October 15, 2019
How Buffett Did It: Building Berkshire Hathaway

How Buffett Did It: Building Berkshire Hathaway


Warren Buffett is a man who needs no introduction
for he is the patron saint of investing for almost anyone who has dabbled in picking stocks. He is revered by many because he did something
truly exceptional: he became one of the richest men alive not
by innovative technology or by inheriting billions but by winning on the stock market
consistently for over half a century. In this video, we’re gonna learn how Warren
Buffett became a self-made investing billionaire. This video is brought to you by Skillshare
and you’ll probably be happy to learn that I’ve partnered with them to make a series
of lessons on the stock market, but more on that later. Warren Buffett’s immense fortune is tied
the world’s largest conglomerate: Berkshire Hathaway. But Buffett’s beginnings are much more humble. He was born in Omaha in 1930, right as the
Great Depression was kicking off. The stock market had crashed half a year earlier
and Nebraska was hit particularly hard. The state’s economy relied on agriculture
and the collapsing price of crops left many communities devastated. Buffett himself was lucky enough to be born
into the family of a local stock broker, Howard Buffett. Warren’s father was a smart businessman
so despite the crash he was able to provide for his family. In fact once the economy started recovering,
Howard’s career took off, so much so that in 1942 he ran for Congress as a Republican
and actually won the election, despite the immense popularity of FDR and Democrats at
the time. Amidst his rise in politics, Howard moved
the Buffett family to Washington DC, where Warren naturally felt very lonely. He’d spend his days doing math both at home
and at school, and reading investment books in his father’s study. It is these early years that instilled in
Warren the ambition to become rich, and in fact he would tell his friends in school that
if he wasn’t a millionaire by the time he was thirty, he would jump off the tallest
building he could find. To that end Warren started playing on the
stock market before even finishing high school, buying just a couple of shares here and there
to see how it goes. But Warren’s aspirations weren’t limited
to the stock market; one of the books he read inspired him to try nearly every business
venture he came up with. He would buy six-packs of Coca Cola and sell
them to his fellow students at a markup. His first real job came in 1944, when he started
delivering the Washington Post around his neighborhood. That year, the 14-year-old Warren Buffett
filed his first tax return, featuring a $45 deduction for his bicycle and watch. With the money he made delivering newspapers,
he would purchase pinball machines, which he would then place in stores around the neighborhood. But in 1948 Howard Buffett lost his re-election
campaign and the family was forced to go back to Omaha. Warren sold his pinball business in Washington
DC for a little over a thousand dollars, and back home in Nebraska he used that money to
buy a 40-acre farm, which he then rented out. Warren used the farm’s rent to pay his way
through the University of Nebraska, where he got a Bachelors in Business Administration. He applied to the Harvard Business School
when he was 19, but he was rejected, so he went with the next best option: the Columbia
Business School. There he met a teacher who would change his
life forever: in fact, that man, Benjamin Graham, would go down in history as the father
of value investing. The two met in 1949, the same year when Graham
published his magnum opus: the Intelligent Investor. In this book Graham lined out a step-by-step
guide on how to invest successfully and consistently without speculating. In a nutshell, his approach was finding decent
companies at bargain prices, essentially finding a $1 stock that was trading at 50 cents. Buffett fell in love with this method and
he quickly became one of Graham’s favorite students. In fact, just a few years after graduating,
Warren went to work for Graham at his investment company. There, Warren would master the art of security
analysis, learning how to see the real value of a company just by glancing at its numbers. But, just two year later Graham decided to
retire, closing down his company and leaving Buffett on his own. Now at the time Buffett had saved up $175,000,
which he used to start a partnership where he could apply Graham’s method. He started looking for companies that were
essentially cigarette butts: not doing great but still undervalued by the market, or in
other words, still good for one more puff. Here’s an example: in 1958 Buffett noticed
the Sanborn Map Company, which held a virtual monopoly on the production of detailed maps
used in the insurance business. The company had been around for nearly a century,
and while it had been doing poorly for the past decade, Buffett noticed something interesting
