Warren Buffet paper by malj


									                                        Leadership Analysis of Warren Buffet   1


                Leadership Analysis of Warren Buffet Biography Video

                                     Jason Eyer

                                    Business 450

                                  Keystone College
                                                Leadership Analysis of Warren Buffet                2


       Warren Buffet, an American investor and businessman, commonly known as “the Oracle

of Omaha”, is widely regarded as the greatest investor in history. Warren has amassed over $40

billion in worth through various investments including his well known Berkshire Hathaway

holdings firm, which holds lucrative shares of such companies as Coca Cola and ABC/Disney.

Warren has inspired many with his philosophy that thrift, honesty, and a “can do” attitude are

some of the essential tools necessary to realize the American dream. Warren’s ability to earn

wealth, in my opinion comes from his ability to strategize. He is a Strategic Leader, one who can

see the big picture, and make the necessary moves to win. In this paper I will summarize

information I learned about Warren from the instructor provided A&E website on

Biography.com, about everything from Warren’s charitable contributions, to his biographical

information, and strategic business moves, and then support empirical research as to why I

believe Warren is a Strategic Leader.

                             Video Summary of Charitable Contributions

       Not only is Warren know for his ability to make money, but he’s known for his charitable

contributions to society, breaking the notion that the wealthy and powerful attain their wealth by

cheating. Warren has amassed his fortune fairly and honestly, and does not horde his money to

create dynastic wealth, but rather teaches his three children how to make money on their own.

Warren stated “I think that a rich person should leave their children enough that they can do

anything, but not enough that they can do nothing, it isn’t in my view of how the world should

operate, to create huge amounts of dynastic wealth.” (Biography.com) In fact, Warren donated

$37 billion, two thirds of his vast fortune, to charity at a ceremony at the NY Public Library on
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June 26th, 2006. He donated three billion to his late wife Susan Thompson Buffet’s memorial

foundation, a billion to each of his three children’s foundations, and the vast majority, $31 billion

dollars, to the Bill and Melinda Gates Foundation. His donation doubled Bill and Melinda Gate’s

endowment. He literally gave away the majority of his fortune. “The Bill and Melinda Gates

foundation are more likely to do more for the good of society than the federal government of the

United States.” (Biography.com) Buffet’s is the greatest charitable contribution in the history of

the world and it dwarfs even the contributions of great philanthropists like Rockefeller and

Carnegie. With his philanthropy, he’s not concerned with his name being recognized but rather

with what will be done with the money. Warren is a reminder to us all that through hard honest

work, the American dream is possible.

                                  Biographical Summary from Video

       Warren, born in 1930, the middle child and only son of Howard and Lela Buffet, started

his life in an average setting, certainly not born into wealth. When Warren was a small child, his

father Howard lost his job as a securities-broker. Warrens’ mother skipped meals to put dinner

on the table for him and his sisters. He knew what it meant to be poor (His father would

eventually regain employment). From an early age it was clear Warren had tremendous

analytical powers. “Warren can see in the dark” his dad said. (biography.com) “When he was six

years old he paid a quarter for a six pack of Coke, and sold each bottle for five cents to make a

twenty percent return, which is really what he’s done his whole life.” (Biography.com)

       In 1950 at eleven years old, Warren essentially started with ten thousand dollars when he

and his sister Doris bought three shares of stock in Cities Services for one hundred dollars each.

The stock went down, and he panicked, but soon it went up to two hundred dollars a share and

that’s when he learned to hold onto stocks and ride it out.
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Warren would go to the gas station and collect bottle caps. He would spread out bottle caps to

figure out what was selling, which was really his way of doing market analysis. Warren also

delivered newspapers, bought stock in Nebraska farmland, and purchased pinball machines and

installed them in barber shops. He was 16 when he said he wanted to be a millionaire. He left

Omaha for Washington D.C. in high school, and was only a teenager in Washington DC when he

graduated from Woodrow Wilson high school in 1947. His father persuaded him to further his

education and in1950 Warren went to Columbia University in NY. Ben Graham was his favorite

professor. Graham, the author of the “Intelligent investor”, taught that stocks represent a part

ownership in the business and buying stocks is like buying parts of the business. He said to look

at the business rather than the mathematical aspects of the stocks.

