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A Ponzi scheme is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors. Named after Italian businessman Charles Ponzi, the scheme leads victims to believe that profits are coming from legitimate business activity (e.g., product sales or successful investments), and they remain unaware that other investors are the source of funds. A Ponzi scheme can maintain the illusion of a sustainable business as long as new investors contribute new funds, and as long as most of the investors do not demand full repayment and still believe in the non-existent assets they are purported to own.

Some of the first recorded incidents to meet the modern definition of the Ponzi scheme were carried out from 1869 to 1872 by Adele Spitzeder in Germany and by Sarah Howe in the United States in the 1880s through the "Ladies' Deposit". Howe offered a solely female clientele an 8% monthly interest rate and then stole the money that the women had invested. She was eventually discovered and served three years in prison. The Ponzi scheme was also previously described in novels; Charles Dickens's 1844 novel Martin Chuzzlewit and his 1857 novel Little Dorrit both feature such a scheme. 

In the 1920s, Charles Ponzi carried out this scheme and became well known throughout the United States because of the huge amount of money that he took in. His original scheme was based on the legitimate arbitrage of international reply coupons for postage stamps, but he soon began diverting new investors' money to make payments to earlier investors and to himself. Unlike earlier similar schemes, Ponzi's gained considerable press coverage both within the United States and internationally both while it was being perpetrated and after it collapsed – this notoriety eventually led to the type of scheme being named after him. 

Characteristics

In a Ponzi scheme, a con artist offers investments that promise very high returns with little or no risk to their victims. The returns are said to originate from a business or a secret idea run by the con artist. In reality, the business does not exist or the idea does not work in the way it is described. The con artist pays the high returns promised to their earlier investors by using the money obtained from later investors. Instead of engaging in a legitimate business activity, the con artist attempts to attract new investors to make the payments that were promised to earlier investors. The operator of the scheme also diverts clients' funds for the operator's personal use. 

With little or no legitimate earnings, Ponzi schemes require a constant flow of new money to survive. When it becomes hard to recruit new investors, or when large numbers of existing investors cash out, these schemes collapse. As a result, most investors end up losing all or much of the money they invested. In some cases, the operator of the scheme may simply disappear with the money. 

Red flags

According to the U.S. Securities and Exchange Commission (SEC), many Ponzi schemes share characteristics that should be "red flags" for investors. 

High investment returns with little or no risk. Every investment carries some degree of risk, and investments yielding higher returns typically involve more risk. Any "guaranteed" investment opportunity should be considered suspect.

Overly consistent returns. Investment values tend to go up and down over time, especially those offering potentially high returns. An investment that continues to generate regular positive returns regardless of overall market conditions is considered suspicious.

Unregistered investments. Ponzi schemes typically involve investments that have not been registered with financial regulators (like the SEC or the FCA). Registration is important because it provides investors with access to key information about the company's management, products, services, and finances.

Unlicensed sellers. In the United States, federal and state securities laws require that investment professionals and their firms be licensed or registered. Most Ponzi schemes involve unlicensed individuals or unregistered firms.

Secretive or complex strategies. Investments that cannot be understood or on which no complete information can be found or obtained are considered suspicious.

Issues with paperwork. Account statement errors may be a sign that funds are not being invested as promised.

Difficulty receiving payments. Investors should be suspicious of cases where they don't receive a payment or have difficulty cashing out. Ponzi scheme promoters sometimes try to prevent participants from cashing out by offering even higher returns for staying put.

According to criminologist Marie Springer, the following red flags can also be of relevance: 

The sales personnel or adviser are overly pushy or aggressive (may involve high-pressure sales).

The initial contact took place by a cold call or through a social network, a language-based radio or a religious radio advertisement.

The client cannot determine the actual trades or investments that have been carried out.

The clients are asked to write checks with a different name than the name of the corporation (such as an individual) or to send checks to a different address than the corporate address.

Once the maturity date of their investment arrives, clients are pressured to roll over the principal and the profits.

Methods

Typically, Ponzi schemes require an initial investment and promise above-average returns. They use vague verbal guises such as "hedge futures trading", "high-yield investment programs", or "offshore investment" to describe their income strategy. It is common for the operator to take advantage of a lack of investor knowledge or competence, or sometimes claim to use a proprietary, secret investment strategy to avoid giving information about the scheme.

The basic premise of a Ponzi scheme is "to rob Peter to pay Paul". Initially, the operator pays high returns to attract investors and entice current investors to invest more money. When other investors begin to participate, a cascade effect begins. The schemer pays a "return" to initial investors from the investments of new participants, rather than from genuine profits.

Often, high returns encourage investors to leave their money in the scheme, so that the operator does not actually have to pay very much to investors. The operator simply sends statements showing how much they have earned, which maintains the deception that the scheme is an investment with high returns. Investors within a Ponzi scheme may face difficulties when trying to get their money out of the investment.

Operators also try to minimize withdrawals by offering new plans to investors where money cannot be withdrawn for a certain period of time in exchange for higher returns. The operator sees new cash flows as investors cannot transfer money. If a few investors do wish to withdraw their money in accordance with the terms allowed, their requests are usually promptly processed, which gives the illusion to all other investors that the fund is solvent and financially sound.

Ponzi schemes sometimes begin as legitimate investment vehicles, such as hedge funds that can easily degenerate into a Ponzi-type scheme if they unexpectedly lose money or fail to legitimately earn the returns expected. The operators fabricate false returns or produce fraudulent audit reports instead of admitting their failure to meet expectations, and the operation is then considered a Ponzi scheme.

A wide variety of investment vehicles and strategies, typically legitimate, have become the basis of Ponzi schemes. For instance, Allen Stanford used bank certificates of deposit to defraud tens of thousands of people. Certificates of deposit are usually low-risk and insured instruments, but the Stanford certificates of deposit were fraudulent. 

Unraveling

Theoretically, it is possible for certain Ponzi schemes to ultimately "succeed" financially, at least so long as a Ponzi scheme was not what the promoters were initially intending to operate. For example, a failing hedge fund reporting fraudulent returns could conceivably "make good" its reported numbers, for example by making a successful high-risk investment. Moreover, if the operators of such a scheme are facing the likelihood of imminent collapse accompanied by criminal charges, they may see little additional "risk" to themselves in attempting to cover their tracks by engaging in further illegal acts to try and make good the shortfall (for example, by engaging in insider trading). Especially with investment vehicles like hedge funds that are regulated and monitored less heavily than other investment vehicles such as mutual funds, in the absence of a whistleblower or accompanying illegal acts, any fraudulent content in reports is often difficult to detect unless and until the investment vehicles ultimately collapse.

Typically, however, if a Ponzi scheme is not stopped by authorities it usually falls apart for one or more of the following reasons: 

The operator vanishes, taking all the remaining investment money. Promoters who intend to abscond often attempt to do so as returns due to be paid are about to exceed new investments, as this is when the investment capital available will be at its maximum.

Since the scheme requires a continual stream of investments to fund higher returns, if the number of new investors slows down, the scheme collapses as the operator can no longer pay the promised returns (the higher the returns, the greater the risk of the Ponzi scheme collapsing). Such liquidity crises often trigger panics, as more people start asking for their money, similar to a bank run.

External market forces, such as a sharp decline in the economy, can often hasten the collapse of a Ponzi scheme (for example, the Madoff investment scandal during the market downturn of 2008), since they often cause many investors to attempt to withdraw part or all of their funds sooner than they had intended.

Sometimes, two or more of the aforementioned factors may be at play. For example, news of a police investigation into a Ponzi scheme may cause investors to immediately demand their money, and in turn cause the promoters to flee the jurisdiction sooner than planned (assuming they intended to eventually abscond in the first place), thus causing the scheme to collapse much faster than if the police investigation had simply been permitted to run its course.

Actual losses are extremely difficult to calculate. The amounts that investors thought they had were never attainable in the first place. The wide gap between "money in" and "fictitious gains" make it virtually impossible to know how much was lost in any Ponzi scheme. 

Similar schemes

Pyramid scheme

A pyramid scheme is a form of fraud similar in some ways to a Ponzi scheme, relying as it does on a mistaken belief in a nonexistent financial reality, including the hope of an extremely high rate of return. However, several characteristics distinguish these schemes from Ponzi schemes: 

In a Ponzi scheme, the schemer acts as a "hub" for the victims, interacting with all of them directly. In a pyramid scheme, those who recruit additional participants benefit directly. Failure to recruit typically means no investment return.

A Ponzi scheme claims to rely on some esoteric investment approach, and often attracts well-to-do investors, whereas pyramid schemes explicitly claim that new money will be the source of payout for the initial investments. 

A pyramid scheme typically collapses much faster because it requires exponential increases in participants to sustain it. By contrast, Ponzi schemes can survive (at least in the short-term) simply by persuading most existing participants to reinvest their money, with a relatively small number of new participants. 

Crypto Ponzi scheme

Cryptocurrencies have been employed by scammers attempting a new generation of Ponzi schemes. For example, misuse of initial coin offerings, or "ICOs", has been one such method, known as "smart Ponzis" per the Financial Times. Most schemes have a low recovery rate with investors losing their funds permanently. 

