Warren Buffett Loved Penny Stocks
Yes Buffett did invest in pink sheet penny stocks when he was young, according to the book The Snowball. He loved investing in cheap stocks at discounted prices, which at the time were bargains. He made a vast fortune buying penny stocks and day trading. Buffett was investigated by the SEC in 1974-1976 for manipulating the price of a penny stock called Wesco. Him and Charlie Munger bought shares at a higher-than-necessary price. Buffett did this as he was buying the company and had made a promise to a shareholder that he would keep the price above a certain number. He sort of admits what he did was wrong, but it didn’t affect his reputation and one of his companies had to pay a $115,000 fine.
Warren Buffett was born in Omaha, Nebraska on August 30, 1930, the second of three children and the only boy. Today, he’s one of the world’s richest men and in fact his childhood was rather privileged, too. His father Howard was first a stockbroker and then a congressman.
Nonetheless, despite this rather privileged upbringing, Buffett himself always showed an aptitude for hard work and an entrepreneurial spirit.
When he was 11, he made his first ventures into business by buying six packs of cola from his grandfather’s grocery store and then reselling them for a small profit. It was at this age that Warren buffet investing skills begin to make their presence known, too. He also made his first investment in the stock market at this age.
An early and temporary loss in the stock market also taught him a lesson. After he bought his first three shares in City Service Preferred at $38 a share for himself and his sister Doris, the stock fell to $27 a share. Buffett help those shares until they went back up to $40 a share and then promptly sold them. However, they eventually came to be valued at over $200 a share. It was then that he realized that patience is necessary when it comes to investing. He has never forgotten that lesson.
In 1947, he graduated from high school. He never intended to go to college because he’d already done quite well with his entrepreneurial skills, having made $5,000 delivering newspapers. (1947’s $5,000 would be worth over $42,000 as of 2000.)
However, his father urged him to attend the Wharton business school at the University of Pennsylvania. Buffett did so, but he complained the entire time that he knew more than his professors did. He transferred to the University of Nebraska Lincoln in 1948 and graduated from there in three years.
He then applied to graduate school at Harvard Business School, but was denied admission because he was thought of as “too young.” Undaunted, warren applied to Columbia and was able to study under the tutelage of famous investors Ben Graham and David Dodd. This experience would change him forever.
Mentor Ben Graham
Ben Graham was a pioneer of his day because during the 1920s, he played the “investment game” very carefully by buying very inexpensive stocks so that this investment was almost completely risk-free. He also came up with the principle of “intrinsic” value as a way to measure a business’ true worth, independent of stock price. In this way, investors could decide for themselves what a company was worth and make investment decisions based upon that information.
His investment principles were simple but sound, and he became an immediate mentor to young Mr. Buffett. Buffett discovered when he was reading an edition of Who’s Who that Graham was in fact the chairman of small insurance company called Geico. Buffett immediately made it his task to go to Washington, DC to find the headquarters. He did, and was introduced to the financial vice president, Lorimer Davidson. They talked for four hours about various business practices, something that would be invaluable to Buffett. Later, he acquired Geico through his corporation, Berkshire Hathaway.
After graduating from Columbia, Buffett briefly worked for his father’s brokerage firm and then for his old mentor Ben Graham. During his time there, he began to search for investment opportunities. Warren’s approach was to find out how a company worked and how it was superior to competing companies. In 1950, he started investing with $9,800 and ended up with over $140,000 by 1956.
In 1956, he gathered up seven limited partners, including his sister Doris, and created the first of the Warren Buffett companies, Buffet Associates, Ltd. By the end of that year, he was in charge of about $300,000 in capital. Over the next five years, his partnerships made an amazing 251% profit, this when the Dow was only up 74.3%. By 1962, he had more than 90 limited partnerships across the United States with capital in excess of $7.2 million. $1 million of that was Buffett’s personal stake. Eventually, he liquidated that fund and took control of Berkshire Hathaway, a textile company.
Buffett eventually ended Berkshire Hathaway’s textile involvement, but kept the name itself for what became his portfolio of companies. He began to invest in majorly undervalued companies such as Coca-Cola, the Washington Post, and American Express. Today, Berkshire Hathaway owns large holdings in many previously undervalued companies that have become major players in the market.
Philanthropist and humble man
In spite of his incredible wealth, Buffett remains a humble man who still lives in the house he bought in 1958 in Omaha, Nebraska. He has and plans to continue to give much of his wealth away to charity, much of it while he is still alive. Most of this money will go to the foundation friend and fellow billionaire Bill Gates has set up.