Buffett: The Making of An American Capitalist Summary

My Personal Summary

Warren Buffett is one of the most famous stock investors of all time. He spent an insane amount of time reading annual reports of companies, which gave him an edge as an investor.

He also viewed stocks as what they were (underlying businesses) and vowed to only invest in businesses he could see himself owning forever that had great economics and wide moats. He referred to Berkshire Hathaway as his “canvas” and made it a lifelong endeavor.

Given the nature of compounding gains over the course of decades and his obsession with investing (often at the cost of seeming distant to his own family), it’s no wonder he became one of the richest men in the world.

Book Notes

  • This book is a biography of Warren Buffett, the most famous stock investor of all time.
  • Fun Fact: From the 1950s to 1990s, the US stock market returned 11% annually while Buffet generated 29.2% annual returns.
  • The Buffetts arrived in Omaha, Nebraska in the 1860s.
  • Buffett was born in Omaha in 1930 at the start of the Great Depression.
  • As a child, Buffett was obsessed with numbers, memorizing populations of cities, baseball scores, and horse racing odds. He was also obsessed with money. At age 6 on vacation at a lake, he bought a 6-pack of Coke for 25 cents and sold them for a nickel a piece around the lake for a profit of five cents.
  • Buffett’s father, Howard, was a stock broker and very close with Warren. This is where Warren was first introduced to stocks and he became fascinated with them at age 10. Buffett had a great relationship with his father and admired him a lot. His mother, by contrast, seemed mentally unstable and would often verbally abuse her children.
  • Observation: As Naval Ravikant says, the way you’re going to make money is by exploiting your unique interests and talents. Buffett was obsessed with numbers and money at a young age, which was his intrinsic talent/interest that would allow him to build crazy wealth in life.
  • Even when he was young, Buffett would tell people that he would be very rich later in life (Bill Gates did the same thing).
  • At age 13, Buffett already tracked his earnings and even filed his own tax return.
  • Buffett was entrepreneurial from a young age. At 14, he had several paper routes and earned as much as most adults. As a senior in high school, he rented out pinball machines to local barber shops and collected a 50/50 split on the profits.
  • By the time he graduated high school, Buffett had read over 100 business books. He then attended Wharton School of Finance in Pennsylvania. He knew more than his professors and felt he couldn’t learn anything there. He left after two years and transferred to University of Nebraska.
  • He then went to Columbia in 1950 to study securities investing under Benjamin Graham, author of The Intelligent Investor. This is where he learned about investing in stocks that were trading less than their intrinsic value, often referred to as “cigar butts” by Graham.
  • In 1952, Buffett married his wife Susie in Omaha. He then went to work at his fathers brokerage firm. On the side, he began teaching investment classes at University of Omaha at just 21 years old. Students much older than him snickered when they saw him, but after five minutes were captivated by the way he spoke about stocks.
  • In 1954, Ben Graham offered Buffett a job. He worked for Graham for two years before returning to Omaha in 1956. Once there, he pooled money from friends and family to start his own investment fund, Buffett Associates, Limited.
  • In 1956, even at age 26, Buffett knew the inner workings of virtually every publicly traded stock. He knew what each stock should be priced at. This man was obsessed.
  • Buffett believed in investing in just a small basket of stocks and “watching that basket closely.” By 1964, he was managing $22 million in his fund and had a personal net worth of $4 million.
  • “Buffett scarcely though about spending his wealth in material comforts. That wasn’t why he wanted it. The money was proof: a scorecard for his favorite game.”
  • Buffett didn’t care for material comforts, traveling, or trying exotic foods. He liked hamburgers and Omaha.
  • Unlike other professional investors, Buffett recognized that actual businesses were underlying stocks so he focused on the economics of the business instead of the stock price, which could be an irrational number.
  • When asked about how Buffett outperformed the market, he once said he read “a couple of thousand” financial statements a year.
  • In 1965, Buffett bought ownership of a publicly traded textile manufacturing company called Berkshire Hathaway. He then acquired other businesses under Berkshire, including an insurance company, a newspaper, and a bank.
  • In 1970, Buffett shut down his investment fund because he sensed that stock prices were getting out of control on Wall Street.
  • Big Insight: Buffett realized that most stock prices did not take into account the power of a brand, which had intangible value that did not show up on the books. This is why he invested in See’s Candy, American Express, and Disney – they all had strong brand recognition that allowed them to attract and retain customers more effectively than competitors.
  • By 1976, Buffett’s only investments were under the umbrella of Berkshire Hathaway. Although the company was hardly a textile manufacturer anymore, Buffett kept the name. He also brought in Charlie Munger as his vice chairman.
  • Buffett said early on that Berkshire was his “canvas” and something he planned on doing not just long-term, but rather his entire life. And he did.
  • Investing in Berkshire (the textile company) taught Buffett that it’s not enough to apply brains and effort if a business model is awful. Textile manufacturing was just not a good business – it bled money. “A horse that can count to ten is a remarkable horse – not a remarkable mathematician. And a brilliantly run textile firm was not a brilliant business.”
  • Buffett once told Forbes that he read ten annual reports a week. This seemed to give him his edge – reading a ton in solitude.

Leave a Reply

Your email address will not be published. Required fields are marked *