Tuesday, 7 October 2008

The Warren Buffet Way…….

Warren Buffett (born August 30, 1930) is an American investor, businessman and philanthropist. He is regarded as one of the world's greatest investors, and is the largest shareholder and CEO of Berkshire Hathaway. He was ranked by Forbes as the second richest American with an estimated net worth of $50 billion as of September 17, 2008.

Often called the "Oracle of Omaha", Buffett is noted for his adherence to the value investing philosophy and for his personal frugality despite his immense wealth. His 2006 annual salary was about $100,000, which is small compared to senior executive remuneration in other comparable companies. When he spent $9.7 million of Berkshire's funds on a business jet in 1989, he jokingly named it "The Indefensible" because of his past criticisms of such purchases by other CEOs. He lives in the same house in the central Dundee neighborhood of Omaha that he bought in 1958 for $31,500, today valued at around $700,000.

Buffett is also a noted philanthropist. In 2006, he announced a plan to give away his fortune to charity, with 83% of it going to the Bill & Melinda Gates Foundation. In 2007, he was listed among Time's 100 Most Influential People in The World. He also serves as a member of the board of trustees at Grinnell College.

Five things we like about Warren Buffett

The more we read about this man, the more we like him. This is not to say that he is perfect, or that he has not made mistakes; he has always been the first to admit that he has, and apologize to his shareholders. So here, in no particular order, are the five things we like best about the Sage of Omaha.

1. His approach to charities

The chief executives of big companies often give huge donations to charities and earn themselves big kudos for doing so. The kudos really belong to the shareholders who are the ones actually providing the money and who may, individually, approve or disapprove of the charities selected by management.

Warren Buffet does it differently. Berkshire Hathaway allows shareholders to nominate a particular charity that they want to see their share of the donation going to. This empowers shareholders while still helping out in areas of need. Warren Buffett does not need to feed his ego with the money of others.

(Update: this program has since been terminated)

2. He treats shareholders as true partners

Many company managers treat their shareholders with disdain and sometimes contempt, knowing that small shareholders do not really have any power to vote them out.

Read Warren's letters to shareholders. He takes them into his confidence, communicates fully and, in easy to understand words, what the company has done and is doing, and gives them respect.

He also gives shareholders good value. He does not have a large support staff, and works hard

For whatever they pay him - probably a lot less than paid to less successful CEO's - he nonetheless does not like to waste company money. Sure, he did invest in a company plane, but if you read his letters to stockholders, he has been apologetic about it ever since. Compare this approach to others.

3. He does not take all the credit

Again, this is a hallmark of the man. At annual meetings, he deprecates his own role, gives full credit to his company managers, and is always taking his hat off to his long time partner Charlie Mungus. And he consistently pays credit to his mentor Benjamin

How many CEO's in Buffett's position would be doing this?

4. He is known for his business sense and not his life-style

When one reads stories about Warren Buffett, they generally focus on his business acumen, investment philosophy and the way he has built up his wealth. We do not read about scandals, fast life styles or his ideas on the way other people should live their lives. And that is the way it should be. He does not court this type of publicity, either voluntarily, as others do for an ego-boost, or involuntarily though a life of self-indulgence.

5. His humor

We do not know if Warren's homespun Will Rogers type humour and his Lincolnesque anecdotes are natural or derived and we do not care. He explains complex concepts and thoughts in a simple, understandable way with humor and relevance. That's the way we prefer to be taught.

Here are some very interesting aspects of his life:

1) Warren bought his first share at age 11 and he now regrets that he started too late!

2) He bought a small farm at age 14 with savings from delivering newspapers.

3) He still lives in the same small 3 bedroom house in mid-town, Omaha, that he bought after he got married 50 years ago. He says that he has everything he needs in that house. His house does not have a wall or a fence.

4) He drives his own car everywhere and does not have a driver or security people around him.

5) He never travels by private jet, although he owns the world's largest private jet company.

6) His company, Berkshire Hathaway, owns 63 companies. He writes only one letter each year to the CEOs of these companies, giving them goals for the year. He never holds meetings or calls them on a regular basis.

7) Warren Buffet has given his CEO's only two rules.

Rule number 1: Do not lose any of your share holder's money.

Rule number 2: Do not forget rule number 1.

8) He does not socialize with the high society crowd. His past time after he gets home is to make himself some pop corn and watch television.

9) Bill Gates, the world's richest man met him for the first time only 5 years ago. Bill Gates did not think he had anything in common with Warren Buffet. So he had scheduled his meeting only for half hour. But when Gates met him, the meeting lasted for ten hours and Bill Gates became a devotee of Warren Buffet.

10) Warren Buffet does not carry a cell phone, nor has a computer on his desk.

11) His advice to young people: Stay away from credit cards and invest in yourself.