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Warren Buffett

Warren Edward Buffett (b. August 30, 1930, Omaha, Nebraska) is an American investor, businessman and philanthropist.

Buffett has amassed an enormous fortune from astute investments, particularly through the company Berkshire Hathaway, of which he is the largest shareholder and CEO. With an estimated current net worth of around US$46 billion, he is ranked by Forbes as the second-richest person in the world, behind the Microsoft co-founder Bill Gates.

In June 2006, he made a commitment to give away his fortune to charity, with 85% of it going to the Bill and Melinda Gates Foundation.

Buffett's donation was the largest act of charitable giving in United States history.

Despite his immense wealth, Buffett is famous for his unpretentious and frugal lifestyle. When he spent $6.7 million of Berkshire's funds on a corporate jet in 1989, he jokingly named it "The Indefensible" because of his past criticisms of such purchases by other CEOs. He continues to live in the same house in the central Dundee neighborhood of Omaha Nebraska that he bought in 1958 for $31,500. (although he also owns a mansion in Laguna Beach, California).

His annual salary of $100,000 is tiny by the standards of senior executive remuneration in other comparable companies. CEOs in S&P 500 constituent companies averaged about $9 million compensation in 2003.

Buffett was born in Omaha, Nebraska to Howard Buffett, a stock broker and United States Representative, and Leila Buffett. He began working at his father's brokerage at the age of 11, and that same year made his first stock purchase, buying Cities Services shares for $37 each. He sold them when the price reached $40, only to see them rocket to $200 a few years later. This taught him the importance of investing in good companies for the long term. At the age of 14 he spent $1,200 he had saved up from two paper routes [citation needed] to buy 40 acres of farmland which he then rented to tenant farmers.

Buffett initially attended the Wharton School at the University of Pennsylvania, then transferred to the University of Nebraska. There he began his interest in investing after reading Benjamin Graham's The Intelligent Investor.

He obtained a Master's degree in economics in 1951 at Columbia Business School, studying under Benjamin Graham, alongside other future value investors including Walter Schloss and Irving Kahn. Another influence on Buffett's investment philosophy was the well known investor and writer Philip Fisher. After receiving the only A+ Benjamin Graham ever handed out to a student in his security analysis class, Buffett wanted to work at Graham-Newman but was initially turned down. He went to work at his father's brokerage as a salesman until Graham offered him a position in 1954. Buffett returned to Omaha two years later, when Graham retired.

Buffett established Buffett Associates, Ltd., his first investment partnership, in 1956. It was financed by $100 from Buffett, the general partner, and $105,000 from seven limited partners consisting of Buffett's family and friends.

Buffett created several additional partnerships which were later consolidated as Buffett Partnership Limited. He ran the partnerships out of his bedroom, adhering closely to Graham's investment approach and compensation structure. These investments made in excess of 30% compounded annually between 1956 to 1969, in a market where 7% to 11% was the norm.

Buffett employed a three-pronged approach:
Generals: undervalued securities that possess margin of safety and meet expected return-to-risk characteristics Arbitrages: company events that are not related to broader market changes, such as mergers and acquisitions, liquidation, etc. Controls: build sizeable holdings, ally with other shareholders or employ proxies to effect changes in companies In 1962 Buffett Partnerships began purchasing shares of Berkshire Hathaway, a large manufacturing company in the declining textile industry that was selling below its working capital. Buffett would eventually dissolve all his partnerships to focus on running Berkshire Hathaway. At the time, Charlie Munger, Berkshire's current Vice Chairman, remarked that purchasing the company was a mistake, due to the failure of the textile industry. Berkshire, however, became one of the largest holding companies in the world, as Buffett redirected the company's excess cash to acquire private businesses and stocks of public companies. At the core of his strategy were insurance companies, due to the large cash reserves ("float") they must keep on hand to pay out future claims. Essentially, the insurer does not own the float, but may invest it and keep any proceeds.

Under Munger's influence, Buffett's investment approach moved away from a strict adherence to Graham's principles, and he began to focus on high-quality businesses with enduring competitive advantages. He described such advantages as a "moat" that kept rivals at a safe distance, as opposed to commodity businesses, which sell undifferentiated products and face direct competition. A classic example of a wide-moat company is Coca-Cola, because consumers are willing to pay more for a Coke than for a generic beverage with a similar taste. On the other hand, salt is considered a commodity product because consumers generally have no preferences for one brand of salt over another.

Investment in wide-moat businesses has become a hallmark of Berkshire Hathaway, particularly when buying whole companies rather than public stocks. As a result, it now owns a large number of businesses which are dominant players in their respective industries, specialize in various niche markets, or possess other unique characteristics to separate them from their competitors.
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