The novelty of ICOs means that there is currently a lack of regulatory clarity on the classification of these financial devices, allowing scammers wide leeway to develop Ponzi schemes using these pseudo-assets. Also, the pseudonymity of cryptocurrency transactions and their international nature involving countless jurisdictions in many different countries can make it much more difficult to identify and take legal action (whether civil or criminal) against perpetrators. 

The May 2022 collapse of TerraUSD, a stablecoin propped up by a complex algorithmic mechanism offering 20% yields, was described as "Ponzinomics" by Wired. Another example of a well known ponzi scheme involving cryptoassets was the ICO of AriseBank or AriseCoin, involving claims about founding the world's first "decentralized bank". The SEC successfully recovered the funds stolen in the ICO. A similar scheme was perpetrated by the founders of the fraudulent cryptocurrency Bitconnect. 

In September 2022, Jamie Dimon, CEO of JPMorgan, described cryptocurrencies as "Decentralised Ponzi Schemes". 

Economic bubble

Economic bubbles are also similar to a Ponzi scheme in that one participant gets paid by contributions from a subsequent participant until inevitable collapse. A bubble involves ever-rising prices in an open market (for example stock, housing, cryptocurrency,  tulip bulbs, or the Mississippi Company) where prices rise because buyers bid more, and buyers bid more because prices are rising. Bubbles are often said to be based on the "greater fool" theory. As with the Ponzi scheme, the price exceeds the intrinsic value of the item, but unlike the Ponzi scheme:

In most economic bubbles, there is no single person or group misrepresenting the intrinsic value. A common exception is a pump and dump scheme (typically involving buyers and holders of thinly-traded stocks), which has much more in common with a Ponzi scheme compared to other types of bubbles.

Ponzi schemes typically result in criminal charges when authorities discover them, but other than pump and dump schemes, economic bubbles do not typically involve unlawful activity, or even bad faith on the part of any participant. Laws are only broken if someone perpetuates the bubble by knowingly and deliberately misrepresenting facts to inflate the value of an item (as with a pump and dump scheme). Even when this occurs, wrongdoing (and especially criminal activity) is often much more difficult to prove in court compared to a Ponzi scheme. Therefore, the collapse of an economic bubble rarely results in criminal charges (which require proof beyond a reasonable doubt to secure a conviction) and, even when charges are pursued, they are often against corporations, which can be easier to pursue in court compared to charges against people but also can only result in fines as opposed to jail time. The more commonly-pursued legal recourse in situations where someone suspects an economic bubble is the result of nefarious activity is to sue for damages in civil court, where the standard of proof is only balance of probabilities and where the plaintiff need not demonstrate mens rea. 

In some jurisdictions, following the collapse of a Ponzi scheme, even the "innocent" beneficiaries are liable to repay any gains for distribution to the victims. In this context, "innocent" beneficiaries can include anyone who unwittingly profited without being aware of the fraudulent nature of the scheme, and even charities to which perpetrators often give to relatively generously while a scheme is in operation in an effort to enhance their own profile and thereby "profit" from the resulting positive media coverage. This typically does not happen in the case of an economic bubble, especially if nobody can prove the bubble was caused by anyone acting in bad faith, moreover a person whose own participation in an economic bubble is not particularly notable is not likely to enhance participation in the bubble and thus personally profit by donating to charity.

Items traded in an economic bubble are much more likely to have an intrinsic value that is worth a substantial proportion of the market price. Therefore, following collapse of an economic bubble (especially one in a commodity such as real estate) the items affected will often retain some value, whereas an investment that is part of a Ponzi scheme will typically be worthless (or very close to worthless). On the other hand, it is much easier to obtain financing for many items that are the frequent subject of bubbles. If an investor trading on margin or borrowing to finance investments becomes the victim of a bubble, he or she can still lose all (or a very substantial portion) of his or her investment capital, or even be liable for losses in excess of the original capital investment.

Exit scam

A Ponzi scheme which ultimately terminates with the operator absconding is similar to an exit scam. The main difference is that an exit scam does not involve any sort of investment vehicle with the accompanying promised returns. Instead, exit scammers either accept payment for product which they never ship (usually after gaining a reputation for reliably shipping product) or steal funds held in escrow on behalf of third parties (the latter often involves the operators of illegal darknet markets that facilitate the sale of illicit goods and services).

Related concepts

Ponzi finance

The term "ponzi finance" generally designates non-sustainable patterns of finance, such as borrowers who can only meet their debt commitment if they continuously obtain new sources of financing, often at an accelerating pace and/or ever-increasing interest rates until the borrower cannot secure more financing at any interest rate and becomes insolvent. The term was first coined by economist Hyman Minsky. 

Ponzi game

In economics, the term "ponzi game" designates a hypothesis where a government continuously defers the repayment of its public debt by issuing new debt: each time its existing debt arrives at maturity, it borrows funds from new and/or existing lenders in order to repay its existing debt. 

Warren Edward Buffett (BUF-it; born August 30, 1930) is an American business magnate, investor, and philanthropist. He is currently the chairman and CEO of Berkshire Hathaway. As a result of his immense investment success, Buffett is one of the best-known fundamental investors in the world. As of June 2023, he possessed a net worth of $117 billion making him the fifth-richest person in the world. 

Buffett was born in Omaha, Nebraska. The son of congressman and businessman Howard Buffett, he developed an interest in business and investing during his youth, eventually entering the Wharton School of the University of Pennsylvania in 1947 before transferring to and graduating from the University of Nebraska at 19. He went on to graduate from Columbia Business School, where he molded his investment philosophy around the concept of value investing pioneered by Benjamin Graham. He attended New York Institute of Finance to focus on his economics background and soon after began various investment business partnerships, including one with Graham. He created Buffett Partnership, Ltd in 1956 and his investment firm eventually acquired a textile manufacturing firm called Berkshire Hathaway, assuming its name to create a diversified holding company, and later as the company's chairman and majority shareholder in 1970. In 1978, Charlie Munger joined Buffett as vice-chairman. 

Since 1970, Buffett has presided as the chairman and largest shareholder of Berkshire Hathaway, one of America's foremost holding companies and world's leading corporate conglomerates. He has been referred to as the "Oracle" or "Sage" of Omaha by global media as a result of having accumulated a massive fortune derived from his business and investment success. He is noted for his adherence to the principles of value investing, and his personal frugality despite his vast wealth. 

Buffett is also a noted philanthropist, having pledged to give away 99 percent of his fortune to philanthropic causes, primarily via the Bill & Melinda Gates Foundation. He founded The Giving Pledge in 2010 with Bill Gates, whereby billionaires pledge to give away at least half of their fortunes. 

Early life and education

Buffett was born in 1930 in Omaha, Nebraska, the second of three children and the only son of Leila (n?e Stahl) and Congressman Howard Buffett. He began his education at Rose Hill Elementary School. In 1942, his father was elected to the first of four terms in the United States Congress, and after moving with his family to Washington, D.C., Warren finished elementary school, attended Alice Deal Junior High School and graduated from what was then Woodrow Wilson High School in 1947, where his senior yearbook picture reads: "likes math; a future stockbroker". After finishing high school and finding success with his side entrepreneurial and investment ventures, Buffett wanted to skip college to go directly into business but was overruled by his father. 

Buffett displayed an interest in business and investing at a young age. He was inspired by a book he borrowed from the Omaha public library at age seven, One Thousand Ways to Make $1000. Much of Buffett's early childhood years were enlivened with entrepreneurial ventures. In one of his first business ventures, Buffett sold chewing gum, Coca-Cola, and weekly magazines door to door. He worked in his grandfather's grocery store. While still in high school, he made money delivering newspapers, selling golf balls and stamps, and detailing cars, among other means. On his first income tax return in 1944, Buffett took a $35 deduction for the use of his bicycle and watch on his paper route. In 1945, as a high school sophomore, Buffett and a friend spent $25 to purchase a used pinball machine, which they placed in the local barber shop. Within months, they owned several machines in three different barber shops across Omaha. They later sold the business to a war veteran for a tidy sum of $1200. 

Buffett's interest in the stock market and investing dated back to his schoolboy days he spent in the customers' lounge of a regional stock brokerage near his father's own brokerage office. His father took interest in educating the young Warren, at one point taking him to visit the New York Stock Exchange when he was 10. At 11, he bought three shares of Cities Service Preferred for himself, and three for his sister Doris Buffett (who also became a philanthropist). At 15, Warren made more than $175 monthly delivering Washington Post newspapers. In high school, he invested in a business owned by his father and bought a 40-acre farm worked by a tenant farmer. He bought the land when he was 14 years old with $1,200 of his savings. By the time he finished college, Buffett had amassed $9,800 in savings (about $121,000 today). 

In 1947, Buffett matriculated at the Wharton School of the University of Pennsylvania. He would have preferred to focus on his business ventures, but enrolled due to pressure from his father. Warren studied there for two years and joined the Alpha Sigma Phi fraternity. He then transferred to the University of Nebraska where at 19, he graduated with a Bachelor of Science in business administration. After being rejected by Harvard Business School, Buffett enrolled at Columbia Business School of Columbia University upon learning that Benjamin Graham taught there. He earned a Master of Science in economics from Columbia in 1951. After graduating, Buffett attended the New York Institute of Finance. 