       In 1951 Buffet returned to Omaha and worked at his fathers’ brokerage. He fell in love

with Susan Thompson, a college friend of his younger sister Roberta. In April, 1952 they were

married and over the next six years had three children, Susan, Howard, and Peter. In 1956

Buffet went into business for himself. He began seeking out investors. He was able to get

investors such as doctors to contribute thousands of dollars to his investment holdings company.

In 1962, Buffet purchased a New Bedford Massachusetts textile mill called Berkshire Hathaway.

He was drawn to the cheap stock and bought enough to control the company by 1965. He told

the management he wanted the cash out of this business. He started to squeeze the company, and

use the money saved from doing so to buy businesses like insurance companies, newspapers,

steel mills, and diversified and reallocated the capital for all these other companies into the

holding company, but not the textile company Berkshire Hathaway. The holding company’s

assets kept growing, and by 1965 its holdings outperformed the Dow by thirty three percent.
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       The late sixties saw the stock market go into a trading frenzy. The Price Earnings Ratio

went sky high in 1969. He returned all the investors 104 million in investments in the partnership

due to the fact that he thought the highs indicated a collapse coming. In 1970 Buffet was forty,

and he had liquidated his original partnership. He was still growing a twenty five million dollar

fortune. He shunned publicity, he didn’t flaunt wealth. With large wealth comes the threat of

dangerous people wanting to hurt loved ones to get to one’s money. The danger of all that money

was avoided, due to Buffet not flaunting his wealth. His kids didn’t even know what he did for a

living. They lived in an average home on Farnham Street. Susan did convince Warren to buy a

vacation home in Laguna Beach California, but that was the main extent of extravagance.

       In the early 1970’s the Washington Post had just gone public, Warren bought five

percent, and Katherine Graham, in 1963, became a leader at the Post after her husband’s death.

Warren entered the picture. Warren studied up on the Post. Katherine was swept off her feet by

Warren, she trusted him, turned to him for advice, and he educated her totally. He’d bring ten

annual reports, and he’d tell her it was a good business. They’d talk three to four times per day.

Mrs. Graham’s circle was his introduction to east coast power circles. He got a rush off it.

       In the 1980’s Warren studied up on the Nebraska a Furniture Mart, which was ran by

ninety year old Mrs. Rose Blumpkin, or “Mrs. B” as she was known in Omaha. The Nebraska

Furniture Mart was the single biggest furniture store in the U.S. She ran the store by patrolling

up and down the aisles in a golf cart. She would bark orders from the cart while working

fourteen hour days, and seven days a week. She had the price tags of the furniture in her house in

case people came by. Her formula was to sell cheap and tell the truth. This formula worked as

the mart was good for annual sales of around $150 million. Warren bought the business for $60
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million in 1983. She continued to run the store and yell at her employees. Warren says “she’s

forgotten more about the business than he’ll ever know.” (biography.com)

       Berkshire Hathaway was going under, and he was sensitive to closing it, but in 1985 he

closed it down leaving four hundred angry jobless employees. On March 18, 1985 Buffet

answered the call of Tom Murphy, of Capital Cities, who was about to purchase ABC. Murphy

needed Buffet to play the “400 pound gorilla”. Murphy knew Buffet was a major stock holder,

and that he would prevent any corporate raids. Murphy asked him for $517 million. Buffet

agreed. ABC lost $90 million the first year, but Warren wasn’t fazed. He was in for the long hall.

ABC stabilized.

       On October 19th, 1987 which is known as Black Monday, the Dow Jones fell by 22

percent. Berkshire Hathaway lost 25% of their shares which was a value of $342 million in

personal loss for Buffet. He turned disaster to advantage though. He loaded up on Coca Cola. He

bought 50 thousand shares a day. The President of Coca Cola was Donald Keogh, who was his

former neighbor in Omaha. Warren invested a billion dollars in Coke, which is now worth eight

or nine billion, and had been up as high as $15 billion.

       Mrs. B had a dispute with her three grandsons over pricing, and quit the Nebraska

Furniture Mart. She opened up a carpet store across the street from the Nebraska Furniture Mart.

