Warren Buffet - the Sage of Omaha

Warren Buffett- the Sage of OmahaANUDEEPMOUNIKAMINHAALVINDHYASHAHID1AgendaIntroductionEducationMoney-making schemesBiographyEmployment & Berkshire Hathaway IncManagement styleInvestment approachMethodologyConclusion

Warren Edward Buffett(1930 till now )IntroductionBorn : Warren Edward Buffett August 30, 1930(age84) Omaha, Nebraska,U.S. Parents : Howard and Leila BuffettNationality : American CitizenAlmamater : University of Pennsylvania University of NebraskaLincoln Columbia UniversityOccupation : Chairman & CEO,Berkshire HathawaySalary : US$100,000Networth : US$67.1billion(2014)Spouse(s) : Susan Thompson Buffett(19522004) Astrid Menks (2006)Children : Susan Alice Buffett, Howard Graham Buffett, Peter Buffett

Warren Buffett's Education

In 1947, a seventeen year old Warren Buffett graduated from High School. It was never his intention to go to college.He had already made $5,000 delivering newspapers (this is equal to $42,610.81 in 2000). His father urged his son to attend the Wharton Business School at the University of PennsylvaniaBuffett interested in the area of mathematics and statistics. He focused on mathematics and statistics at University of Nebraska to finish his degree. Harvard Business school (Rejected)Entered Columbia Universitys graduate school of business, where he obtained a masters degree in business.Ben Grahamand David Dodd (Mentor)

Money-Making SchemesAge 6 - Peddled Coke Age 9 - Carrying golf clubs for $3 per day Age 11- Bought his first stock Age 11-13 - Sold used golf balls. Age 13 - Carrier for Washington Post and 4 other newspapers. Age 14 - Bought 40 acres of farmland and leased it out. Age 16 - Rented out used pinball machinesmaking up to $50 a week.

BiographyBought first stock at age 11

Invested savings into farmland

Had pinball machine business and sold for a profit

Attended Columbia Universitywhere Ben Graham was a professor at the time

Worked for Ben Graham for $12,000 a year

BiographyOpened 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

EmploymentWorked for Buffett-Falk & Co., as an investment salesman after graduating with a Masters in Economics. (1951-1954) Worked for Graham-Newman Corp, as a securities analyst (1954-1956) Formed Buffett Partnership, Ltd and appointed himself General Partner. (1956-1969) Bought over Berkshire Hathaway Inc in 1962 and became Chairman and CEO in 1970

Berkshire Hathaway IncA textile mill purchased in 1962. Suffering a $2.2m loss at time of purchase. Priced at $8/share though it had $16.50/share of working capital. Buffett currently holds 38% of shares, valued at total of $36bn Has stakes in Coca-Cola (2nd largest shareholder), Gillette, American Express, Disney, McDonalds, Dairy Queen

Berkshire Hathaway incClosed partnership in 1969 and worth millions personally

In 1974 lost over 50% of wealth

In 1981 Buffett and Charles Munger create Berkshire Charitable Contribution plan

Crash of 87 lost $342 million personally

StatisticsBuffett worth $67.1 billion todayBerkshire has $248 billion in assetsCEO & ChairmanCharles Munger, vice-chairmanMet in 1959Goal to increase 15% a year

philanthropy85% of wealth given to philanthropyBill and Melinda Gates FoundationHealth and learning$1.5 billion annuallyThe rest to foundations run by his children and founded by late wife

Management TenetsBuffetts three management tenets concern the evaluation of management quality

Is management rational?Ismanagement candid?Does management resist the institutional imperative? RationalityIf 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 ratesbuy growth return the money to the shareholders, who then might have a chance to reinvest the money elsewhere at higher rates

In Buffetts mind, only one choice is rational, that is option 3CandorBuffett 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 admirableResisting the Institutional ImperativeWhat is the institutional imperative?the 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 StyleHe 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. Warren Buffet Six PrinciplesPrinciple 1 : Keep it SimplePrinciple 2 : Be a investor, not a traderPrinciple 3 : Find outstanding businessPrinciple 4 : Make your own DecisionsPrinciple 5 : Leave a margin of safety Rule 1 : Never lose money Rule 2 : Never forget rule No.1Principle 6 : Focus on strengthsSome Management TipsReview 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

The Buffett WayEconomic moat

Intrinsic value

Do what is the best for you, not what people think you should be doing.So you say I can make great returns here? performanceBerkshire HathawaysClass A shares vs. S&P 500Berkshire HathawaysClass A & B shares vs. S&P 500

MethodologyHas the company consistently performed well?ROE for 5-10 years

Has the company avoided excess debt? Small amount of debt indicating that earnings growth is being generated from equity as opposed to borrowed money

Are profit margins high? Are they increasing?Look back at least 5 years

MethodologyHow long has the company been public?At least 10 yearsRecent IPO is not a target

Do the companys product rely on commodity?

Characteristics must be hard to replicate competitive advantageProduct must be distinguishableMust not rely solely on commodityMethodologyW. Buffetts most important skill!!!

Is the stock selling at 25% discount or at its real value?

Determine intrinsic value by analyzing business fundamentals:Include analysis of earnings, revenues and assetsUsually higher than its liquidation valueCompare companys intrinsic value to its current market capitalizationIf intrinsic value is at least 25% higher company has valueBuffets famous statementsRule 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."

Fools give you reasons, wise men never try. -Warren Buffett"Someone's sitting in the shade today because someone planted a tree a long time ago."

"Wall Street is the only place that people ride to in a Rolls Royce to get advice from those who take the subway."27Thank you!

Sources:http://www.investopedia.com/university/greatest/warrenbuffett.asphttp://www.investopedia.com/articles/01/071801.asphttp://www.investopedia.com/articles/06/threewisemen.asphttp://en.wikipedia.org/wiki/Warren_Buffetthttp://finance.yahoo.com/