The basic ideas of investing are to look at stocks as business, use the market's fluctuations to your advantage, and seek a margin of safety. That's what Ben Graham taught us. A hundred years from now they will still be the cornerstones of investing. 

—?Warren Buffett

Business career

List of assets owned by Berkshire Hathaway

Cash and equivalents

As of December 31, 2022, Berkshire Hathaway had $32.260 billion in cash and cash equivalents and $92.774 billion in short-term investments in U.S. treasury bills. 

Operating subsidiaries

Companies for which Berkshire Hathaway owns wholly or controls a majority of voting shares.

Company Sector Ownership % Acquisition Date (YYYY/MM/DD) Acquisition Price Notes

Berkshire Hathaway Home Services Cancun Properties Real Estate

Acme Brick Company Materials and Construction 100% 2000/08/01 ~$600 Million ($4,392.65 Million 2017) 

Alleghany Corporation Insurance 100% 2022/10/19 $11.6 billion Included Alleghany subsidiary Kentucky Trailer, which designs and manufacturers trailers

AltaLink Electric Transmission 92% 2014/12/01 C$3.24 Billion A subsidiary of Berkshire Hathaway Energy

Ben Bridge Jeweler Luxury Items 100% 2000/07/18

Benjamin Moore & Co. Materials and Construction 100% 2001/01/01 $1 Billion

Berkadia Mortgage Financing 50% 2009/12/31 Joint venture with Jefferies Financial Group, formerly known as Leucadia

Berkshire Hathaway Assurance Bond Insurance 100% 2007/12/01

Berkshire Hathaway Automotive Autosales 90% 2015/05/09 Renamed from Van Tuyl Group

Berkshire Hathaway Energy Utilities 92% 1999/03/26 Renamed from Mid-American Energy Holdings

BoatUS Insurance 2007/07/27

Borsheim's Fine Jewelry Luxury Items 100% 1989/01/01

Brooks Sports Apparel 100% 2006/08/02

BNSF Railway Company Railroads and Logistics 100% 2010/02/12 $34 Billion

Business Wire Media 100% 2006/03/01

Cavalier Homes Materials and Construction 100% 2008/01/01

Central States Indemnity Insurance and Finance 100% 1992/10/20

Charter Brokerage Logistics 100% 2014/12/12

Clayton Homes Materials and Construction 100% 2007/05/10 $1.7 billion.

CORT Business Services Furniture Related 100% 2000/01/14 $467 Million ($3,418.94 Million 2017)

CTB Inc. Capital Goods 100% 2002/01/01

Dairy Queen Food and Beverage 99% 1997/10/21 $585 Million

Duracell Household Products 100% 2016/02/29 $1.8 billion

Ebby Halliday Companies Real Estate 100% 2018/06/04

Fechheimer Brothers Company Clothing 100% 1986/01/01

FlightSafety International Business Services 100% 1997/01/01

Forest River Materials and Construction 100% 2005/08/31

Fruit of the Loom Clothing 100% 2002/04/30 $835 Million

Garanimals Clothing 100% 2002/09/04

GEICO Insurance and Finance 100% 1996/08/26 $2.3 Billion

General Re Insurance and Finance 100% 1995/12/21 $22 Billion

Helzberg Diamonds Luxury Items 100% 1995/01/01

H.H. Brown Shoe Group Clothing 100% 1991/07/01

International Metalworking Companies (IMC) Materials and Construction 100% 2006/05/08

Johns Manville Materials and Construction 100% 2001/02/27 $1.8 Billion

Jordan's Furniture Furniture Related 100% 1999/10/11

Justin Brands Clothing 100% 2000/08/01 $570 Million

Kansas Bankers Surety Company Insurance and Finance 100% 1998/04/10

Kern River Pipeline Pipeline 92% 2006/03/21 $960 Million A subsidiary of Berkshire Hathaway Energy

Larson-Juhl Furniture Related 100% 2001/12/17

Louis Motor Motorcycles 100% 2015/02/20

Lubrizol Chemicals 100% 2011/09/16 $9.7 Billion

Marmon Group Diversified Holding Company 99% 2008/01/01 $4.5 Billion

McLane Company Logistics 100% 2003/05/23 $1.45 Billion

Medical Protective Liability Insurance 100% 2005/06/30

MiTek Materials and Construction 90% 2001/06/12 Other 10% owned by MiTek management

National Indemnity Company Insurance and Finance 100% 1967/03/01 $6.8 Million ($49.78 Million inflation adjusted)

Nebraska Furniture Mart Furniture Related 80% 1983/01/01 $60 Million

NetJets Business Services 100% 1998/01/01 $725 Million

NetJets Europe Business Services 100% 1998/01/01

Northern Natural Gas Pipeline 92% 2002/08/01 $928 Million A subsidiary of Berkshire Hathaway Energy

NV Energy Electric & Gas Distribution 92% 2013/12/19 $5.6 Billion A subsidiary of Berkshire Hathaway Energy

Omaha World-Herald Media 100% 2011/12/01 $150 Million

Oriental Trading Company Toy Party Craft 100% 2012/01/01

PacifiCorp Electric Distribution 92% 2005/01/01 $9.4 billion A subsidiary of Berkshire Hathaway Energy

Pampered Chef Food and Beverage 100% 2002/09/23

Pilot Flying J Retail, Food and Beverage, Petroleum 38.6% 2017/10/03 Will increase stake to 80% in 2023. 

Precision Castparts Corp. Aerospace and Defense 100% 2016/01/29 $37 Billion

Precision Steel Warehouse, Inc. Materials and Construction 100% 1979/01/01

RC Willey Home Furnishings Furniture Related 1995/01/01

Richline Group Wholesale and Manufacturing 100% 2007/05/01

Russell Brands Sports Equipment Manufacturer 100% 2006/01/01 $600 Million A division of Fruit of the Loom

Scott Fetzer Company Other 100% 1985/01/01 $230 Million

See's Candies Food and Beverage 100% 1972/01/03 $25 Million

SE Homes Materials and Construction 100% 2007/01/01

Shaw Industries Materials and Construction 2002/01/21

Star Furniture Furniture Related 100% 1997/07/14

TTI, Inc. Electronic Component Distribution 100% 2007/03/30

United States Liability Insurance Group Insurance and Finance 100% 2000/08/08

Wesco Financial Insurance and Finance 100% 1978/01/01

WPLG-TV Media 100% 2014/07/01

XTRA Lease Commercial Semi Trailer Rental and Leasing 100% 2001/09/20

U.S.-listed public company and ETF holdings

Sourced from Berkshire Hathaway's Form 13F-HR filed with the Securities and Exchange Commission, as of May 2022: 

Company Ticker Sector Ownership % # of Shares Value As of date

Activision Blizzard Nasdaq: ATVI Video Gaming 9.49 74,187,400 $5,742,104,760 May 23, 2022

Ally Financial NYSE: ALLY Financial Services 2.91 8,969,420 $346,847,471 May 23, 2022

Amazon Nasdaq: AMZN Technology and Retail -0.01 533,300 $1,147,565,606 May 23, 2022

American Express NYSE: AXP Financial Services 20.26 151,610,700 $23,232,823,668 May 23, 2022

Aon plc NYSE: AON Financial Services 2.06 4,396,000 $1,154,873,160 May 23, 2022

Apple Inc. Nasdaq: AAPL Technology 5.63 911,347,617 $125,392,318,623 May 23, 2022

Bank of America NYSE: BAC Banking 12.73 1,032,852,006 $34,972,368,923 May 23, 2022

Bank of New York Mellon NYSE: BK Banking 9.16 74,346,864 $3,254,162,237 May 23, 2022

BYD Company SEHK: 1211 Automotive 7.79 225,000,000 $7,499,250,000 May 23, 2022

Celanese NYSE: CE Chemicals 7.27 7,880,998 $1,187,902,829 May 23, 2022

Charter Communications Nasdaq: CHTR Telecommunications 2.33 3,828,941 $1,834,177,607 May 23, 2022

Chevron Corporation NYSE: CVX Petroleum 8.17 159,178,117 $26,713,271,595 May 23, 2022

Citigroup NYSE: C Banking 2.69 52,244,797 $2,748,428,651 May 23, 2022

The Coca-Cola Company NYSE: KO Food & Drink 9.24 400,000,000 $24,392,000,000 May 23, 2022

DaVita NYSE: DVA Healthcare 38.21 36,095,570 $3,408,504,675 May 23, 2022

Diageo NYSE: DEO Alcohol 0.03 227,750 $41,511,993 May 23, 2022

Floor & Decor NYSE: FND Retail 4.52 4,780,000 $328,051,400 May 23, 2022

General Motors NYSE: GM Automotive 4.28 62,045,847 $2,196,422,984 May 23, 2022

Globe Life NYSE: GL Insurance 6.53 6,353,727 $594,454,698 May 23, 2022

HP Inc. NYSE: HPQ Technology 11.82 121,092,418 $4,195,852,284 May 23, 2022

Itochu TYO: 8001 Conglomerate 5.53 81,304,200 $2,309,039,280 May 23, 2022

Johnson & Johnson NYSE: JNJ Pharmaceuticals 0.01 327,100 $57,890,158 May 23, 2022

