Buffett: It's simple, railroads are not pet rocks

CHICAGO (Reuters) - When Warren Buffett said last month that his Berkshire Hathaway Inc (BRKa.N) (BRKb.N) was buying Burlington Northern Santa Fe Corp (BNI.N) for $26 billion, he characterized the deal as "an all-in wager on the economic future of the United States."

Now, the Oracle of Omaha has explained what he meant.

U.S. railroads are not like hula-hoops or pet rocks, businesses that "came and, you know, went," Buffett said in a transcript of a videotaped question-and-answer session earlier this month with Matthew Rose, BNSF's head

BNSF submitted the transcript on Thursday in a filing with the U.S. Securities and Exchange Commission.

"The rail business is not going to go anyplace," the billionaire investor told Rose, BNSF's chairman, president and chief executive officer.

"It's going to be right here in the United States.

There's going to be four big railroads that are moving more and more goods. So it's... a good business."

Buffett says the deal, his biggest acquisition in the 44 years he has run Berkshire, is driven by his belief that railroads have transformed themselves into highly efficient businesses whose networks will fill up with freight as the economy recovers.

"It has to do well if the country does well," Buffett said, "and the country is going to do well."

He also makes it clear that the purchase is a bet on the prospects for the U.S. economy over the next half century -- not a bet on a near-term recovery.

"I don't know about next week or next month or even next year, but if you look at the next 50 years, this country is going to grow, it's going to have more people, it's going to have more goods moving, and rail is the logical way for many of those goods to travel," he said.

While acknowledging the regulatory challenges the industry faces because of the essential service it provides, and the "tension between shippers and railroads" that can lead to political efforts to affect rates, Buffett said the industry's economic importance means railroad owners are practically guaranteed a reasonable rate of return.

"It can't be something like Coca-Cola (KO.N) or Google (GOOG.O), because it's, you know, it's a public service-type business, too, and it has, it has a fair amount of regulation that is part of the picture," Buffett said.

"But it'll be a good business over time.

It will make sense for this country to want railroads to continue to invest more and more money, in terms of expanding and becoming more efficient.

So you're on the side of society, and society will largely be on your side.

Not every day, but most of the time."

He assured Rose that BNSF will not be micromanaged.

"We've got 20 people in Omaha... and there isn't one of them that knows how to run a railroad," he said.

Asked if Berkshire plans to sell of any BNSF assets to pay debt used for the acquisition, Buffett replied: "Not a dime."

In the interview, Buffett provided a glimpse of the high-class problems that Berkshire, an increasingly diversified conglomerate, creates for itself by not paying dividends.

He said Berkshire, whose 80 units sell everything from Geico car insurance to Fruit of the Loom underwear, generates anywhere from $8 billion to $10 billion a year in cash as a result of its no-payout policy.

The money, Buffett told Rose, just "piles up."

Buffett’s Railroad Adventure: 12 Days and $26 Billion

In “Brewster’s Millions,” Richard Pryor struggled to spend $30 million in 30 days.

Maybe he could have gotten some tips from Warren Buffett.

Two months ago, the Oracle of Omaha spent $26 billion in just 12 days. All he had to do was buy a railroad.

Associated Press

It has been reported before that Berkshire Hathaway’s purchase of Burlington Northern came together quickly.

But an SEC filing late last week on the deal sheds light on just how quickly it came together.

Of course, it’s far easier to get a deal done when there are no rival bids and negotiations over prices are largely nonexistent.

Here’s quick breakdown of how the deal unfolded, as gleaned from that filing:

Oct. 22: Burlington Northern CEO Matthew Rose met with Buffett, who owns 22.6% stake in Burlington.

The pair discussed Burlington’s overall business among other general issues in the previously scheduled meeting.

Berkshire acquiring Burlington isn’t among the topics of conversation. 

Oct. 23: Buffett’s assistant sets up a another meeting with Rose for later that evening.

There, Buffett expresses his interest in acquiring Burlington for $100 a share, if the railroad’s board is receptive.

Oct. 24: Rose tells Ed Whitacre, Burlington’s lead director about the conversation.

Oct 24-26: Rose contacts board members, as well as bankers Goldman Sachs Group and Evercore Partners.

Oct. 26: Burlington holds a special meeting to discuss the proposal.

Oct. 27: Rose calls Buffett to inform him of the board meeting and to further discuss a deal.

Rose asks about Buffett’s investments in two other railroads.

Buffett says that if a deal is struck he would sell his stakes in the other railroad companies.

He also tells Rose he is willing to put a collar of the stock portion of the deal and would recommend 50-for-1 stock split for Berkshire’s class B shares so that Burlington investors could obtain more Berkshire common stock instead of cash for fractional shares. 

Oct. 28: Rose updates his board about the conversation with Buffett the previous day.

Board also reviews its various options and authorizes Rose to enter into discussions with Berkshire.

Later that day Rose calls Buffett to discuss the structure of the deal further.

During the conversation, Rose broaches the topic of Buffett raising his offer. Buffett says $100 a share was all he was willing to pay.

