Early Life and Family Influences
In the first post in this series, I wrote a bit about how I encountered Warren Buffett’s investment philosophy as an undergraduate student (read it here). In this post, I discuss Warren Buffett’s early years and some of the influences that shaped his early career.
Warren Buffett was born on August 30, 1930, in Ohama, Nebraska. He was the second child of Howard and Leila Buffett.
You could say that a knack for business was in Buffett’s genes. His paternal grandfather, Ernest Buffett, worked in the grocery business with his father, Sidney. In 1915, Ernest established his own store, Buffett & Son, in downtown Omaha.
Buffett and Son was a staple in Omaha for decades. Both Warren and his future business partner, Charlie Munger, worked at Buffett and Son, albeit at different times. Ernest was a shrewd, punctual, and conservative business owner and was notoriously demanding of his employees, including his grandson, Warren. Despite the long hours and difficult work, both Warren and Charlie would look back on their experience working at Buffett & Son as being highly influential in shaping their business philosophies.
The Influence of Howard Buffett
The biggest influence on Warren Buffett in his early life was his father, Howard. Howard Buffett chose not to go into the grocery business with his father, Ernest. Rather, Howard became an insurance salesman and later a partner in a stock brokerage firm. And it was in spending time with his father that young Warren would begin to learn about the stock market. Howard was known for having impeccable integrity and taught young Warren the value of honesty and humility. He would later run for, and win, a Congressional seat.
Early Entrepreneurship and Education
But young Warren showed a talent for business even apart from his grandfather’s and father’s influence. Warren was engaging in entrepreneurial ventures at a young age and in his teens had a profitable paper route and pinball business. Warren was also a voracious reader, spending hours at a time at the Omaha public library. By his estimate, he had read over a hundred business books by his late teens.
By Warren’s senior year of high school, he believed that his business experience and self-education would allow him to begin his career without going to college. But at his father’s urging, he enrolled at the Wharton School of Business at the University of Pennslvania. He later transferred to the University of Nebraska, where he would receive a bachelor’s degree in business administration with a concentration in investment management.
Discovering Benjamin Graham and the Foundations of Value Investing
Buffett had applied to Harvard Business School but was rejected on account of being only 19. While researching other graduate programs, he noticed that Benjamin Graham and David Dodd were teaching at Columbia Business School. He then applied and was accepted.
Columbia Business School was, and still is, the intellectual home of the “value investing” method of investing in corporate securities. This is largely thanks to Benjamin Graham.
Graham was an intellectual whose interest and talents were so wide-reaching that, upon graduating from Columbia, he was offered teaching positions in three different departments. But Graham chose a career in investment management to help support his widowed mother.
Graham would later teach part-time, first at the New York Institute of Finance and later at Columbia, all while running his own investment firm. And it was while teaching that Graham fleshed out his ideas on common stock investing that would so influence the young Buffett.
In 1934, Benjamin Graham’s book Security Analysis was published. Co-authored with Graham’s teaching colleague at Columbia, David Dodd, the book was unique in that it argued that common stocks could, under certain conditions, constitute sound investments. This was a controversial idea in the early 1930’s with the ’29 crash still fresh in the mind of many investors. Security Analysis is still considered by many to be the seminal text on common stock investing.
Later, Graham wrote a second investment book. Whereas Security Analysis was a textbook written for professionals and students, The Intelligent Investor, published in 1949, was a distillation of Graham’s investment philosophy, largely written for a general audience. Buffett read The Intelligent Investor while at the University of Nebraska. It highly influenced him, and he relished the chance to study with Benjamin Graham and David Dodd.
Graham’s Investment Philosophy
Graham’s central idea was that a stock is ownership in a business and its value should reflect the value of the underlying business. The daily gyrations in the stock market can create opportunities for investors to purchase shares below their underlying business value. Such situations create a “margin of safety” for investors.
The specifics of Graham’s methods may sound outdated by today’s standards. Graham was very much a product of the depression. His conception of business value mostly centered on a company’s liquidation value – i.e., what the assets could be sold for after all liabilities have been satisfied. Graham also reasoned that longer-term assets, such as real estate and equipment, could have dubious values in a liquidation. Graham’s preferred and ultraconservative measure of business value is what he called a “net-net,” defined as a company’s current assets minus all liabilities. Graham was looking for stocks that traded at a discount to the net-net value per share. In the first three decades after the depression, with stocks still out of favor in the minds of the investing public, he found plenty of bargains.
Buffett’s Early Career and Return to Omaha
It was this “deep value” philosophy that Buffett studied under Graham at Columbia. Buffett was Graham’s star student. After graduating in 1951 Buffett wanted nothing more than to work for Graham’s investment operation in New York, a firm called Graham-Newman. But Graham’s operation was small and Graham had a policy of hiring only ethnic Jews, who at the time were being shut out of many wall street firms. So, Buffett returned to Omaha and worked for his father’s firm, Buffett-Falk.
Howard Buffett was serving in Congress at the time and lived mostly in Washington, D.C., leaving young Warren to largely run the firm by himself. Warren’s passion, however, was investment research, and working as stockbroker offered him neither the time nor the incentives to pick stocks. In 1954, Graham had changed his policy on hiring non-Jews and offered Buffett a job to come work for him as a securities analyst.
For two years, Buffett thrived as an analyst at Graham’s firm. But Graham had many interests outside of the stock market and, having already achieved financial independence, was contemplating his retirement. In 1956 Graham-Newman was liquidated. Buffett then returned to Omaha to start his own partnership. We’ll discuss Warren Buffett’s partnership in the next post.
Summary
This post traces the early influences that shaped Warren Buffett’s thinking before the formation of his investment partnership. From family business roots in Omaha to formal training under Benjamin Graham at Columbia Business School, Buffett’s early years combined practical business experience with a disciplined, value-oriented investment framework. These influences laid the intellectual foundation for Buffett’s later career.
Key Takeaways
- Warren Buffett’s early exposure to business came through both family enterprises and personal entrepreneurial ventures.
- His father, Howard Buffett, played a central role in shaping Buffett’s ethical framework and early exposure to the stock market.
- Formal education at Columbia Business School connected Buffett with Benjamin Graham and the foundations of value investing.
- Graham’s emphasis on intrinsic value and margin of safety strongly influenced Buffett’s early investment approach.
- Buffett’s early career choices set the stage for the investment partnership he would later form in Omaha.
If you’re interested in exploring these ideas further, I discuss many of them in more depth on Fundamentals Unfiltered our weekly podcast.
