Individual assignment 1

Course: Business management

Case study: Warren Buffett: The oracle of Omaha
Full name: Ta Duy Anh
ID: 11200361
Class: ICAEW – CFAB - AUDIT

Warren Buffett was born on August 30, 1930, in Omaha, Nebraska.

Since childhood, he showed his ability in financial and business matters.
He was a mathematical genius, according to friends and associates, who
could mentally add huge columns of numbers. He and his friend bought
a used pinball machine for $25 in his high school. They put it in a
barbershop, and the profits allowed them to buy more machines in a few
months. Until leaving the business for $1200, Buffett owned machines
in three separate locations. After being rejected by Harvard Business
School, Buffett enrolled in graduate studies at Columbia Business
School. While there, he trained under Benjamin Graham, who has had a
significant impact on Buffett's business activities. Graham's book The
Intelligent Investor, in particular, had changed his life and led him down
the road of technical investment research. About Berkshire Hathaway, it
was a textile company in New England. Utilizing the techniques learned
from Graham, he saw the opportunity to invest in Berkshire Hathaway.
He started collecting stock in the early 1600s and had taken control of
the company by 1965. Instead of continuing to produce textiles, he
enlarged the company by purchasing stock in newspapers, insurance,
and gasoline. Buffett used to be the director of Coca-Cola from 1986 to
2006. Hundreds of different companies are now managed by the
organization all over the world. Berkshire Hathaway also has a large
stake in big publicly traded firms including Apple, Bank of America,
and Wells Fargo. As of Sept 18, 2020, Berkshire had a market
capitalization of $521.57 billion.
How did Warren Buffett do? How did he make a huge profit and
become one of the wealthiest men in the world? Buffett is a member of
the Benjamin Graham-popularized value investing school. Official
records such as earnings and income statements are used to determine
the intrinsic value of a stock. Therefore, when Buffett chooses his
stocks, he has several principles before deciding to invest. His business
strategy depends on these principles and makes him so successful. The
first principle is that Buffett restricts his investment to businesses which
have ambiguous operational philosophy, because it is hard to believe
their performance. Buffett did not lose during the period of the early
2000s since most technology plays were new and untrust. He hardly
spent his stock in technology. Buffett cited two key reasons for his
resistance to technology investments. The first is that technology firms
lack economic moats (a term that describes a collection of competitive
advantages companies must have to remain profitable over a long time).
Without these advantages, a business could find it difficult to expand its
market share in a competitive market. The second point is that picking
winners is difficult. Moreover, predicting whether valuations will hold is
difficult. To put it differently, the technology market is unstable and
dangerous. However, exceptions still exist, Buffett has made a few rare
investments in technology and only the largest and most well-known
companies caught his attention. Examples are IBM in 2011 and
Amazon, Apple in 2019. The second theory is that Buffett evaluates a
company's leader's track record using his management principles. To see
if profits have been reinvested in the business in the past, or if assets
have been redistributed to back shareholders. Buffett considers the
second one, indicates that a corporation is willing to increase
shareholder value rather than pocketing all money. The third principle is
transparency. Every company makes mistakes, but only those who
accept errors and correct them are worthy of a shareholder's trust. The
transparency is also reflected in the size and popularity of the company.
That is the reason why Buffet invested in Apple – one of the largest
publicly traded stocks on Wall Street, Amazon – the world's biggest
online retailer, Bank of America Corp – the second-largest in the U.S,
Coca-Cola – the largest and most valuable soda brand in the world and
many other well-known companies. The next principle is that Buffett
evaluates the investment's potential using many main factors. He
analyzes the performances of the companies, the debt, the profit margin,
and the product. Buffett checks out companies with a high-profit margin,
especially if profit margins are increasing. He also considers the
uniqueness of the product. This is easy to understand because
uniqueness can be a competitive advantage that helps it earn profits
through greater sales. Finally, Buffett has a unique tenet for identifying
businesses with strong fundamentals that are selling at a discount to
where they should be–the higher the discount, the more value for profit.
He sees the potential and can exploit companies' full potential to make
both Berkshire and these companies better off. Buffett, on the other
hand, is not interested in profiting from short-term stock sales; rather, he
selects stocks that he believes have strong long-term growth prospects.