At the end of the conversation, Buffett says he will have Berkshire’s outside counsel draft a merger agreement.

Oct. 29: Berkshire’s outside counsel circulates a draft of a merger agreement.

Oct. 30: The two firms enter a confidentiality agreement.

Oct. 30- Nov. 2: Burlington, Berkshire and the firms’ legal advisers negotiate other terms of the deal.

Nov. 2: The boards of Berkshire and Burlington each meet and approve the merger.

Nov. 3: The deal is announced.

“Buy on the cannons, sell on the trumpets”

28 декември 2009
21 хил. души съкрати Уорън Бъфет през годината
INSURANCE.BG
 



Финансовият гуру чака трайното връщане на търсенето, за да увеличава работните места

Влиянието на глобалната икономическа рецесия принуди Berkshire Hathaway да затвори 21 хил. работни места тази година, заради намаляването на приходите от производствените и търговските си обекта.

В момента, Уорън Бъфет и неговата Berkshire, заедно с дъщерните дружества дават работа на около 225 хил. души, което е 8,6% по-малко отколкото през 2008 г., когато заетите в нея бяха 246 083 души. 

Berkshire предостави информацията заедно със съобщението за планираното придобиване на железница Burlington Northern Santa Fe за $26 млрд.

Бъфет не отговори на молбата за коментар на съкращенията, съобщи Bloomberg.

Главният изпълнителен директор Уорън Бъфет управлява група от над 70 дъщерни дружества, които продават най-разнообразни продукти - от полици за автомобилното застраховане до сладолед.

През първите девет месеца на 2009 г. печалбата от производство, услуги и търговия на дребно на дружеството намаля повече от наполовина.

Това накара Бъфет да смени шефовете на две поделения, чиито продажби намаляха значително. 

Наскоро, в речта си пред 37 хил. служителите на Burlington Northern, Бъфет каза: "Когато времената са добри, вие ще имате повече заети, отколкото когато времената са лоши."

През май Бъфет каза на акционерите, че очаква още съкращения в Berkshire, след направените предишната година в Clayton Homes, която е строи готови жилища, и в производителя на тухли Acme Building Brands. 

Berkshire отчете първата си тримесечна загуба от 2001 г. насам през първото тримесечие на 2009 г. Известното възстановяване на фондовите пазари върна компанията към печалба през второто и третото тримесечие.

"Ще увеличим заетостта в някакъв момент, но няма да го направим, докато не видим трайно възстановяване на търсенето," казва Бъфет в едно от последните си за годината интервюта.

The Financial Lessons of 2009

As we close out 2009, it's a good time to reflect on the lessons we've learned (or at least reinforced) this year. Here are some of mine.

I hope you'll chime in with yours in the comments section.

Momentum is a cruel mistress 

March was eye-opening.

We try to keep perspective by studying the past, but there's nothing like actually living through something.

Remember the state we were in back then -- wholesale bank nationalization was still on the table, the Dow seemed bottomless, and we were dropping GDP faster than Accenture (NYSE: ACN) dropped Tiger.

Investor psyches were even worse off.

All of a sudden, that crazy neighbor stockpiling bottled water, soup, and guns didn't seem all that crazy.

Then we had the type of blistering rally that made us peek at our 401(k)s again.

Sub-lesson 1: Make your portfolio allocation decisions ahead of time -- preferably in good times, not bad. For example, the worst time to flee to from stocks to bonds is after your stocks have taken a beat-down and you're scared. 

Sub-lesson 2: Remember March when you do make your allocation mix among all the choices out there: cash, bonds, stocks (small cap, large cap, dividend payers, established foreign markets, emerging markets), real estate, etc.

Make sure it's an allocation your risk tolerance will allow you to stick with.

Sub-lesson 3: Just as stock returns got turbocharged in March, they could get throttled now. It's a good time to weed out stocks that have rallied without fundamentals.  

All serious value investors should make it out to the Berkshire Hathaway annual meeting once 

In May, I attended the Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) conference (i.e. the Warren Buffett and Charlie Munger love-in) with a few Fools (see some further thoughts here).

It was my first time. 

Yes, you can get most of their wisdom from the meeting dispatches, the annual letter, interviews, books, etc. And yes, from what I hear, it's similar every year.

But for value investors, it's the equivalent of seeing Michael Jordan in person. 

Buffett is 79, and Munger is turning 86 in a few days.

In all things finance, leverage is dangerous  

Even some folks who saved up, put 20% down, and took a 30-year fixed mortgage have seen their financial health ruined by the housing bubble.

Why? Leverage.

Companies that have viable businesses went under.

Why? Leverage.

A key driver of the banking mess?

You guessed it ... leverage. 

Why are folks concerned about runaway inflation?

The U.S. government's increased reliance on ... leverage.

You get it. What does this mean to you, an individual?

Takeaway 1: Do whatever you can to pare down your debt (especially stuff like high-interest credit cards).

Takeaway 2: Be very careful when you make a leveraged purchase like a house ... it can make a lot of sense to own a home (I do), but renting ain't a crime!

Takeaway 3: Be very, very careful when dealing with options.

