5.

What is your assessment of Berkshire Hathaway’s investments in Buffett’s Big Four:

American Express, Coca- Cola, Gillette, and Wells Fargo?

According to the accounting data from EXHIBIT3, the Big Four had bring a huge benefits to the
Berkshire Hathaway.
The American Express costs was $1,470 million and its market value was $8,546; total gain was
$7,076 billion. The Coca-Cola’s cost was $1,299 and market value was $8,328; total gain was
$7,029. Gillette, its cost was $600 million dollar and market price was $4,299 million. Last, Wells
Fargo cost was $463 and market price were $3,508 million; total gain was $3,045million. Over the
years the market value of Big Four companies keep growing and the Berkshire Hathaway gain
millions of dollars. The investing of following companies was a very smart and successful
decision of the comapny.

6.From Buffet’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?

Buffet believe in economic reality, not accounting reality. In economic reality, intrinsic value is a
discounted value of the cash that can be taken out of business during its remaining life. It is
important because it is the best way to evaluate the relative attractiveness of investment and
business. Since Buffet considers intrinsic value as present value of future cash flow, it is estimated
by formula: PV = FV*(1+i)^-n. The alternatives are book value and accounting profit; however,
Buffet reject them because they do not fully represent economic reality.