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Warren Buffett

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Warren Buffett

Warren Buffett

Warren Buffett (Photo: Alex Wong/Getty Images)

Who Is Warren Buffett?:

Warren Buffett is one of the world's richest men, with a net worth of around $50 billion. His success is thanks to his long-time investing with the company he co-founded, Berkshire Hathaway. Warren Buffett's investing acumen is so well respected that people listen to anything he says. His actions and statements have the ability to move company stock prices. Changes in the stock market can help the economy by adding liquidity and making it easier for corporations to grow, and by adding wealth for investors.

Buffett Quotes on the Economy:

After Osama Bin Laden was killed, Buffett said that it wouldn't have much effect on the economy. A far greater threat was any natural disaster, such as Hurricane Katrina and Japan's earthquake. That's because they caused more economic damage, thus raising insurance costs.

Buffett also gave good advice to profit from economic booms and busts. He said "Be fearful when others are greedy. Be greedy when others are fearful." And, most important, "It makes no sense to bet against America for long."

Joshua Kennon, About.com Guide to Beginning Investors, has put together other famous Warren Buffett quotes here.

The Story of Berkshire Hathaway:

Buffett cofounded Berkshire Hathaway with his less famous partner, Charlie Munger. Berkshire initially was a textile company whose cash flow was used to buy other companies. Its first investments were See's Candy and GEICO Insurance. By the late 70s, Berkshire's stock price was $290 a share. Most companies would split their stock, but Berkshire never did. By 1982, it was worth $750 a share, rocketing to $8,000 a share by 1989, and reaching a peak of $80,000 a share in the 90s. Berkshire's success was based on the simple principles of Ben Graham and Buffett's own insistence on knowing the company's management.

Buffett Follows the Investment Strategy of Ben Graham:

Rejected by the Harvard Business School for "being too young," Buffett applied to Columbia where he was mentored by investment guru Ben Graham. He had written two books, Security Analysis and The Intelligent Investor. Both books introduced new concepts to the world of stock investment, which at the time was seen as essentially gambling. Graham showed investors how to reduce their risk by analyzing the intrinsic worth of a company. By so doing, investors could determine if the stock price fairly measured the company's value. He advocated buying a company's stock if it was a bargain.

More on Value Investing:

This concept, known as value investing, seems pretty straightforward today. However, it tends to go out of favor during boom times, when investors favor growth investing. This is a strategy where companies are value based on how much they might grow in the next few years, or even months. Growth investing helped create boom that led to the 2001 recession. Investors bid up the share price of internet stocks that had no revenue, or value, simply based on how much they might grow.

Buffett follows value investing no matter what. He only buys investments he understands. This consistency is a huge reason for his success.

For more, see Joshua Kennon's excellent, detailed biography of Warren Buffett here.
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