Professional Documents
Culture Documents
Agenda
Bio Management style Investment approach Methodology
Biography/History
Bought first stock at age 11 Invested savings into farmland Had pinball machine business and sold for a profit Attended Columbia University where Ben Graham was a professor at the time Worked for Ben Graham for $12,000 a year
Biography/History
Opened his own partnership in Omaha By 1961, he had 5 partnerships In 1962, he merged partnerships to make Buffett Partnerships, Ltd. Bought stock for Berkshire Hathaway at $8 Bought Amex stock after fraud scandal Took control of Berkshire in 1965
Biography/History
Closed partnership in 1969 and worth millions personally In 1974 lost over 50% of wealth
Biography/History
Buffett worth $44 billion today Berkshire has $248 billion in assets CEO Charles Munger, vice-chairman
Met in 1959
philanthropy
The rest to foundations run by his children and founded by late wife
Management Tenets
Buffetts three management tenets concern the evaluation of management quality
Is
management rational? Is management candid? Does management resist the institutional imperative?
Rationality
If a company generates high returns on equity, the duty of management is to reinvest those earnings back into the company, for the benefit of shareholders If the earnings cannot be reinvested at high rates, management has three options:
ignore the problem and continue to reinvest at below-average rates buy growth return the money to the shareholders, who then might have a chance to reinvest the money elsewhere at higher rates
Candor
Buffett believes that a manager who confesses mistakes publicly is more likely to correct them
Managers who discusses the failures of the company with shareholders are admirable
lemming-like tendency of corporate management to imitate the behavior of other managers, no matter how irrational it may be
Buffett points out that thinking independently and charting a course based on rationality and logic are more likely to maximize the profits of the company than a strategy that can best be described as follow the leader
Management Style
He will not interfere with the running of the company. He will be responsible for hiring and setting the compensation of the top executive. Capital allocated to the business will have a price tag (a hurdle rate) attached.
Review annual reports from a few years back, paying special attention to what management said then about strategies for the future. Compare those plans to todays results: How fully were they realized? Compare the strategies of a few years ago to this years strategies and ideas: How has the thinking changed?
Compare the annual reports of the company you are interested in with reports from similar companies in the same industry. It is not always easy to find exact duplicates, but even relative performance comparison can yield insights
Value Investor
Amex
Economic moat Intrinsic value Do what is the best for you, not what people think you should be doing.
Rule No.1: Never lose money. Rule No.2: Never forget rule No.1. The stock market is designed to transfer money from the active to the patient. The most important quality for an investor is temperament, not intellect. "Risk comes from not knowing what you're doing."
His Portfolio
performance
Berkshire Hathaways Class A shares vs. S&P 500
Methodology
1.
2.
Small amount of debt indicating that earnings growth is being generated from equity as opposed to borrowed money
3.
Methodology
4.
5.
Methodology
W. Buffetts most important skill!!!
6.
Include analysis of earnings, revenues and assets Usually higher than its liquidation value
conclusion
Complete understanding of the industry Value investing (based on fundamental analysis) Longevity (in established businesses, for long-term)
Questions?
Sources:
http://www.investopedia.com/university/greatest/warrenbuffett.asp http://www.investopedia.com/articles/01/071801.asp http://www.investopedia.com/articles/06/threewisemen.asp http://en.wikipedia.org/wiki/Warren_Buffett http://finance.yahoo.com/