Warren E. Buffet, the chairperson and chief executive officer (CEO) of Berkshire Hathaway Inc., announced that MidAmerican Energy Holdings Company wanted to acquire the electric utility PacificCorp. The acquisition of this company had renewed public interest in its sponsor, even though his net worth is about $44 billion and also he and other insiders controlled 41.8% of Berkshire.
“I will keep well over 99% of my net worth in Berkshire” was one of his main fundaments for the year 2005.By that time Warren held and MBA from Columbia University and credited his mentor, Professor Benjamin Graham with developing the philosophy of value-based investing that had guided him to his success. This company he wanted to acquire is called Berkshire Hathaway was incorporated as Berkshire Cotton Manufacturing, manufactured in 1989 and it eventually grew to become one of New England’s biggest textile producers, accounting for 25% of the United States cotton textile production.
One previous year from Warren Buffet’s plans, in 2004, Berkshire Hathaway’s annual report described the form as a “holding company owning subsidiaries engaged in a number of diverse business activities” and it’s portfolio included: insurance, apparel building producers, finance and financial products, flight services, retail, grocery distribution and carpet and floor coverings.
When Warren was a coauthor of Security Analysis with Graham the approach was to focus on the value of assets, such as cash, net working capital, and physical assets. Eventually, Buffet modified that approach to focus also on valuable franchises that were unrecognized by the market. He created a philosophy by 2005, he emphasized the following elements: 1. Economic reality, not accounting reality, in which he meant that accounting reality is conservative.
2. The cost of the lost opportunity, in which he held that there was no fundamental difference between buying a business outright, and buying a few shares of that business in the equity market. 3. Value creation: time is money which means that only in the instance where expected returns equal the discount rate will book value equal intrinsic value. 4. Measure performance by gain in intrinsic value, not accounting profit. Referring to those measures having the main purpose to focus on the ability to earn returns in excess of the cost of capital.
5. Risk and discount rates from which he quoted “I put a heavy weight on certainty. If you do that, the whole idea of a risk factor doesn’t make sense to me. Risk comes from not knowing what you’re doing” he also wrote “ the possibility of loss or injury … forgets a fundamental n it is better to be approximately right than precisely wrong” 6. Diversification: in which he disagreed with conventional wisdom that inventors should hold a broad portfolio of stocks in order to shed company-specific risks. 7. Investing behavior should be driven by information, analysis, and self-discipline, not by emotion or hunch. 8. Alignment of agents and owners
Finally Buffet stated that it was the firm’s goal to meet a 15% annual growth rate in intrinsic value. Bill Miller and Value Trust In 2005, the company Value Trust, managed by William H. (Bill) Miller III, had outperformed its benchmark index, the Standard & Poor’s 500 Index (S&P 500), for an astonishing 14 years in a row.
Over the previous 15 years investors could look back on the fund’s remarkable returns: and average annual total return of 14.6%, which surpassed the S&P 500 by 3.67% per year. An investment of $10,000 in Vale Trust at its inception, in April 1982, would have grown more than $330,000 by March 2005.
Observer’s wondered what might explain Miller’s performance. Mutual funds served several economic functions for investors. First, they afforded the individual investor the opportunity to diversify his or her portfolio efficiently without having to invest the sizable amount of capital usually necessary to achieve efficiency. Second, in theory, mutual funds provided the individual investor with the professional expertise necessary to earn abnormal returns trough successful analysis of securities.
Between 1970 and 2005, the number of all mutual funds grew from 361 to 8,044. This total included many different kinds of funds; each one pursued a specific investment focus and was categorized into several acknowledged segments of the industry aggressive growth, equity income, growth, growth and income, international, option, specialty, small company, balanced, and a variety of bond or fixed-income funds.
The growth in the number and types of mutual funds reflected the increased liquidity in the market and the demand by investors for equity. More importantly, it reflected the effort by mutual-fund organizations to segment the market to identify the specialized and changing needs of investors, and to create products to meet those needs. It added a degree of complexity to the marketplace that altered the investment behavior of some equity investors.
When individuals invested on a mutual fund, their ownership was proportional to the number of shares purchased. The performance of a mutual fund could thus be measured as the increase or decrease in net asset value plus the fund’s income distributions. Advisers or manager’s, of mutual funds were compensated by investors trough one-time transaction fees and annual payments. A fund’s transaction fees, or lows, covered brokerage expenses and were rarely higher than 6% of an individual’s investment in the fund.
Annual payments were calculated as a percentage of the fund’s total asset, and were charged to all shareholders proportionally. The two most frequently used measures of the performance were (1) the percentage of annual growth rate of NAV assuming reinvestment and (2) the absolute dollar value today of an investment made at some time in the past. Most mutual-fund managers relied on some variation of the two classic schools of analysis:
Technical analysis: this involved the identification of profitable investment opportunities based on trends in stock prices, volume, market sentiment, Fibonacci numbers, etc. Fundamental analysis: This approach relied on insights afforded by an analysis of the economic fundamental of a company and its industry: supply and demand costs, growth prospects, etc. Key elements of Bill Miller: buy low-price, high intrinsic value stocks; take heart in pessimistic markets; remember that the lowest average cost wins and beware of valuation illusions. Ben & Jerry’s Homemade
In late January, 2000, Morgan had seen the company grow both in financial and social stature. The company has an important leadership position, but increased competitive pressure was present and Ben & jerry’s declining financial performance has triggered a number of takeover offers for the resolutely independent-minded company. With little skill, surprisingly few ingredients, and even the most unsophisticated of ice-cream makers, you can make the scrumptious ice creams that have made Ben & Jerry's an American legend.
