How Buffett Accumulated £22b
By Maynard Paton (TMFMayn)
August 24, 2005


Warren Buffett celebrates his 75th birthday next week. The legendary investor is currently worth some $40b (roughly £22b) and is the second richest person in the world. While his friends and family struggle to think of a suitable present, mere mortals like you and me probably ought to reflect on how he accumulated so much money.

Buffett's fortune is based on humble activities. As a boy, he delivered newspapers, owned pinball machines and retrieved golf balls. According to Warren Buffett: The Making Of An American Capitalist, a keen desire to earn money -- and spend as little as possible -- helped him amass about $10,000 (equivalent to over £40,000 in today's money) by the age of 20 (1950).

By the age of 25 (1955/6), Buffett had worked for value guru Ben Graham, increased the value of his portfolio to $140,000 and started his own investment partnership. He stock-picked his way to millionaire status by the age of 32 (1962) and by the time he'd packed in the partnership seven years later, Buffett's wealth had surged to $25m.

During the Seventies, Buffett kick-started his Berkshire Hathaway (NYSE: BRK.A) investment vehicle, snapping up bargains such as Washington Post (NYSE: WPO) and GEICO during the deep bear market. Before he turned 50 (1979), Buffett's Berkshire stake had topped $100m. More canny investments and a sudden market leap during the early Eighties put him in the billionaire's club by age 55 (1985).

Stocks such as Coca-Cola (NYSE: KO) and Gillette (NYSE: G) then provided Buffett with a $10b portfolio when he celebrated his 65th birthday in 1995, while his takeovers of insurers GEICO and General Re had propelled him to the $20b mark three years later. Berkshire stock then breached $84,000 in late 2003, taking Buffett's wealth beyond $40b for the first time.

Can you become rich?

So what can ordinary Fools learn from Buffett's billions? Obviously building that sort of wealth solely from the stock market requires a huge talent. Going from $10,000 to $40b between 20 and 75 years of age demands an annual growth rate of 32% -- well in excess of the UK market's historical 11% return.

But Buffett's record of money-making does offer other lessons. During his teens in particular, he worked hard, spent little and started to invest as soon as possible. Indeed, that sort of approach should pay off big time in the decades ahead. As an example, a 20-year-old investing £100 a month in an index tracker growing at 10% a year would be worth a £2.4m by the time he turns 75! Sure, that's never going to upstage the great man in the Forbes 400, and neither does it factor in the effect of inflation, but at least millionaire status seems possible for today's young, tight-fisted, Buffett-wannabe investors.

I thought this was about how to make a fortune from a buffet. I expected sausages and grapefruit on stick stories.

okay thats good but what are you gonna do with all that money at 75? your pretty much out the game by then , does anybody really need all of that money?

brownsugar said:

I can think of plenty havoc I could cause with that much money. 75 or not, the world would know my name!!

jerseykrs said:

I know your name!