They act as a non-debt form of leverage, allowing you to magnify gains in some cases and losses in others. Like renting, owning plain vanilla instruments like stocks, bonds, mutual funds, and ETF's ain't a crime!

Takeaway 4: Don't do anything financially that you don't fully understand. Learn first. Act second.

Er, what is value investing?

Where do you see this?

In financial books and websites.
 

What does it mean?

Value investing means buying a stock at less than its intrinsic value in the belief that its true worth will eventually be recognised

. A value investor is primarily attracted by stocks with low prices compared to their underlying book, replacement or liquidation values.

The discount of the market price to the intrinsic value is what legendary investor and author Benjamin Graham called the 'margin of safety'.

This method of investment has been encouraged by legendary investors such as Warren Buffett and Peter Lynch.

Why is it important?

Value investing focuses on firms that have been ignored by the markets.

Since value stocks sell at a discount, they generally experience less volatility and could potentially offer stronger future performance.

Still, just because a stock is cheap does not necessarily mean it has good value.

The risk is that a value stock may remain undervalued or overlooked by the market for a long time.

So you want to use the term. Just say...

'My resolution for the new year is to go into value investing.

Hopefully it'll make me rich in the long run.'

You're No Warren Buffett, Steak n Shake

Remember when Octomom tried to look like Angelina Jolie?

Steak n Shake (NYSE: SNS) is trying to do something similar, with its recent channeling of Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B).

But instead of lip-puffing Botox and a new layered 'do, Steak n Shake is going for a reverse split and an insurance-company acquisition.

Steak n Shake, the company many of us associate with cheap burgers and creative milkshakes, wants to be more than just a restaurant company.

However, its Buffett envy was obvious when it engaged in a 1-for-20 reverse stock split over the weekend and offered to buy all of wee insurer Fremont Michigan InsuraCorp (OTC: FMMH) for $24.50 a share last night.

Let's go over the reverse split, a corporate move that has had several successful executions this year. Whether they occur after a chunky spin-off or as a reaction to a battered share price, reverse splits make perfect sense when a stock is trading for pocket change.

If Blockbuster (NYSE: BBI) and Sirius XM Radio (Nasdaq: SIRI) don't get their stock prices above a buck soon, they, too, will probably go for a reverse play.

Steak n Shake, on the other hand, didn't need a reverse split.

Its stock was trading in the double digits before it decided to swap out every 20 shares for a single share at a price that's 20 times higher.

Investors saw this coming. Chairman Sardar Biglari's letter to shareholders earlier this month spelled out the new strategy.

"Simply because profits are generated in the restaurant business doesn't mean the money must be reinvested there," he wrote.

"Steak n Shake is no longer a static business."

However, after a logical nibble on fellow restaurateur Western Sizzlin (Nasdaq: WEST), going for a small insurer is a head-scratcher, unless Biglari grew up with a Buffett poster in his room.

The reverse split just isn't necessar

y. Biglari credits the move as a way to "attract knowledgeable long-term owners," but savvy investors know that splits are zero-sum games.

Focus is what got Steak n Shake back on track.

Let's hope its new diversified dreams don't derail it again.

Common Stocks And Uncommon Profits: Chapter 3, Part 2

Warren Buffett has called himself "85% Graham and 15% Fisher". While the works of Graham are often cited, Fisher's book "Common Stocks and Uncommon Profits" is not.

Here follows a summary of this work by Philip Fisher, known as one of the greatest investors of all time. 

Fisher continues to list off more of the 15 properties he believes investors should look for in order to identify the stocks with the potential for astronomical returns:
4) Does the company have an above-average sales organization?

Fisher calls the making of repeat sales to satisfied customers the first benchmark of success.

But investors pay far less attention to whether a sales staff is efficient than they do to research, finance, production or other corporate activities.

Fisher attributes the reason for this to the lack of financial ratios that can be applied in order to measure the quality of a sales staff.

But the information is available in a qualitative sense using the "Scuttlebutt" method Fisher described earlier in the book.

Competitors and customers know the efficiency of the sales staff, and they are often quite willing to express their views on the subject.

5) Does the company have a worthwhile profit margin?

Fisher believes that the greatest long-range investment profits are made by investing in the companies with the highest profit margins in the industry.

There are some caveats to look out for though.

Margins should be looked at over a period of many years, since temporary effects can abnormally lower or raise a company's margins.

Furthermore, fundamental changes may be occurring in a company (new product, increase in efficiency) with low margins that will turn it into a company with high margins;

these may be unusually attractive purchases.

Finally, some companies have low margins because they plow a lot of their profits into research and sales, so they are actually building for the future.

Investors counting on this to be the case must make absolutely certain that investing for the future is indeed the real reason for the low margins.

6) What is the company doing to improve margins?

Inflation will continue to increase the costs of most companies, but companies of different abilities will see varying results in their profit margins over time.

Some companies have the ability to increase price in order to maintain or increase margins.

Fisher argues that this only encourages new competitive capacity, and therefore only temporarily increases margins.

But some companies use far more ingenious means to increase margins.

Some corporations have departments whose sole function is to review procedures and methods in order to find savings.