Kraft Heinz Nasdaq: KHC Food & Drink 26.53 325,634,818 $12,494,607,967 May 23, 2022

Kroger NYSE: KR Retail 8.09 57,985,263 $2,821,562,898 May 23, 2022

Liberty Latin America Ltd. Class A Nasdaq: LILA Media 5.59 2,630,792 $24,361,134 May 23, 2022

Liberty Latin America Ltd. Class C Nasdaq: LILAK Media 1.06 1,284,020 $11,812,984 May 23, 2022

Liberty Media Formula One Series C Nasdaq: FWONK Media 3.8 7,722,451 $481,803,718 May 23, 2022

Liberty Sirius XM Group Series A Nasdaq: LSXMA Media 14.4 20,207,680 $812,146,659 May 23, 2022

Liberty Sirius XM Group Series C Nasdaq: LSXMK Media 14.4 43,208,291 $1,729,627,889 May 23, 2022

Markel Corporation Nasdaq: MKL Insurance 3.11 424,343 $565,683,166 May 23, 2022

Marsh McLennan NYSE: MMC Insurance 0.08 404,911 $60,675,913 May 23, 2022

Mastercard NYSE: MA Financial Services 0.41 3,986,648 $1,340,231,325 May 23, 2022

McKesson Corporation NYSE: MCK Logistics 2.02 2,921,975 $943,388,849 May 23, 2022

Mondelez International Nasdaq: MDLZ Food & Drink 0.04 578,000 $35,367,820 May 23, 2022

Moody's Corporation NYSE: MCO Financial Services 13.46 24,669,778 $7,136,226,682 May 23, 2022

Nubank NYSE: NU Banking 2.29 107,118,784 $408,122,567 May 23, 2022

Occidental Petroleum NYSE: OXY Petroleum 25 224,100,000 $13,500,000,000 July 25, 2023

Paramount Global Class B Nasdaq: PARA Media 10.62 68,947,760 $2,250,454,886 May 23, 2022

Procter & Gamble NYSE: PG Consumer Goods 0.01 315,400 $44,720,566 May 23, 2022

RH NYSE: RH Retail 8.86 2,170,000 $582,862,000 May 23, 2022

Royalty Pharma Nasdaq: RPRX Pharmaceuticals 0.34 1,496,372 $59,136,621 May 23, 2022

Snowflake Inc. NYSE: SNOW Technology 1.92 6,125,376 $866,679,450 May 23, 2022

SPDR S&P 500 Trust ETF NYSE: SPY Exchange Traded Fund - 39,400 $15,351,422 May 23, 2022

StoneCo NYSE: STNE Financial Services 3.42 10,695,448 $99,788,530 May 23, 2022

Store Capital NYSE: STOR Real Estate 5.25 14,754,811 $385,248,115 May 23, 2022

T-Mobile US Nasdaq: TMUS Telecommunications 0.41 5,242,000 $660,701,680 May 23, 2022

United Parcel Service NYSE: UPS Courier Service -0.01 59,400 $10,159,776 May 23, 2022

US Bancorp NYSE: USB Banking 9.69 144,046,330 $7,088,519,899 May 23, 2022

Vanguard 500 Index Fund ETF NYSE: VOO Exchange Traded Fund - 43,000 $15,394,860 May 23, 2022

Verisign Nasdaq: VRSN Technology 11.77 12,815,613 $2,121,752,888 May 23, 2022

Verizon Communications NYSE: VZ Telecommunications 0.03 1,380,111 $68,356,898 May 23, 2022

Visa Inc NYSE: V Financial Services 0.50 8,297,460 $1,651,443,464 May 23, 2022

Non-US public companies

At year end 2021, Berkshire Hathaway Energy owns 7.7% of Chinese electric vehicle manufacturer BYD Company, and Berkshire Hathaway owns approximately 6% stakes in five major Japanese conglomerates, ITOCHU Corporation, Mitsubishi Corporation, Marubeni Corporation, Sumitomo Corporation and Mitsui & Co., Ltd. 

Former subsidiaries

Company Sector Ownership % Disposal Date Notes

H. J. Heinz Company Foods 52.5% July 2, 2015 Merged into Kraft-Heinz

Applied Underwriters Insurance and Finance 100% July 13, 2019 Sold 

The Buffalo News Media 100% Mar 16, 2020 Sold 

Early business career

Buffett worked from 1951 to 1954 at Buffett-Falk & Co. as an investment salesman; from 1954 to 1956 at Graham-Newman Corp. as a securities analyst; from 1956 to 1969 at Buffett Partnership, Ltd. as a general partner; and from 1970 as chairman and CEO of Berkshire Hathaway Inc.

In 1951, Buffett discovered that Graham was on the board of GEICO insurance. Taking a train to Washington, D.C., on a Saturday, he knocked on the door of GEICO's headquarters until a janitor admitted him. There he met Lorimer Davidson, GEICO's vice president, and the two discussed the insurance business for hours. Davidson would eventually become Buffett's lifelong friend and a lasting influence, and would later recall that he found Buffett to be an "extraordinary man" after only fifteen minutes. Buffett wanted to work on Wall Street but both his father and Ben Graham urged him not to. He offered to work for Graham for free, but Graham refused. 

Buffett returned to Omaha and worked as a stockbroker while taking a Dale Carnegie public speaking course. Using what he learned, he felt confident enough to teach an "Investment Principles" night class at the University of Nebraska-Omaha. The average age of his students was more than twice his own. During this time he also purchased a Sinclair gas station as a side investment but it was unsuccessful. 

In 1952, Buffett married Susan Thompson at Dundee Presbyterian Church. The next year they had their first child, Susan Alice. In 1954, Buffett accepted a job at Benjamin Graham's partnership. His starting salary was $12,000 a year (about $131,000 today). There he worked closely with Walter Schloss. Graham was a tough boss. He was adamant that stocks provide a wide margin of safety after weighing the trade-off between their price and their intrinsic value. That same year the Buffetts had their second child, Howard Graham. In 1956, Benjamin Graham retired and closed his partnership. At this time Buffett's personal savings were over $174,000 (about $1.87 million today) and concurrently founded Buffett Partnership Ltd.

In 1957, Buffett operated three investment partnerships. He purchased a five-bedroom stucco house in Omaha, where he still lives, for $31,500. In 1958 the Buffetts' third child, Peter Andrew, was born. Buffett operated five partnerships that year. In 1959, the company grew to six partnerships and Buffett met future partner Charlie Munger. By 1960, Buffett operated seven investment partnerships. He asked one of his partners, a doctor, to find ten other doctors willing to invest $10,000 each in his partnership. Eventually, eleven agreed, and Buffett pooled their money with a mere $100 original investment of his own.

In 1961, Buffett revealed that 35% of the partnership's assets were invested in the Sanborn Map Company. He explained that Sanborn stock sold for only $45 per share in 1958, but the company's investment portfolio was worth $65 per share. This meant that Sanborn's map business was being valued at "minus $20". Buffett eventually purchased 23% of the company's outstanding shares as an activist investor, obtaining a seat for himself on the board of directors, and allied with other dissatisfied shareholders to control 44% of the shares. To avoid a proxy fight, the board offered to repurchase shares at fair value, paying with a portion of its investment portfolio. 77% of the outstanding shares were turned in. Buffett had reaped a 50 percent return on investment in just two years. 

Assuming Berkshire

In 1962, Buffett became a millionaire because of his partnerships, which in January 1962 had an excess of $7,178,500, of which over $1,025,000 belonged to Buffett. He merged these partnerships into one. Buffett invested in and eventually took control of a textile manufacturing company, Berkshire Hathaway. He began buying shares in Berkshire from Seabury Stanton, the owner, whom he later fired. Buffett's partnerships began purchasing shares at $7.60 per share. In 1965, when Buffett's partnerships began purchasing Berkshire aggressively, they paid $14.86 per share while the company had working capital of $19 per share. This did not include the value of fixed assets (factory and equipment). Buffett took control of Berkshire Hathaway at a board meeting and named a new president, Ken Chace, to run the company. In 1966, Buffett closed the partnership to new money. He later claimed that the textile business had been his worst trade. He then moved the business into the insurance sector, and, in 1985, the last of the mills that had been the core business of Berkshire Hathaway was sold.

In a second letter, Buffett announced his first investment in a private business — Hochschild, Kohn and Co, a privately owned Baltimore department store. In 1967, Berkshire paid out its first and only dividend of 10 cents. In 1969, Buffett liquidated the partnership and transferred their assets to his partners including shares of Berkshire Hathaway. In 1970, Buffett began writing his now-famous annual letters to shareholders. He lived solely on his salary of $50,000 per year and his outside investment income.

