Warren Buffett – Part 2



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Nov 10 2006
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Warren Rejected by Benjamin Graham
Warren tried to get a position with Graham’s firm, offering himself to work for free. However Graham turned him down. Disappointed, Warren went to work at his father’s brokerage. It was during this period the young Warren started dating Susan Thompson. Warren and Susan were introduced to one another by Warren’s sister Roberta Buffett who was Susan’s roommate at Northwestern University. The relationship blossomed and both got married in 1952. Warren was 22 years of age then. Warren and Susan Buffett had three children – Susie, Howard, and Peter.

One fine day in 1954, Warren received a call from none other than Graham. Graham offered him a position which he had long awaited.

Working with Benjamin Graham
Buffett returned to Graham and worked as a security analyst at Graham’s company for two years until 1956. During the period working under his mentor, Warren and Susan moved to New York. “
The Intelligent Investor” was Warren’s bible, which amongst others advised investors to ignore the trends that sweep Wall Street and instead hunt for stocks that trade far below their actual value. Graham called them “cigar butts” – companies the stock market had discarded but that still had a few “puffs” of value left in them.

Graham’s approach was lucrative but it wasn’t fun. Warren spent his days analyzing financial reports, crunching figures which were a challenge to Buffett’s mathematical skills in searching for investment opportunities. The difference between the Graham and Buffett philosophies began to surface when Warren became interested in how a company worked – what made it superior to competitors while Ben simply wanted numbers (income statement, balance sheet and profit and loss).

Warren was particularly interested in a company’s management as a major factor when deciding to invest, to the extent of drove all the way to a company’s work-place to understand for himself the business-nature.

By Ben’s nature, value investing means saying no a lot more than saying yes, and Buffett soon felt constrained by Graham’s strict rules. He believed it made much sense to buy good businesses at a fair price, rather than dying businesses on the cheap-sale. Buffett returned to Omaha two years later, when Graham informed Warren that he decided to retire.

Warren Buffett’s First Step of the Journey
In 1956, at the age of twenty-five, Buffett started his own investment company, the Buffett Associates Ltd, using $5,000 of his own funds and collecting $100,000 from interested friends and family (mostly Omaha hometown investors). Appointed himself as general partner, Warren began to purchase stocks. His goal was to beat the Dow Jones Industrial Average by an average of 10 percent a year.

The partnership was a great success and Buffett is said to have averaged an impressive 251.0% profit, while the Dow was up only 74.3% during the period of five years. By 1962, the partnership had capital in excess of $7.2 million, of which $1 million was Buffett’s personal stake (he didn’t charge a fee for the partnership but was entitled to 25% of the profits). The partnership was dissolved in 1969 and the money invested together with profit was returned to all the initial investors. Warren formed “Buffett Partnerships Ltd” in order to increase the minimum investment from investors.

Warren Buffett & Charlie Munger – A Destiny
In 1962, a man by the name of Charlie Munger moved back to his childhood home of Omaha from California. Charlie Munger was a practicing lawyer, having got into Harvard Law School without having an existing Bachelor degree. It was said that Charlie was somewhat assertive as a student – when challenged by a professor in the Harvard Socratic fashion to analyze a case, Charlie, who had not prepared for the lesson is reputed to have told the professor to give him the facts of the case and he, Charlie, would give him the law.

Charlie was practicing law in Omaha Nebraska when he met Warren Buffett and Buffett eventually persuaded him to give up the law and get into financial investment (both were very closed to each other by then). Charlie did so, a decision that one suspects neither man has regretted. Both of them were destined to worked together, very well indeed that their friendship would last for the next 40 (forty) years. Charlie Munger is not only a brilliant investor, he is also a deep thinker with strong views on society, education and the philosophy of life.

Related Resources :
Warren Buffett – Part 1





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Comments

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copying the first paragraph below- surely this is a error- I cant believe whoever wrote this is totally unaware. would he/she have written “instead he hired a Catholic…”? What does who he hired have to do with the fact that he passed over Buffet at the time. PLease correct – I am sure Warren Buffet and Charlie Munger would not be happy to see this. To say nothing of the Ant-defamation League and ME

Warren tried to get a position with Graham’s firm, offering himself to work for free. However Graham turned him down, instead hired a Jews.

hello paula,

questions (till today) were on the air as to the reason why buffett were given the pass instead of a young unknown – hence the speculation of the same descent reason …

anyway in order not to offend others, the word has been removed …

appreciate your feedback …

cheers …

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