Warren bought that too for five million. Mrs. B ran it until the year before she died at 104.

       Berkshire Hathaway kept growing. The 2004 Berkshire Hathaway income tax return

totaled three billon dollars and was over 10,000 pages. In 2006 Berkshire Hathaway’s stock

closed at a record $100,000 per share. In 1995 the Disney Corporation bought ABC for $19

billion, adding considerable wealth to Buffet’s fortune. It has been figured that he has to find a

way to put $100 million to work every week to remain profitable. There are 52 weeks in a year,
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so that’s five billion a year. In 2006, Warren bought four billion dollars worth of shares in Iskar,

an Israeli metal working company. It was his largest oversees purchase.

        At Berkshire Hathaway’s annual shareholders meeting, Chairman Charlie Munber, and

Warren start answering questions at 8am, and they answer every question asked of them. Most

CEO’s of public companies regard their investors as a nuisance. Warren talks to his investors

like they’re his partners.

        Warren hates tech stocks. Buffet doesn’t use a computer. He bought 100 shares in

Microsoft after Bill Gates taught him about it. That was the extent of his tech investing.

Although he didn’t capitalize on the tech boom, he also didn’t lose anything when the tech

bubble burst at the turn of the century.

        Warren only pays himself $100,000 a year, and lives very modestly for a CEO. The

average CEO makes nine to ten million a year. Warren plays bridge, dresses badly, and eats fast

food. He’s unlike a typical billionaire. He has never been found guilty or been associated with

any insider trading, abuse of stockholders, or unethical practices. He donated a $37 billion gift to

charity. Warren loves making money, but also giving it away to good causes.

        Before he lost his wife Susan, in 2004, she was going to be the charity planner, and she

would have been very good at it. Warren took on that responsibility quite exceptionally. He still

won’t talk about Susan’s death. In 2006, he asked long time friend, sixty year old, Astrid Banks

to marry him and she accepted. Family members say it has worked wonderfully and are very

happy for them. Berkshire Hathaway and Warren Buffet continue to astronomically successful to

this day, and Warren is still earning and donating money, which is what he loves to do.
                                                 Leadership Analysis of Warren Buffet                 8

                                           Leadership Analysis

       In my opinion Warren Buffet uses the Strategic Leadership Style which “stresses the

competitive nature of running an organization and being able to out fox and out wit the

competition.” (Legacee.com) The “competencies of a strategic leader are succinct and

compelling communication, the ability to inspire and lead organization-wide change,

entrepreneurship, a passion for results, and tenacious drive for high performance at all levels.

Strategic Leadership requires the knowledge to make well thought-out, long-range plans and thus

must intimately understand customers’ needs and the competitive landscape. It also requires the

ability to understand and drive key talent management functions, such as compensation, training,

and performance management and measurement. Strategic Leaders need to have experience in

creating a corporate culture, and cost control at leadership assignments. This is even more crucial

at this level since these senior-level leaders drive the culture and direction of the organization.

The personal attributes of Strategic Leaders are high levels of ambition, inquisitiveness,

imagination and innovation, and a high learning orientation.” (Greatleadershipbydan.com)

       If Warren Buffet is the greatest investor of all time, then it means he’s developed the

knowledge, skill, strategies, know-how, and leadership qualities to be better than anyone else

who has ever tried. When you think about how hard it is to be the best at anything, even on a

small scale, and how many people in the world there are that are really good at what they do, and

how something like investing, which is such a potentially lucrative endeavor, draws so many

people to compete, and you think about the person who is hands-down, the best the world has

ever seen, then you can’t help but concede that Warren Buffet must be a Strategic Leader. His

strategies, his know-how, his understanding of how businesses work, how to read trends in the
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market, and how to read people and investments, are why he is so successful. His whole life has

been about gaining competitive advantage. From the time he bought a six pack of Coke for a

quarter and sold each bottle for five cents to make a twenty percent return, Warren was utilizing

his strategic abilities to make profit’s off of things he invested in. This is what he’s really done

his whole life. Warren is indeed in my opinion a Strategic Leader.
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