In 1973, Berkshire began to acquire stock in the Washington Post Company. Buffett became close friends with Katharine Graham, who controlled the company and its flagship newspaper and joined its board. In 1974, the SEC opened a formal investigation into Buffett and Berkshire's acquisition of Wesco Financial, due to possible conflict of interest. No charges were brought. In 1977, Berkshire indirectly purchased the Buffalo Evening News for $32.5 million. Antitrust charges started, instigated by its rival, the Buffalo Courier-Express. Both papers lost money until the Courier-Express folded in 1982.

In 1979, Berkshire began to acquire stock in ABC. Capital Cities announced a $3.5 billion purchase of ABC on March 18, 1985, surprising the media industry, as ABC was four times bigger than Capital Cities at the time. Buffett helped finance the deal in return for a 25% stake in the combined company. The newly merged company, known as Capital Cities/ABC (or CapCities/ABC), was forced to sell some stations due to Federal Communications Commission ownership rules. The two companies also owned several radio stations in the same markets. 

In 1987, Berkshire Hathaway purchased a 12% stake in Salomon Inc., making it the largest shareholder and Buffett a director. In 1990, a scandal involving John Gutfreund (former CEO of Salomon Brothers) surfaced. A rogue trader, Paul Mozer, was submitting bids in excess of what was allowed by Treasury rules. When this was brought to Gutfreund's attention, he did not immediately suspend the rogue trader. Gutfreund left the company in August 1991. Buffett became chairman of Salomon until the crisis passed. 

In 1988, Buffett began buying The Coca-Cola Company stock, eventually purchasing up to 7% of the company for $1.02 billion. It would turn out to be one of Berkshire's most lucrative investments and one which it still holds. 

As a billionaire

Buffett became a billionaire when Berkshire Hathaway began selling class A shares on May 29, 1990, with the market closing at $7,175 a share. In 1998 he acquired General Re (Gen Re) as a subsidiary in a deal that presented difficulties—according to the Rational Walk investment website, "underwriting standards proved to be inadequate", while a "problematic derivatives book" was resolved after numerous years and a significant loss. Gen Re later provided reinsurance after Buffett became involved with Maurice R. Greenberg at AIG in 2002. 

During a 2005 investigation of an accounting fraud case involving AIG, Gen Re executives became implicated. On March 15, 2005, the AIG board forced Greenberg to resign from his post as chairman and CEO after New York state regulators claimed that AIG had engaged in questionable transactions and improper accounting. On February 9, 2006, AIG agreed to pay a $1.6 billion fine. In 2010, the U.S. government agreed to a $92 million settlement with Gen Re, allowing the Berkshire Hathaway subsidiary to avoid prosecution in the AIG case. Gen Re also made a commitment to implement "corporate governance concessions", which required Berkshire Hathaway's chief financial officer to attend General Re's audit committee meetings and mandated the appointment of an independent director. 

In 2002, Buffett entered in $11 billion worth of forward contracts to deliver U.S. dollars against other currencies. By April 2006, his total gain on these contracts was over $2 billion. Buffett announced in June 2006 that he would gradually give away 85% of his Berkshire holdings to five foundations in annual gifts of stock, starting in July 2006—the largest contribution going to the Bill and Melinda Gates Foundation. 

In 2007, in a letter to shareholders, Buffett announced that he was looking for a younger successor, or perhaps successors, to run his investment business. 

2007–08 financial crisis

Buffett ran into criticism during the subprime mortgage crisis of 2007 and 2008, part of the Great Recession starting in 2007, that he had allocated capital too early resulting in suboptimal deals. "Buy American. I am." he wrote for an opinion piece published in the New York Times in 2008. Buffett called the downturn in the financial sector that started in 2007 "poetic justice". Buffett's Berkshire Hathaway suffered a 77% drop in earnings during Q3 2008 and several of his later deals suffered large mark-to-market losses. 

Berkshire Hathaway acquired 10% perpetual preferred stock of Goldman Sachs. Some of Buffett's put options (European exercise at expiry only) that he wrote (sold) were running at around $6.73 billion mark-to-market losses as of late 2008. The scale of the potential loss prompted the SEC to demand that Berkshire produce, "a more robust disclosure" of factors used to value the contracts. Buffett also helped Dow Chemical pay for its $18.8 billion takeover of Rohm & Haas. He thus became the single largest shareholder in the enlarged group with his Berkshire Hathaway, which provided $3 billion, underlining his instrumental role during the crisis in debt and equity markets. 

In 2008, Buffett became the richest person in the world, with a total net worth estimated at $62 billion by Forbes and at $58 billion by Yahoo, overtaking Bill Gates, who had been number one on the Forbes list for 13 consecutive years. In 2009, Gates regained the top position on the Forbes list, with Buffett shifted to second place. Both of the men's values dropped, to $40 billion and $37 billion respectively—according to Forbes, Buffett lost $25 billion over a 12-month period during 2008/2009. 

In October 2008, the media reported that Buffett had agreed to buy General Electric (GE) preferred stock. The operation included special incentives: he received an option to buy three billion shares of GE stock, at $22.25, over the five years following the agreement, and Buffett also received a 10% dividend (callable within three years). In February 2009, Buffett sold some Procter & Gamble Co. and Johnson & Johnson shares from his personal portfolio. 

In addition to suggestions of mistiming, the wisdom in keeping some of Berkshire's major holdings, including The Coca-Cola Company, which in 1998 peaked at $86, raised questions. Buffett discussed the difficulties of knowing when to sell in the company's 2004 annual report:

That may seem easy to do when one looks through an always-clean, rear-view mirror. Unfortunately, however, it's the windshield through which investors must peer, and that glass is invariably fogged. 

In March 2009, Buffett said in a cable television interview that the economy had "fallen off a cliff ... Not only has the economy slowed down a lot, but people have really changed their habits like I haven't seen". Additionally, Buffett feared that inflation levels that occurred in the 1970s—which led to years of painful stagflation—might re-emerge. 

A capitalized Berkshire

On August 14, 2014, the price of Berkshire Hathaway's shares hit $200,000 a share for the first time, capitalizing the company at $328 billion. While Buffett had given away much of his stock to charities by this time, he still held 321,000 shares worth $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. 

In 2009, Buffett invested $2.6 billion as a part of Swiss Re's campaign to raise equity capital. Berkshire Hathaway already owned a 3% stake, with rights to own more than 20%. 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. Measured by market capitalization in the Financial Times Global 500, Berkshire Hathaway was the eighteenth largest corporation in the world as of June 2009. 

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. 

The merger with the Burlington Northern Santa Fe Railway (BNSF) closed upon BNSF shareholder approval during Q1 of 2010. This deal was valued at approximately $44 billion (with $10 billion of outstanding BNSF debt) and represented an increase of the previously existing stake of 22%. 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. 

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, 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. 

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". 

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

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. 

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. 

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. 

COVID-19 pandemic

In a June 2021 interview with CNBC, Buffet said that the economic impact of the COVID-19 pandemic has increased economic inequality and bemoaned that most people are unaware that "hundreds of thousands or millions" of small businesses have been negatively impacted. He also stated that the markets and the economy will likely be unpredictable well into the post-pandemic recovery period, even with the Biden administration and the United States Federal Reserve having a plan in place. He said the unpredictability and the effects of COVID-19 are far from over. 

Investment philosophy

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

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), Charlie Munger (Buffett's partner at Berkshire), Rick Guerin (Pacific Partners Ltd.), and Stan Perlmeter (Perlmeter Investments). In his November 1999 Fortune article, he warned of investors' unrealistic expectations: 

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 vis-?-vis active management

Buffett has been a supporter of index funds for people who are either not interested in managing their own money or don't have the time. Buffett is skeptical that active management 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". 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 made the bet against Buffett. 

Using investment banks

Buffet has a long-standing aversion to using the services of investment banks via Berkshire Hathaway. This dynamic was also reported in Barron's, Insider, and Seeking Alpha, among others.

Personal life

In 1949, Buffett developed a crush on a young woman whose boyfriend had a ukulele. In an attempt to compete, he bought one of the instruments and has been playing it ever since. Though the attempt to capture her attention was unsuccessful, his music interest became a key part of his becoming a part of Susan Thompson's life, and led to their marriage. Buffett often plays the instrument at stockholder 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. 

Buffett married Susan Buffett (born 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. 

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. 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". 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", Buffett wrote Nicole 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". By 2022, Buffett and his granddaughter had reconciled. 

His 2006 annual salary was about $100,000, which is small compared to senior executive remuneration in comparable companies. In 2008, he earned a total compensation of $175,000, which included a base salary of just $100,000. 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 owned a vacation home in Laguna Beach, California, which he purchased for $150,000 in 1971. He sold it for $7.5 million in 2018. 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. 

Bridge is such a sensational game that I wouldn't mind being in jail if I had three cellmates who were decent players and who were willing to keep the game going twenty-four hours a day.

—Buffett on bridge 

Buffett is an avid bridge player, which he plays with fellow fan Gates —he is said to spend 12 hours a week playing the game. 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. 

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". He watched the 2009 game against Oklahoma from the Nebraska sideline, after being named an honorary assistant coach. 

