Warren Buffett's Biography

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It shows Mr. Warren Buffett life journey and his successful thoughts

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Warren Buffett's Biography

  1. 1. Warren Buffett- “the Sage of Omaha”
  2. 2. Agenda  Bio  Management style  Investment approach  Methodology
  3. 3. Biography/History  Bought first stock at age 11  Invested savings into farmland  Had pinball machine business and sold fora profit  Attended Columbia University where Ben Graham was a professorat the time  Worked forBen Graham for $12,000 a year
  4. 4. Biography/History  Opened his own partnership in Omaha  By 1961, he had 5 partnerships  In 1962, he merged partnerships to make Buffett Partnerships, Ltd.  Bought stock forBerkshire Hathaway at $8  Bought Amex stock afterfraud scandal  Took control of Berkshire in 1965
  5. 5. Biography/History  Closed partnership in 1969 and worth millions personally  In 1974 lost over50% of wealth  In 1981 Buffett and Munger create Berkshire Charitable Contribution plan  Crash of ‘87 lost $342 million personally
  6. 6. Biography/History  Buffett worth $44 billion today  Berkshire has $248 billion in assets  CEO  Charles Munger, vice-chairman  Met in 1959  Goal to increase 15% a year
  7. 7. philanthropy  85% of wealth given to philanthropy  Bill and Melinda Gates Foundation  Health and learning  $1.5 billion annually  The rest to foundations run by his children and founded by late wife
  8. 8. 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?
  9. 9. Rationality  If a company generates high returns on equity, the duty of management is to reinvest those earnings back into the company, forthe 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 higherrates  In Buffett’s mind, only one choice is rational, that is option 3
  10. 10. Candor  Buffett believes that a managerwho confesses mistakes publicly is more likely to correct them  Managers who discusses the failures of the company with shareholders are admirable
  11. 11. Resisting the Institutional Imperative  What is the institutional imperative?  the lemming-like tendency of corporate management to imitate the behaviorof other managers, no matterhow 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”
  12. 12. Management Style  He will not interfere with the running of the company.  He will be responsible forhiring and setting the compensation of the top executive.  Capital allocated to the business will have a price tag (a hurdle rate) attached.
  13. 13. Some Management Tips  Review annual reports from a few years back, paying special attention to what management said then about strategies forthe future.  Compare those plans to today’s results: How fully were they realized?  Compare the strategies of a few years ago to this year’s strategies and ideas: How has the thinking changed?  Compare the annual reports of the company you are interested in with reports from similarcompanies in the same industry. It is not always easy to find exact duplicates, but even relative performance comparison
  14. 14. What type of investor is Buffett? Value Investor  What is a value investor, and what makes Warren “the best” ?  Amex
  15. 15. The Buffett Way  “Economic moat”  Intrinsic value  Do what is the best foryou, not what people think you should be doing. So you say Ican make great returns here?
  16. 16. Buffet’s famous statements  RuleNo.1: Neverlosemoney. RuleNo.2: Never forgetruleNo.1.”  “Thestockmarketis designedtotransfermoney fromtheactivetothepatient.”  “Themostimportantqualityforaninvestoris temperament, notintellect.”  "Riskcomes fromnotknowingwhatyou're doing."
  17. 17. His Portfolio
  18. 18. performance Berkshire Hathaway’s Class A shares vs. S&P 500 Berkshire Hathaway’s Class A & B shares vs. S&P 500
  19. 19. Methodology 1. Has the company consistently performed well?  ROEfor5-10 years 1. Has the company avoided access debt?  Small amount of debt indicating that earnings growth is being generated from equity as opposed to borrowed money 1. Are profit margins high? Are they increasing?  Look back at least 5 years
  20. 20. Methodology 4. How long has the company been public?  At least 10 years  Recent IPO is not a target 5. Do the company’s product rely on commodity?  Characteristics must be hard to replicate – competitive advantage, or“economic moat”  Product must be distinguishable  Must not rely solely on commodity
  21. 21. Methodology W. Buffett’s most important skill!!!W. Buffett’s most important skill!!! 6. Is the stock selling at 25% discount orat its real value?  Determine intrinsic value by analyzing business fundamentals:  Include analysis of earnings, revenues and assets  Usually higherthan its liquidation value  Compare company’s intrinsic value to its current market capitalization  If intrinsic value is at least 25% higher– company has value
  22. 22. conclusion  Complete understanding of the industry  Value investing (based on fundamental analysis)  Longevity (in established businesses, forlong-term)
  23. 23. 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."
  24. 24. Sources: http://www.investopedia.com/university/greatest/warrenbuffett. asp http://www.investopedia.com/articles/01/071801.asp http://www.investopedia.com/articles/06/threewisemen.asp http://en.wikipedia.org/wiki/Warren_Buffett http://finance.yahoo.com/

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