, Warren is a sort of jack-of-all-trades when it comes to industry knowledge. Berkshire Hathaway is a great example. Buffett saw a company that was cheap and bought it, regardless of the fact that he wasn't an expert in textile manufacturing. Gradually, Buffett shifted Berkshire's focus away from its traditional endeavors, instead using it as a holding company to invest in other businesses. Over the decades, Warren has bought, held and sold companies in a variety of different industries.

Some of Berkshire Hathaway's most well-known subsidiaries include, but are not limited to, GEICO (yes, that little Gecko belongs to Warren Buffett), Dairy Queen, NetJets, Benjamin Moore & Co., and Fruit of the Loom. Again, these are only a handful of companies of which Berkshire Hathaway has a majority share.

The company also has interests in many other companies, including American Express Co. ( AXP), Costco Wholesale Corp. ( COST), DirectTV ( DTV), General Electric Co. ( GE), General Motors Co. ( GM), Coca-Cola Co. ( KO), International Business Machines Corp. ( IBM), Wal-Mart Stores Inc. ( WMT), Proctor & Gamble Co. ( PG) and Wells Fargo & Co. ( WFC).

(related: How Does Warren Buffett Choose The Companies He Buys?)

Berkshire Woes

Business for Buffett hasn't always been rosy, though. In 1975, Buffett and his business partner, Charlie Munger, were investigated by the Securities and Exchange Commission (SEC) for fraud. The two maintained that they had done nothing wrong and that the purchase of Wesco Financial Corporation only looked suspicious because of their complex system of businesses.

Further trouble came with a large investment in Salomon Inc. In 1991, news broke of a trader breaking Treasury bidding rules on multiple occasions, and only through intense negotiations with the Treasury did Buffett manage to stave off a ban on buying Treasury notes and subsequent bankruptcy for the firm.

In more recent years, Buffett has acted as a financier and facilitator of major transactions. During the Great Recession, Warren invested and lent money to companies that were facing financial disaster. Roughly 10 years later, the effects of these transactions are surfacing and they're enormous:

A loan to Mars Inc. resulted in a $680 million profit

Wells Fargo & Co. (WFC), of which Berkshire Hathaway bought almost 120 million shares during the Great Recession, is up more than 7 times from its 2009 low

American Express Co. (AXP) is up about five times since Warren's investment in 2008

Bank of America Corp. (BAC) pays $300 million a year and Berkshire Hathaway has the option to buy additional shares at around $7 each - less than half of what it trades at today

Goldman Sachs Group Inc. (GS) paid out $500 million in dividends a year and a $500 million redemption bonus when they repurchased the shares.

Most recently, Warren has partnered up with 3G Capital to merge J.H. Heinz Company and Kraft Foods to create the Kraft Heinz Food Company ( KHC). The new company is the third largest food and beverage company in North America and fifth largest in the world, and boasts annual revenues of $28 billion. In 2017, he bought up a significant stake in Pilot Travel Centers, the owners of the Pilot Flying J chain of truck stops. He will become a majority owner over a six-year period.

Modesty and quiet living meant that it took Forbes some time to notice Warren and add him to the list of richest Americans, but when they finally did in 1985, he was already a billionaire. Early investors in Berkshire Hathaway could have bought in as low as $275 a share and by 2014 the stock price had reached $200,000, and was trading just under $300,000 earlier this year.

Warren Buffett: Net Worth & Current Influence

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Warren Buffett: Success Story | Investopedia

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Warren Buffett's name is practically synonymous with his biggest success: Berkshire Hathaway ( BRK.A). Warren became an integral part of Berkshire Hathaway in the early 1960s and helped the company expand into one of the largest conglomerates in the world. In 1956, his path to success began to accelerate when he moved back to Nebraska with his family.

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Who Is Warren Buffett?

Born in Nebraska in 1930, Warren Buffett demonstrated keen business abilities at a young age. He formed Buffett Partnership Ltd. in 1956, and by 1965 he had assumed control of Berkshire Hathaway. Overseeing the growth of a conglomerate with holdings in the media, insurance, energy and food and beverage industries, Buffett became one of the world's richest men and a celebrated philanthropist.

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Wife and Children

In 2006 Buffett, at age 76, married his longtime companion Astrid Menks.

Buffet was previously married to his first wife Susan Thompson from 1952 until her death in 2004, although the couple separated in the 70s. He and Susan had three children: Susan, Howard and Peter.

Net Worth

As for 2018, Buffett has an estimated net worth of $84 billion.

How Much Did Warren Buffett Give Away to Charity?

Between 2006 and 2017, Buffett has given away close to $28 billion in charity, according to a report by USA Today.

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Company: Berkshire Hathaway

In 1956 Buffet formed the firm Buffett Partnership Ltd. in his hometown of Omaha. Utilizing the techniques learned from Graham, he was successful in identifying undervalued companies and became a millionaire. One such enterprise Buffett valued was a textile company named Berkshire Hathaway. He began accumulating stock in the early 1960s, and by 1965 he had assumed control of the company.

Despite the success of Buffett Partnership, its founder dissolved the firm in 1969 to focus on the development of Berkshire Hathaway. He phased out its textile manufacturing division, instead expanding the company by buying assets in media ( The Washington Post), insurance (GEICO) and oil (Exxon). Immensely successful, the "Oracle of Omaha" even managed to spin seemingly poor investments into gold, most notably with his purchase of scandal-plagued Salomon Brothers in 1987.
Following Berkshire Hathaway's significant investment in Coca-Cola, Buffett became director of the company from 1989 until 2006. He has also served as director of Citigroup Global Markets Holdings, Graham Holdings Company and The Gillette Company.

