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How Warren Buffett Made His First Million

We all know that Warren Buffett is the greatest investor of all time, and one of the richest people in the world. But he wasn’t born rich. How did he get there?

February 27, 2019 | About:

We all know that Warren Buffett (Trades, Portfolio) is the greatest investor of all time, and one of the richest people in the world. But he wasn’t born rich. How did he get there?

His life and career can be divided into two periods. In one, he made money by actively working. In the second, he invested. If he made his fortune as one makes a huge snowball, the first period is like making the core of the snowball, and the second is rolling the snowball and growing it through rolling.

Making money starting young

At a very young age, Warren Buffett (Trades, Portfolio) knew that he wanted money, for several reasons:

  1. It could make him independent.
  2. He could do what he wanted with his life.
  3. He could work for himself, doing what he wanted to do every day.

When he was six, he sold packs of chewing gum. He bought packs of gum from his grandfather, and would go door to door in the neighborhood selling it. This was the first few snowflakes of the big snowball

Between ages 6 to 9, he sold Coca-Cola door to door and at the beaches during family vacations.

At ages of 9 to 10, he sold used golf balls at golf courses. He picked them up in the woods and ponds and sold them to golfers, until a policeman caught him.

At age 10, he got a job selling peanuts and popcorn at University of Omaha football games. He walked through the stands yelling, “Peanuts, popcorn, five cents, a nickel, half dime, fifth of a quarter, get your peanuts and popcorn here!”

At the age of 11, he found a book in a library called: “One Thousand Ways to Make $1000.” 1000x1000 = 1 million.

The book said, “Opportunity Knocks! Never in the history of the United States has the time been so favorable for a man with small capital to start his own business as it is today!” The book was published in 1936. There are even more opportunities today!

“But! You cannot possibly succeed until you start!”

His idea was to buy a weighing machine. Every time people weighed themselves on it, they paid. With the money he made he would buy more weighing machines. He could compound.

He declared, in the year 1941, at the age of 11, that he would be a millionaire by the age of 35.

His mind is always about business and selling. At 13, he developed a crush on a girl called Dorothy. One day he wanted to invite Dorothy to the movies. Her father answered the door, and he was scared, so he tried to sell a magazine subscription to him instead.

At 13, he lived in Washington because his father became a congressional representative. One day he got a call from an adult friend called Ed. Ed said, Warren, you are the only business person that I know in Washington. Ed had 100 pounds of cornflakes and dog biscuits that he needed to get rid of, and he had already told his warehouse man to deliver them to Buffett’s house. “Whatever you get for them, send me half,” he said.

Suddenly his garage was full of cornflakes and dog biscuits, and he sold them for a hundred bucks and kept $50.

Then he started to deliver newspapers, managing three routes. He would get up at 4:30 in the morning, finishing delivering the newspapers by 8:00, and then go to school. After school, he would rush home to deliver the evening paper.

In the meantime, he sold calendars to his newspaper customers. He also asked the customers for their old magazines, so he could find out when their subscriptions ended and sell them subscriptions.

At 14, he filed his first tax return. He deducted his watch and bicycle as business expenses.

At 14, he had more than $1000.

At 15, he was making so much money delivering newspapers that he then had $2000. He studied the routes diligently to save time and be more efficient. He invested in a hardware company his father started, and bought a 40-acre farm for $1,200.

At 16, he was making $175 a month pitching newspapers, more than his teachers’ salaries. He was also selling golf balls and collectable stamps to collectors.

At 17, he installed a pinball machine at a barber shop and split the profit with the barbers. He then had $5000.

If Warren Buffett (Trades, Portfolio)’s fortune building is like rolling a snowball, the dollars and pennies he made in the earlier years served as the core of the snowball.

Then he rolled it, quickly.

The power of compounding

When he read the book “One Thousand Ways to Make $1000,” he quickly grasped the concept of compounding. He needed to make more money and let it grow. The earlier, the better, because he would have more years for the money to grow. He got into the stock market game early as well.

At the age of 10, he wanted to visit the New York Stock Exchange. His father took him there as a 10-year birthday present.

At the age of 12, he bought his first stock.

He was reading Barron’s magazine and the books on his father’s bookshelf.

The knowledge of business helped him tremendously. "I am a better investor because I am a businessman, and I am a better businessman because I am an investor,” he has said.

At 21, he visited Geico, talked to the company’s president Lorimer Davidson for two hours and then put 75% of his money into this single stock. He then sold GEICO stock to buy Western Insurance, which had earnings per share of $29 but traded at $3. Then he bought Union Street Railway stock, which was going to pay $50 in dividends, but the stock was traded at $35. He found it through attending shareholder meetings. His money was growing at 60% a year!

After he returned to Omaha and started his own fund, initially he only invested for relatives. Then he got money from friends and former clients of Ben Graham. He was running seven funds and was managing more than half a million dollars. His fee for managing the money was rolled into shares in the funds. He was generating outstanding returns, and earning rich fees. At the same time, his own money was also growing through investing.

This was the second stage of his snowball making. He rolled it quickly and the snowball grew at tremendous speed.

He became a millionaire at the age of 30.

This is a YouTube video that records the speech given by Dr. Charlie Tian to a group of 11-year-olds, including his son. He tries to inspire these kids to do business and investing.

About the author:

Charlie Tian, Ph.D. - Founder of GuruFocus. You can now order his book Invest Like a Guru on Amazon.

Rating: 5.0/5 (1 vote)



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