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Most Americans find themselves thinking about money every April. After all, that's when the IRS reminds us how much we are (and are not) worth. Even if you happen to be lucky enough not to feel the squeeze of income tax, the stock market has been on such a roller-coaster ride that it seems the struggling economy has touched us all.
One person who probably isn't feeling the pain is Warren Buffett, the 77-year-old CEO of Berkshire Hathaway Inc. and -- officially -- the richest person in the world. His estimated net worth is about $62 billion.Buffett has a remarkably frugal life style. While other billionaires have multiple estates, cars and trophy wives, Buffett still lives in the home he purchased in Omaha, Neb., in 1958 for $31,500. Today, it's worth $700,000. And when it comes to annual compensation, Buffett's salary is meager by most CEO standards: $100,000.
I have read many articles on this fascinating man as well as his collaboration with Lawrence Cunningham, The Essays of Warren Buffet: Lessons for Corporate America, and visited the Berkshire Hathaway Web site, www.berkshirehathaway.com.
I now know the recent problems on Wall Street present the type of money-making opportunity that Buffett most enjoys. He instinctively knows how to turn today's problems into tomorrow's profits. When other investors are panic-stricken, Buffett views downturns as perfect buying opportunities.
He has a style known as "value investing," which means that if a company is undervalued in relation to its intrinsic value, it has the potential to be a good investment. Berkshire Hathaway, originally a textile company, owns a variety of businesses that range from utilities to jewelry. Half its profits come from insurance companies, such as National Indemnity Co. and GEICO.
Buffett has historically bought family-owned companies where the purchase price is lower, in exchange for retaining the staff. Now he's looking overseas and investing in Israel, China and the United Kingdom. Part of this strategy is because he's bearish on the dollar and plans to buy firms that generate income outside the U.S.
Berkshire Hathaway shares sell for well over $100,000 and have gained more than 4,000 percent in the past 20 years, roughly six times the Standard & Poor's 500.
Buffett's background suggests that he has always had a talent for making money. When he was 13, he filed his first income-tax return and claimed his bicycle as a $35 work expense. At 15, he and a friend bought a used pinball machine and placed it in a barbershop. Within a few months, they had machines in three locations. By the time he was 19, he was at the Wharton School, and when he was 20, he enrolled at Columbia Business School.
In what may have been his only business stalemate, after graduating from Columbia, he purchased a Sinclair gas station, but it didn't succeed the way he hoped. During the same period, he worked as a stockbroker, took a Dale Carnegie course, and taught investment principles at a night class at the University of Nebraska. By age 25, his savings account had more than $140,000 (in 1956 dollars).
Buffett's wealth and financial partnerships grew almost exponentially, and by 1979 at age 49, he appeared on the Forbes 400 list for the first time with a net worth of $620 million. The trajectory of Berkshire Hathaway's growth and Buffett's wealth has continued to this day.
Two years ago, Buffett announced that he plans to give away close to $40 billion worth of Berkshire Hathaway stock to five charitable foundations. The bulk of his philanthropy will be directed to the Bill and Melinda Gates Foundation. His gift is the largest charitable donation in history.
Buffett's three children (who will not inherit much of his wealth) run several charitable foundations. In his words, "I want to give my kids just enough so that they would feel that they could do anything, but not so much that they would feel like doing nothing."Share Investor Blog