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Warren Buffett bought a pinball machine for $25 in 1946 to start a business

CNBC logo CNBC 6/20/2018 Kathleen Elkins
a person standing in front of a store© Provided by CNBC

Before Warren Buffett started making billions, he was a teen hustling to grow his bank account. His various early business schemes earned him $5,000, the equivalent of about $53,000 today, before he turned 20.

One of his most lucrative ideas involved setting up pinball machines in barber shops, he told longtime friend Bill Gates during a visit to a candy store in Omaha during this year's Berkshire Hathaway shareholder meeting: "I bought a machine for $25 in 1946 and built a small empire out of it."

Buffett was 17 at the time and let his friend Don Danley in on his business idea. Danley's side of the deal was to fix up the old pinball machine while Buffett handled negotiations with the barber, Frank Erico.

As Buffett told his biographer Alice Schroeder, his pitch to Erico went something like this: "We represent Wilson's Coin-Operated Machine Company, and we have a proposition from Mr. Wilson. It's at no risk to you. Let's put this nickel machine in the back, Mr. Erico, and your customers can play while they wait. And we'll split the money."

"Mr. Wilson's Coin-Operated Machine Company" didn't exist, but that didn't matter: Erico loved the idea. The young business partners installed the machine in the barber shop and it was a hit from day one: The first night, Buffett and Danley collected four dollars. After one week, they had $25, enough to buy another pinball machine.

Soon enough, Buffett had pinball machines operating in barber shops all over Washington, D.C., where his family lived at the time. The teen ended up selling the business, which he started with just $25, for over $1,000 after a year.

As Buffett told Gates in the Omaha candy shop: "It was the best business I was ever in. I peaked very early in my business career."

Related video: Warren Buffett remembers buying his first stock


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