Thesis on "Warren Buffett"

Thesis 5 pages (1759 words) Sources: 6 Style: MLA

[EXCERPT] . . . .

Warren Buffett -- Rich, Respected, and Generous

Those involved in the world of business and finance know the name "Warren Buffett" very well of course, but even ordinary citizens whose business acumen amounts to balancing a checkbook haven't been able to avoid hearing and seeing his name. That is because Buffett is part of a small community of fabulously wealthy individuals whose decisions and deals have a profound affect on markets and the movement of money. And Buffett has become an icon in part because he has transcended mere wealth and moved into the realm of social issues and philanthropy. He is in a way an iconoclastic figure, a billionaire living in the $31,500 home in Omaha that he bought in 1958, who wears "off the rack" suits and is considered "perhaps the most widely admired member of the financial community" (www.nytimes.com). This paper reviews Buffett's life and times through books and articles that have been written about this richest man in the world.

There are many engaging and interesting -- even fascinating -- articles about Buffett, but the most up-to-date article to be reviewed in this paper is by Marc Gunther of Fortune magazine (Gunther 2009). The article details why Buffett is probably moving ahead of his competitors again, this time because he is investing in electric cars.

One of the most interesting things about Buffett is the way he spins out his various "rules" for businesses and for making good business decisions. Two of those rules are explained by Gunther: one, when investing, be sure to invest in a company that "even a fool can run, because someday a fool will"; and two, "never invest in a business you cannot understand" (Gunther).

One of Buffett's latest investments -- BYD -- is somewhat controversial because it is an "obscure Chinese battery, mobile phone, and electric car company," Gunther writes. And to make that $250 million commitment now after having refused to invest in the booming U.S. technology movement in the 1990s is somewhat baffling. But one thing business pundits have learned is not to second guess Buffett, and in this case, Gunther goes on, Buffett believes that BYD could become the "world's largest automaker, primarily by selling electric cars." So why did Buffett invest -- going against his own rule -- when he admits he knows nothing about cars, cell phones or batteries? The answer is because his business partners (Charlie Munger and Dave Sokol) are "smart guys" who do understand those technologies; moreover, the owner of BYD, Wang Chuan-Fu, refused to sell Buffett the 25% of the company that Buffett wanted. By not wishing to sell more than 10% of his company, he made a big impression on Buffett (Gunther).

Gunther traveled to China to meet Wang and find out why Buffett has made an investment in a company run so frugally by an engineer who has no interest in wealth. Obviously Gunther believes that by investigating BYD, he is learning more about Buffett's glimpse into the future. The future for Buffett is in the creation of technologies and products that can help solve environmental problems. "One way or another," Sokol explains to Gunther, energy companies will need to produce more energy while emitting less carbon dioxide, and electric cars will be one obvious answer.

Buffett and his partners were very impressed with Wang's vision for building batteries that are 100% recyclable. In fact, when Sokol visited China, Wang demonstrated the "nontoxic electrolyte fluid" used in the battery by pouring some of the fluid into a glass and drinking it down. He offered Sokol a sip. Sokol politely declined. The day after Gunther from Forbes visited in China with Wang, the governor of Oregon (Ted Kulongoski) showed up for a test-drive of the electric car Wang is manufacturing. There is no doubt that electric cars are the future of personal transportation; in order to make sure that these cars that BYD builds will have enough electricity to power them -- without the need for new environmentally disastrous fossil fuel plants -- Wang's next "green" investment will be the "Home Clean Power Solution," solar photovoltaic panels with built in batteries to store power for when the sun doesn't shine. But right now, the sun continues to shine on Buffett, who, while not well versed in the matter of batteries or cars, fully understands "drive" -- which needs no translation, Gunther concludes.

Buffett's Wealth Strategy: Warren Buffett's strategy for accumulating wealth is based in large part on his unique blend of common sense and fiscal vision. His company, Berkshire Hathaway, holds title to See's Candies, Benjamin Moore paints, Dairy Queen, among others; and he is not shy about making bold power moves, such as the $5 billion he invested in Goldman Sachs and the $3 billion he stuck into General Electric -- both in the midst of "a Wall Street panic" (www.nytimes.com). Beyond the fact that Buffett is fabulously wealthy and respected for his humanity as much as for his money, his biography reflects a man who began dreaming of making a profit at the age of six (Maslin, 2008).

According to his authorized biography (The Snowball, written by Alice Schroeder) Buffett has a "superhuman tenacity" for "sniffing out undervalued companies," buying them then shaping their success with his brilliance. In high school he was the only student to actually own a tenant farm, which earned him "more money than his teachers did" (Maslin, 2008). The real turning point in his life though was when he was rejected by Harvard Business School and instead went to Columbia; there he met professor Benjamin Graham (author of The Intelligent Investor) who became Buffett's mentor and role model, and gave him the foundation for making investment decisions. In his book, The Warren Buffett Way, authors Hagstrom, Miller and Fisher state that Buffett is "always searching for investments where risk is eliminated or minimized" (Hagstrom, et al. x). Buffett has an "inherent love of simple math computations" and is "very adept at probability and as an oddsmaker" (Hagstrom x). His strategy in a way was handed to him, Hagstrom suggests; as his reputation grew, more people asked him to manage their money and through those relationships he began buying controlling interests in public and private companies.

As an example of his ability to accumulate wealth, he certainly knows when to buy; in 1962, when American Express (AE) shares plummeted from $65 to $35 "almost overnight," Buffett put 40% of his partnership's total assets ($13 million) into AE. When the AE shares "tripled in price" over the next two years, Buffett and partners profited by $20 million (Hagstrom 3). Buffett has an uncanny ability to know when to get in, and when to get out. He left his partnership involvement with Berkshire Hathaway in 1969 and bought controlling interest; at that time Berkshire Hathaway was worth $22 million but forty years later it is worth $69 billion (Hagstrom 4).

Views on the Buffett Impact: There is no doubt Buffett is an appealing personality in a grandfatherly sort of way -- and America can certainly use more characters like Buffett, deep pockets or not. Just his candor and wisdom alone are a bonus for American on the global scene.

In Jay Steele's book, Warren Buffett: Master of the Market, the author explains that Buffett's interest in money "grew out of the economic situation into which he had been born -- the Great Depression" (Steele 13). And given that the U.S. is now stuck in the most serious financial mess since the depression, it makes sense that Buffett will be involved somehow in the rescue of this economy. If nothing else, Buffett -- through his homespun annual reports, his down-home likeability juxtaposed with his power as a multi-billionaire -- is an inspiration to young Americans who see a chance to do what he has done. "There was something in his blood that would not allow him to pass up an opportunity…" to test out his own system of figuring which stocks would go up, and which would go in the tank (Steele 17).

Buffett's Philanthropy: Warren Buffett has always said the bulk of his wealth would go to philanthropy, and as with everything else he has done, he was a man of his word in that regard. To wit, Carol J. Loomis, Fortune magazine editor-at-large reports that Buffett is pledging 85% of his Berkshire stock to five different foundations (Loomis 2006). Those contributions include $30 billion to the Bill and Melinda Gates Foundation (Microsoft money); the Gates group focuses emphasis on fighting diseases like "malaria, HIV / AIDS, and tuberculosis -- and on improving U.S. libraries and high schools" (Loomis).

Bill Gates is quoted by the Loomis article as saying he is "thrilled" knowing that Buffett's money will allow the Gates' foundation to "both deepen and accelerate" its work (Loomis). Up until now the Buffett Foundation (now named after Buffett's late wife Susie) has given money to groups promoting pro-choice for women, family planning, and on "preventing… READ MORE

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