The Midas of middle America finds silver lining in the markets

IN THE NEWS; WARREN BUFFETT
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The Independent Online
HE MAY be the second-richest man in America, but it was not hard to imagine Warren Buffett yesterday, surrounded by his staff of six in his tiny office, chomping on hamburgers and chuckling about making a few more dollars, writes Steve Boggan.

The man they call the Sage of Omaha, the world's most successful investor, had done it again. Only a few weeks after it was revealed that he had bought up almost 20 per cent of the world's silver, he confounded market critics by unloading one-third of it at an estimated profit of $80m.

It emerged yesterday that Buffett had bought 130m troy ounces at about $5.20 an ounce and sold an estimated 40m of them at $7.20 an ounce. That means the average purchase cost of his remaining stocks - 90m ounces - is about $4.20 an ounce at a time when his movements in the market have pushed prices to a 10-year high of almost $3 per ounce more.

Since 1958, Buffett's investments have consistently outstripped growth in the markets, making him and those who invest in his company, Berkshire Hathaway, very rich. (Shares in the company trade at $53,400 each.)

Buffett's personal wealth is put at $25bn, yet he leads a relatively simple life in Omaha, enjoying burgers and Coca-Cola (a large slice of which he owns) and allowing himself only two luxuries, a holiday home in Laguna Beach, California, and a private jet. Such is his frugality, however, that the jet has been named "The Indefensible".

He lives in an unexceptional house on the same street as his office, which is run by a small but dedicated staff. Wall Street could be a million miles away, which is exactly where he wants it.

Buffett rarely gives interviews, but once, when asked by a journalist why he operated from small-town America, he replied: "Omaha is as good a spot as any. Here you can see the forest. In New York, it's hard to see beyond the trees."

Born in the darkest days of the depression, Buffett's determination to become wealthy can be traced back to 1931 when his father, a stockbroker, lost everything in the crash. An often re-cycled story tells of a seven- year-old Warren Buffett vowing to nurses during a visit to hospital that he would one day be very rich.

At the age of five, he was selling bubble gum from his home, by 13 he was making deliveries for the Washington Post (part of which he now owns) and was paying tax by the age of 14. At 17 he and a friend started a business renting out pinball machines, a going concern which they later sold on for pounds 1,200. His unconventional approach led to him dropping out of Wharton Business School, but it also led to him developing his own investment philosophy, ignoring market fashions and bucking trends. He rarely dips in and out of investments, preferring long-term involvement in blue-chip companies like American Express and Gillette.

All of which served only to confound his detractors this week. By selling quickly, he has made enough money in the short-term to make a long-term investment if he wishes. It was a move most people had not expected - but then if they had, it would not have been vintage Buffett.

WARREN'S WAY TO GET RICH

Buffett spelled out his philosophy in a letter to shareholders: "To invest successfully you need not understand beta-efficient markets, modern portfolio theory, option pricing or emerging markets. Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily understandable business whose earnings are virtually certain to be materially higher, five, 10 and 20 years from now."

IN A CLUB OF HIS OWN

Buffett, a Democrat, once heard that a club of which he was a member had refused membership to a Jewish applicant. When he asked why, he was told that the Jews had a club of their own. So he joined it.

THE SECRET MAN

Author Roger Lowenstein wrote in the biography "The Making of an American Capitalist": "Having been raised in a home with more than its share of demons, he lived within an emotional fortress. The few people who shared his office had no knowledge of the inner man even after decades."

Charlie Munger, his business partner for 40 years, said "With Warren it is not work. Warren is fond of saying he plans to continue long after he is dead."

WHAT YOU COULD HAVE HAD

If you had entrusted Buffett with $100,000 when he went into business in 1958, you would be worth $80m today.

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