Buffett's early days as a value investor

When most people think of Warren Buffett, they think of money. Though Buffett's father was a congressman and a stockbroker, young Warren became a billionaire all on his own. Those who wish to emulate his success should focus on Buffett's process.

Education was a major part of Warren Buffett’s process, but that education was not confined to the four walls of a school classroom. His most important lessons came from first-hand experience. (See: "Warren Buffett's History in School.")

Buffett was born on Aug. 30, 1930, at the beginning of the Great Depression. Just before Buffett’s first birthday, the bank where his father worked, and that held their family savings, closed. Buffett was witness to the hardship that his family underwent in the Great Depression. His mother, Leila, would sometimes skip dinner to give his father a full portion, and she occasionally skipped church and tithing to afford a pound of coffee.

Buffett's financial ambition emerged early, such as when he declared during a family dinner that he would jump off the tallest building in his hometown if he wasn't a millionaire by 30. When asked why he was so driven to make money, Buffett replied, “It is not that I want money, it is the fun of making money and watching it grow.”

Buffett seems to have inherited his mathematical genius from his mother, who had a head for numbers. Buffett is famous for being able perform lengthy calculations correctly in his head.

It is often said that you judge a person by his spending habits, and frugality runs in the Buffett family. Warren’s father, Howard Buffett, was an idealistic and religious man. It is said young Warren’s life revolved around his father, who would recite to him a favorite maxim from Ralph Waldo Emerson: “The great man is he who in the midst of the crowd keeps with perfect sweetness the independence of solitude.”

When inflation started to accelerate after World War II, Warren’s father bought tangible assets like gold coins, a crystal chandelier and sterling silver flatware. He stocked up on canned food and purchased a farm. His paternal influence may be the foundation of Warren Buffett's preference of tangible over intangible assets. Like his father, Warren Buffett understands the perils of inflation and opportunistic buying. Perhaps this is why Warren Buffett's investment philosophy prefers businesses that have tangible assets and proven earning power.

Buffett worked at his grandfather’s grocery store and said that he learned the values of honesty, punctuality, discipline, hard work and good behavior, as well as the tricks of retail business, at his grandfather's feet.

Both Leila and Howard Buffett were involved in newspaper businesses at various times in their careers, which may be a clue to Buffett's engaging epistolary style and his knowledge of the nuances of the newspaper industry.

When Buffett was young, he and his friend Russell would record the license numbers of passing cars. In the evening, they would sit counting how often each letter appeared and filling entire scrapbooks with numbers. At nine years old, they would count discarded bottle caps from soda machines to get an idea of which brand had the highest sales. These games honed Buffett's analytical skills and shaped his brain into an ersatz business database.

When Warren was young, he gathered friends and recruited pals to join him in his money-making schemes. He and his crew scavenged for erroneously discarded winning tickets at the race track. He enlisted half the neighborhood to gather used golf balls that he organized by brand and price, which he then sold for a profit.

When he was six years old, Buffett bought a six-pack of Coca-Cola bottles and sold them individually at a picnic for a nickel profit. He would later buy packs of Coke from his grandfather’s grocery and sell the individual bottles in the neighborhood door-to-door during the summer. He set up a lemonade stand in front of his friend Russell’s house. He ran a horse handicapping sheet called “stable boy selection” and sold them for 25 cents each. 

When he was delivering 500 newspapers a day in Washington, D.C., he developed an efficient route that took only a little over an hour to complete. In a complex called Westchester Apartments, he would throw half of the papers on the fourth floor and rest on the top and then go floor by floor on foot sliding the papers in front of each apartment. He figured that he could increase his profit by adding to his product line, so Buffett found a way to sell magazines to his newspaper subscribers. The trick was to sell subscriptions as they were about to expire, and it was easy to find the date of the subscription expiry by tearing off the address label. He turned his paper route into a thriving business that earned $175 a month (more than $3,000 in today's dollars).

Buffett also setup a pinball game business by buying second-hand pinball machines between $25 to $75 and placing them in barber shops. Fearing that the pinball operation was controlled by the mob, he kept his operation small. These business ventures taught him practical business lessons, like convenience and service can fetch higher prices, location is everything, efficiency determines profit margins and the practical limitations of scalability for a business.

Buffett's success wasn't magic. It was the product of a lifetime of careful observation and shrewd analysis. With the help of his parents and his community, Buffett's natural talents evolved through trial and error to create a phenomenal success.