However, on rare occasions, if a perfect deal presents itself, he will act
on short-term fluctuations. For example, if the price of a business with
strong fundamentals drops from $50 to $40 per share, he could buy a
few extra shares. Buffett's investments were not always profitable, but
they were well-planned and based on value principles. Buffett and the
textile business he acquired several years ago are widely regarded as one
of the most promising investment stories of all time, thanks to their
constant search for new opportunities and dedication to a solid plan.
Berkshire started as a textile mill has developed into a multi-industry
combination. Some of the significant industries Buffett has invested in
are insurance (GEICO), transportation (BNSF Railway), real estate
(HomeServices), manufacturing varying from clothing to jet airplanes
(H.J. Heinz, General Motors), and energy/utilities (Berkshire Hathaway
Energy). Although there are other industries, these are five key
industries, and each has reaped Buffett billions of dollars. So, what are
the benefits of owning companies in several different industries like
Berkshire? The first one is diversification. It helps Buffett has more
experience in various industries for an overview of the market. Also, it
lowers the chance that unpredictable occurrences, such as bad economic
conditions in one sector or bankruptcy in one business will seriously
affect Berkshire. Moreover, multi-industries create a sustainable network
among companies Berkshire controls and invest in. Take for instance,
among the subsidiaries is an advertising agency, other subsidiaries can
completely trust and use the advertising agency's services because
Buffett never spends his money on low-quality companies. And this
boosts the relationship between subsidiaries and increases the revenue.
However, it is quite tough to find managers who have specialized
expertise to lead the conglomerate with Buffett. And especially they
have to have Buffett's trust. If this problem is solved, it seems like
having nothing can prevent Berkshire from prospering.
Owning companies in different industries requires the leader has
extensive knowledge in many areas, something nearly impossible for
one person to do. For this reason, Buffett allows managers the ability to
run the firms as they see fit. It is obvious to see this will help reduce the
burden on Buffett. Buffett's success would be dramatically affected if he
is burdened by all of the decisions that must be taken. His productivity
will suffer, and he will have less time to think about new business
opportunities. Furthermore, emergencies can be dealt with much more
effectively. Anything can go wrong at any business. In crises, it is best
to let the firm's directors tackle the situation rather than waiting for the
decisions of the board of directors. In addition, each industry has its own
considerations that must be kept in mind, and expansion takes a lot of
effort. As a result, when a company's director or top managers are given
the authority to make decisions, expanding a business becomes much
easier. Buffett believes giving his managers to run the firm allows them
to achieve their highest performance. In this way, Buffett can lead his
conglomerate successfully.
With his childhood entrepreneurial capacity and tenacious exertion,
Buffett built a multibillion-dollar conglomerate. Applying his standards
legitimately and with awesome administration made a difference him
reach the apex of Wall Street. In expansion, Buffett has composed
numerous books around both trade and life through his possess
encounter, books that have distributed millions of books around the
world and have made a difference so numerous individuals gotten to be
wealthy and have a vision more comprehensive almost life.
Cites references
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Foundations: A Changing World, McGraw-Hill Education, U.S.
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and advantages of how does it work?, retrieved on March 6 2021, from
< What is Decentralized organization and advantages of how does it
work? (marketing91.com)>
3.  Jay Offerdahl (June 2, 2015), The Industries that Made Warren
Buffett Rich, retrieved on March 5 2021, from < The Industries that
Made Warren Buffett Rich - Viking Mergers & Acquisitions>
4. Brent Radcliffe (Jan 10, 2021), How Did Warren Buffett Get Started
in Business?, retrieved on March 4 2021, from < How Did Warren
Buffett Get Started in Business? (investopedia.com)>
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His Stocks?, retrieved on March 5, 2021, from < How Does Warren
Buffett Choose His Stocks? (investopedia.com)>
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Strategy: An Inside Look, retrieved on March 4 2021, from < Warren
Buffett's Investing Strategy: An Inside Look (investopedia.com)>
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Berkshire Hathaway Portfolio, retrieved on March 4 2021, from < The
Complete Berkshire Hathaway Portfolio | WTOP>
8. Staff Author (February 15, 2020), Why Warren Buffett Largely Avoids
Investing in Tech, retrieved on March 5 2021, from <Why does Warren
Buffett largely avoid investing in the technology sector?
(investopedia.com)>