Warren Buffett's story is quintessentially American. He is by most counts the second richest man in America (the richest is Bill Gates) with a fortune estimated by Forbes Magazine at more than $44 billion. He is the only US billionaire to have made his money entirely through investing, and today, along with current Federal Reserve Chief Ben Bernanke, he is arguably the most respected voice of financial America. His natural habitat is not Wall Street or Washington, but the unpretentious Midwest heartlands. I've told you about the moniker “The Sage of Omaha” but it's not the only nickname. Buffett is also known as the Oracle of Omaha - the latter being the pleasant but largely unremarkable Nebraska city on the banks of the Missouri river where he was born and raised, where he made his fortune and where he lives to this day, in the same gray stucco house he bought for $31,500 back in 1956. Buffett is today the best-known Nebraskan on earth, a gray-haired, no-nonsense Man of the Heartland who has been triumphantly vindicated by financial market events time and time again. He is not so much a financial institution as a national institution, the object of a cult that attracts 22,000 or so people to Omaha every May for Berkshire Hathaway's annual meeting. Buffett himself has called the occasion the "Woodstock of capitalism". Some people buy a Berkshire Hathaway share just to attend (not as small a matter as it sounds, for old-fashioned Warren has never been one for fancy devices such as stock splits, and a single share of Berkshire Hathaway stock can cost upwards of $80,000). In this age when CEO stands in many minds for chief embezzlement officer, Buffett embodies those Midwest virtues of probity, modesty and common sense Americans like to think of as part of the national character. It should be noted that this same part of the world spawned Arthur Andersen, once held as another paragon of honesty and good housekeeping. But Buffett has kept his halo. He is a CEO for the nation, the self-made man who made his fortune honestly, the scourge of less principled peers. ------------------------------------------------------------------------------------------------------------------------------------------- Not So Fast, Mr. Greenspan Affable and avuncular with the media and, especially, with Berkshire Hathaway shareholders, Buffet can be very combative when it comes to getting his point across - - even if his intended target is one of the most powerful men in the world. A few years back, Buffett and former Federal Reserve Chairman Alan Greenspan agreed to disagree about the effect that so-called "derivative securities" would have on financial markets. Greenspan said they had reduced risk. Buffett saw things differently. In his letter to shareholders in 2003, Buffett called them "weapons of mass destruction." ----------------------------------------------------------------------------------------------------------- A Student of Graham The foundations of the Buffett legend were laid young. The son of a stockbroker and Republican congressman, he made his first trade in 1941 when he was just 11, buying three shares in a company for $38 apiece. They dropped to $27 then rose to $40 at which point the cautious youth sold, earning a tiny profit but missing a later climb to $200. These events sowed the seeds of his lifelong investing philosophy, that sharebuying is for the long term. As a child he was industrious in the extreme - running a double paper round, collecting lost golf balls and selling them, and putting the proceeds towards buying 40 acres of farmland, which he then rented out. College in Omaha was followed by a graduate degree at Columbia University in New York City, where he met and worked with, Benjamin Graham, the author of The Intelligent Investor and eventually to become Buffett's financial mentor. Graham's strategy was to search for what he called "cigar butt" companies, no longer of interest to the market and thus undervalued, but which still had a few puffs of life in them. In 1962 Buffett found one - a rundown Massachusetts textile concern called Berkshire Hathaway. He poured what resources it had into other businesses, notably insurance. It was a stroke of genius. Insurance companies may not intrinsically be hugely profitable, but they have a "float", up-front premium payments from policyholders from which claims are only settled later. The cash pile grew during the early 1970s bear market on Wall Street. Buffett used the money to buy stakes in companies at bargain prices, and the Berkshire Hathaway phenomenon was born. Now, when Buffett speaks, ordinary Americans not only listen, they are enraptured. But the truly sacred texts of Warren Edward Buffett are Berkshire Hathaway's annual letters to shareholders, studied at business schools across the country, and collectively published in 1998 as The Essays of Warren Buffett. They are pithy and wise, sprinkled with the endearing admissions of human failure that a deity may occasionally permit himself. The 2001 edition for instance contains a huge mea culpa for his failure to protect General Re, one of Berkshire Hathaway's re-insurance units, from the shockwaves of the 11 September terrorist attacks. Buffett well knew a mega-catastrophe (albeit more likely natural than man-made) was possible. "I violated the Noah rule," he groveled, "Predicting rain doesn't count; building arks does." Few shareholder letters quote Horace. But BH's in 2001 noted that "Many shall be restored that now are fallen and many shall fall that are now in honor" - which pretty succinctly describes the reversals of reputation between 1999 and now of Buffett on the one hand and AOL-Time Warner on the other, not to mention disgraced erstwhile superstars like Ken Lay of Enron and WorldCom's Bernie Ebbers. Buffett learned early on that predicting the future was futile -- that it was studying the past where fortunes are made. He once said, “In the business world, the rearview mirror is always clearer than the windshield” On Wall Street, nobody has married the past with the present quite like Buffett -- he has $44 billion reasons to back that up. Part III of The Buffett Way -- the Buffett investment strategy -- will appear on Monday.