on their books: the company had been investing its profits for the past 20 years in over
40 different stocks. Buffett did the math and it turned out that
while the company’s stock was trading at about $45 per share, just the investment portfolio
alone was worth $65. So Buffett naturally started buying up the
Sanborn stock until he held the majority of the voting power, at which point he liquidated
the investment portfolio. Effectively, he spent $45 to buy $65 and in
two years he made a 45% return with almost no risk. Warren’s early investments followed the
same philosophy and unsurprisingly they outperformed the stock market by a factor of four. Thus, in January 1962, at 32 years old, Warren
had officially become a millionaire, just two years after he had promised to jump off
a building. That very same year Warren encountered a cigarette
butt that caught his eye: a struggling textile company called Berkshire Hathaway. The textile industry in New England was in
decline for decades and Berkshire had closed 9 out of its 11 textile mills. The stock itself was trading at around $7,
but its assets were worth at least $11. But here’s the thing: the company’s CEO
at the time was using whatever cash the company earned to buy back its own stock. Thus, whenever Berkshire sold off another
mill, it would offer to buy out the shares of its own investors, essentially liquidating
the company one mill at a time. Warren purchased a lot of stock at $7 and
eagerly awaited the CEOs offer to buy them back. A few years later, the two men shook hands
on a price: $11.50 per stock, but when the day came, the offered price was only $11.375. The CEO had tried to cheat Buffett out of
13 cents, and to return the favor Warren bought out the whole company and fired him. But now Warren was stuck owning a declining
company which he had no way to get rid of. Instead of letting Berkshire go to waste,
Warren started investing in stocks through the company, but this bad experience dramatically
changed his philosophy. Instead of searching for cigarette butts,
that is mediocre companies at low prices, he started looking for amazing companies at
fair prices. His first purchase using this new philosophy
was American Express, a company whose stock he still owns to this day. Buffett applied his analytical skills to find
the best stocks in the whole market, but that’s only part of the reason he became successful. What really allowed him to make astronomical
returns was his entry into the insurance business. That might sound like strange statement, after
all insurance is pretty boring and you wouldn’t expect it to double your money every year. But Warren saw the path to ultimate wealth
in exactly this business, which is why in 1967 he started buying up insurance companies,
beginning with National Indemnity and culminating with GEICO in 1996. Here’s why Buffett fell in love with insurance
companies: they’re essentially like banks. Thousands of people regularly pay their insurance
premiums, effectively giving the insurance company a huge cash balance, but people can
only “withdraw” their deposits when something bad happens, for example when their house
burns down or their car breaks. In other words, Buffett was buying companies
with a billion-dollars in cash that was technically considered a liability and thus wasn’t a
factor in the purchasing price. Suddenly he had access to immense capital
which he invested wisely and carefully into A-grade companies. By 1983 Berkshire’s portfolio was worth
over a billion dollars and just three years later Buffett himself was worth a billion. Now, I’ll probably make a separate video
for the stocks Buffett invested in over the years, but what I can tell you is that picking
winning stocks isn’t as hard as it sounds. As long as you understand how the market works
you can earn a lot of money by investing in it, and to help you learn the ins and outs
of the stock market I’m happy to announce that I’ve partnered up with Skillshare to
make a series of educational videos on how the stock market works. I’ve made a 20-minute animated introductory
series exclusively on Skillshare, and the first 500 of you can watch it right now by
registering for a 2-month free trial of Skillshare using the link in the description. Once you’ve registered search for “investing
101” or follow the link I’ve conveniently left in the comments below. The videos cover fundamental topics like what
is a stock or an ETF or why companies go public, and if you have any interest in investing
I think my class will help you a lot. So go check out my class and let me know if
you enjoyed it. I’m hoping to make many more lessons on
investing, and your support will be very encouraging. Anyway thank you for watching this video. Make sure to leave a like and maybe consider
checking out my Patreon, especially if you want early access to my future videos or HD
versions of the music I use. Thanks again for watching and until next time,
stay smart.

