John C. Bogle: Early life and education

Early life and education[edit]

John (Jack) Bogle was born on May 8, 1929 in Verona, New Jersey to William Yates Bogle, Jr., and Josephine Lorraine Hipkins.

His family was affected by the Great Depression. They lost their inheritance and had to sell their home, with his father falling into alcoholism which resulted in his parents' divorce.^[3]

Bogle and his twin David attended Manasquan High school on the New Jersey shore for a time. Their academic record there enabled them to transfer to the prestigious Blair Academy on work scholarships. At Blair, John showed a particular aptitude for math, with numbers and computations fascinating him. In 1947, John graduated from Blair Academy cum laude and was accepted at Princeton University, where he studied economics and investment. During his university years, John was determined to examine the mutual fund industry that had not been analyzed before. Bogle spent his junior and senior year working on his thesis "The Economic Role of the Investment Company".^[4]

He earned his undergraduate degree in 1951, and attended evening and weekend classes at the University of Pennsylvania.

Charlie Munger

"Charles Munger" redirects here. For the American politician, mayor of Orlando, see Charles Henry Munger.

Charles Thomas Munger (born January 1, 1924) is an American investor, businessman and philanthropist. He is vice chairman of Berkshire Hathaway, the conglomerate controlled by Warren Buffett; Buffett has described Munger as his partner. Munger served as chairman of Wesco Financial Corporation from 1984 through 2011. He is also chairman of the Daily Journal Corporation, based in Los Angeles, California, and a director of Costco Wholesale Corporation

Benjamin Graham

Benjamin Graham

Benjamin Graham (/ɡræm/; né Grossbaum; May 9, 1894 – September 21, 1976) was a British-born American investor, economist, and professor. He is widely known as the "father of value investing,"^[1] and wrote two of the founding texts in neoclassical investing: Security Analysis (1934) with David Dodd, and The Intelligent Investor (1949). His investment philosophy stressed investor psychology, minimal debt, buy-and-hold investing, fundamental analysis, concentrated diversification, buying within the margin of safety, activist investing, and contrarian mindsets.

After graduating from Columbia University at age 20, he started his career on Wall Street, eventually founding the Graham-Newman Partnership. After hiring his former student and future manager of Berkshire Hathaway, Warren Buffett, he took up teaching positions at his alma mater, and later at Anderson School of Management at the University of California, Los Angeles.

His work in managerial economics and investing has led to a modern wave of value investing within mutual funds, hedge funds, diversified holding companies, and other investment vehicles. Throughout his career, Graham had many notable disciples who went on to receive substantial success in the world of investment, including Buffett, who described him as the second most influential person in his life after his own father. Other such disciples were William J. Ruane, Bert Olden, Irving Kahn and Walter J. Schloss. In addition, Graham's thoughts on investing have influenced the likes of Seth Klarmanand Bill Ackman.

Peter Lynch: Wealth and philanthropy

Wealth and philanthropy

According to a 2006 Boston Magazine article, Lynch has an overall net worth of $352 million USD.^[20]

Though he continues to work part-time as vice chairman of Fidelity Management & Research Co., the investment adviser arm of Fidelity Investments, spending most of his time mentoring young analysts, Peter Lynch focuses a great deal of time on philanthropy. He said he views philanthropy as a form of investment. He said he prefers to give money to support ideas that he thinks can spread, such as First Night, the New Year's Eve festival that began in Boston in 1976 and has inspired similar events in more than 200 other communities, and City Year, a community service program founded in Boston in 1988 that now operates in 14 locations.

The Lynches give money primarily in five ways: as individuals, through the Lynch Foundation, through a Fidelity Charitable Gift Fund, and through two charitable trusts.

The Lynches have made gifts as individuals, donating $10 million to Peter Lynch's alma mater, Boston College. BC, in turn, named the School of Education after the family.^[21][19]

The Lynch Foundation, valued at $125 million, gave away $8 million in 2013 and has made $80 million in grants since its inception.^[22] The Foundation supports education, religious organizations, cultural and historic organizations, and hospitals and medical research. Lynch was inducted into the Junior Achievement U.S. Business Hall of Fame in 1991.

