Ever thought of yourself as a shareholder at an age of 11? Well, this is what Warren Buffett was at that age.
At the tender age of 11, when a boy should be fiddling would go on to become the oracle of Omaha (his hometown) was already jiggling around in the stock market, having bought a few shares of cities services.
Today Buffett is one of the wealthiest person in the world. He is the chairman, CEO and largest shareholder of the Berkshire, Hathaway, his multinational conglomerate and investment company.
Back to basics
Buffett always had his eye on money. As a high schooler, he and a friend bought a used pinball machine for $25 and placed it in a barber shop. A few months later they sold that machine and a few others – pocketing a cool $1200.
By the age of 18, a time when most kids today are worrying about what they should write on their college admissions essays, Buffett had set aside the equivalent of $100,000 today in savings. He would go on to attend the Wharton School at UPenn and then pushed on to Columbia University, where he would meet his friend and mentor Benjamin Graham.
Graham evidently gave the value investing community notions like margin of safety, intrinsic value and the idea of equity ownership signifying a stake in a real live business. Buffett still mostly lives by these precepts but the way in which he deploys capital has changed dramatically over the years. In fact, Buffett has gone through three clear phases since he first sat at Graham’s knee.
Stage 1: Cigars
Early Buffett pursued an investing approach known as cigar butt investing, and is straight from the Benjamin Graham playbook.
This method of investing requires the investor to hunt for mediocre companies trading at deep discounts. It’s a bit like shopping for a DVD in the bargain bin. Everything is evidenced down and mostly junk, but there might be something you can watch.
Stage 2: Moats
Buffet evolved the cigar butt investing method into the moat investing method. This entails investing in solid companies with solid fundamentals and a wide economic moat. An economic moat states to when a business has a competitive advantage over other companies in the same space that allows it to earn above-average returns.
Stage 3: Private Equity
The final stage of Buffett’s evolution is as a kind of private equity firm. Buffett went from buying stakes in amazing businesses to swallowing up whole businesses and incorporating them into the behemoth conglomerate that is Berkshire Hathaway.
It’s unlikely that Buffett was take a step back in his evolution. As Berkshire has grown, it’s become tougher for the Oracle to move the needle in any way other than through large-scale acquisitions. He’s currently resting on a $90 billion cash pile and waiting to pounce on the right opportunity.
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