If you had given Warren Buffett $10,000 to invest when he began his career in 1956, your investment would be worth well over $100 million today. In 1965, a share of stock in Buffett’s company would have cost you $18. By 1998 the price had increased to over $80,000*. And if you were lucky enough to have a company Buffett wanted to purchase, you might have been able to tell your grandchildren a story like Albert Ueltschi’s. In 1996 the Kentucky native sold his company, FlightSafety International to Buffet and partners for 16,256 shares of Berkshire stock.

Buffett himself, ranked number two on the Forbes 400, weighs in with a cool $29 billion in shares of his own Berkshire Hathaway. Perhaps the world’s greatest investor, an unassuming gentleman from Omaha, NE, producer of decades of investment results that impress even the shrewdest of Wall Street experts, Buffett describes himself as a simple man with a simple plan.

Is it humble pie, or is the brain behind Berkshire truly an American icon of plain old middle western search for value?

The 76-year-old Buffett brushes off his success. “Stocks are simple,” he has said over and over through the years. “All you do is buy shares in a great business, with managers of the highest integrity and ability, for less than the business is intrinsically worth. Then you own those shares forever.”

Coca-Cola: now that’s simple. The world drinks Coke. Buffett himself switched from Pepsi to Coke, specifically Cherry Coke, when he began buying the stock. Razor maker Gillette: now that’s simple. Buffett likes to tell audiences that he goes to sleep at night with the assurance that millions of men will wake up the next morning and reach for their razors, hopefully a Gillette.

He buys monopolies or near monopolies in industries he knows well and understands: such media companies as The Washington Post, The Buffalo News and Capital Cities/ABC. Newspapers have been in the Buffett family blood for generations.

“A monopoly daily newspaper is the most perfect business franchise in America,” writes John Train in The Midas Touch. “Such a paper is what Buffett likes to call a ‘gross profits royalty,’ a toll bridge that almost all the businesses in town have to use, a business surrounded by the kind of moat that not even Johnny Weissmuller could cross. Thus, although business may be poor, K-Mart has to advertise its specials through an ad in the newspaper or a brochure distributed by the paper.”

He owns a chunk of Disney, too, because, he has said, “Owning Snow White (the movie) is like owning an oil field. You pump it out and sell it and then it seeps back again.” In fact, Disney reissues Snow White every seven years, each time making money.

He also likes such financial concerns as Fannie Mae and American Express. But the big money-maker for Buffett and his Berkshire Hathaway Inc. is a huge holding in property/casualty insurance and reinsurance. Why? Because Buffett has been fascinated with numbers since childhood – even virtually memorized the book One Thousand Ways to Make $1,000 – and says the trick to being successful in the insurance business lies in doing the math. Managers, sharpen your pencils. Accounting is the language of business.

Decades ago, Buffett became interested in auto insurer GEICO since it sold something unusual, auto insurance by mail. By removing agents from the mix , the company saved money on commissions.

At Berkshire’s heart is the large property and casualty insurance operation of GEICO and other insurance holdings which provide about $7 billion of float, or other people’s money. Berkshire receives the money in the form of premiums and invests it, multiplying it until it pays off insurance claims.

Simple money, according to Buffett.

Simple steps
If it were so easy, so simple, then why aren’t any of those Wall Street experts worth in excess of $40 billion?

“How I got here is pretty simple in my case. It’s not IQ, I’m sure you’ll be glad to hear. The big thing is rationality,” Buffett told a crowd of 350 University of Washington students last May, appearing with his close friend, America’s richest man, Microsoft founder Bill Gates. “I always look at IQ and talent as representing the horsepower of the motor, but the output – the efficiency with which that motor works – depends on rationality. A lot of people start out with 400-horsepower motors but only get a hundred horsepower of output. It’s way better to have a 200-horsepower motor and get it all into output.”

“So why do smart people do things that interfere with getting the output they’re entitled to? It gets into the habits and character and temperament and behaving in a rational manner. Not getting in your own way. As I said, everybody here has the ability absolutely to do anything I do and much beyond. Some of you will, and some of you won’t. For the ones who won’t, it will be because you get in your own way, not because the world doesn’t allow you.”

This is vintage Buffett, always making what is complicated to us mere mortals sound simple, common, folksy even. In the many ways Buffett’s life and investment patterns have been simple and common, his achievements have been nothing short of spectacular.

That astounding success record has rewarded his Berkshire shareholders – as well Buffett himself – with an average annual return of more than 30 percent since 1965, beating the Standard & Poor’s 500 index every year since 1981 and posting positive returns even during 1973 and 1974, when the stock market had fallen victim to a nasty economic recession in the United States.

