How Warren Buffett Became the “Oracle of Omaha”
To many investors, Warren Buffett is a god of finance. Through his firm, Berkshire Hathaway Inc. (NYSE:BRK-B), Warren Buffett became one of the world’s three richest people, having amassed a personal wealth of $72.7 billion. How did he do it?
The simple answer: through great investing. Buffett became interested in stocks during his late teens. He would pick up any book he could find just to understand a little bit more about the market, but it was one book in particular that changed Warren Buffett forever.
In 1949, Warren Buffett picked up The Intelligent Investor by Benjamin Graham. Nothing was ever the same for Buffett after that. It was through Graham that Buffett honed his investment philosophy into the moneymaking machine it is today.
By 1965, he had gained control of Berkshire Hathaway, which was (and remains) a closed-end fund. People who went in with Buffett paid about $12.00 per share. Eventually, Berkshire went public, but without issuing any new shares. (Source: “Warren Buffett’s 6 best investments of all time,” Fortune, October 31, 2014.)
This meant that the value of Berkshire stock would not get watered down as Warren Buffett made his genius investments. Just one Berkshire Hathaway share is now worth $200,560. No, that’s no typo; Berkshire stock appreciated by 11,142.
The 7 Brilliant Stock Picks of Warren Buffett
Over the years, Buffett has made some extraordinary investments. Eventually, he turned Berkshire Hathaway into a pseudo-private equity firm through which he could buy companies and fix them from the inside.
Warren Buffett has become a household name, but his methods never wavered. He was never seduced by the latest fashions of finance, like the rush to buy Internet companies in the 1990s. Buffett always maintained that stocks were very different from companies.
Investors who were caught up in the technical aspect of stocks sometimes missed the difference, Buffett would argue. He thinks of stocks as a small piece of ownership in a company, which they inarguably are. So the inherent value of a stock depends on how well the company performs. It sounds simple, but plenty of investors forget those basics.
Investors get lost in stock volatility and other metrics, whereas Buffett puts the company’s business model under the microscope. He takes a look at the layout of the industry and then makes a move. That clear, simple logic made Warren Buffett into what he is today.
Let’s take a look back at the best bets Warren Buffett ever made and what’s next for the “Oracle of Omaha.”
#1 Warren Buffett Stock Pick: PetroChina Company Limited (NYSE:PTR)
Industrial stocks are directly in Buffett’s wheelhouse. Time and again, he’s let fundamental analysis guide him and it’s worked out well. Back in 2002 and 2003, Buffett picked up 1.3% of PetroChina for $488 million. Analysts were shaking their heads at this move.
PetroChina had more than 400,000 employees, which I’ll admit would have probably scared me off too. That’s a lot of labor cost to carry indefinitely. However, the oil price boom hit and PetroChina’s value catapulted from $37.0 billion in 2003 to $275 billion in 2007. (Source: Ibid.)
Buffett and Berkshire shareholders made an easy $3.6-billion profit on the trade.