Buffett was elected to the American Philosophical Society in 2009. 

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. 

Buffett was raised as a Presbyterian, but has since described himself as agnostic. In December 2006, it was reported that Buffett did not carry a mobile phone, did not have a computer at his desk, and drove his own automobile, a Cadillac DTS. In contrast to that, at the 2018 Berkshire Hathaway's shareholder meeting, he stated he uses Google as his preferred search engine. In 2013 he had an old Nokia flip phone and had sent one email in his entire life. In February 2020, Buffett revealed in a CNBC interview that he had traded in his flip phone for an iPhone 11. Buffett reads five newspapers every day, beginning with the Omaha World Herald, which his company acquired in 2011.

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 the 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, as well as advice in a folksy, Midwestern style and numerous jokes.

In April 2017, Buffett (an avid Coca-Cola drinker and shareholder in the company) agreed to have his likeness placed on Cherry Coke products in China. Buffett was not compensated for this advertisement. 

Buffett is very distantly related to the 44th president of the United States, Barack Obama. Buffett is a longtime friend of singer-songwriter Jimmy Buffett who would often refer to one another as "Uncle Warren" and "Cousin Jimmy". The two took a DNA test which revealed no relation. 

Health

On April 11, 2012, Buffett was diagnosed with stage I prostate cancer during a routine test. He announced he would begin two months of daily radiation treatment from mid-July. 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". 

Wealth and philanthropy

In 2008, Buffett was ranked by Forbes as the richest person in the world with an estimated net worth of approximately $62 billion. In 2009, after donating billions of dollars to charity, he was ranked as the second richest man in the United States with a net worth of $37 billion with only Bill Gates ranked higher than Buffett. His net worth had risen to $58.5 billion as of September 2013. 

In 1999, Buffett was named the top money manager of the Twentieth Century in a survey by the Carson Group, ahead of Peter Lynch and John Templeton. In 2007, he was listed among Time's 100 Most Influential People in the world. In 2011, President Barack Obama awarded him the Presidential Medal of Freedom. Buffett, along with Bill Gates, was named the most influential global thinker in Foreign Policy's 2010 report. 

Buffett has written several times of his belief that, in a market economy, the rich earn outsized rewards for their talents. His children will not inherit a significant proportion of his wealth. He once commented, "I want to give my kids just enough so that they would feel that they could do anything, but not so much that they would feel like doing nothing". 

Buffett had long stated his intention to give away his fortune to charity, and in June 2006, he announced a new plan to give 83% of it to the Bill & Melinda Gates Foundation (BMGF). He pledged about the equivalent of 10 million Berkshire Hathaway Class B shares to the Bill & Melinda Gates Foundation (worth approximately $30.7 billion as of June 23, 2006), making it the largest charitable donation in history, and Buffett one of the leaders of philanthrocapitalism. The foundation will receive 5% of the total each July, beginning in 2006. The pledge is conditional upon three requirements:

Bill or Melinda Gates must be alive and active in BMGF

BMGF must continue to qualify as a charity

Each year BMGF must give away an amount equal to the prior year's Berkshire gift plus the additional 5% of net assets as required of all US foundations

Buffett joined the Gates Foundation's board, but did not plan to be actively involved in the foundation's investments. Buffett announced his resignation as a trustee of the Gates Foundation on June 23, 2021. 

This represented a significant shift from Buffett's previous statements, to the effect that most of his fortune would pass to his Buffett Foundation. The bulk of the estate of his wife, valued at $2.6 billion, went there when she died in 2004. He also pledged $50 million to the Nuclear Threat Initiative, in Washington, where he began serving as an adviser in 2002. 

In 2006, he auctioned his 2001 Lincoln Town Car on eBay to raise money for Girls, Inc. In 2007, he auctioned a luncheon with himself that raised a final bid of $650,100 for the Glide Foundation. Later auctions raised $2.1 million $1.7 million and $3.5 million. The winners traditionally dine with Buffett at New York's Smith and Wollensky steak house. The restaurant donates at least $10,000 to Glide each year to host the meal. 

In 2009, Ralph Nader wrote the book Only the Super Rich Can Save Us, a novel about "a movement of billionaires led by Warren Buffett and featuring, among others, Ted Turner, George Soros and Barry Diller, who use their fortunes to clean up America". On C-SPAN BookTV, Nader said Buffett invited him to breakfast after the book came out and was "quite intrigued by the book". He also told Nader of his plan to get "billionaires all over the world to donate 50% of their estate to charity or good works". On December 9, 2010, Buffett, Bill Gates, and Facebook CEO Mark Zuckerberg signed a promise they called the "Gates-Buffett Giving Pledge", in which they promise to donate to charity at least half of their wealth, and invite other wealthy people to follow suit. In 2018, after making almost $3.4 billion donations, Buffett was ranked 3rd in the Forbes' List of Billionaire 2018. 

Warren Buffett continues to help fund and support his family's individual foundations which include Susan Buffett's Susan Thompson Buffett Foundation, Susan Alice Buffett's Sherwood Foundation, Howard Graham Buffett's Howard G. Buffett Foundation, and Peter Buffett's NoVo Foundation. Warren Buffett was also supportive of his sister Doris Buffett's Letters Foundation and Learning By Giving Foundation. 

In November 2022, Warren Buffett made a donation of $750 million in Berkshire Hathaway shares to four charitable foundations run by his children. 1.5 million Class B shares of his conglomerate to the Susan Thompson Buffett Foundation, named after his first wife. He also transferred 300,000 Class B shares each to three funds managed by his children: the Sherwood Foundation, the Howard G. Buffett Foundation and the NoVo Foundation. 

As of 2023, Buffett has given over $50 billion to charitable causes. 

Political and public policy views

In addition to political contributions over the years, Buffett endorsed and made campaign contributions to Barack Obama's presidential campaign. On July 2, 2008, Buffett attended a $28,500 per plate fundraiser for Obama's campaign in Chicago. Buffett intimated that John McCain's views on social justice were so far from his own that McCain would need a "lobotomy" for Buffett to change his endorsement. During the second 2008 U.S. presidential debate, McCain and Obama, after being asked first by presidential debate mediator Tom Brokaw, both mentioned Buffett as a possible future Secretary of the Treasury. Later, in the third and final presidential debate, Obama mentioned Buffett as a potential economic advisor. Buffett was also a financial advisor to Republican candidate Arnold Schwarzenegger during the 2003 California gubernatorial election. 

On December 16, 2015, Buffett endorsed Democratic candidate Hillary Clinton for president. On August 1, 2016, Buffett challenged Donald Trump to release his tax returns. On October 10, 2016, after a reference to him in the second presidential debate, Buffett released his own tax return. He said he had paid $1.85 million in federal income taxes in 2015 on an adjusted gross income of $11.6 million, meaning he had an effective federal income tax rate of around 16 percent. Buffett also said he had made more than $2.8 billion worth of donations last year. In response to Trump saying he was unable to release his tax information due to being under audit, Buffett said, "I have been audited by the IRS multiple times and am currently being audited. I have no problem in releasing my tax information while under audit. Neither would Mr. Trump — at least he would have no legal problem." 

Buffett has said he would judge President Donald Trump by his results on national safety, economic growth and economic participation when deciding if he would vote for him in the 2020 presidential election. 

Health care

Buffett described the health care reform under President Barack Obama as insufficient to deal with the costs of health care in the US, though he supports its aim of expanding health insurance coverage. Buffett compared health care costs to a tapeworm, saying that they compromise US economic competitiveness by increasing manufacturing costs. Buffett said in 2010 that it was not sustainable for the U.S. to devote 17% of its GDP to healthcare expenditure, noting that many other nations spent a much smaller proportion of their GDP on health expenditures, with better healthcare outcomes. Buffett said, "If you want the very best, I mean if you want to spend a million dollars to prolong your life 3 months in a coma or something then the US is probably the best", but he also said that other countries spend much less and receive much more in health care value (visits, hospital beds, doctors and nurses per capita). 

Buffett faults the incentives in the United States medical industry, that payers reimburse doctors for procedures (fee-for-service) leading to unnecessary care (overutilization), instead of paying for results. He cited Atul Gawande's 2009 article in the New Yorker as a useful consideration of US health care, with its documentation of unwarranted variation in Medicare expenditures between McAllen, Texas and El Paso, Texas. Buffett raised the problem of lobbying by the medical industry, saying that they are very focused on maintaining their income. 

Curbing population growth

Buffett has expressed concerns about unchecked population growth. In 2009, he met with several other billionaires to discuss healthcare, education and slowing population growth. Called "The Good Club" by an insider, the billionaires had given away $45 billion to philanthropic causes and included Oprah Winfrey, Michael Bloomberg and David Rockefeller, Jr. The meeting has drawn criticism from some right-wing blogs, with some believing the group to be a part of a secret sterilization society. 

Buffett is a long time supporter of family planning. The Buffett Foundation has given over $1.5 billion to abortion research to include $427 million to Planned Parenthood. 

