BRK has performed very well. BRK has always out preformed the market from its inception 1965. In the year 1977 the stock was worth 107$ and in the 24 of may 2005 the stock was worth 85000$ as a Class A stock. BRK has a growth of 24% since the year 1965, which achieves more than the great stocks in the market that preform a range of 10. 5%. BRK started out with a drop due to the statues of the inflation, technological change, and intensifying competition from foreign competitors, but has recuperated well after closing the textile side of their business.
BRK had recently been performing below S&P 500 Index according to chart 1, from April 2005 to May 2005. The outstanding performance of Scottish power comparing to the S&P 500 in the time between March to May 2005 attracted BRK to the acquiring PacifiCorp. In my opinion I believe that it was a good investment. After looking at the company that served over 5 Million customer, it lighted up in Warren buffet radar as a great investment so they stated in the year 2000 by acquiring 1. 24 Billion dollars which was 9.
7% of the voting interest and 76% of the economic interest in the equity of MidAmerican. In March 2004 BRK had another Acquiring of 6. 7 Million shares that were as 9. 9% and 83. 7% economical interest. This allows them to have a major stake in the company without violating utility laws, which has proven to be successful for them. Demonstrated in chart 6, MidAmerican Holdings had net earnings of 170 million in 2004, but compared to 2003 net earnings of 416 million, MidAmerican had a net loss from 2003-2004. To push up the cash of NI they acquired PacifiCorp. 5.
What is your assessment of Berkshire’s investments in Buffett’s Big Four: American Express, Coca-Cola, Gillette, and Wells Fargo? Answer:- BRK had invested in well-established firm, where people use them on daily basis, they had pay a lot of money but it came back in a 5 times more from they had pay, as I calculated their initial investments in the big four companies they had pay 3. 8 Billion, and when we calculate the market value of these firms we find that they worth 24 Billion dollars, that would round up to be 21 Billion dollars, which in my opinion is a great investment and success.
6. From Warren Buffett’s perspective, what is the intrinsic value? Why is it accorded such importance? How is it estimated? What are the alternatives to intrinsic value? Why does Buffett reject them? a. The Discounted Value of the cash can be calculated by taking the remaining life of the business. The per share progress is the intrinsic Value. By Warren measures intrinsic value is the present value of the future expected performance. b. Because it focuses on the earning returns in excess of the cost of the capital, that is the most reasonable way to evaluate the return.
c. The gain in intrinsic value could be modeled as the value added by a business above and beyond the charge for the use of capital in that business. d. The alternative is accounting profit, it estimates BRK by its size, by the performance of the company. e. Accounting measures is traditional, because it looks at the GAAP and not on the economical performance reality that would mean we should look at the trademarks, patents, and management. All those things that cant be measured by the performance of the company accounting statements. 7.
Critically assess Buffett’s investment philosophy. Be prepared to identify points where you agree and disagree with him. Answer:- The simple methods of investment strategy that Warren Buffett created are 8, I will discuss them in an individual bases, and write my honest opinion on each one of them. I agree with the first element that analyses the economical reality of investments. The majority of investors focus on the financial conditions and net profits, not considering the intangible assets of the company such as the management experience.
By taking a daily idea that every one of us use and converting this strategy to a complex one and developing it in the business path I agree with Warren Buffett. By analyzing the expected returns of an investment compared to the rate of return of using that same investment money in another investment, every single one of use thinks of that alternative in making any decision, from the simple things to life decisions. . By looking in the historical data that would make Warren Buffett choice his investments, I agree with this element because it would give you a full look on the history of the company.
Buffet looks that the value per share of the industry, that would analyze the earn returns of the cost of capital, I agree with the Buffett in this point also because analyzing the size of performance of the size of the company wouldn’t reflect the real value of the firm. By using a 30 Year Treasury bond rate instead of the CAPM rate I agree with Warren Buffett, By analyzing his stocks and knowing that they don’t need a risk factor. It seems that Warren is sure about his decisions because he has focused on stable earning and predictable ones.
I disagree with Warren Buffett in the Sixth element; he sees that the diversification of any portfolio is wrong. He sees that the diversification is a safety zone of any mistake, but in his view he feels confident and would not diversify any of his portfolios, I think any investor should differentiate his portfolio so he would be in that safe zone that Buffett refuses to be in, and the correlation of the stocks wouldn’t be high and that would maintain the investor away from errors and risks.
In the seventh element which talks about the proper research I totally agree with Warren Buffett at this point, an investor should do all the research that he could do before even thinking of a company or a Corp to invest in and not only follow his instinct or luck when investing. Finally, I agree that both the management and the shareholders of any firm must have the same goals that they seek to and want, because that will make them all on the same track.
The management must have their wealth invested in the company shares so they have a mutual interest with the investors. 8. Should Berkshire Hathaway’s shareholders endorse the acquisition of PacifiCorp? Answer:- Yes the shareholders should endorse the acquisition, because it affected the price of the stock and its not adding a lot of risk to BRK portfolio, it should consider looking and investing more in those safe types of investments.