Peter Lynch: Investment philosophy

Investment philosophy[edit]

Lynch has written (with co-author John Rothchild) three texts on investing, including One Up on Wall Street (ISBN 0671661035), Beating the Street (ISBN 0671759159), and Learn to Earn. The last-named book was written for beginning investors of all ages, mainly teenagers. In essence, One Up served as theory while Beating the Streetis application. One Up lays out Lynch’s investment technique including chapters devoted to stock classifications, the two-minute drill, famous numbers, and designing a portfolio. Most of Beating the Street consists of an extensive stock by stock discussion of Lynch’s 1992 Barron's Magazine selections, essentially providing an illustration of the concepts previously discussed. As such, both books represent study material for investors of any knowledge level or ability.

Lynch also wrote a series of investment articles for Worth magazine that expand on many of the concepts and companies mentioned in the books

Lynch coined some of the best known mantras of modern individual investing strategies.

His most famous investment principle is simply, "Invest in what you know," popularizing the economic concept of "local knowledge". Since most people tend to become expert in certain fields, applying this basic "invest in what you know" principle helps individual investors find good undervalued stocks.

Lynch uses this principle as a starting point for investors. He has also often said that the individual investor is more capable of making money from stocks than a fund manager, because they are able to spot good investments in their day-to-day lives before Wall Street. Throughout his two classic investment primers, he has outlined many of the investments he found when not in his office - he found them when he was out with his family, driving around or making a purchase at the mall. Lynch believes the individual investor is able to do this, too.^[14]

Lynch has also argued against market timing, stating: "Far more money has been lost by investors preparing for corrections or trying to anticipate corrections than has been lost in the corrections themselves."^[15]

Lynch popularized the stock investment strategy “GARP” (Growth At A Reasonable Price)^[16], which is a hybrid stock-picking approach that balances Growth investingpotential with the discipline of Value investing. Many well-known funds now follow the GARP model, ranging from equity funds such as Fidelity Investments Fidelity Contrafund (FCNTX) and Lemma Senbet Fund, to index funds such as Russell Indexes iShares Russell 1000 Growth Index^[17].

He also coined the phrase "ten bagger" in a financial context. This refers to an investment which is worth ten times its original purchase price and comes from baseballwhere "bags" or "bases" that a runner reaches are the measure of the success of a play.^[18] A player who hits a home run with bases loaded (all three bases occupied by runners) will bring in ten "bags."

Peter Lynch: Investment career

Fidelity[edit]

In 1966, Lynch was hired as an intern with Fidelity Investments partly because he had been caddying for Fidelity's president, D. George Sullivan, (among others) at Brae Burn Country Club in Newton, Massachusetts.^[10][11] He initially covered the paper, chemical, and publishing industries, and when he returned after a two-year Army stint he was hired permanently in 1969. This time Lynch was charged with following the textiles, metals, mining, and chemicals industries, eventually becoming Fidelity's director of research from 1974 to 1977.

Magellan Fund[edit]

In 1977, Lynch was named head of the then obscure Magellan Fund which had $18 million in assets. By the time Lynch resigned as a fund manager in 1990, the fund had grown to more than $14 billion in assets with more than 1,000 individual stock positions.^[12]

From 1977 until 1990, the Magellan fund averaged a 29.2% return and as of 2003 had the best 20-year return of any mutual fund ever.^[4][13] Lynch's achieved dollar successes in a range of stocks including (by order of profit achieved - source is Beating the Street): Fannie Mae, Ford, Philip Morris, MCI, Volvo, General Electric, General Public Utilities, Student Loan Marketing, Kemper, and Lowe's.

