Internship Assignment

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Acknowledgement:

I, -----l, hereby affirm that I have completed this assignment independently, without resorting to
plagiarism. Should any part of my assignment be discovered to be copied, fabricated, or derived from a
version of ChatGPT, I acknowledge that the business mentor retains the authority to annul the
assignment and requires me to redo it within the next 24 hours.

Summary

The key themes and insights presented in the BERKSHIRE HATHAWAY INC. SHAREHOLDER LETTERS
2002, highlight the importance of understanding intrinsic value and prioritizing durable competitive
advantages in investment decisions also he emphasizes the role of audit committees in ensuring
financial transparency and outlines four key questions for them to maintain integrity. Overall, the letter
serves as a call to action for improving corporate governance and promoting responsible investing
practices.

The report starts with this table shows that Berkshire Hathaway has significantly outperformed the S&P
500 over the long term. This is due in large part to Warren Buffett's investment philosophy of value
investing and focusing on the long term.

 Berkshire Hathaway's average annual gain was 22.2%, while the S&P 500's average annual gain
was 10.0%.

 Berkshire Hathaway outperformed the S&P 500 in 27 out of the 38 years.

 The overall gain for Berkshire Hathaway was 214,433%, while the S&P 500's overall gain was
3,663%.

In 2001, Berkshire Hathaway achieved a return of 26.5%, while the S&P 500 returned 14.6%. Berkshire
Hathaway outperformed the S&P 500 in 2001.

In 2002, Berkshire Hathaway's return was -11.4%, and the S&P 500 returned -12.4%. Berkshire
Hathaway even outperformed the S&P 500 in 2002, despite both experiencing negative returns.

The Summary key points highlighted are:

1. Investment Philosophy:

 Buffett emphasizes the importance of understanding a company's intrinsic value for

successful investing.

 He discusses the concept of economic goodwill and the significance of durable

competitive advantages in creating economic moats.

 Buffett advocates for a long-term investment approach focused on businesses with

strong fundamentals and sustainable growth potential.

2. Corporate Governance:

 Buffett critiques the failure of investment company directors to negotiate reasonable

management fees and CEO compensation.

 He calls for greater accountability among directors and suggests that institutional
investors should play a more active role in reforming corporate governance practices.

 Buffett highlights the importance of aligning incentives between managers and

shareholders, urging compensation committees to prioritize shareholder interests.
3. Shareholder Engagement:

 Buffett discusses the role of audit committees in ensuring accurate financial reporting
and transparency.

 He outlines four key questions that audit committees should ask auditors to maintain
integrity in financial statements.

a. Would the auditors have prepared the company's financial statements differently from how
management did, if solely responsible?

b. Would the auditor, if acting as an investor, have received essential information about the
company's financial performance in understandable terms?

c. Is the company following the same internal audit procedures that would be followed if the
auditor were the CEO?

d. Is the auditor aware of any actions, whether accounting or operational, aimed at moving
revenues or expenses from one reporting period to another?

 Buffett announces Berkshire Hathaway's shareholder-designed contributions program

and provides details for the upcoming annual meeting, encouraging shareholder
participation.

Key Learnings

1. Focus on Long-Term Value: Buffett emphasizes the importance of focusing on long-term value
creation rather than short-term market fluctuations. This underscores the value of patience and
discipline in investment decisions.

2. Importance of Due Diligence: Buffett's emphasis on conducting thorough due diligence before
investing highlights the significance of understanding a company's fundamentals, competitive
position, and management quality.

3. Corporate Governance Matters: Buffett's critique of corporate governance failures underscores

the importance of assessing a company's governance structure and practices before investing.
Strong governance can mitigate risk and protect shareholder interests.

4. Avoiding Weak Accounting Practices: Buffett's warning against companies with weak
accounting practices emphasizes the need for investors to scrutinize financial statements and
avoid companies with questionable accounting methods.
5. Stewardship and Ethical Leadership: Buffett's call for CEOs to embrace stewardship and treat
shareholders as partners highlights the value of investing in companies led by ethical and
shareholder-oriented management teams.

6. Engagement and Shareholder Activism: Buffett's support for shareholder engagement and
activism suggests that investors can influence corporate decision-making and governance
reforms by actively participating in shareholder meetings and voting.

7. Value of Long-Term Perspective: Buffett's investment philosophy, centered on buying high-

quality companies at reasonable prices and holding them for the long term, underscores the
value of adopting a patient and disciplined approach to investing.