How did Warren Buffet enter into stock market?

“Either I will become a millionaire before 35 years or else I will jump off a high building.”                                                                                                                                                      Warren Buffet

About how did Warren Buffet enter into stock market?

 

v  Background of his life

Warren Buffet, who born on 30^th August, 1930 whose father was a stock broker as well as a politician.  At that time as there were crisis in America, their family savings’ vanished and they have to live a very miserable life. Therefore, buffet promised to himself that he will become a millionaire one day. On chasing his target of becoming a millionaire, he learned various lesions and become the most intelligent investor.

v  A Journey of lessons  which helped him during entering the market

Warren was very good at Mathematics and calculation from very beginning. He used to do analysis what was happening nearby him like he used to write down on paper the numbers of which the cars used to come to check which car is on demand and come more.

Not only this, he noticed the juice vending machine which was nearby to his house. Buffet counted the caps of the drinks to check which soft drink is highest demanded, he realized persons used to drink Coca Cola most among all of the soft drinks. This analysis made him to buy the shares of coca cola in future.

At the age of 10, he read a book in Benson library entitled “1000 ways to earn $1000” from which he liked one idea of buying the weighing machine the most. Its whole concept was one may earn money from one weighing machine only and expand their market by re investing the profits earned out by one machine to buy another machine. And buffet started calculating the cost of one weighing machine and time to purchase another machines. Even he calculated what if everyone uses his weighing machine then how much money he can earn.

As Warren was a person who wanted to earn huge money, he used to sell newspapers, magazines to earn. He stated a line also:

“There was freedom, Enjoyment in making money. I could become my own boss in it.”

v  Concept of Compounding

Warren made the concept of compounding his core philosophy since he heard a story of a king where one priest visits his kingdom and asks for the rice grain to fill his chess board by every time doubling the grains from the last time. King though it was very less but at that the time of filling the board, his all kingdom got sold out. Impressed out by this story, Warren made it’s the main weapon of dealing or investing in the future.

v Starting of Journey of becoming a Millionaire

 His journey of becoming a millionaire started when he was asked to take admission in Harward University by his father but he could not get selected for that. But soon he realized that it was the best thing ever happened to him as he came to know that Benjamin Graham   who had written his favorite book on investment named The Intelligent Investor & Security Analysis was teaching in Columbia University. Warren to take admission in that University wrote a letter to professor showing his keen interest to get taught by him and professor allowed him too. And then the journey of learning about investment and its tricks and tips by Professor started the path of Warren being Millionaire.

Two Best rules of Investing by Benjamin Graham:

1.      Never Lose Money/Never put your investment money into risk which means never invest your money in those stocks you aren’t sure about

2.      Never forget Rule No.1.

 

The most important concept taught by Benjamin Graham to Warren was – Value Investing which means a company must be assessed by its price value not present value. For example, if a pen worth Rs. 10 then what is supposed from a good investor is that he shouldn’t buy that pen that at that price but he should wait until the price lowers down and when there is steep increase in price, it must be sold out to earn huge profit. This concept of value investing was used by Warren Buffet in buying the stocks of various largest companies and earned huge profits. This made him at the age of 25 only in 1956 to open his own partnership firm with 7 partners from which various were from his family only.  Coming to end of 6^th years, this partnership firm was able to covert 1 lac 5000 dollars into 7 million dollars from which 1/7^th part was of Warren which means before 35 years of age, he became a millionaire as per his statement but after that great time one downside also came as of result of increased share price, he could not purchase more shares. As a result he had to stop his partnership firm.

 

v  Entry of Charles Munger

 Before meeting Charles Munger, Warren philosophy was to purchase shares of that company whose actual value is much more but its bad management made its shares available at very cheap price and sell the shares when the market price of that company increase and earn huge profits but Charles brought a very different philosophy in the life of Warren. As per this philosophy, one must buy the stocks of that company which is of high quality and in near future there is no need to sell these shares but rather keeping the investment for long time as the value of the company will get compounded and will increase by many times and as a result there will be huge profits at the end and also there will be increase in the control in the company of the investor.

Following this philosophy, Warren purchased the shares of high value companies such as Coca Cola, AMEX, Gillette and earned huge profits. Apart from these companies, Warren made a huge investment in a company named Berkshire Hathaway which was a textile company. Huge investment in the company made him one of the controlling powers of the company and became the Chairman of the Company. After becoming Chairman, he sold all the useless and non performing assets of the company and at the end, he stopped it as a textile company and made it an investing firm from which he earned huge profits. Even today, his maximum investment is in the Berkshire Hathaway only.

Bill Gates and his friendship

Earlier they were not good friends. Bill Gates assumed Warren don’t know investing but do the speculation but after meeting each other in a dinner party, they understand their tactics of investing and appreciate and became good friends. Even warren has given so much donation Gates’ foundation and has promised that after his death 99 % of his wealth will be donated to Gates’ foundation only. They realized that they both know that the main step to be successful was FOCUS as they both wrote this word when Bill Gates father asked them to write the secret of their success on a paper. They both wrote FOCUS.

What Warren made us to learn?

Warren taught us various lessons such as patience and focus and various concepts of investing such as Compounding, Value Investing.  A person who lived in extreme poverty in childhood becomes a millionaire just at the age of 32 and in 2019 his Net worth was approximately 85 Billion Dollars and now it is more than 87 Billion dollars.

 “Risk comes from not knowing what you’re doing.”

Warren Buffet