The world’s second richest man next door

People buy one of his company’s shares, currently worth US$100,000 each, just to hear him speak at his annual general meeting. Banks last year wanted him to say he was investing in them to stop frightened people pulling their money out. Politicians like Barack Obama and Federal Reserve Chairman Ben Bernanke want his advice.

So who is this man people call the Sage of Omaha? His name is Warren Buffett and he is the second wealthiest person in the world, behind his very close friend, and founder of Microsoft, Bill Gates.

Though Buffett, an American, does not share the same household recognition as Bill Gates, he maintains a large profile in the business world.

He is arguably the most successful investor in history with his company Berkshire Hathaway being his investment vehicle. Its share price was only $18 when he took over the company in 1965. Last week they made their biggest acquisition yet buying up the remainder of BSNF Railway for $26 billion.

People revere, worship and try to imitate him. There have been countless books about his investment philosophy. His often humorous annual shareholders meetings are clear and open about how Berkshire made its money and the reasons behind his outlook for the future.

But what drives people to be in awe of him is as much about his unbelievable ordinariness as it is about his knack for investing.

Buffett gets his nickname from the place he lives – the city of Omaha, Nebraska. He lives in the same ordinary house he’s had since the 1950’s, drives a regular car, plays a lot of bridge and treats himself to the same T-bone steak at his favourite restaurant up the road.

His one luxury is his private jet – simply there, he claims, because it makes his life better.

He works out of an ordinary office with just a couple of secretaries, accountants and a bond trader. He doesn’t even own a computer at work, despite Bill Gates being one of his closest friends.

He leaves work at 5.30 and arrives in the morning at 8.30 or 9, depending on how late he has been up playing bridge online. He is 79 and could be just a regular granddad living in a quiet, small American city.

But despite appearing so ordinary, he is anything but.

He has become the most successful investor in the world by having a very simple investment philosophy. He only invests in businesses that he understands and that have good, dedicated managers. He only looks for something that will give him a good financial return (not a straight capital gain). And he only thinks about how the business will perform long-term – over the next 10 years for instance.

As a result, he largely has stayed away from the glorified gambling that is short-term speculative investing and stuck with his remarkably diverse long-term assets. These include investments in Coca-Cola, insurance, newspapers, building, retail, energy and banking. It has all helped to generate an average growth for Berkshire Hathaway of 20% every year for the last 44 years. All up the company is worth over US$100 billion.

When asked why he didn’t invest in the technology ‘dot com’ craze, he says he simply didn’t understand it. When asked whether he wishes he had, given how wealthy it has made other people, he says it’s good for them but he doesn’t need to be involved in everything – just his areas of strength.

Buffett also has a strong social conscience. Despite being the second richest person in the world (sometimes richest depending on his share price) he supports higher taxes for the wealthy. He has been very open about the fact that his secretary is on a higher tax rate than him and he doesn’t even try to avoid tax.

He has called for inheritance tax to be reinstated (after President Bush removed it) even though he clearly has the most to benefit from there being none.

Not that his kids will see most of it anyway. He believes (as does Gates) that it is important to leave enough money to his kids to keep them financially secure and happy, but not too much that it takes away their desire to be successful themselves.

So what is he going to do with his US$37 billion wealth? In 2006 he pledged the largest private donation in history to the Bill and Melinda Gates Foundation, the charity Bill Gates set up with his wife to tackle the problems with the world’s poor. Buffett has said that he will commit $31 billion as part of a gradual process.

He and Gates, who himself has committed $27 billion to his foundation, share the same vision for its use – to ruthlessly screen proposals for their benefits and to make sure the money is spent properly and effectively – much like they run their businesses.

The world is definitely a better place for having Warren Buffett around. He demonstrates remarkably unique leadership not only in business, but in charity and basic values.

Given the world’s current mess, there may be a few lessons that society could learn from Mr Buffett – the ultra successful, yet modest and content, Sage of Omaha.

By The Casual Truth

Photo/CNBC – The (un)ordinary Warren Buffett.