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Prof Manzoor Iqbal Awan-S11-BU-BBA VII C-Comparative Management-Student Projects-23 May 11

Prof Manzoor Iqbal Awan-S11-BU-BBA VII C-Comparative Management-Student Projects-23 May 11

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Published by: Manzoor Awan on Jun 09, 2011
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BORN: AUGUST 30, 1930










At only six years old, Buffett purchased 6-packs of Coca Cola from his grandfather's grocery

store for twenty five cents and resold each of the bottles for a nickel, pocketing a five cent

profit. While other children his age were playing hopscotch and jacks, Warren was making

money. Five years later, Buffett took his stepinto the world of high finance. At eleven years

old, he purchased three shares of Cities Service at $38 per share for both himself and his

older sister, Doris. Shortly after buying the stock, it fell to just over $27 per share. A

frightened but resilient Warren held his shares until they rebounded to $40. He promptly sold

them - a mistake he would soon come to regret. Cities Service shot up to $200. The

experience taught him one of the basic lessons of investing patience is a virtue.

After doing his graduation in 1948 he returned home and took a job at his father's brokerage

house. During these initial years, Warren's investments were predominately limited to a

Texaco station and real-state , but neither were successful. It was also during this time he

began teaching night classes at the University of Omaha (something that wouldn't have been

possible several months before. In an effort to conquer his intense fear of public speaking,

Warren took a course by Dale Carnegie). Thankfully, things changed. Ben Graham called one

day, inviting the young stockbroker to come to work for him. Warren was finally given the

opportunity he had long awaited.

Warren Buffett Goes to Work for Ben Graham, Buffett spent his days analyzing S&P reports,

searching for investment opportunities. It was during this time that the difference between the

Graham and Buffett philosophies began to emerge. Warren became interested in how a

company worked - what made it superior to competitors. Whereas Ben looked at income

statement and balance sheet. Between 1950 and 1956, Warren built his personal capital up to

$140,000 from a mere $9,800. With this war chest, he set his sights back on Omaha and

began planning his next move.

On May 1, 1956, Warren Buffett rounded up seven limited partners which included his Sister

Doris and Aunt Alice, raising $105,000 in the process. He put in $100 himself, officially

creating the Buffett Associates, Ltd. Before the end of the year, he was managing around

$300,000 in capital. Over the course of the next five years, the Buffett partnerships racked up

an impressive 251.0% profit, while Dow up was up only 74.3%. By 1962, the partnership had

capital in excess of $7.2 million Warren was entitled to 1/4 of the profits above 4%). He also


had more than 90 limited partners across the United States. In one decisive move, he melded

the partnerships into a single entity called "Buffett Partnerships Ltd.", upped the minimum

investment to $100,000, and opened an office in Kiewit Plaza on Farnam street.

Ten years after its founding, the Buffett Partnership assets were up more than 1,156%

compared to the Dow's 122.9%.Acting as lord over assets that had ballooned to $44 million

dollars. The next year, Warren went much further than closing the fund to new accounts; he

liquidated the partnership. In May 1969, he informed his partners that he was "unable to find

any bargains in the current market". Buffett spent the remainder of the year liquidating the

portfolio, with the exception of two companies - Berkshire and Diversified Retailing. The

shares of Berkshire were distributed among the partners with a letter from Warren informing

them that he would, in some capacity, be involved in the business, but was under no

obligation to them in the future. Warren was clear in his intention to hold onto his own stake

in the company (he owned 29% of the Berkshire Hathaway stock) but his intentions weren't



Buffett's role at Berkshire Hathaway had actually been somewhat defined years earlier. On

May 10, 1965, after accumulating 49% of the common stock, Warren named himself

Director. Terrible management had run the company nearly into the ground, and he was

certain with a bit of tweaking, it could be run better. Immediately Mr. Buffett made Ken

Chace President of the company, giving him complete autonomy over the organization.

Two years later, in 1967 Warren offered to buy the whole company on the spot, a move that

cost him $8.6 million dollars. That same year, Berkshire paid out a dividend of 10 cents on its

outstanding stock.

In 1970, Buffett named himself Chairman of the Board of Berkshire Hathaway, That same

year, the Chairman's capital allocation began to display his prudence; textile profits were a

pitiful $45,000, while insurance and banking each brought in $2.1 and $2.6 million dollars.

The paltry cash brought in from the struggling looms in New Bedford, Massachusetts had

provided the stream of capital necessary to start building Berkshire. A year or so later,

Warren Buffett was offered the chance to buy a company by the name of See's Candy. The

businessman decided Berkshire would be willing to purchase the company for $25 million in


cash. See's owners were holding out for $30 million, but soon conceded. It was the biggest

investment Berkshire or Buffett had ever made.