"Scuttlebutt" will not work as well as speaking to company personnel directly about the amount of work being done by the company in this area.

Fisher argues that the investor is fortunate that most top executives are willing to talk in detail about such topics, however.

Burlington Northern's Tepid Outlook Is a Warning 


Burlington Northern warned of a weak economy and tepid recovery ahead of its merger with Berkshire Hathaway. Wall Street, take note.

A PESSIMISTIC BUSINESS FORECAST BY THE management of Burlington Northern Santa Fe as the railroad considered Berkshire Hathaway's merger proposal in late October may mean U.S. industrial activity will be less robust in 2010 than many on Wall Street anticipate.

Railroads, which transport more than 40% of the country's freight, are an excellent gauge of economic activity.

If Burlington's (ticker: BNI) outlook proves accurate, the nation's other major railroads -- CSX (CSX), Norfolk Southern (NSC) and Union Pacific (UNP) -- also could see subpar results.

Shares of all three have rallied since Burlington's Nov. 3 announcement of its acceptance of Berkshire's (BRKA) $34 billion proposal.

After Berkshire CEO Warren Buffett made what proved to be a successful $100-a-share bid to Burlington CEO Matthew Rose, Burlington management sent the railroad's board four potential financial scenarios to consider as it weighed Buffett's proposal.

The most optimistic -- that Burlington could earn $5.06 a share if the economy and the company's business recover in 2010 -- was at odds with Wall Street's far more upbeat 2010 consensus earnings estimate of $5.50 a share, according to the preliminary proxy for the merger.

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Matthew Staver/Bloomberg

Management thought it more likely the economy wouldn't start to recover until 2011 and that the railroad would earn a depressed $4.40 a share in 2010.

The other two scenarios were even more bearish: Either there would be no recovery and unit growth would be flat for five years, or the economy would enter a "deeper recession."

These forecasts suggest Berkshire overpaid for Burlington.

Wall Street thinks Buffett paid a full but not excessive price, especially as 40% of the deal price will be paid in Berkshire shares.

At 99,000 each, Berkshire's Class A shares are little changed since the merger was announced Oct. 23.

The stock is up 2% this year and trades for 1.2 times our estimate of year-end 2009 book value of $84,000 a share, below an average multiple of 1.6 times book in the past decade.

Berkshire looks attractive, given its low valuation and the company's enhanced earnings power, which stems from several well-timed investments Buffett made during the financial crisis, including stakes in preferred stock and warrants of Goldman Sachs and General Electric.

IF BERKSHIRE IS UNDERVALUED, Burlington holders are getting a particularly good deal.

The Burlington board's quick approval of the transaction suggests it believed Buffett is paying a full price.

Besides, the board determined it had few other options; a merger with another big railroad would have raised antitrust issues.

It was told private-equity buyers were unlikely to bid because of the difficulty of financing such as a large purchase.

Burlington is an atypical Berkshire acquisition because it doesn't generate a lot of free cash flow, owing to the costs associated with maintaining its large rail network.

The company spent $3 billion last year on locomotives and other capital equipment, more than double its depreciation expense.

Burlington shares now trade at 98.40, a slight discount to Berkshire's purchase price.

The acquisition is expected to close in the first quarter of 2010.

 

Buffett takes a long view and he called the Burlington deal an "all-in wager on the economic future of the United States."

It also bespeaks his confidence in the American West. Burlington and Union Pacific are the dominant rail carriers west of the Mississippi, with Burlington a major hauler of coal from the Powder River basin of Wyoming and Montana.

It's also a big carrier of agricultural commodities.

WALL STREET IS PLAYING DOWN the importance of Burlington management's bearish 2010 forecast.

"We believe the Burlington board is probably conservative in its approach and economic outlook, which would encourage management to provide scenarios that are also somewhat muted," wrote JPMorgan railroad analyst Thomas Wadewitz in a report titled "Thoughts on BNI's proxy: Were 2010 Scenarios Conservative or Cause for Concern?"

Wadewitz thinks Burlington's forecasts "may not provide a good read for other railroads."

Burlington and other major railroads report weekly car loadings, and Burlington's performance has been the worst of the bunch in recent months.

Its shipment volume is down 14% in the fourth quarter, against a 7% drop for Union Pacific.

Coal traffic, which accounts for about a quarter of Burlington's revenue, has been weak because utilities, the major coal consumers, recently were sitting with 77 days of supply, compared with a normal level of 45 days at this time of year.

The Bottom Line

Warren Buffett's Berkshire Hathaway is paying $100 a share in cash and stock for Burlington Northern. Because Berkshire looks cheap, Burlington holders ay do well.

"There is no V-shaped recovery at this point.

The recovery is shallow," Dan Keen, the assistant vice president of policy analysis with the Association of American Railroads, said in our D.C. Current column last week.

At a time when major market indexes are at or near 2009 highs and valuations on many industrial stocks are signaling a significant recovery, the cautious view of Burlington's management is worth heeding.

It could mean 2010 will be tougher for the markets and the economy than Wall Street expects.

