...UVA-F-1483 Version 2.3 WARREN E. BUFFETT, 2005 On May 24, 2005, Warren E. Buffett, the chairperson and chief executive officer (CEO) of Berkshire Hathaway Inc., announced that MidAmerican Energy Holdings Company, a subsidiary of Berkshire Hathaway, would acquire the electric utility PacifiCorp. In Buffett’s largest deal since 1998, and the second largest of his entire career, MidAmerican would purchase PacifiCorp from its parent, Scottish Power plc, for $5.1 billion in cash and $4.3 billion in liabilities and preferred stock. “The energy sector has long interested us, and this is the right fit,” Buffett said. At the announcement, Berkshire Hathaway’s Class A shares closed up 2.4% for the day, for a gain in market value of $2.17 billion.1 Scottish Power’s share price also jumped 6.28% on the news2; the S&P 500 Composite Index closed up 0.02%. Exhibit 1 illustrates the recent share-price performance for Berkshire Hathaway, Scottish Power, and the S&P 500 Index. The acquisition of PacifiCorp renewed public interest in its sponsor, Warren Buffett. In many ways, he was an anomaly. One of the richest individuals in the world (with an estimated net worth of about $44 billion), he was also respected and even beloved. Though he had accumulated perhaps the best investment record in history (a compound annual increase in wealth for Berkshire Hathaway of 24% from 1965 to 2004),3 Berkshire paid him only $100,000 per year to serve as its CEO. While Buffett and other insiders controlled...
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...10 SECRETS HIDDEN IN WARREN BUFFETT’S WALLET BY ROBERT P. MILES Warren Buffett’s 24-year-old wallet was recently purchased for $210,000 at a charity auction because it included a stock tip. But before Buffett sent his wallet to the winning bidder, he removed a significant and personal item that reveals 10 secrets to his extraordinary wealth-building success. A t a recent auction for a girl’s charity, Warren Buffett’s Wallet was won for a bid of $210,000 because it included a stock tip. Before he sent his 24-year-old wallet to the winning bidder, he removed a significant and personal item that reveals many secrets to his extraordinary wealth-building success. What was the item? I’ll tell you in a moment. First, let me take you back to 1969. At this time, Warren Buffett was in the process of liquidating his Buffett Partnership and focusing his time and energy on building the holding company that’s known today as Berkshire Hathaway. And one of the first businesses he purchased as a wholly owned subsidiary of his new conglomerate was the Illinois National Bank, which was, at the time, the largest bank in Rockford. One of the things that makes this purchase particularly interesting is that, viewed over time, the purchase and management of the bank provides an almost picture-perfect example of the ten investment and management principles that have made Buffett the world’s greatest investor. SECRET NUMBER 1: Invest in an old economy company...
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...Warren Buffet Warren Buffet was born August 30, 1930 in Omaha, Nebraska. He lived much of his life in Nebraska and later moved to Washington D.C. At 11 he purchased his first stock which he ended up making a five-dollar profit on this investment. He got his bachelors degree from The University of Nebraska. For some time he attended Wharton’s School of Finance at the University of Pennsylvania. This institution is rated as one of the top five business schools in the nation. His Masters of Science in Economics was completed at Columbia University.... [tags: Berkshire Hathaway] 338 words (1 pages) FREE Essays [view] Warren Buffet - Warren Buffet Warren Buffet of Berkshire Hathaway and His Investment Strategy Warren Buffet is arguably the most successful investor of all time. His initial investment of $105,000 in the beginning, ultimately grew into a $16 billion dollar fortune made from his trading company, Berkshire Hathaway. If you had invested $10,000 in Berkshire Hathaway when he took over the company in 1965, it would be worth $22,000,000 today. Warren’s stockpicking prowess however, is what he is know for and is also why Berkshire Hathaway has had a returning average of 24% a year for the last three decades.... [tags: GCSE Business Marketing Coursework] :: 3 Sources Cited 551 words (1.6 pages) $14.95 [preview] Case Study of Warren E. Buffet - Case Study of Warren E. Buffet In 1995 Berkshire Hathaway has made a bid for the shares of GEICO. This report reviews the...
