...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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...Does anyone know of Warren Buffett's success stems from passion and bitterness? According ranked by Forbes billionaire Warren Buffett is the second richest in the world with assets of nearly $ 50 billion. The success of the investment, especially about his stock investment has become legendary and it is difficult to list them. Books written a lot about the way to get rich billionaire genius this. Not that the fortune of meeting time, the building is now that he is so talented, passion and extraordinary efforts. Warren Edward Buffett was born August 30, 1930 in Omaha Nebraska United States, was the second child in the family and is the only son. His mother is a petite woman and vivacious, caring family and very good with numbers. His father was a very nice but also very serious and was a stockbroker who is also a lawmaker. Both Buffett family business has financial stocks, but spending their money is always prudent with the motto is "Beware that capital" When just a boy, he showed surprising aptitude for both money and business investment. The acquaintance tells us that he has a strange ability to mentally calculate the number n the first row - a possibility that Warren continues to surprise his colleagues later. As a child he and a friend used to sit afternoon porch record number plates of the cars passing by. At night, the two boys often open favorite newspaper and count each word appeared many times and fill dense book numbers. Five years old, he opened a booth to sell...
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...Warren Buffett Warren Buffett is well known for being a self-made billionaire. He started investing at the age of 11, where he bought three shares of Cities Service Preferred which he earned a small profit off of. He was disappointed to find that after he sold his shares for $40 each, they went up to $200 each. He later stated that it was a lesson to him to have patience with the stock market. Buffett started running his own small business as a paper boy when he was only 13 years old. He was also selling his own horseracing tip sheets. During high school, Buffett was still coming up with ways to make money. Buffett and his friend purchased a pinball machine for $25, installed it in a barber shop, and a few months later, had enough profit to purchase other machines. They installed two more machines in two other locations. Buffett and his friend later sold the business for $1,200. Buffett attended college at the University of Pennsylvania for two years studying business when he was just 16 years old. He then moved to the University of Nebraska to finish his degree. He finished school at age 20, with $10,000 from his childhood businesses. He decided to advance his degree and attended Colombia University. Just after he finished school, he formed the firm Buffett Partnership in his hometown of Omaha. He became very rich and was named “Oracle of Omaha”. His success came from buying undervalues companies whose stocks shortly began to rise. In 2006, Buffett donated all of...
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...Warren Buffett is Born Warren Edward Buffett was born on August 30, 1930 to his father Howard, a stockbroker-turned-Congressman. The only boy, he was the second of three children, and displayed an amazing aptitude for both money and business at a very early age. Acquaintances recount his uncanny ability to calculate columns of numbers off the top of his head - a feat Warren still amazes business colleagues with today. a fierce critic of the interventionist New Deal domestic and foreign policy, and his wife Leila (née Stahl). Buffett's DNA report revealed that his paternal ancestors hail from northern Scandinavia, while his maternal ancestors hail from Iberia (present-day Spain[15]) or Estonia.[16] It's been also reported that Warren is not related to Jimmy Buffett despite the same surname.[15] Buffett began his education at Rose Hill Elementary School in Omaha. In 1942, his father was elected to the first of four terms in the United States Congress, and after moving with his family to Washington, D.C., Warren finished elementary school, attended Alice Deal Junior High School, and graduated from Woodrow Wilson High School in 1947, where his senior yearbook picture reads: "likes math; a future stockbroker" At only six years old, Buffett purchased 6-packs of Coca Cola from his grandfather's grocery store for twenty five cents and resold each of the bottles for a nickel, pocketing a five cent profit. While other children his age were playing hopscotch and jacks, Warren was making...
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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 his...
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...Warren Buffet When people think of one of the brightest minds of the investing world, there is one person that is on every persons mind. That person is the ‘Oracle Of Omaha’ or Warren Buffett. He is a man with dignity and respect that made him a self-made billionaire with working hard. One of his greatest quotes by Warren is “Price is what you pay. Value is what you get.” What Warren means by this is that you are going to have to pay a price for everything, but what you do with it is what you are going to get out of it. Going through his early days to where he is know he has gone through quite a journey that now puts Warren worth $66.7 billion (toolsforforex.com, 2013). People don’t just look up to Warren because he is one of the richest people in the World; he also has one of the kindest hearts with what he does with a lot of his riches. Warren has done many things in his life for people to be inspired by him starting with he has always worked for what he has in his life. In 2008 Warren was declared the richest person in the world. People don’t just looked up to him because of his money he has made alone. In 2006 Warren announced that he would donate 85% of Berkshire Hathaway’s holdings when he dies. He has also won the Presidential Medal of Freedom in 2011 from Barack Obama for helping some companies out during the financial crisis (The Famous People). Besides his career and philanthropy he is involved in, he also has a family. Warren was married to Susie Warren...
