Warren Buffett

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Transcript of Warren Buffett

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COMMUNICATORFIGUREHEADDISSEMINATORRESOURCE ALLOCATORINNOVATORENTREPRENEURTRUSTWORTHYUNBIASED, MOTIVATORLIAISON AND SYMPATHETICRISK TAKERPHILANTHROPISTCONCERN FOR PEOPLEEXTROVERSIONRATIONALHUMILITY

TRAITS/CHARACTERISTICS OF WARREN BUFFET

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• Communicator-Warren Buffet is a skilled communicator in all aspects of life. Communication is the real key of leadership. Skilled communicators have an appreciation for positioning in the business world. Warren Buffet is experienced at positioning himself at the right place at the right time. Warren Buffet has the understanding of the people he is trying to reach and what he can and cannot hear from the people

• Figurehead- As a CEO of the “Berkshire hathway, he use to perform ceremonial and symbolic duties.

• Disseminator-Warren Buffet can send a message through an open door and does not have to push the message through a wall. Rational persuasion tactic is being used here.

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Resource allocator-Mr. Buffet's continual approach of analyzing both possible investment choices, market trends, and the ability to place management resources of the right caliber in the right position has consistently brought this investor to the forefront amongst peers and the marketplace.Innovator- At the core of every sound investor is a creative innovator. In the number-heavy world of global investing, innovative thinking is critical. Innovative investors decipher future trends, spot likely winners by combining science (financials) with art (acuity and perception) and continuously mitigate risk.

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• Entrepreneur-Warren Buffet's is a self empowered leader, because he is loyal, sets goals, plans a strategy for achievement, and stays committed until he accomplishes his purpose. Up to date, he is the greatest stockbroker of all-time. He is a very conservative investor that prefers to invest in companies that sell name brand products that he uses.

• Trustworthy-He buys the company with the intentions of keeping it forever. Usually, the management team of each company is the same staff that sold it Warren Buffet from the beginning. He stays loyal to his partners, and the team works their best to keep him happy. inspirational appeal is shown here.

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• Unbiased, motivator-Warren “told ABC News “Nightline” that being born into wealth did not entitle his children” (Harris, 2006). In addition, he told Fortune magazine that, “A very rich person would leave his kids enough to do anything, but not enough to do nothing." (Harris, 2006) In other words, he wants his children to work earn their money and value hard work and smart choices.

• Humility-In the year 2006, Warren’s first annual donation to the Bill and Melinda Gates Foundation was $1.5 billion and the rest was divided among the four charities. He was the first person to make a donation better than Bill Gates, the richest man in the world

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• Liaison and sympathetic-The personality of Warren Buffet ties to the Social Cognitive Level, because he tries to understand and make sense of other people. He observes the differences in social knowledge when dealing with people. Social cognition refers to making sense of ourselves, others, and how the information is used.

• Risk taker- While the company suffered a rare decline in net worth of $11.5 billion during the 2008 global financial crisis, prompting Mr. Buffett to admit he “did some dumb things in investments”, it bounced back strongly with a $21.8 billion gain in net worth during 2009.

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Succession planningImmaterialist

SimplicityPhilanthropist

Warren Buffett tends to be a level 5 leader

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• Philanthropist-He decided to donate 85% of his money to charity. Warren Buffet is not a huge spender. In fact, he still lives in the same house he bought 40 years ago.

• Concern for people-He buys the company with the intentions of keeping it forever. Usually, the management team of each company is the same staff that sold it Warren Buffet from the beginning. He stays loyal to his partners, and the team works their best to keep him happy. inspirational appeal is shown here.

• Extroversion-Warren “told ABC News “Nightline” that being born into wealth did not entitle his children” (Harris, 2006). In addition, he told Fortune magazine that, “A very rich person would leave his kids enough to do anything, but not enough to do nothing." (Harris, 2006) In other words, he wants his children to work earn their money and value hard work and smart choices.

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Rational-Warren “told ABC News “Nightline” that being born into wealth did not entitle his children” (Harris, 2006). In addition, he told Fortune magazine that, “A very rich person would leave his kids enough to do anything, but not enough to do nothing." (Harris, 2006) In other words, he wants his children to work earn their money and value hard work and smart choices.

• Humility-In the year 2006, Warren’s first annual donation to the Bill and Melinda Gates Foundation was $1.5 billion and the rest was divided among the four charities. He was the first person to make a donation better than Bill Gates, the richest man in the world

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• Superior business leader and American investor Warren

Buffett is often called “Oracle of Omaha” or the “Sage of Omaha” and philanthropist

• Warren Buffett is known for his economical and plain lifestyle• Warren Buffett decided to make a commitment to give his

fortune to charity back in June 2006. Buffet's charity donation is approximately $30 billion, which is the largest donation in the history of the United States. The donation was enough to more than double the size of the foundation with 83% of it going to the Bill and Melinda Gates Foundation.

• • The following quotation from 1988 highlights Warren Buffett's

thoughts on his wealth and why he long planned to re-allocate it:

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• “I don't have a problem with guilt about money. The way I

see it is that my money represents an enormous number of claim checks on society. It's like I have these little pieces of paper that I can turn into consumption. If I wanted to, I could hire 10,000 people to do nothing but paint my picture every day for the rest of my life. And the GDP would go up. But the utility of the product would be zilch, and I would be keeping those 10,000 people from doing AIDS research, or teaching, or nursing. I don't do that though. I don't use very many of those claim checks. There's nothing material I want very much. And I'm going to give virtually all of those claim checks to charity when my wife and I die. (Lowe 1997:165–166)”From a NY Times article: "I don't believe in dynastic wealth", Warren Buffett said, calling those who grow up in wealthy circumstances "members of the lucky sperm club".[80] Buffett has written several times of his belief that, in a market economy, the rich earn outsized rewards for their talents:

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• “A market economy creates some lopsided payoffs to participants. The right endowment of vocal chords, anatomical structure, physical strength, or mental powers can produce enormous piles of claim checks (stocks, bonds, and other forms of capital) on future national output. Proper selection of ancestors similarly can result in lifetime supplies of such tickets upon birth. If zero real investment returns diverted a bit greater portion of the national output from such stockholders to equally worthy and hardworking citizens lacking jackpot-producing talents, it would seem unlikely to pose such an insult to an equitable world as to risk Divine Intervention.[81

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• In 2007, Buffett was listed among Time Magazine’s 100 Most Influential People in the World. (Wikipedia, 2007)

• Experience and research has shown little evidence that an individual who comes to power is a “born leader.” Warren Buffett took the falls that any other leader has to take. Warren Buffett learned from his mistakes and turned his mistakes into a positive thing. Warren Buffett shares his leadership at all organizational levels and Buffett is empowered to share leadership responsibilities.

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Management Tenets

Buffett’s three management tenets concern the evaluation of management quality

• Is management rational?• Is management candid?• Does management resist the institutional

imperative?

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Rationality• If 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 rates

buy growth return the money to the shareholders, who then might

have a chance to reinvest the money elsewhere at higher rates

• In Buffett’s mind, only one choice is rational, that is option 3

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Candor

• Buffett 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 admirable

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Resisting the Institutional Imperative

• What 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”

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Management Style

• He 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.

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Buffet’s famous statements

• Rule 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."

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performance

Berkshire Hathaway’sClass A shares vs. S&P 500

Berkshire Hathaway’sClass A & B shares vs. S&P 500

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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/

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