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...BERKSHIRE HATHAWAY PURCHASES GEICO WARREN BUFFET Executive Summary Berkshire Hathaway has made a bid for the remaining portion of GEICO stock. This report reviews the offer initiated by Warren Buffett. The details of this report include: • Valuation of GEICO stock. The $70 offer made by Warren Buffett and Berkshire Hathaway includes a 26% premium over the current GEICO stock price of $55.75. This report attempts to determine a range of appropriate stock prices for GEICO. Using the Gordon dividend discount model, along with historical dividend information and projections by Value Line, we estimate the value of GEICO stock in the range of $58 to $80. A review of historical growth rates in GEICO dividends also lends credibility to the investment’s future potential. • Review of Warren Buffett’s investment record. While our analysis lends credence to the bid price of $70 per share for GEICO, we also examine the historical record of Warren Buffett. Buffett’s investment success may add to shareholder’s comfort, as his track record is remarkable when compared to broader market results. • Buffett’s investment philosophy. A letter to shareholders gives us a unique look at Buffett’s considerations for investing. By reviewing his checklist, we attempt to gain insight as to why such a premium is included in the GEICO offer. • Other issues. Buffett’s position on GEICO’s board of directors may shed light on the amount of information Buffett had about the future prospects of GEICO. At first...
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...Individual Assignment BERKSHIRE HATHAWAY Assignment Report Submitted by: Sudipt Tewari | G13051 | Case Summary: Berkshire Hathaway, Inc.’s chairman and CEO Warren Buffett, is the world's third richest man. He invested in Berkshire Hathaway in 1962, and by 1963, Buffett was Berkshire’s largest shareholder. Buffett started purchasing other businesses, which were primarily insurance companies, with profits from the declining original textile business. In 1985, the original textile business was shut down and Berkshire Hathaway diversified into higher margin businesses. Now, Berkshire Hathaway is active in a variety of sectors, including insurance, regulated utilities and retailing. One of the companies that Berkshire Hathaway holds is GIECO (Government Employees Insurance Company). In 1995, GIECO was wholly owned by Berkshire Hathaway. By 2005, its market share was increased from 1.9 percent to 6.1 percent with underwriting revenues of additional $590 million in cash from operating earnings in spite of decline in insurance industry. Another major company under Berkshire Hathaway is Nebraska Furniture Mart. It is a large furniture store, which holds NFM Mega Mart and Homemakers Furniture. Warren Buffett utilizes a constant strategy to manage these companies including Berkshire Hathaway by holding shares for a long time. Berkshire Hathaway does not pay any dividends to the shareholders but reinvests surplus instead to maximize the value of the company. Under this strategy...
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...Case 1: Warren Buffett 1995 Question 1: Warren Buffett's (Buffett) track record as a value investor and sheer financial strength has earned him an incredibly valuable reputation within the financial industry. Being an anomaly in the investment world; when he talks – the market follows. This is noticeably seen in the increase in equity of $718 million. ------------------------------------------------- Question 2: GEICO Outstanding shares April 30, 1995: 67.89 million, of which 34.22 million owned and 33.67 million purchased at $70; total price $2.3 billion. A Capital Asset Pricing Model (CAPM) derived cost of equity equaled 10.99% percent via a risk-free rate of 6.86 percent, a beta of 0.75, and an equity risk premium of 5.5 percent. k = 6.86 + 0.75 ((5.5)) = 10.99% Using Value Line’s forecast & the above discount rate and share information: the following low end & high end NPV are calculated: Low end: -$335.57 High end: $389.89 For methodology in calculation of intrinsic value refer to ‘1995-Question 2’ in the accompanying “excel“spreadsheet for the analysis. Using Value lines cost of equity; the investment yields a negative Net Present Value (NPV) on the low end. The investment will not add value to the firm and the acquisition of GEICO doesn’t seem to be a good one. The high end range yields a positive NPV showing the investment rather is rather a prudent one. The discount rate used is highly subjective and is influenced by the risk premiums chosen...
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...Taylor Scott 1/28/13 Warren Buffett Case Analysis By analyzing the financial statements and Warren Buffett’s unique investment philosophy, the problem that must be answered is whether the acquisition of PacifiCorp increased Berkshire Hathaway’s intrinsic value. Buffett has a very unique way of measuring intrinsic value that would make it slightly more difficult to determine if this acquisition did, in fact, make Berkshire Hathaway more profitable. According to Warren Buffett, intrinsic value is “per-share progress”. Buffett assessed intrinsic value as the present value of future expected performance. For historical reference, Berkshire Hathaway has been outperforming the market since its inception in 1965. In 1977, the firm’s year-end closing share price was at $107. Fast-forward to May 24, 2005 and the closing price on BH’s Class A shares reached $85,500. Berkshire has had an annual increase of wealth of 24% since 1965, which is more than double the 10.5% of the average increase for other large stocks. It started out with a decline due to factors such as inflation, technological change, and competition from foreign competitors, but has come back strongly since it closed the textile side of its business operations. Most of this success can be attributed to Warren Buffett and his very unique investment philosophy that can be viewed very differently by many in the same field. According to the case, on the announcement day of the acquisition, Berkshire Hathaway class A...
