SAGE OF OMAHALIFE OF WARREN BUFFETT

MAYANK JAIN (50491), MAYANKGAUR (50490), NISAHNT

MALIK(50504), PRAFUL GUPTA9/30/14

ACKNOWLEDGEMENT

In preparing this report a considerable amount ofthinking and informational inputs from varioussources were involved. We express our sinceregratitude to everyone who contributed towards makingthis Project report possible.Our sincere gratitude goes to Ms. Kishori RaviShankar for her inspiration, cooperation whichbolstered my efforts to complete the project report.Under her brilliant untiring guidance we have beenable to complete the project successfully in time.In spite of having a very busy schedule, she madesure in every way possible that we acquire the bestpossible knowledge during our project.We are also greatly thankful and obliged torespected Principal Dr. Poonam Verma for providingstudents of our college who has been a perennialsource of inspiration and guidance for students likeus. We are also thankful to our friends, many otherswho have helped us a lot, without theirencouragement and cooperation we would never havebeen able to complete this project

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INTRODUCTIONWarren Edward Buffett (born August 30, 1930) is anAmerican business magnate, investor andphilanthropist. He was the most successful investorof the 20th century. Buffett is the chairman, CEOand largest shareholder of Berkshire Hathaway, andconsistently ranked among the world's wealthiestpeople. He was ranked as the world's wealthiestperson in 2008 and as the third wealthiest in 2011.In 2012 Time named Buffett one of the world's mostinfluential people.

Buffett is called the "Wizard of Omaha" or "Oracleof Omaha", or the "Sage of Omaha" and is noted forhis adherence to value investing and for hispersonal frugality despite his immense wealth.Buffett is a notable philanthropist, having pledgedto give away 99 percent of his fortune to

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philanthropic causes, primarily via the GatesFoundation. On April 11, 2012, he was diagnosed withprostate cancer, for which he successfully completedtreatment in September 2012.

EARLY LIFE AND EDUCATIONBuffett was born in 1930 in Omaha, the second of threechildren and the only son of Congressman Howard Buffett, andLeila (née Stahl). Buffett's DNA report revealed that hispaternal ancestors hail from northern Scandinavia, while hismaternal ancestors hail from Iberia (present-day Spain) orEstonia. Buffett began his education at Rose Hill ElementarySchool. In 1942, his father was elected to the first of fourterms in the United States Congress, and after moving withhis family to Washington, D.C., Warren finished elementaryschool, attended Alice Deal Junior High School and graduated

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from Woodrow Wilson High School in 1947, where his senioryearbook picture reads: "likes math; a future stockbroker".

As a child, Buffett displayed an interest in making andsaving money. He sold chewing gum, Coca-Cola, or weeklymagazines door to door. He worked in his grandfather'sgrocery store. While still in high school he made moneydelivering newspapers, selling golf balls and stamps anddetailing cars, among other means. On his first income taxreturn in 1944, Buffett took a $35 deduction for the use ofhis bicycle and watch on his paper route. In 1945, as a highschool sophomore, Buffett and a friend spent $25 to purchasea used pinball machine, which they placed in the localbarber shop. Within months, they owned several machines indifferent barber shops.

Buffett's interest in the stock market and investing datedto schoolboy days he spent in the customers' lounge of aregional stock brokerage near his father's own brokerageoffice. On a trip to New York City at age ten, he made apoint to visit the New York Stock Exchange. At 11, he boughtthree shares of Cities Service Preferred for himself, andthree for his sister. In high school he invested in abusiness owned by his father and bought a farm worked by atenant farmer.

In 1947 Buffett entered the Wharton School of the Universityof Pennsylvania. He studied there for two years and joinedthe Alpha Sigma Phi fraternity. He then transferred to theUniversity of Nebraska–Lincoln where at nineteen, he4 | P a g e

graduated with a Bachelor of Science in businessadministration. After being rejected by Harvard BusinessSchool, Buffett enrolled at Columbia Business School afterlearning that Benjamin Graham (author of "The IntelligentInvestor" – a Buffett favorite) and David Dodd, two well-known securities analysts, taught there. He earned a Masterof Science in economics from Columbia in 1951. Buffett alsoattended the New York Institute of Finance. In Buffett's ownwords:

“I'm 15 percent Fisher and 85 percent BenjaminGraham.”

The basic ideas of investing are to look at stocks asbusiness, use the market's fluctuations to your advantage,and seek a margin of safety. That's what Ben Graham taughtus. A hundred years from now they will still be thecornerstones of investing.

HIS INITIAL MONEY-MAKING SCHEMES AGE 6 – Peddled Coke. AGE 9 – Carrying golf clubs for $3 per day. AGE 11 – Bought his first stock – CitiesServices

AGE 11-13- Sold used golf balls AGE 13 – Carrier for Washington Post and 4 othernewspapers.