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...IDOL : WARREN BUFFET INTRODUCTION Warren Buffett is an American business magnate, investor, and philanthropist and widely considered the most successful investor of the 20th century. Buffett is the chairman, CEO and largest shareholder of Berkshire Hathaway and consistently ranked among the world's wealthiest people. He was born to Howard and Leila Buffett in Omaha, Nebraska on 30th August 1930. He was the second of three children, and the only boy and his father was a stockbroker and four-term United States congressman. Howard Buffett served non-consecutive terms on the Republican ticket, but support libertarian views. He was quickly identified by his family and others as being exceptionally good with numbers. In his youth he made money by reselling cokes and delivering newspapers. At the age of 13 he filed his first tax return and deducted $35 for his bike as a business expense. Later, as a senior in high school, Buffett purchased a used pinball machine with a friend and set it up in a local barber shop. At his father's urging, he applied to the University of Pennsylvania and was accepted. Unimpressed, Buffett left after two years transferring to the University of Nebraska. After graduation, his father once again convinced him of the value of education, encouraging him to pursue a graduate degree. Harvard rejected Buffett, but Columbia accepted him. Buffett studied under Benjamin Graham, the father of value investing which is the beginning of his career. POSITIVE ATTRIBUTES ...
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...Abstract This paper will discuss a company profile for Berkshire Hathaway. This profile will include a brief history of Berkshire Hathaway's humble beginnings as a textile manufacturer, and subsequent diversification into a successful powerhouse holdings company that has spread it's risk into a variety of industries. These industries include insurance, utilities, building materials, furniture, jewelry, apparel and food companies. This paper will examine Berkshire's recent financial situation over the last 5 years. while touching on the CEO compensation package. The CEO behind this conglomerate, Warren Buffet, is considered to be one of the greatest investors of the 20th Century. Since Buffet took over in 1965, with his 20% majority share of ownership, Berkshire Hathaway, has grown to include over 50 firms under the corporate name. For the last 36 years , "The Oracle of Omaha" as Warren Buffet is known, has lived by a simple philosophy to invest in strong managed companies that produced good products but were inherently undervalued in the market. (Hoover's, 2013) This paper will also discuss Berkshire's competition for their major industries. Company Profile Berkshire Hathaway Inc. is an American multinational conglomerate holding company that has subsidiaries in the manufacturing, retail, and service industries and most importantly reinsurance companies. The company itself was founded by Oliver Chase back in 1889 in New Bedford, MA, under the...
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...Bradford KilshawFIN 3717Shan He Warren E. Buffett, 2005 On May 24, 2005, CEO of Berkshire Hathaway Inc., Warren Buffet, stated that one of the company's subsidiaries, MidAmerican Energy Holdings Company, acquired the electric utility PacifiCorp. MidAmerican bought PacifiCorp from its parent company, Scottish Power plc, for $5.1 billion cash and $4.3 billion in preferred stock and liabilities. This acquisition was the second largest of Buffet's career and his largest since 1998. Warren Buffet has long been viewed as one of the most savvy investors in the world. With an estimated net worth of $44 billion, he is one of the richest men walking the planet. Public interest in Buffet rose highly again with the large scale purchase of PacifiCorp. While at Columbia University, Warren Buffet studied under Benjamin Graham, noted for developing a method for identifying undervalued stocks. His method focussed on the value of assets like cash, net working capital and physical assets, and ultimately, Buffet modified it to focus on valuable franchises going unrecognized in the market as well. Buffet's investing strategy includes several different philosophies. Some approaches he uses include: economic reality, the cost of lost opportunity, value creation, risk and discount rates, diversification, investing behavior driven by information, analysis, and self-discipline, setting emotion aside, alignment of agents and owners, and measuring performance based on intrinsic value instead of profits...
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...THE WARREN BUFFETT WAY Investment Strategies of the World’s Greatest Investor ROBERT G. HAGSTROM MAIN IDEA Warren Buffett is one of the most successful stock market investors of the past 30 years. His entire approach is to focus on the value of the business and its market price. Once Buffett finds a business he understands and feels comfortable with, he acts like a business owner rather than a stock market speculator. He studies everything possible about the business, becomes an expert in that field and works with the management rather than against them. In fact, often his first act on buying shares in any company is to grant the managers his proxy vote for his shares to assure them that he has no intention to try and move the company away from its core values. Buffett champions the value investment strategy, and puts no credence in day to day movements in share prices, the impact of the economic mood overall or any other external factors. He maintains a long-term perspective at all times, and never loses sight of the underlying value of a business. THE BUFFETT APPROACH TO INVESTMENT 1. Never follow the day to day fluctuations of the stock market. The market only exists to make it easier to buy and sell, not to set values. Keep an eye on the market only for someone who is willing to sell a stock at a not-to-be-missed price. 2. Don’t try and analyze or worry about the general economy. If you can’t predict what the stock market will do from day to day, how can you reliably predict...
