Warren Buffett - Investments, Philanthropy
Imagine that for over a hundred years, your family has owned a modestly successful textile mill in New England. Changes to the economy and competition from overseas make the textile industry more difficult. As you look to the future, there's not much hope of continued success.
One day, an investor buys a controlling interest in your company. As profits diminish, the investor uses your family's firm as a holding company for other investments until manufacturing is shut down altogether. Although you don't know it, this man will eventually be considered the world's greatest investor. He will also become the richest man in America. Thanks to him, your minority ownership will eventually be worth billions.
The man who created this wealth is investor Warren Buffett. Starting with limited partnerships, he eventually grouped his holdings under the umbrella of textile manufacturer Berkshire Hathaway. For most of his investment life, Buffett achieved average annual returns of about 25%, more than twice the average for the same period.
Although those returns meant he multiplied his money about ten-fold every decade, Buffett never got the recognition he felt he deserved from America's business schools. Was his "buy-and-hold" investment strategy simply too boring to be of interest to professors who teach complex theories and the latest stock trends? Did his success violate the academic theories of efficient markets that claim no investor can significantly beat the market? Or was it professional jealousy?
Whatever the cause, Buffett's treatment is unfortunate. There is much to be learned from his life and investment style. Some of his actions support current theories of finance and others contradict it but all of it is informative.
Some people say Buffett was just lucky. As Buffett himself attributes most of his success to investments in only five companies, you can decide if his wealth was created through skill or luck. While you decide, note that the group of billionaires who rode along with Buffett include his wife (who has a separate listing on the Forbes 400), investment partner Charlie Munger, and the long-time owners of Berkshire Hathaway.