Why is Warren Buffett so famous?

Warren Buffet is widely regarded as the greatest investor of all time. His investing strategies have made him a billionaire, and even the title as the wealthiest man in the world. His investing principles are simple but effective, and everyone can learn from his style.

The Early Years

Early on, Buffett was quite the entrepreneur and he amassed a small fortune by the time he was 18 years old. Here is a list of some of his activities that helped him generate $56,000 in today's dollars by this young age:

• He sold soda door to door.
• He sold tip sheets for horse races.
• He worked at a local grocery store.
• He had his own paper route which he later sold.
• He put pin ball machines in local stores.
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The Principle of Value Investing

Buffett went on to earn his master's degree, but more importantly he learned the principal of value investing. Studying under Benjamin Graham he learned the importance of buying stock that was cheap compared to their real value. Using this knowledge, he started his first partnership where he would develop an uncanny ability to pick stocks.

What was the Buffett Limited Partnership?

He used his childhood earnings to found Buffett Limited Partnership, where he purchased stocks and aimed to beat the Dow Jones Industrial Average by 10% per year. From 1957-1969 he accomplished this every year.

Taking over the reins at Berkshire Hathaway

Buffett dissolved his partnership and took control of Berkshire Hathaway in 1969. He turned it into a holding company that acquires small companies and purchases large portions of stock. A $1,000 investment in Berkshire Hathaway in 1965 would be worth over $5,000,000 today.

Management Style:

He basically allocates capital to businesses with good economics while keeping the existing management to lead the company.

1. He does not interfere with the running of the company.
2. He is responsible for hiring and setting the compensation for the top executive.
3. He attaches a rate to the capital allocated so the company will return excess capital to be invested for higher returns.

Investing Approach

1. He purchases undervalued securities that offer a higher reward than the risk involved.
2. He likes to purchase stock in companies that have an advantage over competitors where consumers are willing to pay a premium for the product. For example, Coca-Cola, Krispy Kreme Doughnuts, and Starbux.
3. Warren purchases stock in companies with low costs, high growth potential, strong market share, a low price to earnings ratio, and then simply waits for the rest of the world to catch up.

Buffett's Investing Style Avoids Bubbles

During the Internet boom, he steered clear of the bubble and was criticized by many investors. He knew it would all come crashing down and did not change his positions. Sure enough, the bubble popped and he proved once again that patience and value investing pays off.

He Buys What He Understands

Buffett does not invest in businesses he does not understand, which is why he hasn't bought any of his good friend Bill Gates' Microsoft stock. He said risk comes from now knowing what you are doing.

What Is It Like to Be a Billionaire?

Warren still lives in the same house that he purchased for $31,000 in the 1960's. His suits are nothing special and normally his outfit is wrinkled. He eats at Dairy Queen regularly, and prefers burgers over exquisite foods. He drinks a 12 pack of Coca-cola every day, and drives a normal Lincoln town car. One of the few differences between him and a middle class man is his private jet.

Philanthropist

Finally, after a lifetime of being a miser and amassing a fortune, Warren Buffet plans to donate $31 billion to the Bill Gates Foundation.

Financial Crisis of 2008

During the most recent financial crisis in 2008, Buffett was once again criticized for purchasing shares that had lost a significant amount of value. He stuck by his value investing principles, while everyone else panicked and sold shares at extremely cheap prices. Given his track record, he will most likely exit the crises in much better shape than other analysts and investors.