Opinion: The war against the wannabe rich


 
 12/26/2009  


There is class warfare going on in this country — but it's not against the established rich. It's against those who are trying to become wealthy. 

President Barack Obama has declared that those who make over $200,000 will pay higher income taxes. Caps on payroll taxes are supposed to come off as well for the upper class.

Envisioned estate taxes will take 45 percent of individual inheritances valued over $3.5 million.

Many states have also hiked their income taxes on the upper brackets. 

Again, most of those targeted are not the already rich — a Warren Buffett or Bill Gates — but millions of the wannabe rich.

They may have achieved larger-than-average annual incomes, but they're not the multimillionaire speculators on Wall Street who nearly wrecked the American economy in search of huge bonuses and payoffs.

Most are instead professionals and small-business owners who take enormous risks in hopes of being well-off and passing their wealth on to their children. 

Oddly, much of the populist rhetoric about the need to gouge the newly affluent is voiced by the entrenched wealthy, who don't have to care how high taxes go, given their own vast fortunes. 

Take Bill Gates Sr. who is clamoring for higher estate taxes on inheritances.

But such advocacy comes easy for him.

After all, he is the father of the richest man in the world — someone who clearly needs no inheritance. 

Billionaires also often set up 
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charitable foundations to ensure their estates are channeled to their own preferences rather than simply given over to a needy U.S. Treasury.

In contrast, moderately affluent business owners or farmers often leave enough property for their heirs to pay death taxes, but not enough to set up tax-exempt charitable foundations. 

Warren Buffett also wants higher income taxes on the wealthy.

He once confessed that thanks to all sorts of write-offs, he had paid only about 17 percent of his gross income in federal taxes, a lower rate than many employees in his office. 

But Buffett, like Bill Gates Jr., is worth many billions of dollars.

In truth, he has so much money that no amount of taxes would affect him much.

A combined tax bite of 60 percent of his annual income would still leave Buffett each year with millions. 

Yet the same rate could cripple a business owner making $300,000 in annual income. 

Often those in government claim that their higher taxes proposals are simply targeting the affluent like themselves — proof of their own selflessness.

President Obama, for example, has complained that the well-off like himself could afford to pay more. 

But unlike politicians in Washington, most upscale Americans in private enterprise do not receive free government perks and lavish pensions.

Nor are they guaranteed lucrative post-political lobbying and speaking careers. 

Focusing tax hikes on those who in some years make between $200,000 and $500,000 makes no sense in a recession for a variety of reasons.

They are neither the speculators who caused the panic of 2008 nor the Washington politicians who are bankrupting the country. 

Instead, most are small-business owners who hire the majority of the nation's employees. 

But faced with the talk of higher taxes, more regulations and hostile rhetoric, they will remain confused, and so retrench rather than expand. 

With the proposed new income, payroll and health-care tax rates, along with increased state and local taxes, many business owners fear that 60 percent to 70 percent of their income will go to the government.

That does not seem a good way to convince small businesses to hire more workers in hopes of greater rewards. 

Income is also not the only barometer of affluence.

Two-hundred thousand dollars is quite a lot of annual money in Kansas, but does not always go so far in San Jose, where modest houses often cost well over half a million dollars. 

For those whose children do not qualify for need-based scholarships, a private liberal-arts education can easily set a parent back $200,000 per child over four years. 

Why the war against the productive classes who want to be rich? 

Maybe it is because they are not as numerous as the proverbial middle class.

Perhaps they do not earn our empathy that is properly accorded to the poor.

They surely lack the status and insider connections that accrue to the very rich. 

Yet continue to punish and demonize them, and the country will grind to a halt — as we are seeing now.


Victor Davis Hanson is a classicist and historian at the Hoover Institution, Stanford University, and editor, most recently, of "Makers of Ancient Strategy: From the Persian Wars to the Fall of Rome."

Buffett is born August 30, 1930, in Omaha, Nebraska to Howard and Leila Buffett. Howard, a stock broker, is later elected to Congress.


Buffett has two sisters, Doris and Bertie.

Family history

The Buffetts had already been a business-focused family for generations.


According to The Snowball by Alice Schroeder, the only authorized biography, Warren's grandfather, Ernest, owned a lucrative grocery store; Warren's father started a successful stock brokerage firm amidst the turmoil of the free-falling U.S. economy in 1931.

The family motto is "Spend less than you make," a saying that becomes deeply ingrained in Buffett.

The young hustler

Buffett is a competitive businessman early.


According to The Snowball, he begins selling packs of gum and bottles of Coke at six-years-old to make money, putting the change in his favorite accessory: a nickel-plated money changer attached to his belt.

He also learns about the stock market at his father's brokerage office, where he spends much of his free time.

His favorite book? One Thousand Ways to Make $1,000.

Rebellious phase

At age 14, Buffett files his first tax return, having made $1,000 from his paper route, according to The Snowball.


Although succeeding at business, he is not doing as well in the other areas of adolescent life.

According to the biography, Buffett is rebellious: he and his friends regularly steal from the local department store, and he struggles in middle school for lack of interest.