Peter Lynch

Peter Lynch (born January 19, 1944)^[1] is an American investor, mutual fund manager, and philanthropist. As the manager of the Magellan Fund^[2] at Fidelity Investments between 1977 and 1990, Lynch averaged a 29.2% annual return,^[3]consistently more than doubling the S&P 500 market index and making it the best performing mutual fund in the world.^[4][5]During his tenure, assets under management increased from $18 million to $14 billion.^[6]

He also co-authored a number of books and papers on investing and coined a number of well known mantras of modern individual investing strategies, such as Invest in what you know and ten bagger. Lynch is consistently described as a "legend" by the financial media for his performance record,^[6][7] and was called "legendary" by Jason Zweig in his 2003 update of Benjamin Graham's book, The Intelligent Investor.^[4]

Early life and education[edit]

Peter Lynch was born on January 19, 1944 in Newton, Massachusetts.^[1] In 1951, when Lynch was seven, his father was diagnosed with cancer. He died three years later, and Lynch's mother had to work to support the family. During Lynch's time as a sophomore at Boston College, he used his savings to buy 100 shares of Flying Tiger Airlines at $8 USD per share. The stock would later rise to $80 per share.^[8]

In 1965, Lynch graduated from Boston College where he studied history, psychology and philosophy, and earned a Master of Business Administration from the Wharton School of the University of Pennsylvania in 1968

Warren Buffett: Renewable energy

Renewable energy

Native American tribes and salmon fishermen sought to win support from Buffett for a proposal to remove four hydroelectric dams from the Klamath River. David Sokol responded on Buffett's behalf, stating that the FERC would decide the question.^[183][184]

In December 2011, Buffett's MidAmerican Energy Holdings agreed to buy a $2 billion solar energy project under development in California and a 49 percent stake in a $1.8 billion plant in Arizona, his first investments in solar power. He already owned wind farms

Warren Buffett: China

China

Buffett invested in PetroChina Company Limited and in a rare move, posted a commentary^[177] on Berkshire Hathaway's website stating why he would not divest over its connection with the Sudanese civil war that caused Harvard to divest. He sold this stake soon afterwards, sparing him the billions of dollars he would have lost had he held on to the company in the midst of the steep drop in oil prices beginning in the summer of 2008.

In October 2008, Buffett invested $230 million for 10% of battery maker BYD Company (SEHK: 1211), which runs a subsidiary of electric automobile manufacturer BYD Auto. In less than one year, the investment reaped over 500% return.^[178]

In May 2018, BYD's shares had a substantial fall with a total net investment loss of $ 9 billion. This was Warren Buffett's worst investment in China.

Warren Buffett: Dollar and gold

Dollar and gold

The trade deficit induced Buffett to enter the foreign currency market for the first time in 2002. He substantially reduced his stake in 2005 as changing interest rates increased the costs of holding currency contracts. Buffett remained bearish on the dollar, stating that he was looking to acquire companies with substantial foreign revenues. Buffett emphasized the non-productive aspect of a gold standard for the United States dollar in 1998 at Harvard:

It gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.

In 1977, about stocks, gold, farmland and inflation, he stated:

Stocks are probably still the best of all the poor alternatives in an era of inflation – at least they are if you buy in at appropriate prices.

Warren Buffett: Trade deficit

Trade deficit

Buffett viewed the United States' expanding trade deficit as a trend that will devalue the US dollar and US assets. He predicted that the US dollar will lose value in the long run, as a result of putting a larger portion of ownership of US assets in the hands of foreigners. In his letter to shareholders in March 2005, he predicted that in another ten years' time the net ownership of the U.S. by outsiders would amount to $11 trillion.

Americans ... would chafe at the idea of perpetually paying tribute to their creditors and owners abroad. A country that is now aspiring to an 'ownership society' will not find happiness in – and I'll use hyperbole here for emphasis – a 'sharecropping society’.

Warren Buffett: Health care

Health

On April 11, 2012, Buffett was diagnosed with stage I prostate cancer during a routine test.^[124] He announced he would begin two months of daily radiation treatment from mid-July; however, in a letter to shareholders, Buffett said he felt "great - as if I were in my normal excellent health - and my energy level is 100 percent". On September 15, 2012, Buffett announced that he had completed the full 44-day radiation treatment cycle, saying "it's a great day for me" and "I am so glad to say that's over".

