1. Who is Warren Buffett, and why should anyone pay attention to him? How successful has he been?

He is a businessman who is in the top 10 most wealthiest people in the world. He is important because
he is a philanthropist and uses a different strategy to investing. He himself has in 2023 a net worth over
110 billion and is the chairman of Berkshire Hathaway that is very successful.

2. What is the business of Berkshire Hathaway? How would you describe the company’s strategy?

Berkshire Hathaway as a business is a holding company. They own many diverse kinds of companies
with the insurance, railroad, and manufacturing being the most profitable sectors they own. They also
own stock in a variety of other companies. The company’s strategy it to constantly reinvest its money by
buying and investing in companies they believe are a valued franchises that the market does not
recognize. This allows for the profits and interest to quickly create more value and the chosen
companies have an intrinsic value that will show growth in the future. These companies are already well
managed and can run themselves and will create long term economic value.

3. Prepare to describe the elements of Buffett’s investment philosophy. How might this philosophy differ
from that of other investment styles, such as a very active day trader, a chart watcher, or someone who
passively invests in index funds?

His strategy focuses on picking companies that are going to create large economic value far in the
future. They might not show their market value yet, but they do have an intrinsic value. An active day
trader only focuses on what the market does. They don’t care about the company but that the market is
going to make the stocks value go up and give them a profit. A chart watcher follows the stock patterns
and focuses on that rather than the value of the company. Someone who invest passively in the index
fund is the closest to how Buffett invests because they care about the long term, but the index is
broader while Buffett is more focused on fewer companies that allows for more gains.

1. What is your assessment of Berkshire Hathaway’s investments in Buffett’s largest equity positions
shown in case Exhibit 5? Has he been uniformly successful in making major investments?

He invests heavily in companies who have shown a strong power in their market. They have been
around for a good amount of time and shows they can survive though the changing market. Over the
time of his investments all but one has had created more market vale than cost showing they were good
investments. The top two are the most successful because they are also the kinds of companies that
they would buy. They are well known franchises who have a long-term economic value. Overall, they are
almost all successful but not uniformly successful.
2. From Buffett’s perspective, what is intrinsic value? Why is it accorded such importance? How is it
estimated? What are the alternatives to intrinsic value? Why does Buffett reject them?

It is the increase of worth from the time value of money and the opportunity costs. It shows if the
investment into the company will create more value than a set discount rate. It is estimated by looking
at what the value could be if invested into a company or into something else like a government treasury
bond. This means the company is more efficient at using the money to create more value. The
alternative to intrinsic value is its market value that looks at accounting profit. Buffett rejects it because
he believes that it is more important to look at how well a company creates value than its profit. He also
believes in not diversifying to much so as to make more profit from one larger company.

3. What is the possible meaning of the changes in stock price for Berkshire Hathaway on the day of the
acquisition announcement? Specifically, what does the $4 billion loss in Berkshire Hathaway’s market
value of equity imply about the intrinsic value of Precision Castparts (PCP)?

It shows that they overpaid for PCP. If the market value is under intrinsic value then it is under value and
the reverse means its overvalued. Since the value of Berkshire Hathaway went down it shows they felt it
was overvalued from the addition of PCP. The market value of PCP was higher than its intrinsic value.