Have you ever wondered how giant investors and billionaires like Warren Buffett make trades? Does he use a regular broker like most traders? Find out the answer here.

Warren Buffett has been participating in the stock market since he was 11 years old. Today, he is one of the wealthiest and most influential investors in the industry. He's ranked 5th on the Forbes 2022 Billionaires list and was the eighth-richest businessman of the 2021 Forbes 400. As of February 2023, the "Oracle of Omaha" had a net worth of $108 billion.

Buffett is widely known as both a savvy businessman and a generous philanthropist. He's also the CEO and chairman of Berkshire Hathaway Corp – a famous holding company for a wide range of businesses in insurance, rail transportation, manufacturing, and more.

Warren Buffett's Broker

As one of the world's most successful investors, it's not surprising that Warren Buffett is highly popular among traders and investors alike. Many people are drawn to his investment philosophy and curious about his secret of success. Does he use a regular broker? How does he make his investments without shaking the market? Read on to find out everything you need to know about it.

 

Warren Buffett's Way of Investing

Warren Buffett is not your regular investor. He likes to invest in a company and then hold the stock for at least a few years to gain long-term benefits. When deciding where he wants to invest his money, he uses the value-based approach, which basically measures a company based on its strong fundamentals, long-term growth, and high return potential. Long story short, he not only sees how the companies are performing in the market but looks at the company as a whole.

Now, the problem with big investors is that they tend to open big positions, which means it's difficult to invest without heavily impacting the market prices. This is why an investor like Warren Buffett needs to use a personal or private broker. So, every time he wants to open a position, he would contact the broker who will then make the order and handle the rest. The broker needs to work in discreet so that the market wouldn't find out that a giant investor like Warren Buffett was involved.

 

Who is John Freund?

John Freund is a stockbroker that has been working closely with Warren Buffett since the mid-1980s. They met at Berkshire's annual meeting and began to talk with each other ever since. Over the years, Freund has traded shares of global companies like IBM Corp., Coca-Cola Co., PetroChina Co., and Wells Fargo & Co. for Buffett and his company. He and his team at Citigroup had to ensure Buffett's trade privacy, considering how big the impact could be if the information is leaked.

Not only that, but Freund also played a big role in a quite unpleasant event in recent Berkshire history. On March 14, 2011, Freund called Mr. Buffett to congratulate him on Berkshire's decision to buy a chemicals company, Lubrizol Corp, only to find that Buffett was just as surprised as he was. Earlier, Freund had also learned that his investment bankers from his workplace, Citigroup, had also been involved in the deal.

It was not until the release of the Berkshire audit committee report that Buffett knew about Citigroup's involvement. At first, the idea of buying Lubrizol was brought forth by his best colleague and potential successor, David Sokol, who apparently owned $10 million worth of shares of the company. Mr. Sokol claimed that he only learned about Lubrizol after owning the stock, but official Citibank and Lubrizol accounts of the merger stated otherwise. According to them, Sokol had only bought the shares after a series of discussions, in which it was pretty clear that Berkshire was already targeting Lubrizol.

Naturally, Buffett started to examine Sokol's role more closely after the report. Not long after, Sokol resigned from Berkshire but said that it had nothing to do with the Lubrizol case. Two years later, the Securities and Exchange Commission ended its investigation of potential insider trading by David Sokol with no charges.

Despite being the broker of the famous Warren Buffett, there's actually not much information about John Freund on the internet. He graduated from Columbia University's business school and he's married to a woman named Penny. He started his career with Salomon Brothers back in 1970 where he reported to Michael Bloomberg and worked with Michael Corbat, the future CEO of Citigroup. In the 1980s, he started talking to Warren Buffett and began to work closely with him as his stockbroker.

Another thing we know is that after 44 years of dedication, John Freund is going to retire from Citigroup this March. However, it's still unclear how this is going to affect his relationship with Berkshire Hathaway Inc. and the billionaire Warren Buffett himself.

 

Summary

To summarize, Warren Buffett mostly doesn't use regular brokers like the majority of retail traders around the world. Instead, he prefers to make trades through a private stockbroker like John Freund in order to ensure that his movement is discreet and won't cause huge price swings in the market. Alternatively, big investors like Buffett may also negotiate deals directly with the company for a complete takeover or other special conditions. These billionaires surely know that they have so much power in their hands, so it's crucial for them to calculate every move really closely. They might hire a professional financial advisor as well to listen to their ideas and give them feedback on their portfolio.

 

Different from Warren Buffett, other millionaire traders still use brokerage companies to execute their trades. What kind of brokers do they use?