Warren Buffett: Personal life

Personal life

In 1949, Buffett was infatuated with a young woman whose current boyfriend had a ukulele. In an attempt to compete, he bought one of the diminutive instruments and has been playing it ever since. Though the attempt was unsuccessful, his music interest was a key part of his becoming a part of Susan Thompson's life and led to their marriage. Buffett often plays the instrument at stock holder meetings and other opportunities. His love of the instrument led to the commissioning of two custom Dairy Queen ukuleles by Dave Talsma, one of which was auctioned for charity.^[93]

Buffett married Susan Buffett (née Thompson) in 1952. They had three children, Susie, Howard and Peter. The couple began living separately in 1977, although they remained married until Susan Buffett's death in July 2004. Their daughter, Susie, lives in Omaha, is a national board member of Girls, Inc., and does charitable work through the Susan A. Buffett Foundation.^[94]

In 2006, on his 76th birthday, Buffett married his longtime companion, Astrid Menks, who was then 60 years old—she had lived with him since his wife's departure to San Francisco in 1977.^[95][96] Susan had arranged for the two to meet before she left Omaha to pursue her singing career. All three were close and Christmas cards to friends were signed "Warren, Susie and Astrid".^[97] Susan briefly discussed this relationship in an interview on the Charlie Rose Show shortly before her death, in a rare glimpse into Buffett's personal life

Buffett disowned his son Peter's adopted daughter, Nicole, in 2006 after she participated in the Jamie Johnson documentary The One Percent about the growing economic inequality between the wealthy and the average citizen in the United States. Although his first wife referred to Nicole as one of her "adored grandchildren",^[99] Buffett wrote her a letter stating, "I have not emotionally or legally adopted you as a grandchild, nor have the rest of my family adopted you as a niece or a cousin."^{[100][101][102]}

His 2006 annual salary was about US$100,000, which is small compared to senior executive remuneration in comparable companies.^[103] In 2008, he earned a total compensation of $175,000, which included a base salary of just $100,000.^[104] He continued to live in the same house in the central Dundee neighborhood of Omaha that he bought in 1958 for $31,500, a fraction of today's value. He also owns a $4 million house in Laguna Beach, California.^[105] In 1989, after spending nearly $6.7 million of Berkshire's funds on a private jet, Buffett named it "The Indefensible". This act was a break from his past condemnation of extravagant purchases by other CEOs and his history of using more public transportation.^[106]

Buffett is an avid bridge player, which he plays with fellow fan Gates^[108]—he allegedly spends 12 hours a week playing the game.^[109] In 2006, he sponsored a bridge match for the Buffett Cup. Modeled on the Ryder Cup in golf—held immediately before it in the same city—the teams are chosen by invitation, with a female team and five male teams provided by each country.^[110]

He is a dedicated, lifelong follower of Nebraska football, and attends as many games as his schedule permits. He supported the hire of Bo Pelini, following the 2007 season, stating, "It was getting kind of desperate around here".^[111] He watched the 2009 game against Oklahoma from the Nebraska sideline, after being named an honorary assistant coach.^[112]

Buffett worked with Christopher Webber on an animated series called "Secret Millionaires Club" with chief Andy Heyward of DiC Entertainment. The series features Buffett and Munger, and teaches children healthy financial habits.^[113][114]

Buffett was raised as a Presbyterian, but has since described himself as agnostic.^[115] In December 2006, it was reported that Buffett does not carry a mobile phone, does not have a computer at his desk, and drives his own automobile,^[116] a Cadillac DTS.^[117] In contrast to that, at the 2018 Berkshire Hathaway's shareholder meeting, he stated to use Google as his preferred search engine.^[118] In 2013 he had an old Nokia flip phone and had sent one email in his entire life.^[119] Buffett reads five newspapers every day, beginning with the Omaha World Herald, which his company acquired in 2011.

