How did Buffett obtain the large capital to initially start investing? | Hacker News Reader

How did Buffett obtain the large capital to initially start investing?

9 pointsApane5 comments

I know that he was always into finding different ways to earn money since a young age, i.e. putting gaming machines in public places, paper route etc... All of these things tie into his incredible work ethic, however, they certainly didn't generate much income.

Initially he said that he started with only 10k after graduating from University. Starting with 10k is a very small amount and would take significant time to grow even if he was making several multiples on his investments.

With that said, you need reletively large sums of capital to make significant profits, so I'm guessing he was running a hedge fund of some sort in the early days and investing other peoples money and taking a percentage?

Can anyone back this up?

Thanks.

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In 1952,[28] Buffett married Susan Thompson at Dundee Presbyterian Church and the next year they had their first child, Susan Alice Buffett. In 1954, Buffett accepted a job at Benjamin Graham's partnership. His starting salary was $12,000 a year (approximately $105,000 inflation adjusted for the 2012 USD[23]). There he worked closely with Walter Schloss. Graham was a tough man to work for. He was adamant that stocks provide a wide margin of safety after weighting the trade-off between their price and their intrinsic value. The argument made sense to Buffett but he questioned whether the criteria were too stringent and caused the company to miss out on big winners that had more qualitative values.[citation needed] That same year the Buffetts had their second child, Howard Graham Buffett. In 1956, Benjamin Graham retired and closed his partnership. At this time Buffett's personal savings were over $174,000 ($1.47 million inflation adjusted to 2012 USD[23]) and he started Buffett Partnership Ltd., an investment partnership in Omaha.

Buffett's home in Omaha In 1957, Buffett had three partnerships operating the entire year. He purchased a five-bedroom stucco house in Omaha, where he still lives, for $31,500. In 1958 the Buffetts' third child, Peter Andrew Buffett, was born. Buffett operated five partnerships the entire year. In 1959, the company grew to six partnerships operating the entire year and Buffett was introduced to Charlie Munger. By 1960, Buffett had seven partnerships operating: Buffett Associates, Buffett Fund, Dacee, Emdee, Glenoff, Mo-Buff and Underwood. He asked one of his partners, a doctor, to find ten other doctors willing to invest $10,000 each in his partnership. Eventually eleven agreed, and Buffett pooled their money with a mere $100 original investment of his own. In 1961, Buffett revealed that Sanborn Map Company accounted for 35% of the partnership's assets. He explained that in 1958 Sanborn stock sold at only $45 per share when the value of the Sanborn investment portfolio was $65 per share. This meant that buyers valued Sanborn stock at "minus $20" per share and were unwilling to pay more than 70 cents on the dollar for an investment portfolio with a map business thrown in for nothing. This earned him a spot on the board of Sanborn.

wikipedia

"In 1950 ... Buffett had made and saved $9,800. In 1954 ... his starting salary was $12,000 a year. In 1956, ... Buffett's personal savings were over $174,000."

So with the generous assumptions that Buffett's salary was paid in full in advance each year and he made $12000 every year and he had no personal expenses and he paid no tax on his gains, Buffett would have needed a rate of return of 15%-ish to hit those savings numbers. Or 22% if he saved only $8000 per year from his paid-in-full in-advance salary. Pretty much any set of assumptions is pretty outlandish. Can someone clarify how he hit those numbers?

Couldn't tell you exact dollar amounts, but 10k in 1950 was equivalent to 100k today. That's enough to show 10-20% annual gains and establish credibility.

He fairly quickly started investing other people's money once he showed promise (one of the reasons there are supposedly several millionaire farmers in Nebraska), but his father's connections likely helped.

Source: I've been following Munger & Buffett for years.

It's possible to earn extraordinary returns on a small amount of capital. Warren Buffett has stated that the highest rates of return he ever achieved were in the 1950s.

One of the things that surprises me is the fantastic growth rates of the immediate post war period. I seriously doubt if Buffet can ever be repeated simply because the situation of America in the 1950s can probably never be repeated (without a globally devastating war and then a agricultural and antibiotic revolution leading to tripling of world population)

So I think just aiming for millionaire is a good target.

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