Chairman and chief executive of Berkshire Hathaway, a holding company that employs 38,000 workers and sports a market capitalization of $85.2 billion (it was nearly $100 billion last summer when the stock peaked at $84,000 per share, then plummeted with the rest of the stock market), Buffett is the only member of the Forbes 400 to have earned his wealth entirely through investing, or more specifically, through consistently employing his successful strategy of buying undervalued companies and holding them forever.

Simple life
And for all the fanfare of his success, Buffett has maintained his modest lifestyle and Midwestern values, complete with a straightforward and genial demeanor. Somewhat grandfatherly, he is frugal, working out of a modest office with a staff of 12.8 and no outside advisors. He may be the only billionaire who still does his own taxes.

While Buffett declined to be interviewed for this article – and any other article or book for that matter – because of the number of requests his office receives daily, he nearly always includes in his numerous speeches and widely-followed writings that he loves his work and he likes the people with whom he works.

“I can certainly define happiness, because happy is what I am,” Buffett told students at the University of Washington. “I get to do what I like to do every single day of the year. I get to do it with people I like, and I don’t have to associate with anybody who causes my stomach to churn. I tap-dance to work…I’d advise you that when you go out to work, work for an organization of people you admire, because it will turn you on. I always worry about people who say, ‘I’m going to do this for ten years; I really don’t like it very well. And then I’ll do this…’ That’s a little like saving up sex for your old age. Not a very good idea.

“I have turned down business deals that were otherwise decent deals because I didn’t like the people I would have to work with. I didn’t see any sense in pretending. To get involved with people who cause your stomach to churn – I say it’s a lot like marrying for money. It’s probably a bad idea under any circumstances, but it’s absolutely crazy if you’re already rich, right?”

For a man whose livelihood is entrenched in a cut-throat business measured by winners and losers and noted for lavish spending and greed, Buffett’s character is about as un-Wall Street as one can get.

“Part of the reason Buffett creates the illusion that he can be emulated is that he himself seems so perfectly ordinary,” wrote Money magazine writer Joseph Nocera, upon returning from Omaha last year where he attended a Berkshire Hathaway shareholder meeting. “He is neither strikingly handsome nor particularly charismatic; on the contrary, he seems rumpled most of the time. For a man worth $34 billion (at the time), he lives amazingly simply – his house is the same one he’s lived in for decades (cost $32,500 in 1952, just 1-1/2 miles from the office), for instance, and everyone in Omaha knows where it is.”

Once again, Buffett explains it easily. “I don’t do a lot of innovating in my work,” he said at the University of Washington gathering. “I really have just two functions: One is to allocate capital, which I enjoy doing. And the second one is to help 15 or 20 senior managers keep a group of people enthused about what they do when they have no financial need whatsoever to do it. At least three-quarters of the managers that we have are rich beyond any possible financial need, and therefore my job is to help my senior people keep them interested enough to want to jump out of bed at six o’clock in the morning and work with all of the enthusiasm they did when they were poor and starting out. If I do those two things, they do the innovation.”

Simple devotion
If imitation is the highest form of flattery, then Warren Buffett should invest in flattery futures. With every move he makes, a phalanx of followers watch and report. Most of what he writes and says in speeches is considered gospel.

When word hit the streets in 1991 that investment giant Salomon Inc. had been nailed for illegal trading – a huge blow to the firm – Buffett, then a Salomon director as well as its largest shareholder with a $700 million position, quickly moved in to restore credibility to the long-time Wall Street institution.

Buffett had a reputation as an aggressive investor in such sales-driven companies as American Express and GEICO. A Salomon bond salesman told Newsweek at the time that “ ‘Sales first’ was how Buffett made his money. Putting sales first is how we’ll continue to make our money.”

When there was a rumor in 1997 that Buffett was selling some or all of his 8 percent stake in Wells Fargo & Co., investors immediately dumped the stock for a 6 percent loss in one trading session.

When Buffett purchased 20 percent of the world’s silver in February 1998, nearly every Wall Street analyst was speculating on the reason for this very un-Buffett-like move. One analyst theorized that the future component of the battery would be silver, and Berkshire owns a chunk of Duracell’s parent Gillette. Or was it that silver prices were undervalued?

Many portfolio managers have mimicked Buffett’s holdings, including the Focus Trust fund which is a tribute to Buffett’s reputation. And more than a dozen books, many of them bestsellers, have been published honoring his successful career.

But some of the best of Buffett is his own missive each year in the company’s annual report, required reading for anybody who wants to succeed in business or sales. Investors anxiously await Buffett’s assessment of his performance. Highly critical of himself, Buffett often apologizes for making a rare miscue, or as was the case years ago, of purchasing a cheap corporate jet in 1986. “Whether Berkshire will get its money’s worth from the plane is an open question, but I will work at achieving some business triumph that I can (no matter how dubiously) attribute to it,” wrote Buffett, a distant cousin of music star Jimmy Buffett. “I’m afraid Ben Franklin had my number. Said he: ‘So convenient a thing it is to be a reasonable creature, since it enables one to find or make a reason for everything one has a mind to do’.”

