How did Warren Buffett build the very initial wealth that enabled him to acquire Berkshire Hathaway?
- Did Ben Graham seed him at all?
- Did he have family wealth?
- Did he have wealthy friends and family that pitched in?
Warren Buffett’s wealth to acquire Berkshire Hathaway in 1965 was created primarily from his investment partnerships, the first of which was Buffett Associates, Ltd., established out of his bedroom in May 1, 1956, at the age of 25. These investment partnerships eventually fell under the umbrella of Buffett Partnership, Ltd., which was the entity that bought a controlling stake in Berkshire Hathaway in 1965.
He already had a partnership with his father before 1965, but Buffett Associates, Ltd., was the first partnership in which he was solely responsible for managing a significant amount of other people’s money with investors agreeing to pay a fee for strong investment performance. It started with $105,000 with the following seven limited partners:
- William Thompson (“Doc Thompson”), father-in-law: $25,000
- Doris Wood, sister: $5,000
- Truman Wood, brother-in-law: $5,000
- Alice Buffett, aunt: $35,000
- Chuck Peterson, friend, & college roommate: $5,000
- Elizabeth Peterson, Chuck’s mother: $25,000
- Dan Monen, childhood friend & lawyer: $5,000
Warren Buffett put in $100 and was General Partner. He would re-invest his earned fees over the years, such that his portion of the funds managed came to constitute almost all of his and his wife’s net worth. Part of the reason for only inviting people that trusted him in his initial investment partnership was because Buffett couldn’t tolerate criticism about his stock picks from his investors.
Michele Ragazzi's Giano Capital returned 1.9% for March, taking the fund's year-to-date performance to 1.7%. Since its inception, Ragazzi's flagship fund has produced a compound annual return of 7.8%. According to a copy of the €10 million fund's March update, a copy of which ValueWalk has been able to review, Giano's most significant investment at Read More
If you wanted to chat with Buffett in the early years, an investment partner is quoted by the Omaha World-Herald in 1986 saying, “You went in the back door of his home, walked through the kitchen, the living room and went up the stairs to the bedroom. If you were impressed with show and image, Warren was not your man.”
Buffett’s house, which served as the initial headquarters for his investment partnership, was located at 5202 Underwood Avenue, Omaha, Nebraska. He was renting the home for $175 per month. Before starting the partnership, he had a net worth of $140,000 to $174,000 and had a budget for his family to live on $12,000 per year. Much of this net worth was from his stint at Graham-Newman, an investment partnership after which Buffett’s investment partnership was modeled. This was the New York firm of Benjamin Graham, Buffett’s former professor at Columbia and mentor. Buffett left after Benjamin Graham decided to retire. He turned down the opportunity to become a partner at what would have been Buffett-Newman, as he had only gone there in the first place to work for Benjamin Graham. With Graham gone, Buffett returned to Omaha.
This is the first post of our free monthly newsletter. So if you like what you’ve read here, feel free tosign up. We’ll be answering questions like these to share what we’ve learned over the last several years in our analysis and replication of the Buffett and Berkshire strategy.