Before he was the most prominent investor in the world and chairman of Berkshire Hathaway (NYSE: BRK-A ) (NYSE: BRK-B) , Warren Buffett was just another Midwest transplant surviving in New York City.
As an investor he had plenty of early success, but how he managed his personal life may have had just as much impact on his wealth than his investing savvy. Two things really define who he is:
1. He was downright cheap
In a biography, The Snowball: Warren Buffett and the Business of Life, Alice Schroeder tells the story of the early Buffett we never knew. The early Buffett wasn't the generous philanthropist we know today. He was a hardworking investor, but he worked doubly hard at saving money.
Schroeder tells the story of the many ways Buffett made his money, but also how he kept his money. In his early days as a 20-something analyst, he would save a few dollars per week by buying week-old magazines from the newsstand. His thinking was that these magazines would soon go to the trash can, giving him an opportunity to grab a bargain.
At the same time, Buffett didn't own a car. He'd save money by borrowing his neighbor's car and never filling the tank. He traveled on borrowed gasoline.
And even when Buffett was undeniably successful, he still wanted to save a buck. At a meeting with investors who would fund his first investment partnership before Berkshire Hathaway, Buffett insisted that prospective investors "go dutch" at a dinner meeting at one of the finest restaurants in Omaha. Yes, even though Buffett wanted their investment capital, he was unwilling to pay for their dinners to make a pitch.
2. He hid much of his success
We hear all the time of wealthy Americans who look closer to broke than rich. Buffett certainly fit in this category.
After working for years in New York City and stockpiling a formidable investment account, he moved back to Omaha, Neb. Here he rented his first home. To rent at the time was unheard of, particularly when Buffett had a net worth of US$174,000 at the age of just 26 years old.
Warren Buffett didn't only hide his wealth on the outside. He hid it inside the family, too.
At the same time Buffett borrowed cars from neighbors to save on gas, he was making thousands of dollars from his stock picks. But no one knew — not even his wife, Susie.
One day, Susie accidentally threw out uncashed dividend checks from Warren's desk. She hurriedly called the neighbor, telling her something terrible had happened. After opening the apartment incinerator and tearing through piles of garbage, they found the checks, which were worth "thousands," not the US"$25 or US$10 as she had assumed."
Needless to say, the couple quickly had a discussion about their shared finances, and Warren made a few compromises on how much the two could truly afford to spend.
The Buffett you know now
Warren Buffett may be a billionaire investor and the chairman of Berkshire Hathaway, the world's most successful investment company, but the ways in which he became wealthy are hardly unique to him. Buffett may invest better than anyone, but his towering billion-dollar would be nothing without his ability to cut corners.
Warren Buffett became obscenely wealthy the old fashioned way, living on less than he made and investing in high-quality businesses at attractive prices. For us — those of us who aren't billionaires — his story should serve as inspiration that common sense still goes a long way.
