Warren Buffett

This rather changes my opinion of Warren Buffett:

THE world’s second-wealthiest man, Warren Buffett, will give away the bulk of his $44 billion (£24 billion) fortune in an extraordinary charity deal with Bill Gates, the founder of Microsoft.
...
Starting this month, Mr Buffett will begin to transfer stock in Hathaway to the Bill and Melinda Gates Foundation, the world’s largest philanthropic organisation. It funds the international fight against diseases such as malaria, Aids and tuberculosis.

He’s said for years that he would give away his fortune after his death. But to a family controlled foundation, like the Hewletts, Packards, Fords and Kennedys. Given the vagaries of US tax law these perpetuate rather than dinimish the value of inherited wealth. One point, for example, is that all investments are free of death duty, income (dividends and interest) and capital gains taxes at the expense of the foundation donating 5% per year of assets. Such donations can (and in a remakable surprise, often do) include paying family members to manage said assets and give away the money.

Putting the dosh into the Gates Foundation is a very different kettle of fish. I assume that the other $7 billion will go into such a family foundation but still.

Considered the most successful investor of all time, Mr Buffett lives a famously unpretentious life. He still lives in the $31,000 (£17,000) house he brought in Nebraska in 1958.

Buffett made one enormous financial discovery. Yes, he’s a good investor, certainly, and that explains some of his success. But there have been many with a similar eye for an under rated financial asset (Jimmy Goldsmith, Hanson and White, etc). What made him tens of billions rather than the odd billion or two was leverage.

He realised that insurance companies have a large float, premiums received that have not yet been spent on claims. These are, in all such companies, invested to produce higher profits. But if you are a good investor, access to that float can give you huge leverage. Instead of putting $1 million (say) into a stock, why not put $1 million into buying an insurance company and then use the float to put $10 million into a stock? What would you rather have? 10% on your $1 million or 10% on $10 million?

Which is pretty much what he did. Sounds simple explained that way doesn’t it?

Update: From Fortune, the original story. Yes, the family do get a chunk of the money:

The other foundation gifts that Buffett is making will also occur annually and start in July. At Berkshire's current price, the combined 2006 total of these gifts will be $315 million. The contributions will go to foundations headed by Buffett's three children, Susan, Howard, and Peter, and to the Susan Thompson Buffett Foundation.