When his father threatens to take away his source of income, the paper route, Buffett shapes up and starts applying himself.

High School

In 1944, Buffett joins the rest of his family in Washington, D.C., where his father had been elected to Congress. He begins attending Woodrow Wilson High School as a sophomore.


According to Schroeder, "He thought like a businessman but did not look like one.

He fit uncomfortably into the high school crowd, showing up with the same tattered sneakers and droopy socks peeking out from under baggy trousers day after day..."

Understanding that he needs to be liked in order to be more successful, his new favorite book becomes Dale Carnegie's How to Win Friends and Influence People.

Buffett's most lucrative endeavor during high school is a series of pinball machines that he and his friend set up in several barbershops, where they rake in the profits.

University

In 1947, Buffett graduates sixteenth out of 350 students.

Underneath his picture in the school yearbook is the self-awarded title of "future stockbroker," according to The Snowball.


He attends The Wharton School at the University of Pennsylvania that fall, but he is unenthused about undergraduate life.

"What was the point?"

Buffett remembers thinking in the book. "I was making enough money to live on.

College was only going to slow me down."

During his time at Wharton, Buffett pledges Alpha Sigma Phi, the fraternity to which his father and uncles belong as well.

In 1949, after his father loses a Congressional election and returns to Nebraska, Buffett also chooses to go home.

He transfers to the University of Nebraska, where he graduates in 1950 with a B.S. in Economics.

Graduation and marriage

After learning that two of his favorite investers, Benjamin Graham and David Dodd, teach there, Buffett applies to and is accepted by the Graduate School of Business at Columbia.

He graduates with a M.S. in Economics in 1951, and returns to Omaha to work as an investment salesman at his father's firm, Buffett-Falk & Co, according to The Snowball.


In 1953, Buffett marries Susan Thompson, and the next year, they welcome their first child -- Susan Alice Buffett.

Birth of Buffett Associates

In 1954, Buffett accepts a job with his idol, Benjamin Graham, at Graham-Newman Corp. in New York.

That same year, the Buffetts have their second child, Howard Graham Buffett (pictured with sister Susie).


In 1956, Graham decides to retire and offers Buffett the chance to become a general partner.

But according to Schroeder: "Without Ben there, it wasn't worth it to stay, not even to be thought of as Graham's intellectual heir."

He refuses the opportunity and instead returns to Omaha to start his own firm: Buffett Associates, Ltd.

Among the seven total partners, Buffett puts in the smallest share at only $100.

"I was brimming with ideas, but I was not brimming with capital," he remarks in The Snowball.

First partnerships

In 1957, Buffett buys a five-bedroom stucco house in Omaha, according to The Snowball, where he will continue to live through the present.

It costs $31,500 and totals about 6,000 square feet, according to Forbes.


The next year, he welcomes his third child, Peter Andrew Buffett.

Warren is introduced to Charlie Munger in 1959 (pictured), who becomes a close friend and ultimately Vice Chairman of Berkshire Hathaway.

Berkshire Hathaway

In 1962, Buffett is a millionaire for the first time and the Buffett Partnership, which began with $105,000, is worth $7.2 million, according to About.com.


Buffett also begins buying shares in a textile manufacturing firm, Berkshire Hathaway, at the same time as moving the partnership's operations to Kiewit plaza (above), where the company remains.

The minimum investment is raised from $25,000 to $100,000, according to About.com.

In 1967, Buffett is personally worth more than $10 million, according to About.com. He briefly considers leaving investing and pursuing other interests.

Growing success

In 1969, Buffett closes the partnership and liquidates its assets to his partners, according to The Snowball.

His personal stake now stands at $25 million;

he's only 39 years old, according to About.com.

In 1973, Berkshire began to acquire stock in the Washington Post Company, run by Katharine Graham, who becomes a lifelong friend (pictured).

Buffett also invests in other newspapers.

Accumulation of wealth

In 1977, wife Susie and Buffett separate, but remain married.

Warren is introduced to Astrid (pictured) by Susie a year later, who becomes his companion, according to The Snowball.


Professionally Buffett makes the Forbes 400 Richest Americans list for the first time in 1979 with a net worth of $620 million, according to About.com.

Warren continues to live on his annual salary of $50,000.

Cherry Coke

The stock market crashes in 1987, and Berkshire loses 25% of its value, dropping from $4,230 per share to around $3,170, according to About.com.

The day of the crash, Buffett loses $342 million personally.


A long-time fan of Coca-Cola -- especially Cherry Coke -- Buffett began buying its stock in 1988.

It proves to be one of Berkshire Hathaway's most profitable investments.

Buffett eventually purchases up to 7 percent of the company for $1.02 billion, according to About.com.

Lost touch?

Berkshire's stock price goes as high as $80,000 per share in the 1990s. 


Still, some wonder if Buffett had "lost his touch" during the dot-com bubble at the end of the decade, according to About.com.

"In 1999, when Berkshire reported a net increase of 0.5% per share, several newspapers ran stories about the demise of the Oracle," says the article.

"Confident that the technology bubble would burst, Warren Buffett continued to do what he did best: allocate capital into great businesses that were selling below intrinsic value."