Taxes

Buffett Rule

The Buffett Rule is part of a tax plan which would require millionaires and billionaires to pay the same tax rate as middle-class families and working people. It was proposed by President Barack Obama in 2011. The tax plan proposed would apply a minimum tax rate of 30 percent on individuals making more than one million dollars a year. According to a White House official, the new tax rate would directly affect 0.3 percent of taxpayers. 

History

The Buffett Rule is named after American investor Warren Buffett, who publicly stated in early 2011 that he believed it was wrong that rich people, like himself, could pay less in federal taxes, as a portion of income, than the middle class, and voiced support for increased income taxes on the wealthy. The rule would implement a higher minimum tax rate for taxpayers in the highest income bracket, to ensure that they do not pay a lower percentage of income in taxes than less-affluent Americans. In October 2011, Senate leader Harry Reid (D–Nev.) proposed a 5.6 percent surtax on everyone making over a million dollars a year to pay for new stimulus provisions, but the change did not go through. 

A White House statement released in January 2012 defined the rule as part of "measures to ensure everyone making over a million dollars a year pays a minimum effective tax rate of at least 30 percent ... implemented in a way that is equitable, including not disadvantaging individuals who make large charitable contributions." The White House also stated that "no household making more than $1 million each year should pay a smaller share of their income in taxes than a middle-class family pays." 

The Buffett Rule was not in the President's 2012 budget proposal and the White House initially stressed it as a guideline rather than a legislative initiative. The rule, however, was later submitted for deliberation as US Senate Bill S. 2059, Paying a Fair Share Act of 2012. On April 16, 2012, the bill received 51 affirmative votes, but was stopped by a Republican filibuster that required 60 votes to proceed to debate and a vote on final passage. 

Possible effects

If enacted, the rule change would result in $36.7 billion per year in additional tax revenue ($367 billion over the next decade), according to a January 2012 analysis by the Tax Foundation, a think tank. These figures assume that the 2001/2003/2010 tax cuts are not extended. If the 2001-2010 tax cuts do not expire as scheduled, estimated Buffett Rule revenues would total $162 billion over the decade. An alternative study released that same month by the Citizens for Tax Justice, a liberal think tank which favors the change, stated that the change would add $50 billion per year in tax revenue ($500 billion over the decade). The United States Congress Joint Committee on Taxation released a letter in March 2012 estimating that the Buffett Rule would raise $46.7 billion over the next decade. The divergent estimates come about because of different assumptions about the details of the Buffett Rule. For example, the Joint Committee on Taxation assumes that many high-income taxpayers would reduce the amount of capital gains realized in one year to fall beneath the Buffett Rule threshold.

The estimated $47 billion would offset by 0.7% the $6.4 trillion increase in spending over the next decade estimated by the Congressional Budget Office, based on President Obama's 2013 budget plan. Using the higher estimate from the Tax Foundation, the estimated $367 billion would offset by 5.7% the $6.4 trillion spending over the next decade.

The 2013 budget proposed by the Obama administration stated that the Buffett Rule should replace the Alternative Minimum Tax. The Joint Committee on Taxation calculated that the Buffett Rule plus the repeal of the Alternative Minimum Tax would increase the deficit by $793.3 billion in the next decade. The $793.3 billion loss projected did not take into account additional proposed measures, such as incremental increases in retirement age and payroll tax lifetime contributions raised to $190,000 by 2020, about $22,000 higher than it would be under current law. 

Part of the reason for the inequality in taxation is that revenue from long-term capital gains is taxed at a maximum rate of 23.8%. It's not entirely clear how many individuals would be affected by the change. An October 2011 study by the Congressional Research Service found that a 30% minimum tax rate rule would mean up to 200,000 taxpayers, equivalent to 0.06% of all U.S. citizens, paying more. 

Reactions and public opinion

Support

Paul Krugman, The New York Times columnist and Nobel Prize–winning economist, wrote in January 2012 that "such low taxes on the very rich are indefensible". He stated that "the economic record certainly doesn’t support the notion that superlow taxes on the superrich are the key to prosperity" asserting that since the U.S. economy added 11.5 million jobs during President Bill Clinton's first term, when the capital gains tax rate was over 29 percent, he thinks there's no real reason to keep from raising the tax rate. 

A CBS News/The New York Times poll released in January 2012 found that 52 percent of Americans agreed that investments should be taxed at the same rate as income. A Gallup poll released in April 2012 also found that 60 percent of Americans support the rule. A similar poll released later that month by CNN found that 72 percent of Americans support the idea. 

Opposition

Representative Paul Ryan (R–Wis.), who was the chairman of the House Budget Committee, criticized the new tax provisions. He labeled it as class warfare and also stated that it would negatively impact job creation and investment. Senate Minority Leader Mitch McConnell (R–Ky.) said the conditions of the U.S. economy were ill-disposed to raising taxes. House Speaker John Boehner (R–Ohio) has spoken against the proposed rule and said that, "there's a reason we have low rates on capital gains ... because it spurs new investment in our economy and allows capital to move more quickly." Dana Milbank from The Washington Post criticized the proposed tax as a gimmick, stating that President Obama was prioritizing the Buffett Rule over the alternative minimum tax for political, not economic reasons. 

Buffett stated that he only paid 19% of his income for 2006 ($48.1 million) in total federal taxes (due to their source as dividends and capital gains) while his employees paid 33% of theirs, despite making much less money. Regarding how little he pays in taxes compared to his employees, he said, "How can this be fair? How can this be right? There's class warfare, all right, but it's my class, the rich class, that's making war, and we're winning." After Donald Trump accused him of taking "massive deductions", Buffett countered, "I have copies of all 72 of my returns and none uses a carryforward." 

Buffett favors the inheritance tax, saying that repealing it would be like "choosing the 2020 Olympic team by picking the eldest sons of the gold-medal winners in the 2000 Olympics". In 2007, Buffett testified before the Senate and urged them to preserve the estate tax so as to avoid a plutocracy. Some critics argued that Buffett (through Berkshire Hathaway) has a personal interest in the continuation of the estate tax, since Berkshire Hathaway benefited from the estate tax in past business dealings and had developed and marketed insurance policies to protect policy holders against future estate tax payments. 

Buffett believes government should not be in the business of gambling, or legalizing casinos, calling it a tax on ignorance. 

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 has been critical of gold as an investment, with his critique being based primarily on its non-productive nature. In a 1998 address at Harvard, Buffett said:

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. 

China

Buffett invested in PetroChina Company Limited and in a rare move, posted a commentary 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. 

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

Tobacco

During the RJR Nabisco, Inc. hostile takeover fight in 1987, Buffett was quoted as telling John Gutfreund: 

I'll tell you why I like the cigarette business. It costs a penny to make. Sell it for a dollar. It's addictive. And there's fantastic brand loyalty.

—?Buffett, quoted in Barbarians at the Gate: The Fall of RJR Nabisco

Speaking at Berkshire Hathaway Inc.'s 1994 annual meeting, Buffett said investments in tobacco are: 

fraught with questions that relate to societal attitudes and those of the present administration. I would not like to have a significant percentage of my net worth invested in tobacco businesses. The economy of the business may be fine, but that doesn't mean it has a bright future.

—?Buffett, Berkshire Hathaway annual meeting

Coal

In 2007, Buffett's PacifiCorp, a subsidiary of his MidAmerican Energy Company, canceled six proposed coal-fired power plants. These included Utah's Intermountain Power Project Unit 3, Jim Bridger Unit 5, and four proposed plants previously included in PacifiCorp's Integrated Resource Plan. The cancellations came in the wake of pressure from regulators and citizen groups. 

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 owned by PacifiCorp which is a Berkshire Hathaway company. David Sokol responded on Buffett's behalf, stating that the FERC would decide the question. 

Expensing of stock options

He has been a strong proponent of stock option expensing on corporate income statements. At the 2004 annual meeting, he lambasted a bill before the United States Congress that would consider only some company-issued stock options compensation as an expense, likening the bill to one that was almost passed by the Indiana House of Representatives to change the value of Pi from 3.14159 to 3.2 through legislative fiat. 

When a company gives something of value to its employees in return for their services, it is clearly a compensation expense. And if expenses don't belong in the earnings statement, where in the world do they belong? 

Technology

In May 2012, Buffett said he had avoided buying stock in new social media companies such as Facebook and Google because it is hard to estimate future value. He also stated that initial public offering (IPO) of stock are almost always bad investments. Investors should be looking to companies that will have good value in ten years. 

Bitcoin and cryptocurrencies

In an interview with CNBC in January 2018, Buffett said that the recent craze over Bitcoin and other cryptocurrencies won't end well, adding that "when it happens or how or anything else, I don't know". But he said he would not take a short position on bitcoin futures. 

Film and television

Aside from countless television appearances on various news programs, Buffett has appeared in numerous films and TV programs, both documentary, and fiction. Some film and television cameos he has made include Wall Street: Money Never Sleeps (2010), The Office (U.S.), All My Children, and Entourage (2015). He has been a guest 10 times on Charlie Rose, and was the subject of the HBO documentary feature Becoming Warren Buffett (2017) and the BBC production The World's Greatest Money Maker (2009).

