What might Malaysians learn from an American who took over a failing textile company more than 50 years ago? Actually, a great deal!
Warren Edward Buffett is NOT the richest man in the world. He is ‘only’ the third richest person on Earth. Here are some salient details:
He lives in Omaha, Nebraska, USA; is considered our planet’s greatest investor; and the Feb 26, 2018’s daily billionaire ranking by Bloomberg (see www.bloomberg.com/billionaires) placed Buffett’s net worth (total assets minus total liabilities) at a gargantuan US$87 billion (RM339 billion).
That wealth quantum at the end of February put Buffett almost US$12 billion ahead of fourth-ranked Facebook’s Mark Zuckerberg and a little over US$5 billion behind second placed Bill Gates. (In case you missed the recent changing of the guard, Earth’s newest RPITW — Richest Person in the World — is Amazon kingpin Jeff Bezos, whose Feb 26, 2018 net worth stood at an astronomical US$125 billion.)
Buffett at 87½ years old is the oldest of the Big 4. He’s also the most venerated because of how he made his wealth over long decades of sticking to a methodology largely (but not exclusively) formed in his youth by his first and greatest investment mentor Benjamin Graham, the Father of Security Analysis.
Everyone interested in investing intelligently should study the writings of Ben Graham. For instance, two of his books with the potential to enrich us over the course of a lifetime of investing are Securities Analysis and The Intelligent Investor.
Buffett was about 19 or 20 years old when he picked up his first copy of Graham’s The Intelligent Investor. It taught him a framework for investing; changed the trajectory of Buffett’s life; and enriched him far beyond what Graham amassed for himself!
STARTING FROM SCRATCH
I first heard the name ‘Warren Buffett’ in the early 1990s. I was then still in my late twenties and enjoying my stint as a business journalist with Malaysian Business magazine. A wise source of business information and an investment mentor of mine who morphed into a longtime friend, Tan Teng Boo of Capital Dynamics fame, mentioned Buffett’s name while patiently explaining the brand value of Coca-Cola to me.
At that time Buffett, through his investment-holding company Berkshire Hathaway, had built up a huge stake in the most successful beverage company in the world.
Buffett had first been exposed to the magical allure of Coke when he was five or six years old. More than half a century later in his 1989 letter to the shareholders of Berkshire Hathaway, released in early 1990, Buffett recounted in his distinctive writing style:
“... it was in 1936 that I started buying Cokes at the rate of six for 25 (cents) each. In this excursion into high-margin retailing, I duly observed the extraordinary consumer attractiveness and commercial possibilities of the product.”
He went on: “I continued to note these qualities for the next 52 years as Coke blanketed the world. During this period, however, I carefully avoided buying even a single share (of Coke).”
When he began purchasing those shares 30 years ago, in 1988, he did so in a huge way. In Roger Lowenstein’s 1995 masterpiece Buffett — The Making of an American Capitalist, the author explains that by the spring of 1989:
“... Berkshire has acquired $1.02 billion worth, or 7 per cent of the Coca-Cola Co., at an average price of $10.96 a share.”
Today, Buffett’s Berkshire owns 400 million shares of Coca-Cola or 9.4 per cent of the entire company. In Berkshire’s latest annual report dated Dec 31, 2017, the value of only its Coke stake was more than US$18.3 billion!
Berkshire’s entire portfolio of marketable securities at the end of last year was valued in excess of US$170 billion. Apart from those vast holdings of publicly traded shares, Berkshire sat atop a cash and near-cash (US Treasury Bills) pile of US$116 billion! Berkshire also owns all of, or major controlling stakes in, numerous companies within and outside the US.
In the opening paragraph of Lowenstein’s Buffett, which I remind you was published in 1995, Lowenstein writes:
“In the annals of investing, Warren Buffett stands alone. Starting from scratch, simply by picking stocks and companies for investment, Buffett amassed one of the epochal fortunes of the twentieth century. Over a period of four decades — more than enough to iron out the effects of fortuitous rolls of the dice — Buffett outperformed the stock market, by a stunning margin and without taking undue risks or suffering a single losing year.”
But no one, not even Buffett, can go forever without suffering some annual market losses. I’ll touch on those in next week’s column.
For now, though, please note Buffett first nibbled at Berkshire Hathaway’s shares in 1962. He viewed the beaten down share price of what was then merely a failing textile company as just another stock investment to be milked for profits. But with the help of his friend, a stockbroker named Daniel Cowin, who found him several large blocks of shares for sale, Buffett through his earlier investment vehicle, Buffett Partnership, ended up being the largest shareholder of Berkshire in 1963!
(Join me here next Sunday for my account of how Warren Buffett turned Berkshire Hathaway into both an investment holding company and a global icon of commendable capitalism.)
© 2018 Rajen Devadason