Warren buffett qweq
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Warren Buffett- the Sage of OmahaPing HuMatt NeeveOlena OlenchukRachel Caldie
AgendaBioManagement styleInvestment approachMethodology
Biography/HistoryBought first stock at age 11 Invested savings into farmland Had pinball machine business and sold for a profit Attended Columbia University where Ben Graham was a professor at the time Worked for Ben Graham for $12,000 a year
Biography/HistoryOpened 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
Biography/HistoryClosed partnership in 1969 and worth millions personally In 1974 lost over 50% of wealth In 1981 Buffett and Munger create Berkshire Charitable Contribution plan Crash of 87 lost $342 million personally
Biography/HistoryBuffett worth $44 billion todayBerkshire has $248 billion in assetsCEOCharles 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 3
CandorBuffett 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
Resisting 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.
Some 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
What type of investor is Buffett?Value Investor What is a value investor, and what makes Warren the best ? Amex
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?
Buffets 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."
performanceBerkshire Hathaways Class A shares vs. S&P 500Berkshire Hathaways Class A & B shares vs. S&P 500
MethodologyHas the company consistently performed well?ROE for 5-10 years Has the company avoided access 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 advantage, or economic moatProduct must be distinguishableMust not rely solely on commodity
MethodologyW. 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 value
conclusionComplete understanding of the industryValue investing (based on fundamental analysis)Longevity (in established businesses, for long-term)
Great Buffet Quotes:
"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."