From Omaha to Wall Street - The journey of investing legend Warren Buffett

An investment strategy that Buffett has been a strong believer has been to invest in “Moats”. Moats refer to any competitive advantage that allows a company to earn outsized profits.

Investing legend and chairman of Berkshire Hathaway Warren Buffett has had many defining moments throughout his career. As he turns 93 on August 30, here are some of the standout legacy moments from Warren Buffett’s journey – from growing up in Omaha, Nebraska, to his foray into investing and beyond.

1. The “Ovarian Lottery” theory

Buffett, who has been at the helm of multi-billion diversified holding group Berkshire Hathaway since 1965, has spoken about his theory called the “Ovarian Lottery” in The Snowball: Warren Buffett and the Business of Life. He said, “Imagine there are two identical twins in the womb, both equally bright and energetic. And the genie says to them, “One of you is going to be born in the United States, and one of you is going to be born in Bangladesh. And if you wind up in Bangladesh, you will pay no taxes. What percentage of your income would you bid to be the one that is born in the United States?” His belief was that being born in the US played an equally important role in his success. He said he won the ovarian lottery for being born in the US, whose economy has been growing from strength to strength, versus any other place, which allowed him the opportunities.

2.      The importance of reading

A voracious reader, Buffett has often spoken about the importance of reading. At the age of 10, Buffett is said to have read every book on investing in the Omaha Library, and encourages people to read as much as they can. At the age of 19, he was introduced to Benjamin Graham, through his book The Intelligent Investor. The book, which he still recommends as a must-read, is what inspired Buffett to head to Columbia to pursue his Master’s degree. In a 2013 letter to Berkshire Hathaway, Buffett said that before reading Graham’s book he was “wandering around the investing landscape, devouring everything written on the subject”. The key points from Intelligent Investor, Buffett says, explained the subject logically and continue to guide his investing decisions even today.

3. On influences closer to home

Buffett over the years has often spoken about the influence and impact of his wife and father on his life. Buffett’s father, Howard Buffett, was a stockbroker who ran a brokerage firm in Omaha and later ran for Congress. He was known for his humility and integrity and Warren Buffett strongly believes and embodies these characteristics. Buffett has credited his father with an important piece of advice – “It takes 20 years to build a reputation and 20 minutes to lose it,” and has called him his biggest teacher in life.

Buffett has also credited his first wife Susan, who passed away in 2004, with playing an important role in his journey. He is quoted as saying that there had been two turning points in his life – being born and meeting his wife Susan. “What happened with me would not have happened without her.” He has also said that deciding who you would marry is an equally important life decision. “Who you marry, which is the ultimate partnership, is enormously important in determining the happiness in your life and your success and I was lucky in that respect.”

4. Graham and the power of investing

While Graham’s book not only inspired Buffett on his investing journey, he has considered the “Father of Investing” an important influence on his investing style today. Graham has been credited for coining the term “Margin of Safety” which emphasised the benefit of “buying an asset at a substantial discount to its intrinsic worth”. This continues to be a core part of Buffett’s principles even today. Talking about Graham’s book Buffett has said, “I can’t remember what I paid for that first copy of The Intelligent Investor. Whatever the cost, it would underscore the truth of Ben’s adage: Price is what you pay, value is what you get. Of all the investments I ever made, buying Ben’s book was the best (except for my purchase of two marriage licenses).”

5) Munger and the power of partnership

A high-value investment that has brought big returns for Buffett has been his partnership with veteran investor Charlie Munger, who is currently the vice chairman of Berkshire Hathaway. He was introduced to Munger by his neighbours in Omaha Dr. Edwin Davis and his wife, who believed that Munger and Buffett would “hit it off”. After being introduced at a party in 1959, the two investors developed a strong friendship where they discussed investments before Munger joined Buffett in Berkshire Hathaway in the 1970s. Munger is also credited with steering Buffett’s interest in investing towards high-quality businesses, from a previous strategy of investing in "cheaper" businesses.

6) Buffett and the power of “Moat”

An investment strategy of which Buffett is a strong believer is to invest in “Moats”. Moats refer to any competitive advantage that allows a company to earn outsized profits. One of the biggest examples of this has been his investment in See’s Candies. This was one of the landmark investments made as a result of the partnership between Charlie Munger and Warren Buffett in 1972. The investment, made on Munger’s recommendation was the highest investment Buffett had ever made at that time – $25 million or 6X of the operating income. In 2011, Buffett revealed that the pre-tax earnings from the investment, over a period of 39 years, had been to the tune of $1.56 billion. Buffett has often referred to his investment in See’s Candies as a “dream investment”.

7) From textiles to insurance 

Buffett has been credited with the vision of identifying the opportunity in Berkshire Hathaway at a time when it was considered a “failing New England textile company.” Buffett had first invested in Berkshire Hathaway in 1962.

At that point in time, Buffett was running his firm The Buffett Partnership. Despite its success, in 1969 “due to his concerns on the economic climate and Wall Street condition”, he decided to shut down the business after liquidating all his shares, except Berkshire Hathaway and returning money to his investors. He took full control of Berkshire Hathaway in 1965. Buffett has often referred to his Berkshire Hathaway as the dumbest stock he ever purchased due to the huge amounts of costs and losses he incurred.

The cash flow from Berkshire Hathaway was used to invest in the more successful segment such as buying into National Indemnity to utilise the “free cash” the business brought into the company to make further investments. This free cash, or float, has been a tactic credited to a major part of Buffett’s business success, contributing to “almost a third of Berkshire Hathaway’s annual returns”. He made a similar investment in GEICO from 1975 to 1980.

8) Operating in a circle of competence

Buffett has often spoken about operating that one should invest “in your own circle of competence”. In a 2006 letter to Berkshire Hathaway, Buffett said that intelligent investing is not complex, though that is far from saying that it is easy. “What an investor needs is the ability to correctly evaluate selected businesses. You don't have to be an expert on every company, or even many. You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however, is vital.” But despite this, Buffett has constantly expanded his own circle of competence through constant learning. One such example was his investment in tech, which he had previously resisted as he did not understand tech.

9) Giving back

In 1986, Buffett entered the coveted “Billionaires” club at the age of 56. Today, as per Bloomberg data, Warren Buffett has a net worth of over $120 billion. Despite his wealth, Buffett has compared wealth to “claim checks on the activities of others in the future”. In Snowball, he is quoted as saying that one can save or give away their money as they like but the idea of passing wealth “so that your descendants can command the resources of other people simply because they came from the right womb flies right into the face of a meritocratic society.” In 2006, Buffett had announced that he would decide to donate “98 percent of his wealth” to the Bill and Melinda Gates Foundation. As of June 2023, according to a CNBC report, Buffett’s total charitable giving was more than $50 billion, which is significantly higher than his entire net worth in 2006 when he first scheduled the grants.