If
I Were A Rich Man . . .
‘There’s
class warfare all right, but it’s my class, the rich class,
that’s making war, and we’re winning’. New York Times, 26th Nov 2006
So said, with
more than a hint of shame, the person revealed by Forbes magazine last
month to be the world’s richest man – Warren Buffett. With a fortune
estimated to be in the region of 62 billion dollars, Buffett is now a
couple of billion ahead of the Mexican telecoms tycoon Carlos Slim, and
four billion or so ahead of his friend and bridge partner, Bill Gates.
Britain’s richest man, Labour Party donor Lakshmi Mittal, is fourth,
one of 49 billionaires living in the UK.
Buffett, dubbed the ‘Sage of Omaha’ because of his homespun wit and
wisdom, is something of an enigma, a compulsive accumulator of wealth
that he is in some respects embarrassed about. He may be the richest
man in the world, but lives in the same house he bought for $31,000
when he was 28, exists on a diet of hamburgers, candy bars and Cherry
Coke, and refuses to have more than one car (an old one, at that). In a
world obsessed by conspicuous consumption, he is hardly a man given to
ostentatious displays of wealth.
From a very early age Buffett was fascinated by numbers,
mathematical calculations and money, and was obsessed with becoming
rich, to such an extent that according to Mary Buffett, as a child in
1938, ‘in the sweltering summer heat of Nebraska, he walked miles to
the racetrack where he spent hours on his hands and knees scouring the
sawdust-covered floors for discarded racing stubs, hoping to find a
winning ticket’ (The New Buffettology). The son of a Nebraska
stockbroker, he made his first stock market investment when he was
eleven (three shares in a firm called Cities Service) and by the time
he was old enough to go to college he had made $6,000.
Harvard
reject
After his degree, Buffett applied to study at the prestigious Harvard
Business School and was rejected. But this was a blessing in disguise
for him, because he ended up going to Columbia University instead where
he studied under Benjamin Graham, considered by many at the time (and
plenty since) to have been the greatest investment analyst of the
twentieth century. Graham wrote two seminal works: Security Analysis
(co-authored with David Dodd) in 1934, and The Intelligent Investor,
the original edition of which was published in 1949. The teachings of
Graham, and these two books in particular, had a profound impact on
Buffett, to such an extent that he eventually persuaded Graham to take
him on at his own Wall Street investment firm (at one stage he even
offered to work for free).
When Graham retired in the 1950s, a homesick Warren Buffett returned to
Nebraska to set up his own investment partnership. This was the real
beginnings of his fortune, where he began to turn an initial investment
of $105,000 collected from friends and family (only $100 of which was
his own) into the $62,000,000,000 it is now. Buffett’s fund
management fees were performance-related and by 1969, when he decided
to close down the partnership, assets under management had grown to
around $104 million, in which Buffett’s personal stake was over $20
million. By this time Buffett was convinced that a bear market was
around the corner, where sustained downward pressure would be put on
share prices after the end of the 1950s and 60s economic boom.
But it was also in this period that Buffett laid the foundations for
his greatest leap in wealth, taking over the company with which he has
been synonymous ever since: Berkshire Hathaway. This ailing textile
company was steadily bought up by Buffett and his partners typically
for around seven to eight dollars a share and in 1965 they seized
control of it. When Buffett dissolved his investment partnership he
offered his partners a choice of either cash or a stake in Berkshire
Hathaway. Those who took the shares instead of cash have seen them rise
in price in the period since to the extent they currently trade in
excess of $140,000 each on the New York Stock Exchange.
Woodstock
for capitalists
So, how did Buffett really become so rich and help other Berkshire
Hathaway shareholders to be the same? By being, in Buffett’s own words,
in the right place, at the right time, but also by being the perfect
capitalist. As Buffett would be the first to admit, he has never
invented or made anything; indeed, he is very far from being the great
all-American entrepreneur of popular mythology – he’s happy to let Bill
Gates take that sobriquet. Instead, he is the most famous example of a
phenomenon Friedrich Engels wrote about in the nineteenth century,
where Engels identified that the key technical role that entrepreneurs
played in the growth of capitalism was on the wane:
‘All the social functions of the capitalist are now performed by
salaried employees. The capitalist now has no other social function
than that of pocketing dividends, tearing off coupons, and gambling on
the stock exchange, where different capitalists despoil one another of
their capital.’ (Socialism: Utopian and Scientific).
In this sense, the capitalist class, as owners of capital who no longer
have to work and whose key technical function in the rise of capitalism
has been largely taken away, become functionaries of capital – and
interestingly, Buffett has defined himself as being an ‘allocator of
capital’ above all else. In this respect, Buffett is a very modern
capitalist – an investor in companies and markets rather than an
inventor of things. Every year, Berkshire Hathaway shareholders arrive
in Nebraska for their annual shareholders’ meeting to pay homage to
Buffett and his side-kick Charlie Munger in an event they call
‘Woodstock for capitalists’; there is little entrepreneurial spirit to
be seen, for there is no need.
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