In wealth creation, there is a popular belief that if you want to become a millionaire, then you need to find a solution to a unique problem of millions and if you want to become a billionaire, then find a solution to a problem of billions. This belief sets right with most of the entrepreneurs who turned billionaire, be it Bill Gates, Larry Page, Mark Zuckerberg etc.
But, it’s not the case with every billionaire. Some achieved the mark through self-belief, discipline, patience and with risks.
In this article, we will see how two most influential people on earth, Warren Buffett and Elon Musk started from scratch to become billionaires with a different belief system. One who with his out of box ideas, risk and the great determination to make that system work reached there. And other works within the boundaries of the system to make his belief system work.
Warren Buffett 88, known as “Oracle of Omaha” is a highly successful investor and CEO of Berkshire Hathaway has a total net worth of $89 billion. He generated all his wealth by investing in companies with great management for a very long duration.
Born on August 30, 1930, and a son of US Congressmen, he displayed a great interest in business and investment at a very young age and first bought stocks at an age of 11 and filed his first income tax when he was 13. His early childhood days were inspired by entrepreneurial ventures and liked to spend time in a regional stock brokerage near his father’s office.
His first business venture was selling chewing gum, Coca-Cola bottles and delivering weekly magazines door-to-door. Until he completed college studies, he was involved in many business ventures from investing in one of his father’s business to purchasing a 40-acre farm with his $1200 savings. By the time he finished his college studies, he accumulated $9,800 in savings, roughly around $100,000 value today.
Warren Buffett was highly influenced by the investment philosophy of Benjamin Graham and later studied under him at Columbia Business School. In 1954, he got an opportunity to work under him, when he was offered a job at Benjamin Graham’s partnership and worked until 1956 when the partnership was closed. By that time, he had personal savings of over $174,000 and started Buffett Partnership Ltd. with his close friend and family and in 1962. And, from here his journey starts to what he is now.
Warren Buffett as a value investor used to focus on companies with a great management structure and stocks with higher intrinsic value than market value. In 1962, he started buying shares of New England textile company called Berkshire Hathaway, later which he used as a holding company to finance all his acquisitions. Incidentally, the purchase of Berkshire Hathaway was also Warren’s major regret back then.
Buffett became a billionaire when he started selling A-class shares of Berkshire Hathaway in May 1990, at a market closing price of $7,175 per share.
In history, Berkshire’s most lucrative investment was made in Coca-Cola in 1988, and later eventually raised the stake to 7% and which it holds till date. In the 2008 financial crash, Buffett invested and lent money to companies facing financial hardship. The investment at that time fetched him a great value. Berkshire’s investment in Wells Fargo in which it purchased 120 million shares, is up more than seven times since 2009 low, American Express is up by five times, BoA pays $300 million a year and option to buy additional shares at around $7 each, Goldman Sachs paid out $500 million in dividend and another $500 million as redemption bonus when they repurchase the shares.
In Buffett’s style of investing, time plays an important role that factors in all the short-term risk and volatility of the stock which helps it to become multi-bagger over a period of time.
Elon Musk, the South Africa born entrepreneur with a net worth of $20.9 billion, is known for his innovative mass public transport solutions and space adventurism. He is co-founder and CEO of electric car manufacturer Tesla, Founder CEO of SpaceX and founder of The Boring Company.
Musk through his early childhood had a strong liking for technology and at an age of 10, he taught himself computer programming. By 12, he made the first software sale, a computer game he called Blastar to a tech magazine for $500.
Musk through his lifetime has created several successful enterprises in the technology domain which helped him to fuel his next ambition. By the time, he was in his late 20s, he already became a multi-millionaire mainly from the sale proceeds of Zip2 to a division of Compaq in 1999, from which he received $22 million for his 7% stake. Zip2 was Musk’s first start-up company he co-founded with his brother Kimbal in 1995.
Using the sale proceeds of Zip2, Musk founded X.com in 1999, which later became PayPal which later went to become a leading global money transfer platform. Musk’s entire career with PayPal was a rough one due to disagreements with other company leadership, which later forced him to quit as a CEO. In Oct 2002, PayPal was acquired by eBay for $1.5 billion in stock, of which Musk received US$165 million for his 11.7% stake.
Musk founded his third company, SpaceX in 2002 to make commercial space travel more affordable. This was after when Musk failed to get any deal for rocket supply from Russia at his price which would help him to meet the goals of space travel. Consequently, he also got involved with Tesla. Musk led a Series A round of investment in 2004 in the company which resulted in joining the Board of Directors as its Chairman. He took an active role within the company in all its product development.
By the time SpaceX continued its rocket development works, Musk shot into fame when SpaceX successfully delivered cargo to International Space Station in 2012 in a first privately built rocket. SpaceX successfully launched the heaviest rocket on earth which will help Musk to realize his dreams to colonize Mars. All this success helped SpaceX’s valuation to surge more than $20 billion.
Musk through his entities, SpaceX, Tesla and The Boring Company continues to make his innovative ideas a reality. Musk’s high risk-taking aptitude combined with unique businesses that gave him the first-mover advantage that helped him to build his wealth.