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AGE 14 – Bought 40 acres of farmland and leasedit out.

AGE 16 – Rented out used pinball machines makingup to $50 a week.

PROFESSIONAL CAREER

Buffett worked from 1951 to 1954 at Buffett-Falk & Co. as aninvestment salesman; from 1954 to 1956 at Graham-NewmanCorp., as a securities analyst; from 1956 to 1969 at BuffettPartnership, Ltd. as a general partner and beginning in 1970as Berkshire Hathaway Inc Chairman and CEO.

In 1951 Buffett accepted a job at Benjamin Graham'spartnership. His starting salary was $12,000 a year(approximately $105,000 inflation adjusted for the 2012 USD.In 1956, Benjamin Graham retired and closed his partnership.At this time Buffett's personal savings were over $174,000($1.47 million 2012 USD) and he started Buffett PartnershipLtd.

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In 1957, Buffett operated three partnerships. He purchased afive-bedroom stucco house in Omaha, where he still lives,for $31,500. In 1958 the Buffetts' third child, PeterAndrew, was born. Buffett operated five partnerships thatyear. In 1959, the company grew to six partnerships andBuffett met future partner Charlie Munger.

By 1960, Buffett operated seven partnerships. He asked oneof his partners, a doctor, to find ten other doctors willingto invest $10,000 each in his partnership. Eventually elevenagreed, and Buffett pooled their money with a mere $100original investment of his own. In 1961, Buffett revealedthat Sanborn Map Company accounted for 35% of thepartnership's assets. He explained that in 1958 Sanbornstock sold at only $45 per share when the value of theSanborn investment portfolio was $65 per share. This meantthat buyers valued Sanborn stock at "minus $20" per shareand were unwilling to pay more than 70 cents on the dollarfor an investment portfolio with a map business thrown infor nothing. This earned him a spot on Sanborn's board.

In 1962, Buffett became a millionaire because of hispartnerships, which in January 1962 had an excess of$7,178,500, of which over $1,025,000 belonged to Buffett. Hemerged these partnerships into one and invested in andeventually took control of a textile manufacturing firm,Berkshire Hathaway.

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THE WARREN WAY OF INVESTING

Main IdeaWarren Buffett lets companies inform him by their operatingresults, not by short-term stock market fluctuations. His isa very patient investment strategy based on the value of thebusiness. Buffett’s whole approach is to look at a sharepurchase from the perspective of a business owner ratherthan as a stock market dabbler.

Supporting Ideas1. There is a large difference between investing in a particular stockand trying to predict the direction of the general market. In spiteof technology, it is still people that make markets.Investor sentiment has the largest influence over short-termmarket direction and stability. However, the long-term valueof a stock is ultimately determined by the economic progressof the business, not the day-to-day market fluctuations.

2. The Mr. Market Allegory. Imagine you are the owner of asmall business in partnership with Mr. Market. Every day,Mr. Market quotes you a price at which he is willing to buyyour half of the business or sell you his half. While thebusiness is sound and makes good progress, Mr. Market’squotes vary widely according to the mood he is in. When heis in an upbeat mood, his price is exceptionally high.Conversely, strike him on a bad day and he is verypessimistic and quotes an unusually low price. If you werein business with Mr. Market and you tried to take advantageof his wisdom, you would be on an emotional roller coasterride. Rather, it is Mr. Market’s pocketbook you should take

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advantage of, not his wisdom. It is disastrous if you fallunder his influence. A successful stock market investorshould put aside the emotional whirlwind Mr. Marketunleashes on the general market every day and exercise soundbusiness judgement.

3. Investors must be financially and psychologically prepared to dealwith the everyday market fluctuations. Unless you can watch thevalue of your stock holdings decline by 50-percent or morewithout becoming panic stricken, you will never succeed.

4. Price declines are a welcome way to add more shares to yourportfolio at a lower price. As long as your are investing in asoundly run business with good fundamentals, management andprices, the market will eventually acknowledge success.

5. The ability to say ‘‘no’’ unless all the facts are in your favour is asignificant advantage for any stock market investor. Rather thanconstantly buying and selling shares in mediocre businesseson the strength of a rumour, Buffett buys and holds sharespermanently in just a few outstanding, well-managedbusinesses. His approach is always to wait patiently until atruly great investment opportunity surfaces and then go toit.

Investment success is not the same as infallibility.Instead, success comes about by doing more things right thanwrong. To do that, reduce the number of things you can getwrong and focus on the things you expect to get right.