100 thoughts on “How Buffett Did It: Building Berkshire Hathaway

  1. Thanks for watching folks! Make sure to check out my new class on how the stock market works: http://skl.sh/investing-101

  2. Im so amazed, under every video about buffet and the stock markets 90% of the commenters are so oblivious about both.
    But its probably easier to spill bullshit than to read.

  3. I saw an interview once, where Mr. Buffett said he drank Pepsi as a kid. Only because it was 5 cents cheaper than a Coke… hahaha

  4. What's the point of being a billionaire if you're not going to use the money to buy things you enjoy I get you know don't spend every penny you have far from it but you should have been out at least spend a little bit on things you enjoy

  5. 0:43 Is it factually correct to say that Berkshire Hathaway is the world's largest conglomerate? 🤔 What measure are you using?

  6. If you knew that the world was going to end tomorrow, how much would the US dollar, or a stock portfolio be worth, today ? .. Zero, right ? Well, no, assuming you are the only one who knows this, you can still buy a burger with worthless cash, today.

    Berkshire Hathaway is an insurance company that might be a couple of super-catastrophes away from having to liquidate their stock portfolio. It would seem then that the patron saint of investing, has a sense of humour. Her Shire has a way.

  7. Just call Baron Rothschild. If you are a Zionist jew then you can become a multi billionaire in no time..

  8. Not to be too pedantic but you totally missed Charlie Munger in this … Buffet only started buying great companies at fair prices after Carlie changed his mind…

  9. 8:30: "Picking winning stocks isn't as hard as it sounds." That's BS. Warren Buffett's mentor said the exact opposite:
    "It's not supposed to be easy. Anyone who finds it easy is stupid." – Charlie Munger

  10. What are videos made of ?
    PowerPoint or something to archive those effects and animation ?

  11. You're wrong. Buffett made the majority of his money by using investor money instead of his own money. That's how Buffett scaled up his own personal wealth, using other peoples money for free. Disliked the video because of your poor research.

  12. Buffett is a fraud and got a bailout for his companies like Goldman Sachs, u.s. bank corp, AIG, Bank of America and so on in 2008. Buffett is a criminal insider trader

  13. This was a skill share ad wrapped around warren buffet. Congrats I will never watch your ad blitz again.

  14. they are titans at their own game but at DQ they're just 2 old men that are too adorable to be working at the counter lmao

  15. There are many ways to interpret the market. Some are very unconventional and not a way others would understand or willing to accept until they show results.

  16. @7:44 people are always going to give you money with insurance ofcourse! He saw a way to always be making money And did it first when insurance was still new.Magical!

  17. Maybe i need sky diving waiver, or printed out waiver so to speak
    with like my printed name on it, or me saying its my printed name, you may have to contact lega, but if your a programmer or whatever your job is you can just print them out so to speak in the past
    what im saying is you can just print out releases, the one i started quting from memory then got out of my car so to speak, is from a CPRcrenewel or class thing… its kinda means you can talk about breathing, life saving, heart beats, inluence and conduct them , it means you can break ribs in old people and push blood throughrough there body or brain… its a simple release waiver includes inftants and safety stuff to learn it ,of all ages then conduct rythym and electricitcity(AED stuff to TGB the way i mean it) so to speak… Kinda important shit more than data or so to speak policy type stuff in the past TGB the way i meani t

    So i guess what im trying to say, why worry about data and personal information google, if you can get a CPR card, free sign the release form so to speak… i sign the release form for youtube and google TGB the way i mean it

  18. I like this video because it's the first video I have a basic break down of Buffets strategy for buying socks. He uses a different strategy now that he buys whole businesses

  19. Let all business man and the women's survivor in all sphere of the earth , I, m pleasing them not to hacker me , because of disturbance of all businesses , these systerm is mine nobody can tryng to be me . Please people stop to hacker me

  20. This is really great content. I have watched a few videos about warren buffet but this is the best content.

  21. I agree @ Inconspicuous Fellow White Man, However players even today fail to recognize great potential in entry level investments in technology. How many have said that if they had been introduced to Microsoft, Apple, Yahoo at the time that they would have jumped on board and be filthy rich off the dividends today? They are still coming up but folk are slow to take it up and before you know it boom they have missed out again. I've stumbled across a really interesting one this year and i reckon it will equate to the original Stephenson or Boeing fortunes. I'm leaping. who's with me?

  22. Picking winning stocks is as hard as it sounds that's why Buffett is one of the only ones to outperform the index over his tenure.

  23. Another fun fact about Warren Buffet: rather than attend one of DC’s mega-elite private schools like St. Albans or Sidwell, he attended the local public school to save on tuition.

  24. Lesson #1. Picking a good stock is a gamble. And please, we are not idiots. Your video should not treat us like idiots. If picking a good stock is easy, everyone should be rich by now.

  25. She sold her soul to the devil. Reversed her gender. Then got paid. That’s how. Pretty obvious as all fame and fortune comes only this one way.

  26. When I hear you people saying that he want helped in building his fortune I go bananas. Warren father was a congressman, warren himself was educated properly in math and investments, that’s more valuable than $10mil

  27. The noisy background music is drowning out the voice! It adds nothing positive to the video. I just gave up on the video out of sheer frustration!

  28. Your voice sounds like the voice of a Swiss transexual that change his gender but who was unable to fully succeed at it

  29. Brilliant video! I was especially curious about Buffett’s childhood and upbringing. He definitely had a leg up on most, having a father who was a politician and businessman. Thanks for sharing!

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