Following several investments and an SEC investigation (after causing a merger to fail,

Warren and Munger offered to buy the stock of Wasco, the target company, at the inflated

price simply because they thought it was "the right thing to do". Not surprisingly, the

government didn't believe them), Buffett began to see Berkshire's net worth climb. From

1965 to 1975, the book value of company rose from $20 per share to around $95.


By the late '70s, the his reputation had grown to the point that the rumor Warren Buffett was

buying a stock was enough to shoot its price up 10%. Berkshire Hathaway's stock was trading

at more than $290 a share, and Buffett's personal wealth was almost $140 million. The irony

was that Warren never sold a single share of his company, meaning his entire available cash

was the $50,000 salary he received. During this time, he made a comment to a broker,

"Everything I got is tied up in Berkshire. I'd like a few nickels outside."


In 1983, Warren Buffett walked into Nebraska Furniture Mart, the multi-million dollar

furniture retailer built from scratch by Rose Blumpkin. Speaking to Mrs. B, as local residents

called her, Buffett asked if she would be interested in selling the store to Berkshire

Hathaway. Blumpkin's answer was a simple "yes", to which she responded she would part for

"$60 million".

Scott & Fetzer was another great addition to the Berkshire family. The company itself had

been the target of a hostile takeover when an LPO was launched by Ralph Schey, the

Chairman. The year was 1984 and Ivan Boesky soon launched a counter offer for $60 a share

(the original tender offer stood at $50 a share - $5 above market value). The maker of Kirby

vacuum cleaners and World Book encyclopedia, S&F was panicking. Buffett, who had

owned a quarter of a million shares, dropped a message to the company asking them to call if

they were interested in a merger. The phone rang almost immediately. Berkshire offered $60

per share in cold, hard, cash. When the deal was wrapped up less than a week later, Berkshire

Hathaway had a new $315 million dollar cash-generating powerhouse to add to its collection.


In 1986, Buffett bought a used Falcon aircraft for $850,000. As he had become increasingly

recognizable, it was no longer comfortable for him to fly commercially. The idea of the

luxury was hard for him to adjust to, but he loved the jet immensely. The passion for jets

eventually, in part, led him to purchase Executive Jet in the 90's.


During the remainder of the 1990's, the stock catapulted as high as $80,000 per share. Even

with this astronomical feat, as the dot-com frenzy began to take hold, Warren Buffett was

accused of "losing his touch". In 1999, when Berkshire reported a net increase of 0.5% per

share, several newspapers ran stories about the demise of the Oracle. Confident that the

technology bubble would burst, Warren Buffett continued to do what he did best: allocate

capital into great businesses that were selling below intrinsic value. His efforts did not go

unrewarded. When the markets finally did come to their senses, Warren Buffett was once

again a star. Berkshire's stock recovered to its previous levels after falling to around $45,000

per share, and the man from Omaha was once again seen as an investment icon.


Buffett's hands-off approach has held strong appeal and created room for his managers to

perform as owners and ultimate decision makers of their businesses. This acquisition strategy

enabled Buffett to buy companies at fair prices because the sellers wanted room to operate

independently after selling. Besides his skills in managing Berkshire's cash flow, Buffett is

skilled in managing the company's balance sheet. Since taking over Berkshire Hathaway,

Buffett has weighed every decision against its impact on the balance sheet.

Many people misunderstand the willingness by Warren Buffett to take risks. He's more than

willing to, it's just that he knows how to take the right type of risk; not risk just for the thrill

of partaking in risk. Reinsurance is one example. He's willing to reinsure anything if the

customer is willing to pay the type of premium required to manage the risk. The one risk he

refuses to take, is partaking in something that could permanently destroy a company. That's

part of his risk-management strategy.

One of the great challenges in business management is to guide the company through growth

and innovative process while maintaining that which is generating the major revenue for

today. Maintaining that healthy tension is one of the secrets to Warren Buffett's success.



In short it could be summed up that Warren Edward Buffet chairman and CEO of Berkshire

Hathaway, Investor is a person who started earning and investing from a minimum amount

and reach till the top of success. His life and the strategy he followed is an excellent example

for new investors. He led a successful life and always took healthy risks. Apart from all that

his luck and fortune was also favorable for him that he reached till the top of success and

became the wealthiest person of world in 2008.


After going through biography of Warren Edward Buffet we get to know that “Hard work is a

key to success” and by being patient and by taking healthy risks in life any new investor can

also climb the ladder of success like Buffet. His life and his strategy to deal and to do

business is a great example for upcoming investors. Being a management sciences student I

have learned that Buffett's hands-off approach has held strong appeal and created room for

his managers to perform as owners and ultimate decision makers of their businesses. That’s

how subordinates feel free to give their opinion and suggestion and that creates a healthy

working environment.


http://beginnersinvest.about.com/cs/warrenbuffett/a/aawarrenbio.htm (accessed 11 march


http://www.warrenbuffett.com/warren-buffett-management-style.html (accessed 11 march




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