Warren Buffett, chairman and CEO of Omaha, Nebraska-based holding company Berkshire Hathaway, is one of the world’s most well-known investors, with a net worth north of $145 billion.
Image Credit: Eric Francis | Getty Images. Warren Buffett.
However, like all successful investors, Buffett had to start somewhere.
In his biography The Snowball: Warren Buffett and the Business of Life, author Alice Schroeder recounts Buffett’s early fascination with money — and an important lesson he learned from his first investment.
Related: Introvert Warren Buffett Was ‘Terrified’ of Public Speaking. Here’s the Secret That Helps Him Address 40,000 People at the Berkshire Hathaway Annual Meeting.
Buffett got his first taste of entrepreneurship at age six when he started selling packs of chewing gum. “I would buy packs of gum from my grandfather and go around door to door in the neighborhood selling this stuff,” Buffett tells Schroeder. “I used to do that in the evening, largely.”
Eventually, the young entrepreneur moved on to selling Coca-Cola, a more profitable venture that earned him a nickel every six bottles. Selling golf balls at the Elmwood Park golf course and peanuts and popcorn at the University of Omaha football games followed.
One day, Buffett visited the library and stumbled upon a book called One Thousand Ways to Make $1,000, which opened his eyes to the power of compound interest. Buffett wanted to try it for himself.
Related: Want to Become a Millionaire? Follow Warren Buffett’s 4 Rules.
By the following year, 1942, 11-year-old Buffett had saved $120 to purchase his first stock: Cities Service Preferred. He took his sister Doris on as a partner and purchased three shares for each of them for $114.75.
Unfortunately, the market hit a low that June, and Cities Service Preferred plummeted from $38.25 to $27 a share, a fact that Buffett’s sister “reminded” him of every day, Schroeder writes. So, when the stock had recovered enough to net a small profit — $5 a share — Buffett sold.
Then, Cities Service Preferred skyrocketed to $202 a share.
Related: Warren Buffett Finally Reveals What Mystery Company Got a $6.7 Billion Investment from Berkshire Hathaway
Buffett tells Schroeder the experience was one of the most important of his life because it taught him three lessons about investing:
- Don’t “overly fixate” on what you’ve paid for a stock.
- Don’t rush to sell for a small profit.
- Don’t invest someone else’s money unless you know you can succeed.
The lesson has served Buffett, now 94, well over the years. In August, Berkshire Hathaway surpassed $1 trillion in market value for the first time.