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...Warren E. Buffett, 1995, Case Questions The purpose of this case is to introduce the themes that we will be covering in this course. In fact, if you look at Buffett’s investment philosophy (question 3 below) and compare it to the syllabus, you will find extensive overlap. 1. What is the possible meaning of the changes in the stock price for GEICO and Berkshire Hathaway on the day of the acquisition announcement? Specifically, what does the $718 million gain in Berkshire’s market value of equity imply about the intrinsic value of GEICO? (Note that Berkshire owned 33.25 million shares before the acquisition was announced.) Geico stock price will move up on the day of the acquisition announcement. Meant, GEICO intrinsic value also increase, total value will be more than $718 million in the market. 2. How well has Berkshire Hathaway performed? In the aggregate? In its investment in Scott & Fetzer? In its investment in earlier purchases of GEICO stock? Scott & Fetzer conservatively financed with Berkshire Hathaway. Buffett offered to buy the company for $315 million. Scott and Fetzer paid Berkshire Hathaway $125 million. Buffett noted that in terms of return on book value of equity, Scott & Fetzer would have easily beaten the Fortune 500 firms. 3. Please critically assess Buffett’s investment philosophy, and prepare to identify points where you agree and disagree with him. Graham’s approach was to focus on the value of assets, such as cash, net working...
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...Assignment #2-Case Study; Warren Buffett It was apparent at a young age that Buffett was destined for success. His parents, grandparents knew he was a gifted as a child and eventually would turn into something great. He had something that no one else had, a savvy for business ethics and profit. It is incredible to me that by the time Buffett finished high school he had $6,000 in savings. And even more incredible to have almost $10,000 by the time he got out of college. Buffett took what he learned as a young boy about selling everyday items like gum and used the same philosophy in making billions in the stock market. As a young boy shades of brilliance were apparent, selling lemonade, bubble gum, then the purchase of pin ball machines for use in barber shops and then selling them for a profit. Buffett began trading stocks at a young age with success. It was obvious Buffett knew what he was doing as an adolescent and I think this set the foundation’s for his strategies later in life. It also shows that he would not invest something he was not familiar with. Who is not familiar with gum, lemonade and pin ball as a kid?? Warren Buffett was first exposed to formal training in investing at Columbia University, where Buffett studied under Prof. Ben Graham. Graham developed a method that identified undervalued stocks and this was Buffett’s cornerstone approach of what is now called “valued investing”. From 1962 up through the 80’s Buffett really made...
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...discuss each aspect of Warren Buffet's investment philosophy. Do you agree or disagree? A basis in financial theory is preferred but not required tomorrow. Berkshire should continue its strategy based on Buffett's investment philosophy of purchasing undervalued assets. Over the past 40 years, Berkshire has increased shareholder value by an average of 21%, twice the average of the S&P 500 over the same period. Berkshire has a time tested set of rules for the best types of companies to acquire, namely to purchase businesses for less than they are worth. Berkshire must continue this strategy in order to increase shareholder wealth. Specifically, Buffett must use his investment philosophy that has made him so successful. He should continue to seek companies to invest or purchase that he understands and can purchase at a discount. The economic slowdown is an opportunity for Berkshire to find undervalued assets. Within the U.S. Buffett could look at the financial industry. He could also look at purchasing assets in a few years when the housing industry recovers. Given Buffett's investment philosophy, this would be an ideal time to purchase undervalued assets and hold them for a long time. Buffett should also be looking outside of the U.S. for investment opportunities. Brazil, India, Europe, and China are all opportunities. China's stock market is down significantly this year. This may be an excellent time for Buffett to search for bargains. Buffett should also look to...
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...Warren Buffett Case Warren Buffett is the role model to all investors; therefore, I believe what he believed in is right (at least to him). However,we need to understand that not all of his rules work for everyone. Buffett's first rules is not to lose. The second rule is not to forget the first rule. He is absolutely right about this because risk management is always the key to success in investing. I think that valuing a share based on its relative performance to similar shares is a good strategy to make sure the return on your investment. The comparison of an investment against other returns available in the market was an important benchmark of performance is a good point. Moreover, Buffett also said that we should invest based on sound research and a detached emotional state and not to become an emotional slave to day to day price fluctuation. Buffett also has his points when he said that we should not believe in Efficient Market Theory because the market does have efficient sometimes doesn't mean the market always have its efficient. The intrinsic value is another point that inspired me because I agreed with him about we should focus on the firm's future output but not the historical input. However, I slightly disagree that accounting reality is useless. It is because we can't tell a firm's financial health by just looking at the economic reality. I also think that his heavy focus on economic reality relies too heavily on subjective evaluation of intangible assets and sometimes...