Education & Early Career

Buffett enrolled at the University of Pennsylvania at the age of 16 to study business. He stayed two years, moved to the University of Nebraska to finish up his degree, and emerged from college at age 20 with nearly $10,000 from his childhood businesses.

In 1951 he received his master's degree in economics at Columbia University, where he studied under economist Benjamin Graham, and furthered his education at the New York Institute of Finance.

Influenced by Graham's 1949 book, The Intelligent Investor, Buffett sold securities for Buffett-Falk & Company for three years, then worked for his mentor for two years as an analyst at Graham-Newman Corp.

Recent Activity and Philanthropy

In June 2006, Buffett made an announcement that he would be giving his entire fortune away to charity, committing 85 percent of it to the Bill and Melinda Gates Foundation. This donation became the largest act of charitable giving in United States history. In 2010 Buffett and Gates announced they had formed The Giving Pledge campaign to recruit more wealthy individuals for philanthropic causes.

In 2012 Buffett disclosed that he had been diagnosed with prostate cancer. He began undergoing radiation treatment in July, and successfully completed his treatment in November.

The health scare did little to slow the octogenarian, who annually ranks near the top of the Forbes world billionaires list. In February 2013, Buffett purchased H. J. Heinz with private equity group 3G Capital for $28 billion. Later additions to the Berkshire Hathaway stable included battery maker Duracell and Kraft Foods Group, which merged with Heinz in 2015 to form the third-largest food and beverage company in North America.

In 2016 Buffett launched Drive2Vote, a website aimed at encouraging people in his Nebraska community to exercise their right to vote, as well as to assist in registering and driving voters to a polling location if they needed a ride.

A vocal supporter of Democratic presidential nominee Hillary Clinton, whom he'd endorsed in 2015, Buffett also challenged the Republican nominee, Donald Trump, to meet and share their tax returns. "I will meet him in Omaha or Mar-a-Lago or, he can pick the place, anytime between now and election, he said at an August 1 rally in Omaha. "I'll bring my return, he'll bring his return. We're both under audit. And believe me, nobody's going to stop us from talking about what's on those returns." Trump did not accept the offer, and his refusal to share his returns ultimately did not prevent his election to the presidency in 2016.

In May 2017, Buffett revealed that he had begun selling some of the approximately 81 million shares he owned in IBM stock, noting that he did not value the company as highly as he did six years earlier. Following another sale in the third quarter, his stake in the company dropped to about 37 million shares. On the flip side, he increased his investment in Apple by 3 percent, and became Bank of America's largest shareholder by exercising warrants for 700 million shares. Early the following year, he added more Apple shares to make it Berkshire Hathaway's largest common stock investment.

Healthcare Venture

On January 30, 2018, Berkshire Hathaway, JPMorgan Chase and Amazon delivered a joint press release in which they announced plans to team up and form a new healthcare company for their U.S. employees.

According to the release, the yet-to-be-named company will be "free from profit-making incentives and constraints" as it tries to find ways to cut costs and improve the overall process for patients, with an initial focus on technology solutions.

Calling the swelling costs of healthcare a "hungry tapeworm on the American economy," Buffett said, "We share the belief that putting our collective resources behind the country's best talent can, in time, check the rise in health costs while concurrently enhancing patient satisfaction and outcomes."

In March, outlets reported that Berkshire Hathaway's HomeServices of America Inc., the second-largest residential brokerage owner in the U.S., was set to take more steps toward the top spot, held by Realogy's NRT LLC. Buffett said he "barely noticed" when Berkshire Hathaway originally acquired HomeServices, then part of MidAmerican Energy Holdings Co., back in 2000.

Early Life

Warren Edward Buffett was born on August 30, 1930, in Omaha, Nebraska. Buffett's father, Howard, worked as a stockbroker and served as a U.S. congressman. His mother, Leila Stahl Buffett, was a homemaker. Buffett was the second of three children and the only boy.Buffett demonstrated a knack for financial and business matters early in his childhood. Friends and acquaintances have said the young boy was a mathematical prodigy who could add large columns of numbers in his head, a talent he occasionally demonstrated in his later years.

Warren often visited his father's stockbrokerage shop as a child, and chalked in the stock prices on the blackboard in the office. At 11 years old he made his first investment, buying three shares of Cities Service Preferred at $38 per share. The stock quickly dropped to only $27, but Buffett held on tenaciously until they reached $40. He sold his shares at a small profit, but regretted the decision when Cities Service shot up to nearly $200 a share. He later cited this experience as an early lesson in patience in investing.

First Entrepreneurial Venture

By the age of 13, Buffett was running his own businesses as a paperboy and selling his own horseracing tip sheet. That same year, he filed his first tax return, claiming his bike as a $35 tax deduction.In 1942 Buffett's father was elected to the U.S. House of Representatives, and his family moved to Fredricksburg, Virginia, to be closer to the congressman's new post. Buffett attended Woodrow Wilson High School in Washington, D.C., where he continued plotting new ways to make money. During his high school tenure, he and a friend purchased a used pinball machine for $25. They installed it in a barbershop, and within a few months the profits enabled them to buy other machines. Buffett owned machines in three different locations before he sold the business for $1,200.

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One of America's richest men is now its no. 2 real estate broker. Warren Buffett's Berkshire Hathaway bought HomeServices of America, Inc. in 2000; the company has since grown through acquisitions, including Long & Foster Cos. last year, to dominate its business sector.

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Warren Buffett's stakes