02 -- Warren Buffett -- The Oracle of Omaha

Warren Buffett, born in 1930 in Omaha, Nebraska, is widely regarded as one of the most successful investors in history. His value investing approach, learned from Benjamin Graham at Columbia Business School, formed the foundation of his extraordinary success. Prior to his academic pursuits at Columbia, he attended the Wharton Business School at Pennsylvania before graduating from the University of Nebraska. Buffett's acquisition of Berkshire Hathaway in 1965 and its subsequent transformation into a diversified holding company became the cornerstone of his empire.

Graham's Apprentice -- Buffett's Path to Success

Buffett studied under Graham at the Columbia Business School, later offering to work for Graham for free, but Graham refused. In 1954, Buffett accepted a job at Graham's partnership. After Graham retired and closed his partnership two years later, Buffett decided to return to Omaha, where he would quickly start a series of investment partnerships. There, he would accumulate his most illustrious of successes.

The 1/8 Discrepancy -- Buffett's Berkshire Hathaway Origins

Buffett's relationship with Berkshire Hathaway began in 1962 when he started acquiring shares in the company, which was then a struggling textile manufacturer in New Bedford, Massachusetts. At the time, Buffett was running his own investment partnership and saw Berkshire as an undervalued opportunity, typical of his value investing approach.

Initially, Buffett's interest was purely financial. He noticed a pattern where the company would buy back its shares whenever the price dropped, and he aimed to profit from this predictable behavior. However, a pivotal moment occurred in 1964 when Berkshire's management, led by Seabury Stanton, made a verbal tender offer to buy back Buffett's shares at $11.50 per share.

When the official offer came in writing, it was for $11.375 per share, slightly lower than the verbal agreement. This small discrepancy irritated Buffett, who felt it was a breach of their gentleman's agreement. In a move that he later described as an emotional decision rather than a rational one, Buffett decided not to sell. Instead, he began aggressively buying more shares to gain control of the company.

The Circle of Competence

The Circle of Competence is a concept popularised by Warren Buffett and his long-time business partner Charlie Munger. At its core, it's about recognising and operating within the areas where you have the most knowledge, experience, and expertise. The principle posits that every individual or organisation has a limited field of proficiency – their "Circle of Competence." Within this circle, one can make well-informed decisions and accurate judgments. Outside of it, the risk of error increases significantly.

Buffett famously avoided tech stocks for many years because he felt they were outside his Circle of Competence. This discipline helped him avoid significant losses during the dot-com bubble.

Buffett's Shareholders' Engagements -- The Woodstock of Capitalism

Each year, at the Qwest Centre in Omaha, Nebraska, over 20,000 visitors are gathered willingly -- for a witty and insightful shareholder meeting featuring Buffett's financial genius amalgamated with his midwestern humour, while he engages with his shareholders in a riveting Question-and-Answer session lasting for hours-on-end. Along with long-time partner and right-hand man Charlie Munger, their candid and often witty responses provide invaluable insights into their investment philosophy and views on the economy. The meeting also features a large exposition showcasing Berkshire's various subsidiaries, allowing shareholders to interact with the companies they partially own. This event, known for its transparency and educational value, has become an unparalleled learning opportunity for attendees, who glean wisdom from two of the most successful investors in history.

Equally anticipated are Buffett's annual letters to Berkshire Hathaway shareholders, typically released in February. These letters have gained renown for their clarity, insight, and educational value, extending their influence far beyond Berkshire's immediate stakeholders. In these communications, Buffett provides a clear and honest assessment of Berkshire's performance over the past year, including both successes and shortcomings. He frequently shares his investment philosophy, emphasising long-term value investing, and offers commentary on the broader economic landscape. Despite addressing complex financial topics, the letters are written in clear, often humorous language that's accessible to a broad audience.

Legacy

Buffett is as much a philanthropist as he is a financier. Buffett has committed significant resources to philanthropy through the Giving Pledge, encouraging billionaires to donate their wealth to charitable causes. His teachings are worldwide -- there is not a place in finance where his traces are not heard. By promoting principles such as the circle of competence and economic moats, Buffett has provided a framework for sustainable investing that remains relevant today. His leadership of Berkshire Hathaway and his insightful shareholder letters exemplify his commitment to ethical business practices and financial education. As a mentor, leader, and philanthropist, Buffett’s legacy will continue to shape the landscape of investing and inspire future generations.

Footnotes: The Buffett Indicator

The Buffett Indicator is a valuation metric popularised by Buffett in 2001, used to assess whether the overall stock market is overvalued or undervalued relative to the size of the economy.

The Buffett indicator:

A ratio around 100% is considered fair value.

A ratio significantly above 100% may indicate an overvalued market.

A ratio below 100% might suggest an undervalued market.