7. The Market Rumour Parable An oil prospector was met at thegates of heaven by St. Peter who told him there was no room for himto come in. The prospector asked if he might say just fourwords to the oil prospectors present. He yelled, ‘‘Oildiscovered in Hell!’’ With that, all the oil men marched outof heaven headed for hell. St. Peter was impressed and9 | P a g e

invited the man in now there was plenty of room. ‘‘Nothanks,’’ said the newcomer. ‘‘I think, I’ll just go alongwith the rest of the boys. There just might be some truth tothat rumour after all.’’ Despite all the experience andeducational qualifications found in stock market investors(including institutions), it still acts irrationally andwith a ‘‘follow the mob’’ mentality. Buffett takes nocomfort from having ‘‘important’’ people agree with him, anddoes not lose confidence when they disagree.

8. An investor and a businessperson should look at a company in thesame way. The businessperson wants to buy the entirecompany while an investor wants a part. The first questionany businessperson will ask is, ‘‘What is the cashgenerating potential of this company?’’ Over time, therewill always be a direct correlation between the value of acompany and its cash generating capacity. The investor wouldbenefit by using the same business purchase criteria as thebusinessperson. Change your thinking from buying and sellingshares in a company to buying and selling a business youwant to own and you’ll have a much improved perspective.

9. Short term price fluctuations are an unwise criteria by which tojudge a company’s success. Instead, look at:

-- Return on beginning shareholder’s equity.

-- Operating margin changes.

-- Debt level changes.

-- The company’s cash generating ability.

That is, use economic criteria rather than price changes.

10. Relationship investing is critically important. With thisapproach, investors act like owners of the companies theyown shares in. They provide patient capital allowing

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management to pursue long-term growth opportunities. Stockis held long-term and investors work with management toimprove corporate performance.

11. Warren Buffett usually assigns voting rights for shareshe purchases to the management of the company. That sendsthe clear signal that he is not seeking changes. He avoidscompanies in need of major overhauls. He also avoidsconfronting management to improve shareholder returns.Buffett simply will not invest in any company which heconsiders requires a change in officers before true valuecan be realized. He does not look for a company which isundergoing a turnaround or restructuring exercise, as thiscreates a situation in which there are too many variables.

11. Buffett is quite content to hold any securityindefinitely, so long as the prospective returns on equitycapital of the business is satisfactory, management isshareholder-oriented and competent and the market does notovervalue the business. Generally speaking, Buffett sellsonly when the stock price shows the market is appreciablyovervaluing the business by his reckoning.

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5 THINGS THAT ENTREPRENEURS CAN LEARN FROMWARREN BUFFETT

Undeniably, entrepreneurs can learn a lot from WarrenBuffett, the chairman and CEO of Berkshire Hathaway.Buffett, an American business magnate, investor, andphilanthropist, is commonly considered the most successfulinvestor of the 20th century.

He was ranked as the world’s wealthiest person in 2008 andis the third wealthiest person in the world as of last year.Regardless of your industry or occupation, here are five ofhis truisms that entrepreneurs should take note of.

1. “Rule No. 1: Never lose money. Rule No. 2: Never forget RuleNo. 1.”

As a small business owner your vision may be to impact theworld, but if you’re running a for-profit entity youraccompanying goal is to earn a profit. One of the firstconsiderations of any business should be the business model– how you will create, deliver, and capture value and the

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development of a revenue model – essentially how you willmake money.

As a startup, it’s important to learn how to make money —but even more important to know how to keep it.

2. “It takes 20 years to build a reputation and five minutes to ruinit. If you think about that, you’ll do things differently.”

At the onset of your company’s launch it’s important todefine your corporate values, vision and mission. Utilizethese declarations as a benchmark for the development ofyour company’s culture and how you will conduct business.

Build your brand with the future in mind and communicateyour company’s values through interactions at every level –customer service, sales, marketing, public relations andpartnerships.

3. “Can you really explain to a fish what it’s like to walk on land?One day on land is worth a thousand years of talking about it,and one day running a business has exactly the same kind ofvalue.”

Any small business owner can attest to this fact –“Experience and execution trumps theory any day.” Takingsmall measurable steps each day will set you up for long-term success.

As you grow your business, take definitive action … learnwhat works and what doesn’t. Repeat more of what works,benchmark your learnings and improve upon past successes.

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4. “It’s better to hang out with people better than you. Pick outassociates whose behavior is better than yours and you’ll drift inthat direction.”

As entrepreneurs, we benefit from acknowledging ourstrengths and being honest about our weaknesses. Once thisis accomplished, seek to develop mutually beneficialpartnerships. The goal of your joint ventures and strategicpartnerships should be to add value to another company andsimultaneously eliminate your own weaknesses. No man is anisland.

5. “Risk comes from not knowing what you’re doing.”

What’s the quickest way to eliminate risk? Increase yourknowledge. If something appears risky, a major factor of ourperception is backed by our limited knowledge. Find ways tobecome more knowledgeable about the areas you struggle within business. The more you know … the less risky your nextplan seems.

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BIBLIOGRAPHY

www.YFSmagazine.com

www.forbes.com

www.fortune.com

www.sfu.ca

www.businessinsider.com

www.investopedia.com

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