He even told his shareholders in 1996 that Berkshire’s stock was overpriced and not a good investment at that point. People still bought.

He began the 1997 annual report by stating that “Given our gain of 34.1%, it is tempting to declare victory and move on. But last year’s performance was no great triumph: Any investor can chalk up large returns when stocks soar, as they did in 1997. In a bull market, one must avoid the error of the preening duck that quacks boastfully after a torrential rainstorm, thinking that its paddling skills have caused it to rise in the world. A right-thinking duck would instead compare its position after the downpour to that of the other ducks on the pond.”

But nothing speaks volumes about the man as much as the annual pilgrimage thousands of his shareholders make to his stockholder’s meeting, to hear the wise words of their “Oracle from Omaha.” Over the years, the venue has changed to accommodate the growing numbers: some 11,000 attendees last year.

“They come because we make them feel like owners,” Buffett has said over and over. And he’s made many of them millionaires, including former Miami Dolphins coach Don Shula and the late mother of Microsoft founder Bill Gates. By 1987, according to the book The Midas Touch, he had already created 52 millionaires in Omaha alone!

The pilgrimage has an entire three-day weekend’s schedule, with Buffett playing the consummate yet subtle salesman, starting with the opening to his annual report: “You probably know that I don’t make stock recommendations. However, I have two thoughts regarding your personal expenditures that can save you real money. I’m suggesting that you call on the services of two subsidiaries of Berkshire: GEICO and Borsheim’s.”

And Berkshire promotions are sprinkled throughout the entire weekend. This year’s extravaganza begins on May 1. Travel arrangements can be booked through American Express. Tours of Berkshire’s Nebraska Furniture Mart, Dairy Queen and jeweler Borsheim’s are on the agenda. And don’t forget the tickets to the Omaha Spikes game – formerly the Royals – to see Buffett toss out the first pitch.

The actual shareholders’ meeting begins with cans of Coke and a couple of boxes of See’s Candies on a folding table in the middle of the stage; Buffett drinks two to three Cherry Cokes daily, calling it the “nectar of the gods.” Long-time partner Charles Munger prefers Diet Coke. Booths are set up to peddle Berkshire’s wares, including GEICO and World Book Encyclopedia –companies whose products are easy to understand.

“You should invest in a business that even a fool can run,” Buffett is famous for saying, “because someday a fool will.”

Simple success
Warren Buffett achieved his success without ever owning a technology stock, a feat virtually unheard of in today’s investment world. On the front page of the Berkshire Web site, Buffett writes: “Dear Reader, Thanks for visiting our Web site. Being a lifelong technophobe, I tiptoed into the computer world only a few years ago. If you have any ideas about how we can make these pages more useful, just drop me a line.” He did endorse a software program for bridge players years ago, which he frequently uses.

But the greatest irony is that one of Buffett’s closest friends is Bill Gates. Sitting next to Gates, Buffett told the University of Washington students, “I don’t worry about not buying, though, because I didn’t understand that business. And I didn’t understand Intel.” And the Internet, where today’s investors are making a killing, where’s Buffett been?

“I didn’t grasp it at first, but it’s huge. The technological revolution will change the world in dramatic ways, and quickly. Ironically, however, our approach to dealing with that is just the opposite of Bill’s. I look for businesses in which I think I can predict what they’re going to look like in 10 or 15 or 20 years. That means businesses that will look more or less as they do today, except that they’ll be larger and doing more business internationally. So I focus on an absence of change. When I look at the Internet, for example, I try and figure out how an industry or a company can be hurt or changed by it, and then I avoid it. That doesn’t mean I don’t think there’s a lot of money to be made from that change, I just don’t think I’m the one to make a lot of money out of it.

“Take Wrigley’s chewing gum. I don’t think the Internet is going to change how people are going to chew gum. Bill probably does. I don’t think it’s going to change the fact that Coke will be the drink of preference and will gain in per capita consumption around the world; I don’t think it will change whether people shave or how they shave. So we are looking for the very predictable, and you won’t find the very predictable in what Bill does. As a member of society, I applaud what he is doing; but as an investor, I keep a wary eye on it.”

Simple roots
While Buffett worked for everything he has received in life, he didn’t come from some poor family from a rural Nebraska town. Buffett’s father Howard Homan Buffett was an Omaha stockbroker and four-term Republican Congressman.

But, as Andrew Kilpatrick revealed in his book Of Permanent Value: The Story of Warren Buffett, the precocious little guy was already starting on his first million dollars at age six, when he paid a quarter for a six-pack of Cokes and sold each Coke for a nickel, netting a 20 percent return!