A September 2014, Fast Company article featured Buffett's “avoid at all cost” practice, used to prioritize personal goals. Buffett advises people to first create a list of the top 25 accomplishments that they would like to complete over the next few years of their life, and to then pick the five most-important list items. Buffett stated that people need to “avoid at all cost” the initial, longer list, as it would hinder the achievement of the top-five.^[120]

Buffett's speeches are known for mixing business discussions with humor. Each year, Buffett presides over Berkshire Hathaway's annual shareholder meeting in the Qwest Center in Omaha, Nebraska, an event drawing over 20,000 visitors from both United States and abroad, giving it the nickname "Woodstock of Capitalism". Berkshire's annual reports and letters to shareholders, prepared by Buffett, frequently receive coverage by the financial media. Buffett's writings are known for containing quotations from sources as varied as the Bible and Mae West,^[121] as well as advice in a folksy Midwestern style and numerous jokes.

In April 2017, Buffett (an avid Coca-Cola drinker and investor in said company) agreed to have his likeness placed on Cherry Coke products in China. Buffett was not compensated for this advertisement.^[122][123]

Warren Buffett: Investment philosophy

Investment philosophy

Warren Buffett's writings include his annual reports and various articles. Buffett is recognized by communicators^[88] as a great story-teller, as evidenced by his annual letters to shareholders. He warned about the pernicious effects of inflation:^[89]

The arithmetic makes it plain that inflation is a far more devastating tax than anything that has been enacted by our legislatures. The inflation tax has a fantastic ability to simply consume capital. It makes no difference to a widow with her savings in a 5 percent passbook account whether she pays 100 percent income tax on her interest income during a period of zero inflation, or pays no income taxes during years of 5 percent inflation.

— Buffett, Fortune (1977)

In his article "The Superinvestors of Graham-and-Doddsville", Buffett rebutted the academic efficient-market hypothesis, that beating the S&P 500 was "pure chance", by highlighting the results achieved by a number of students of the Graham and Dodd value investing school of thought. In addition to himself, Buffett named Walter J. Schloss, Tom Knapp, Ed Anderson (Tweedy, Browne LLC), William J. Ruane (Sequoia Fund, Inc.), Charles Munger (Buffett's own business partner at Berkshire), Rick Guerin (Pacific Partners, Ltd.), and Stan Perlmeter (Perlmeter Investments).^[90] In his November 1999 Fortune article, he warned of investors' unrealistic expectations:^[91]

Let me summarize what I've been saying about the stock market: I think it's very hard to come up with a persuasive case that equities will over the next 17 years perform anything like—anything like—they've performed in the past 17. If I had to pick the most probable return, from appreciation and dividends combined, that investors in aggregate—repeat, aggregate—would earn in a world of constant interest rates, 2% inflation, and those ever hurtful frictional costs, it would be 6%!

— Buffett, Fortune (1999)

Index funds and active management

Towards his later life, particularly following the global financial crisis of 2007-08, Buffett became an increasingly vocal critic of active management, i.e., mutual funds and hedge funds. Buffett is skeptical that active management and stock-picking can outperform the market in the long run, and has advised both individual and institutional investors to move their money to low-cost index funds that track broad, diversified stock market indices. Buffett said in one of his letters to shareholders that "when trillions of dollars are managed by Wall Streeters charging high fees, it will usually be the managers who reap outsized profits, not the clients."^[92] In 2007, Buffett made a bet with numerous managers that a simple S&P 500 index fund will outperform hedge funds that charge exorbitant fees. By 2017, the index fund was outperforming every hedge fund that had made the bet against Buffett by a significant margin.^[92]

Warren Buffett: A capitalized Berkshire

A capitalized Berkshire

On August 14, 2014, the price of Berkshire Hathaway's shares hit US$200,000 a share for the first time, capitalizing the company at US$328 billion. While Buffett had given away much of his stock to charities by this time, he still held 321,000 shares worth US$64.2 billion. On August 20, 2014, Berkshire Hathaway was fined $896,000 for failing to report December 9, 2013, purchase of shares in USG Corporation as required.^[70]