Bibliography

Books about Buffett

In October 2008, USA Today reported at least 47 books were in print with Buffett's name in the title. The article quoted the CEO of Borders Books, George Jones, as saying that the only other living persons named in as many book titles were U.S. presidents, world political figures and the Dalai Lama. Buffett said that his own personal favorite is a collection of his essays called The Essays of Warren Buffett, which he described as "a coherent rearrangement of ideas from my annual report letters". 

Books or publications by Buffett:

The Essays of Warren Buffett : Lessons for Corporate America, Warren Buffett and Lawrence A. Cunningham, The Cunningham Group; revised edition (April 11, 2001). ISBN 978-0-9664461-1-1.

The Essays of Warren Buffett: Lessons for Corporate America, Second Edition, Warren E. Buffett and Lawrence A. Cunningham, The Cunningham Group; 2nd edition (April 14, 2008). ISBN 978-0-9664461-2-8.

Some best-selling, or otherwise notable, books about Buffett:

Carol J. Loomis, Tap Dancing to Work: Warren Buffett on Practically Everything, 1966–2012: A Fortune Magazine Book.

Preston Pysh, Warren Buffett's Three Favorite Books (an interactive book that references Buffett's Books for online videos). 

Roger Lowenstein, Buffett, Making of an American Capitalist.

Robert Hagstrom, The Warren Buffett Way. 

Alice Schroeder, The Snowball: Warren Buffett and the Business of Life (written with Buffett's cooperation). 

Mary Buffett and David Clark, Buffettology and four subsequent books (combined sales of more than 1.5 million copies). 

Janet Lowe, Warren Buffett Speaks: Wit and Wisdom from the World's Greatest Investor. 

John Train, The Midas Touch: The Strategies That Have Made Warren Buffett 'America's Preeminent Investor'. 

Andrew Kilpatrick, Of Permanent Value: The Story of Warren Buffett (the longest of the books about Buffett, with 330 chapters, 1,874 pages and 1,400 photos, weighing 10.2 pounds). 

Robert P. Miles (2004). Warren Buffett Wealth: Principles and Practical Methods Used by the World's Greatest Investor. John Wiley and Sons. ISBN 978-0-471-46511-9.

John P. Reese, "The Guru Investor: How to Beat the Market Using History's Best Investment Strategies" (includes step-by-step stock-picking method based on Buffett's approach).

Tavakoli, Janet M. (January 6, 2009). Dear Mr. Buffett: What an Investor Learns 1,269 Miles from Wall Street. John Wiley & Sons. ISBN 978-0-470-44273-9.

Janjigian, Vahan (May 1, 2008). Even Buffett Isn't Perfect: What You Can--and Can't--Learn from the World's Greatest Investor. Penguin. ISBN 9781440631474.

Buffett indicator

The Buffett indicator (or the Buffett metric, or the Market capitalization-to-GDP ratio) is a valuation multiple used to assess how expensive or cheap the aggregate stock market is at a given point in time. It was proposed as a metric by investor Warren Buffett in 2001, who called it "probably the best single measure of where valuations stand at any given moment", and its modern form compares the capitalization of the US Wilshire 5000 index to US GDP. It is widely followed by the financial media as a valuation measure for the US market in both its absolute, and de-trended forms. 

The indicator set an all-time high during the so-called "everything bubble", crossing the 200% level in February 2021; a level that Buffett warned if crossed, was "playing with fire". 

History

On 10 December 2001, Buffett proposed the metric in a Fortune essay co-authored with journalist Carol Loomis. In the essay, Buffett presented a chart going back 80 years that showed the value of all "publicly traded securities" in the US as a percentage of "US GNP". Buffett said of the metric: "Still, it is probably the best single measure of where valuations stand at any given moment. And as you can see, nearly two years ago the ratio rose to an unprecedented level. That should have been a very strong warning signal". 

Buffett explained that for the annual return of US securities to materially exceed the annual growth of US GNP for a protracted period of time: "you need to have the line go straight off the top of the chart. That won't happen". Buffett finished the essay by outlining the levels he believed the metric showed favorable or poor times to invest: "For me, the message of that chart is this: If the percentage relationship falls to the 70% or 80% area, buying stocks is likely to work very well for you. If the ratio approaches 200%–as it did in 1999 and a part of 2000–you are playing with fire". 

Buffett's metric became known as the "Buffett Indicator", and has continued to receive widespread attention in the financial media, and in modern finance textbooks. 

In 2018, finance author Mark Hulbert writing in the Wall Street Journal, listed the Buffett indicator as one of his "Eight Best Predictors of the Long-Term Market". 

A study by two European academics published in May, 2022 found the Buffett Indicator "explains a large fraction of ten-year return variation for the majority of countries outside the United States". The study examined 10-year periods in fourteen developed markets, in most cases with data starting in 1973. The Buffett Indicator forecasted an average of 83% of returns across all nations and periods, though the predictive value ranged from a low of 42% to as high as 93% depending on the specific nation. Accuracy was lower in nations with smaller stock markets.

Theory

Buffett acknowledged that his metric was a simple one and thus had "limitations", however the underlying theoretical basis for the indicator, particularly in the US, is considered reasonable. 

For example, studies have shown a consistent and strong annual correlation between US GDP growth, and US corporate profit growth, and which has increased materially since the Great Recession of 2007–2009. GDP captures effects where a given industry's margins increase materially for a period, but the effect of reduced wages and costs, dampening margins in other industries. 

The same studies show a poor annual correlation between US GDP growth and US equity returns, underlining Buffett's belief that when equity prices get ahead of corporate profits (via the GNP/GDP proxy), poor returns will follow. The indicator has also been advocated for its ability to reduce the effects of "aggressive accounting" or "adjusted profits", that distort the value of corporate profits in the price–earnings ratio or EV/EBITDA ratio metrics; and that it is not affected by share buybacks (which don't affect aggregate corporate profits). 

The Buffett indicator has been calculated for most international stock markets, however, caveats apply as other markets can have less stable compositions of listed corporations (e.g. the Saudi Arabia metric was materially impacted by the 2018 listing of Aramco), or a significantly higher/lower composition of private vs public firms (e.g. Germany vs. Switzerland), and therefore comparisons across international markets using the indicator as a comparative measure of valuation are not appropriate. 

The Buffett indicator has also been calculated for industries (but also noting that it is not relevant for cross industry valuation comparison). 

Trending

There is evidence that the Buffett indicator has trended upwards over time, particularly post 1995, and the lows registered in 2009 would have registered as average readings from the 1950–1995 era. Reasons proposed include that GDP might not capture all the overseas profits of US multinationals (e.g. use of tax havens or tax structures by large US technology and life sciences multinationals), or that the profitability of US companies has structurally increased (e.g. due to increased concentration of technology companies), thus justifying a higher ratio; although that may also revert over time. Other commentators have highlighted that the omission by metric of corporate debt, could also be having an effect. 

Formula

Buffett's original chart used US GNP as the divisor, which captures the domestic and international activity of all US resident entities even if based abroad, however, many modern Buffett metrics use US GDP as the metric. US GDP has historically been within 1 percent of US GNP, and is more readily available (other international markets have greater variation between GNP and GDP). 

Buffett's original chart used the Federal Reserve Economic Data (FRED) database from the Federal Reserve Bank of St. Louis for "corporate equities", as it went back for over 80 years; however, many modern Buffett metrics simply use the main S&P 500 index, or the broader Wilshire 5000 index instead. 

E.g. if US GDP is USD 20 trillion and the market capitalization of the Wilshire 5000 is USD 40 trillion, then the Buffett indicator for the US is 200%; i.e. the US stock market is twice as big as the US economy

The choice of how GDP is calculated (e.g. deflator), can materially affect the absolute value of the ratio; for example, the Buffett indicator calculated by the Federal Reserve Bank of St. Louis peaks at 118% in Q1 2000, while the version calculated by Wilshire Associates peaks at 137% in Q1 2000, while the versions following Buffett's original technique, peak at very close to 160% in Q1 2000. 

Records

Using Buffett's original calculation basis in his 2001 article, but with GDP, the metric has had the following lows and highs from 1950 to February 2021: 

A low of 33.0% in 1953, a low of 32.2% in 1982, and a low of c. 79% in 2002, and a low of 66.7% in 2009

A high of 87.1% in 1968, a high of 159.2% in 2000, a high of c. 118% in 2007, and a high of 189.6% in (Feb) 2021.

Using the more common modern Buffett indicator with the Wilshire 5000 and US GDP, the metric has had the following lows and highs from 1970 to February 2021: 

A low of 34.6% in 1982, a low of 72.9% in 2002, and a low of 56.8% in 2009

A high of 81.1% in 1972, a high of 136.9% in 2000, a high of 105.2% in 2007, and a high of 172.1% in (Feb) 2021.

De-trended data of Buffett's original calculation basis (see above) has had the following lows and highs from 1950 to February 2021 (expressed a % deviation from mean): 

A low of -28% in 1953, a low of -51% in 1982, and a low of -5% in 2002, and a low of -27% in 2009

A high of +58% in 1968, a high of +96% in 2000, a high of c. +30% in 2007, and a high of +80% in (Feb) 2021.