Before he reached the teen years, he already was employed at his father’s firm marking prices on the slate in the boardroom while studying the technical analysis of the market in his spare time.
His father’s first term in office brought the family to Washington, where they settled in nearby Fredericksburg (home of Selling Power magazine) and then in downtown Washington. Being a hearty midwesterner, Warren never took well to Washington and consequently his grades suffered miserably in junior high school.

But his penchant for making money was just starting to mature. First it was golf balls, as in retrieving the little white objects lost in the rough bordering a local golf course, then selling them. He ran not one, but two newspaper routes, distributing nearly 500 copies a day of The Washington Post and the Washington Times-Herald, by folding the latter into The Post. Newspapers, including The Post, would play a large role in his future investing success.

Being enterprising, Buffett cross-sold his newspaper subscribers with magazine subscriptions. At the same time, he published a tip sheet called Stable Boy Selections, which handicapped horse races, showing early traces of his mathematical genius.

If that wasn’t enough to keep him busy, Buffett learned the beauty of franchising as a 15-year-old student at Woodrow Wilson High School. Buffett pooled his money with a classmate’s and purchased a $25 pinball machine, placing it in a barbershop where they hung out.

After one day, the kids emptied the machine and much to their surprise found at least $4 in quarters. Ecstatic, they put pinball machines in other barbershops, and after a while, they were netting $50 a week. They also purchased a 1934 Rolls Royce for $350 and rented it out for $35 a day.

Still in high school, Buffett had earned more than $10,000 from his various ventures – in the 1940s, a huge sum of money.

After being denied admission to Harvard, Buffett spent a couple of years at the University of Pennsylvania’s Wharton School before transferring back home to the University of Nebraska, from which he graduated in 1950 with a bachelor of science degree.

Perhaps the single greatest influence on Buffett’s successful career occurred in 1949 when Benjamin Graham published his best-selling book The Intelligent Investor.

“I read the first edition of this book early in 1950, when I was nineteen,” Buffett wrote in the preface to the fifth edition of the book in 1984. “I thought then that it was by far the best book about investing ever written. I still think it is. To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights or inside information. What’s needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework. This book precisely and clearly prescribes the proper framework. You must supply the emotional discipline.”

So impressed was he with the book, Buffett flew to New York to study under Graham and David Dodd, the co-author of the bestseller Security Analysis at Columbia University. Buffett received his MBA in 1951, offered to work without pay at Graham’s investment firm but was declined and headed back to Omaha to work for his father’s company. He kept in contact with Graham, persistently sharing his stock ideas until Graham hired him as an analyst.

That stint lasted two years, and he returned to Omaha for good. The 21-year-old aspiring money manager placed a small ad in an Omaha newspaper inviting people to attend a class on investing. He figured it would be a way to accustom himself to appearing before audiences. Terrified of standing up in public, he forced himself to spend $100 for a Dale Carnegie course on public speaking. Decades later, he gives speeches with ease, totally from an outline in his head, with no written notes.

Simple plans
In 1956, at age 25, Buffett formed a $100,000 private investment firm called Buffett Partnership, investing his own $5,000 and managing it as the general partner, with seven investors as limited partners having no say in the business. The deal was to give investors a 6 percent return each year, plus 75 percent of the proceeds, with Buffett receiving 25 percent of the profits, which he put back into the business.

His initial investors were family members. Buffett worked out of a small office in his house, so it took a lot of confidence for investors to sign up, particularly since he didn’t tell them what he was doing. He didn’t want hundreds of calls and letters from his investors commenting on his picks and advising him to buy other holdings.

In 1965, he added to the Buffett Partnership by purchasing Berkshire Hathaway, a New Bedford, MA, textile company. While the purchase price was cheap, the textile industry in the United States was dying. Although Buffett’s portfolio as a whole was thriving, the Berkshire investment lost money. Buffett is quick to admit that the textile company was one of his worst investments ever.

Then, in 1969, with the stock market booming and no value plays left, he liquidated the Buffett Partnership and distributed the $100 million of proceeds to the nearly 100 investors, a 30 percent per year return. Buffett’s cut: $25 million.

As life is cyclical, so is the stock market. Three years later, the market collapsed during the ’73–’74 recession, and Buffett looked to pick up some extraordinary bargains. “I’m like a sex-starved guy in a harem,” Buffett said at the time. With $25 million to invest, Buffett was back in business for good. He reinstated the Berkshire name, calling his new holding company Berkshire Hathaway, and it has become one of the most astounding and long running successes in American business history.

And he says he is not leaving anytime soon. When asked when he plans to retire and who will be his successor, Buffett quips: “ I will keep working until about five years after I die, and I’ve given the directors a Ouija board so they can keep in touch…I’ve got a letter that’s addressed that will go out at the time, and it starts out, ‘Yesterday I died,’ and then tells what the plans of the company are.” That will be one letter for the bestseller list.

* This price continues to fluctuate.