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...Berkshire Hathaway and GEICO Insurance © 2001 Tim Glowa September 12, 2001 -1- White Paper: Examining Berkshire Hathaway’s 1995 Purchase of GEICO Insurance Tim Glowa Tim@Glowa.ca September 12, 2001 © 2001 Tim Glowa Berkshire Hathaway and GEICO Insurance © 2001 Tim Glowa September 12, 2001 -2- Table of contents Executive Summary.................................................................................................... 3 Introduction................................................................................................................. 4 Review of the case: Berkshire Hathaway purchasing GEICO.................................... 4 Strategic Outcome....................................................................................................... 7 Finance........................................................................................................................ 7 Time Value of Money................................................................................................. 8 Assessment of the GEICO purchase........................................................................... 8 Time value of money ................................................................................................ 11 An examination of the GEICO acquisition in hindsight........................................... 13 Limitations of Discounted Cash Flow .........................................................................
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...Study 2: Warren E. Buffett, 1995 This case was prepared by Professor Robert F. Bruner as the basis for classroom discussion rather than to illustrate effective or ineffective handling of an administrative situation. On August 25, 1995, Warren Buffett, the CEO of Berkshire Hathaway, announced that his firm would acquire the 49.6 percent of GEICO Corporation that it did not already own. The $2.3 billion deal would give GEICO shareholders $70.00 per share, up from the $55.75 per share market price before the announcement. Observers were astonished at the 26 percent premium that Berkshire Hathaway would pay, particularly since Buffett proposed to change nothing about GEICO, and there were no apparent synergies in the combination of the two firms. At the announcement, Berkshire Hathaway’s shares closed up 2.4 percent for the day, for a gain in market value of $718 million.1 That day, the Standard & Poor’s 500 index closed up 0.5 percent. The acquisition of GEICO renewed public interest in its architect, Warren Buffett. In many ways he was an anomaly. One of the richest individuals in the world (with an estimated net worth of about $7 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 of 28 percent from 1965 to 1994),2 Berkshire Hathaway paid him only $100,000 per year to serve as its CEO. Buffett and other insiders controlled 47.9 percent of the company, yet Buffett ran...
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...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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...Berkshire Hathaway AFIN250 Monday 5pm Christopher Lam 43820832 Savneet Kambo 44677987 Jason Weng 43885772 Table of Contents Executive Summary ............................................................................................................................2 Culture, a catalyst for Berkshire’s success ...........................................................................................2 Heir to Berkshire Hathaway ...............................................................................................................3 Graham & Dodd valuation model .......................................................................................................3 Bruner’s Disaster Framework, a risk assessment tool ..........................................................................4 Diversification of Berkshire Hathaway ................................................................................................5 Volatility timing .................................................................................................................................6 Conclusion .........................................................................................................................................7 Appendix ...........................................................................................................................................8 Reference ..........................................................................
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...The Buffett Approach to Valuing Stocks Focusing on return on capital may be the key to investment success. By Steven R. Ferraro, CFA, PhD 2009 Volume 12 Issue 3 Much has been written about famed U.S. investor and Berkshire Hathaway CEO Warren Buffett’s investment style and successes. Preeminent among these writings are the oft-cited Berkshire Hathaway shareholder letters, written by the “Oracle of Omaha” himself. These informative letters have been the basis for a multitude of books. But even with an abundance of available information on “how to invest like Warren Buffett,” it is apparent that something is lacking, how does Buffett determine an acceptable price for companies of interest? This article provides an example of the process Buffett is reported to go though to determine the intrinsic value of a publicly traded company. Photo: Bogdan Radenkovic Starting at the Beginning Before we get our hands dirty with the valuation aspects of the investment decision, let us review a brief outline of the qualitative and quantitative aspects of Buffett’s decision process as observed by Robert G. Hagstrom.[1] This map helps us navigate the turbulent waters of Wall Street and is comprised of business, management, financial, and market tenets. Investment Tenets Business • Is the business simple and understandable? • Does the business have a consistent operating history? • Does the business have favorable long-term prospects? Management • Is management...
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