Ben & Jerry's Homemade Ice Cream & Dessert Book tells fans the story behind the company and the two men who built it-from their first meeting in 7th-grade gym class (they were already the two widest kids on the field) to their "graduation" from a $5.00 ice-cream-making correspondence course to their first ice-cream shop in a renovated gas station. But the best part comes next. Dastardly Mash, featuring nuts, raisins, and hunks of chocolate.
The celebrated Heath Bar Crunch. New York Super Fudge Chunk. Oreo Mint. In addition to Ben & Jerry's 11 greatest hits, here are recipes for ice creams made with fresh fruit, with chocolate, with candies and cookies, and recipes for sorbets, sundaes, and baked goods. The 90-plus authentic recipes are spiced with Lyn Severance's bright, quirky, full-color illustrations.
Cofounders required corporate independence. They had founded the company in 1978 in an old gas station, and started with great success, but by January 2000, their operation in Burlington had become a major premium ice cream producer with 170 stores across the United States and overseas, and had developed an important presence on supermarket shelves.
Annual sales had grown to $237 million, and the company’s equity was valued at $160 million. Ben & Jerry’s was also known for its emphasis on socially progressive causes and its strong commitments to the community. Their community orientation was noticeable with a “caring capitalism”. Their social objective permeated every aspect of the business. One dimension was its tradition of generous donations of its corporate resources.
They donated 7.5% of its pretax earnings to various social foundations and community]-action groups. Total sales were over $1 billion, and company stock traded at a total capitalization of $450 million. In a987, the company established the Dreyer’s foundation to provide focused community support. They had Unilever, Meadowbrook Lane Capital and Chartwell Investments. Henry Morgan doubted that the social mission of the company would survive a takeover by a large traditional company. Despite his concern for Ben & Jerry’s social interests.
Morgan recognized that, as a member of the board, he had been elected to represent the interests of the stakeholders. The plane banked Icy Lake Champlain and began its descent into Burlington as Morgan collected his thoughts for what would undoubtedly be an emotional and spirited afternoon meeting. The Battle for Value, 2004: FedEx Corp. vs. united Parcel Service, Inc. Fedex was Smith’s Yale UG term paper developed into a $3.6 million corporation. Investment startup was $4 million from Smith’s inheritance, raised $91 million in venture capital.
In 1973-389 employees, 186 packages, 25 U.S. cities. In 1983- $1 billion in revenues In 1990- Malcolm Baldridge National Quality Award By 2003 their Assets were $15.4 billion; revenues $22.5 billion and net Income $830 million It’s competitive strategies where: Inventor of the “HUB” system, “absolutely positively overnight” ad campaign, expanding services, acquiring more trucks and aircrafts, raising capital ,“People-Service-Profit” philosophy, JIT system and technological Innovations While UPS Founded in 1907 by Jim Casey and is the largest package-delivery company in the world. In 1929-Air delivery service. In 1997-Aug. - 190,000 employees, Union strike—15 days.
In 1999-Nov.- IPO raised $5.2 billion. And by, 2003: Assets $28.9 billion; revenues $33.4 billion and profits $2.9 billion. Their competitive strategies were: Expanded package-delivery to every address in the U.S, half-priced over-night letters, aggressive acquisitions and large investment in technology, aircrafts and facilities.
They both had a US & China Air Transportation Agreement and Airline & trucking deregulation. Competitive sustainability: Environmentally sound practices; Customer focus orientation; Product differentiation; Reducing cost per unit; Marketing strategies. Fedex stock price consists of the largest foreign presence in China ; 11 weekly flights (2x as many as UPS) and serving 220 cities ; 50% volume growth between 2003-2004 and value of equity is interpret ion of 14% increase means: possibly rapid economic growth of company, unsustainably-leading to high cost of capital and plus is a high rate of return.
An excellent organization must be proactive, fast-acting, and innovative, customer oriented and produce high quality products. So Fedex in 1981 achieved to become an Industry leader in overnight shipping and coined the Hub distribution system; In 1990, FedEx was awarded the Malcolm Baldridge National Quality Award; Early 90’s- Only cargo transporter with own fleet of airplanes.
Finally, in 2004- Quintupled the amount of cargo flights to the Asian-Pacific. So, in conclusion, excellence in business is not only successfully doing what you are doing but also being the best at it. Have continual improvement to current processes, systems and goals .Excellent companies are proactive in nature rather than reactive. For example, an excellent organization will continuously monitor what is new in the marketplace, determine what will be the next best thing and successfully execute the product plans. And, nurturing environment that encourages any new ideas and high expectations for achieving excellence