How Warren Buffet made his first Million Dollars
Arnold Schwarzenegger once jokingly said, “The first million is the hardest to make, so start with the second”. Well, he might have said that in a humorous way, but it is somewhat true, the first step is always the hardest.
Warren Buffet is the most successful investor the world has ever seen. As of 2023, his net worth is over $100 billion.
In this article, we are going to look at his first step, how he made his first million dollars.
- 1930: – The Birth of the Legend
- firstly, not to fixate on the purchase price, and
- secondly, not to rush for a small profit.
Warren Buffett was born on August 30, 1930, in Omaha, Nebraska.
He was attracted to money from a very young age, he did all sorts of jobs to earn money. He worked part-time at his grandfather’s grocery store, sold chewing gums, collected and returned Coca-Cola bottles for money, and sold magazines.
Through his relentless efforts, Buffett was able to amass around $120 by the time he was 11 years old. That’s about $2,100 in today’s time. Pretty impressive for an 11-year-old.
With a little bit of money in his pocket, Warren was now ready to make his first investment.
1942: – Buffett’s First Investment
Buffett had understood the concept of compound interest very early in his life. He was looking to multiply his savings so he bought three preferred shares of a company called Cities Service for a total of $114.75.
Unfortunately, right after his purchase, the shares immediately dropped.
Not only had Warren invested all of his hard-earned money, but he had also convinced his older sister Doris to invest with him. Doris picked on Buffett every day at school, reminding him that her shares were losing value.
Buffett felt terrible. At one point, he had an opportunity to sell the shares at a $5 profit for both of them, and he did.
However, shortly afterward, the Cities Service Preferred shares soared to $202 each.
From this experience, Warren Buffett learned two valuable lessons:
1954: – Buffett & His Dream Job
Buffett was an average student in his high school.
This changed when he enrolled in Benjamin Graham’s class at Columbia University. Buffett had already read “The Intelligent Investor” and was an admirer of Graham’s investment ideas.
Buffett had finally found a teacher who taught something interesting and useful to him.
But Benjamin Graham wasn’t just a teacher; he was also a partner in a fund known as Graham-Newman.
After graduating in 1954, Warren convinced Gramham to hire him at his investment firm with a salary of $1,000 per month in New York.
Through his wits and charm, Buffett became the firm’s golden boy. In 1956, when Graham decided to retire, he asked Buffett to take over his position. When Warren declined, Graham decided to shut down his firm.
1956: – Buffett’s First Partnerships
On May 5th, 1956, when Buffett was 25 years old, he formed Buffett Associates, Ltd., an investment partnership similar to Graham-Newman.
The partnership consisted of only seven partners at the time, including family and friends, with Buffett as the general partner.
From 1957 to 1961, Warren managed to outperform the Dow Jones Industrials by as much as 16% per year, resulting in a compounded 177% return.
Even after deducting Buffett’s fees, the limited partners beat the index by an average of 10.2% per year, a compounded 107% return.
Buffett’s competencies as an asset manager got more attention, and by the end of 1961, he was managing a total of 10 different partnerships.
1959: – Buffett and Charlie Munger
In 1959, Warren Buffett met Charlie Munger at a local dinner party and the two truly hit it off intellectually.
Munger challenged Buffett’s beliefs about cheap companies. Prior to meeting him, Buffett focused on “investing in mediocre companies that traded at bargain prices”.
After being convinced by Munger, he instead started to focus on: “Great companies at fair prices”
The strategies that they developed together helped them to find companies such as See’s Candies and Coca-Cola. They both got the best out of each other.
1962: – Becoming a Millionaire
By January 1962, Buffett had ten different partnerships. He decided to merge them into a single larger one called Buffett Partnership Ltd.
The new partnership had about $7.2 million in assets under management, and Warren and his wife Susie’s interest in the partnership was $1,025,000.
At the age of 31 years, Buffett was now a millionaire.
Warren Buffett is an inspiring figure in the world of investing. He understood the power of compounding very early in his life and bought his first share at the age of 11.
His mentor, Benjamin Graham played an important role in his success. It was under his guidance that he built the foundation of “value investing” ideas that would make him billions in years to come.
Buffet connected very well with Charlie Munger. They challenged each other investment ideas and always got the best out of each other.
By 1962, at 31 years of age, Warren Buffett had become a millionaire.