Diverse holdings

By 2007, Buffett's holding company is well-diversified.


As Forbes notes, there's insurance (Geico, General Re), jewelry (Borsheim's), utilities (MidAmerican Energy), food (Dairy Queen, See's Candies), nearly 80 businesses in total.

Buffett is worth an estimated $62 billion in early 2008.

Gives fortune to charity

In June 2006, Buffett announces he will give away 85 percent of his fortune -- about $37.4 billion at the time -- all in Berkshire stock.


Most of it -- $31 billion -- goes to the Bill & Melinda Gates Foundation, now the largest charitable foundation in the world.

Makes moves in financial crisis

Buffett uses the financial crisis to snap up what he considers undervalued stocks.


In September 2008, Berkshire Hathaway buys $5 billion worth of preferred Goldman Sachs stock and urges investors to "buy American" in a New York Times op-ed.

Buffett also resists some fire-sales, like a last ditch effort from AIG for a loan.

He also was asked to bailout Lehman Brothers, but does not after reviewing the firm's financial reports, according to the Wall Street Journal.

The bets continue

As America pulls out of the recession and the stock market comes back to life, Buffett continues making big bets.


Berkshire Hathaway helps Dow Chemical pay for its takeover of Rohm & Haas with a $3 billion investment in July 2008.

In September 2008, Buffett invests $230 million in BYD, a Chinese electric car company, and seeks to increase the 10% stake less than a year later. In October, he puts $3 billion into General Electric.

Then Berkshire's biggest deal ever. In November 2009, Buffett buys railroad Burlington Northern Santa Fe for $34 billion and bets on the future of the U.S. economy.

Legacy secure

Buffett's legacy is secure.


At 79, he's worth $40 billion, according to Forbes, although that's part of the 85% of his fortune that's been pledged to charity.

He has no plans to retire and is already reaping the profits of his big financial crisis bets, like on Goldman Sachs.

He's remarried to long-time companion Astrid, whom he wed after the death of first-wife Susie in 2004.

Buffett uses the financial crisis to snap up what he considers undervalued stocks.

WARREN BUFFETT OFFICE-Kiewit plaza

ЛЮБИМА КНИГА -One Thousand Ways to Make $1,000.

Warren Buffett worship is taken to a new level in a striking example from the January 2010 edition of Harper's magazine. 

A cartoon of a God-like Buffett graces the cover of the latest edition of Harper's. Looking up in reverence are eight people who have come to worship at the foot of the Berkshire Hathaway master. 

The article's title is "The Church of Warren Buffett: Faith and Fundamentals in Omaha."

It's written by Mattathias Schwartz, who attended the 2009 Berkshire annual meeting.

During his reporting for the article in Omaha and beyond, Schwartz uncovers numerous examples of Buffett devotion.

The most memorable example comes in a barber's chair in the basement of the nondescript Kiewit Plaza office building -- where Berkshire Hathaway's fewer than two dozen employees toil at the company's global headquarters.

In that barber shop where Buffett gets his hair cut every other week, Schwartz finds Morgan Stanley senior vice president R.J. Meurer Jr.

Meurer had come to Stan the barber on the weekend of the annual meeting to sit where Buffett sits, and to place his head in the same spot where the brain of Berkshire Hathaway's chief thinker rests every other week. He peppers Stan for information on when Buffett last sat there and what he was reading.

Meurer, who has been to 10 Berkshire meetings, even keeps a framed piece of Buffett's hair on the wall of his office. 

Schwartz goes on in the article to tell the stories of numerous Buffett disciples.

He also gives a good description of what the annual meeting weekend is like, and how Buffett avoided most of the financial meltdown last year.

Teflon Buffett Has Fired 21,000 People This Year

Warren Buffett is a lovable, avuncular chap, not one of those axe-wielding CEOs who are feared by employees and idolized by the kind of red-claw capitalists who think that firing lots of people is a major leadership skill.

Yet somehow he seems to have fired 21,000 people — 8.6% of his workforce — over the past year. And the cuts are being felt hardest by Berkshire’s poorest employees: some 3,000 textile workers have lost their jobs at Fruit of the Loom in El Salvador.

Alice Schroeder, Buffett’s biographer, explains that Buffett is expert at hiring “bad cops” to fire employees and to insulate himself from any blowback:

Warren Buffett is a lovable, avuncular chap, not one of those axe-wielding CEOs who are feared by employees and idolized by the kind of red-claw capitalists who think that firing lots of people is a major leadership skill. Yet somehow he seems to have fired 21,000 people — 8.6% of his workforce — over the past year.

And the cuts are being felt hardest by Berkshire’s poorest employees: some 3,000 textile workers have lost their jobs at Fruit of the Loom in El Salvador.

Alice Schroeder, Buffett’s biographer, explains that Buffett is expert at hiring “bad cops” to fire employees and to insulate himself from any blowback:

At NetJets, Sokol has got an enormous challenge on his hands.

The changes he’s making at NetJets are so significant that Sokol’s angry employees apparently took their complaints about him to the press.