In 2009, Buffett invested $2.6 billion as a part of Swiss Re's campaign to raise equity capital.^[71][72] Berkshire Hathaway already owned a 3% stake, with rights to own more than 20%.^[73] Also in 2009, Buffett acquired Burlington Northern Santa Fe Corp. for $34 billion in cash and stock. Alice Schroeder, author of Snowball, said that a key reason for the purchase was to diversify Berkshire Hathaway from the financial industry.^[74] Measured by market capitalization in the Financial Times Global 500, Berkshire Hathaway was the eighteenth largest corporation in the world as of June 2009.^[75]

In 2009, Buffett divested his failed investment in ConocoPhillips, saying to his Berkshire investors,

I bought a large amount of ConocoPhillips stock when oil and gas prices were near their peak. I in no way anticipated the dramatic fall in energy prices that occurred in the last half of the year. I still believe the odds are good that oil sells far higher in the future than the current $40–$50 price. But so far I have been dead wrong. Even if prices should rise, moreover, the terrible timing of my purchase has cost Berkshire several billion dollars.^[76]

The merger with the Burlington Northern Santa Fe Railway (BNSF) closed upon BNSF shareholder approval in 1Q2010. This deal was valued at approximately $34 billion and represented an increase of the previously existing stake of 22%.^{[citation needed]}

In June 2010, Buffett defended the credit-rating agencies for their role in the US financial crisis, claiming:

Very, very few people could appreciate the bubble. That's the nature of bubbles – they're mass delusions.^[77]

On March 18, 2011, Goldman Sachs was given Federal Reserve approval to buy back Berkshire's preferred stock in Goldman. Buffett had been reluctant to give up the stock, which averaged $1.4 million in dividends per day,^[78][79] saying:

I'm going to be the Osama bin Laden of capitalism. I'm on my way to an unknown destination in Asia where I'm going to look for a cave. If the U.S. Armed forces can't find Osama bin Laden in 10 years, let Goldman Sachs try to find me.^[80]

In November 2011, it was announced that over the course of the previous eight months, Buffett had bought 64 million shares of International Business Machine Corp (IBM) stock, worth around $11 billion. This unanticipated investment raised his stake in the company to around 5.5 percent—the largest stake in IBM alongside that of State Street Global Advisors. Buffett had said on numerous prior occasions that he would not invest in technology because he did not fully understand it, so the move came as a surprise to many investors and observers. During the interview, in which he revealed the investment to the public, Buffett stated that he was impressed by the company's ability to retain corporate clients and said, "I don't know of any large company that really has been as specific on what they intend to do and how they intend to do it as IBM."^[81]

n May 2012, Buffett's acquisition of Media General, consisting of 63 newspapers in the south-eastern U.S., was announced.^[83]The company was the second news print purchase made by Buffett in one year.^[84]

Interim publisher James W. Hopson announced on July 18, 2013 that the Press of Atlantic City would be sold to Buffett’s BH Media Group by ABARTA, a private holding company based in Pittsburgh, U.S. At the Berkshire shareholders meeting in May 2013, Buffett explained that he did not expect to "move the needle" at Berkshire with newspaper acquisitions, but he anticipates an annual return of 10 percent. The Press of Atlantic City became Berkshire's 30th daily newspaper, following other purchases such as Virginia, U.S.' Roanoke Times and The Tulsa World in Oklahoma, U.S.^[85]

During a presentation to Georgetown University students in Washington, D.C. in late September 2013, Buffett compared the U.S. Federal Reserve to a hedge fund and stated that the bank is generating "$80 billion or $90 billion a year probably" in revenue for the U.S. government. Buffett also advocated further on the issue of wealth equality in society:

We have learned to turn out lots of goods and services, but we haven’t learned as well how to have everybody share in the bounty. The obligation of a society as prosperous as ours is to figure out how nobody gets left too far behind.^[86]

After the difficulties of the economic crisis, Buffett managed to bring its company back to its pre-recession standards: in Q2 2014, Berkshire Hathaway made $6.4 billion in net profit, the most it had ever made in a three-month period.^[87]