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...Harvard Business School 9-293-057 Rev. December 22, 1992 Salomon and the Treasury Securities Auction: 1992 Update In early July, the S.E.C. and the Justice Department issued a subpoena for Salomon's trading documents for the May 1991 2-year note auction. In response, Salomon asked Wachtell, Lipton, its outside counsel, to investigate the May auction. After several weeks, Wachtell, Lipton informed Salomon that they had found problems in four auctions dating back to December 1990. !" !" In the December 27, 1990 4-year note auction, Salomon submitted a $1 billion bid for "Warburg" without S.G. Warburg's knowledge. In the February 21, 1991 2-year note auction, Salomon fabricated bids for Warburg and Quantum Fund, another client. Salomon ended up with 57% of the notes after proration of its own bid and the two fake bids. In the April 25, 1991 5-year note auction, Salomon submitted a $2.5 billion bid on behalf of Tudor Jones, $1 billion more than the client's authorized bid. After the auction, Salomon purchased $600 million of the $2.1 billion in notes awarded to Tudor Jones. In the May 22, 1991 2-year note auction, Salomon ordered $2 billion in notes for Tiger Investment, $500 million more than Tiger's authorized bid. After the auction, Salomon purchased the $500 million in extra notes from Tiger. !" !" After hearing the outside counsel's report, Chairman John Gutfreund and President Tom Strauss telephoned the S.E.C., the Treasury, and the Federal Reserve Bank on August...
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...Course No: C-501 Course Name: Managerial Communication A Report on Business Communication Method of Warren Buffett Prepared For: Mr. Zahid Hassan Khan Associate professor, Institute of Business Administration University of Dhaka Prepared By: Md.Tazul Islam Roll:133 Batch:46D Date of Submission: 11-12-2011 Executive Summary: Warren Buffett is considered as one of the most successful investors of the market. A man who started his journey as an investor at the age of 13, continued to cross hurdles of his business carrier. It's annual report season, which includes announcements from the CEO and/or chairman of every public U.S. company. Given that Warren Buffett, the chairman of Berkshire Hathaway, is the most successful investor of all time, you might expect that a 23-page communication from him would be jargon-packed and over most people’s heads. In actuality, Buffett's annual letter to shareholders is famously down-to-earth, conversational, and witty. Never mind for now the specific points he makes: how he communicates his message is a lesson for all of us. Warren Buffett writes his letter to shareholders as a letter to his sisters - then crosses out "Dear Doris and Bertie" and replaces it with "To the Shareholders of Berkshire Hathaway". It’s not enough that Warren Buffett has become one of the richest men in the world. He’s also a world-class communicator – and nowhere does this gift go on public display more than in his annual letter to shareholders...
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...Foundation Paper I have chosen The Bill & Melinda Gates Foundations. We live in a world today were everyday the economy grows weaker and weaker and with the world being in such great desire it is people like Bill and Melinda Gates who makes so much possible for people like you and I to survive. Through their foundation so many lives are being save every day, so many children are being educated with technology made for this generation of children to learn. I will explore several aspects of the Bill and Melinda Gate Foundation to show just how they truly make a difference in the world today. Bill and Melinda Gates are two very high profiled people their foundation is one of the largest in the world. With the founders being some of the richest people in the world with a net worth in the billions dollars, Bill and Melinda Gate Foundation has become a source of endless fascination and discussion in the nonprofit world. This foundation is about giving everyone an equal opportunity to thrive. It helps to reduce or eliminate obstacles in people lives things like poor health and nutrition and weak educational systems. Although there are a lot of things this foundation does most of it spending goes toward three main issues improving education in American, global health, and global development. When it comes to global health in January of 2010 Bill and Melinda announced their foundation would double the amount of money being spent on vaccine within the next 10 years to a sum of...
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...tends to agree with Buffett on this philosophy. Accounting is a product of many estimates and judgments. It is essentially a rear-view mirror, looking back at what has happened. To add to the problem the view changes with each new accounting period. In contrast the economic reality is the view through the windshield at what lies ahead. It consists of intellectual property, creativity, know-how and the network of production and distribution systems. The brands and trademarks of a business are the symbols of the economic reality – symbols that indicate the reputation of the company. The economic reality changes much more slowly than the accounting reality as it is dependent on the response of the markets to new products and services that the company has to offer or to any substantive changes - up or down - in corporate reputation. 2. The cost of the lost opportunity. Analysis: Here Buffett is building on the economic principle of the efficient use of scarce resources where the notion of opportunity cost plays a crucial part in ensuring that resources are being used efficiently. The true cost of an investment is what you give up (opportunity) to get it. This includes not only the money spent in buying that asset but also the economic benefits that one has to do without because one bought that particular asset and thus can no longer buy something else with that money. 3. Value creation: time is money. Analysis: One agrees with Buffett on this philosophy...
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