Try to imagine Berkshire employees doing that to Buffett.

It’s unthinkable, right?

Buffett could order animal sacrifices on his birthday and his employees probably wouldn’t complain to the New York Times…

No matter who succeeds Buffett (Sokol, if he pulls off the turnaround) this part of the franchise will be “lost” after Buffett is gone, because it is unique to the way Buffett has arranged his image over the years.

Buffett has gone to a lot of trouble to be universally liked.

I can’t think of anybody else qualified who can replicate that.

Schroeder explains that being universally liked is a major source of Buffett’s wealth: it makes it a lot easier for him to acquire any given business.

Absent Buffett, it’s going be much harder for Berkshire to acquire the privately-held companies that it specializes in buying.

And more generally, it’s going to be a practical impossibility for Berkshire to be run by someone as teflon-coated as Buffett.

Could anybody else fire 3,000 Salvadorean textile workers and receive essentially no bad press at all?

Buffett poised to pick up GM’s mortgage business

Warren Buffett is understood to be in talks to buy Residential Capital, the troubled mortgage business owned by GMAC, General Motor’s finance division. 

Berkshire Hathaway, the investor’s company is, along with Appaloosa Management and Avenue Capital, the hedge funds, a big holder of Res Cap’s debt. 

Res Cap was America’s fifth-largest mortgage origination and servicing company, but many of its loans were sold on interest-only terms to low income buyers, which meant that it was hit badly by the housing market crash. 

Mr Buffett could be interested in Res Cap’s servicing portfolio, the part of the business that collects mortgage payments, levies late payment fees and handles foreclosures.
This month, Berkadia Commercial Mortgage, Berkshire Hathaway’s part-owned subsidiary, bought a commercial mortgage servicing business from Capmark Financial Group for $468 million (£293 million). 

A GMAC spokesman declined to comment on the future of Res Cap. 

Appaloosa made headlines this week when it emerged that the fund manager had made a $7 billion profit this year by betting on the recovery of the US economy, putting David Tepper, its founder, in line for a $2.5 billion payday. 

Mr Tepper, a former Goldman Sachs bond trader, bought bank shares when they were cheap in February and March, gambling that the financial sector would recover from the credit crisis.

More recently he has bought into commercial mortgage-backed securities, despite fears elsewhere that the sector is going to make further losses next year. 

Michael Carpenter, GMAC’s new chief executive, said in an interview last month that his top priority was deciding the future of Res Cap, which has lost $9.2 billion over the past eight quarters.

Res Cap’s losses were one of the main drivers behind GMAC’s $12.5 billion government bailout. 

Mr Carpenter told American Banker, the newspaper, that he was looking at “every conceivable alternative” for Res Cap, including bankruptcy.

“What we want to do, to the best we’re able to, is draw a box around [Res Cap] and say that’s it contained,” he said. 

Meanwhile, Berkshire Hathaway has sparked fresh excitement over a successor for Mr Buffett by announcing Stephen Burke, Comcast’s chief operating officer, as a new director.

Berkshire’s board has been criticised in the past for being made of up too many elderly insiders — half of the board’s members are older than 70 and four are older than 80. 

Mr Burke, 51, has a long family connection to Mr Buffett. His father, Daniel, was one of the founders of Capital Cities/ABC, of which Berkshire was the biggest shareholder.

Berkshire Has Shed 8% of Workers

Berkshire Hathaway, the conglomerate run by Warren E. Buffett, reported 21,000 fewer employees than it had at the end of 2008 amid a slump at its manufacturing and retail units.

Berkshire and its subsidiaries have about 225,000 workers, the company said this week in regulatory filings, which is 8.6 percent lower than the 246,083 employees it reported in its 2008 annual report.

Berkshire provided the jobs information in a document tied to its planned $26 billion takeover of the railroad Burlington Northern Santa Fe Corporation.

Mr. Buffett did not reply to a request, left with an assistant, for comment on the cuts.

Mr. Buffett, Berkshire’s chief executive, oversees more than 70 subsidiaries, with brands like Geico, Fruit of the Loom and Dairy Queen.

The company is based in Omaha. 

Profit at Berkshire’s manufacturing, service and retail businesses plunged by more than half in the first nine months of the year, and Mr. Buffett replaced the chief executives of two operating units whose sales suffered in the recession.

“When times are good, you’re going to have more people employed than when times are bad,” Mr. Buffett, 79, said this month in a video address to the 37,000 railroad employees that Berkshire will take on next year with the completion of the Burlington Northern takeover.

Mr. Buffett told shareholders at the firm’s annual meeting in May that he expected more cuts at Berkshire after reductions last year at Clayton Homes, which builds manufactured housing, and Acme Building Brands, a brick maker.

In the first three months of this year, Berkshire reported its first quarterly loss since 2001.

The firm returned to profit in the second and third quarters, helped by an advance in the stock market.

The Buffalo News, which is owned by Berkshire Hathaway, started the year with about 846 employees and cut approximately 100 jobs through voluntary attrition, said Daniel Farberman, the newspaper’s vice president.

Most of the cuts came on the production side of the business, he said.