4. Biography/History
Bought 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
5. 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 for Berkshire Hathaway at
$8
Bought Amex stock after fraud scandal
Took control of Berkshire in 1965
6. Biography/History
Closed 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
7. 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
8. 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
9. 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?
10. 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
11. 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
12. 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”
13. 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.
14. Some Management Tips
Review annual reports from a few years back, paying
special attention to what management said then about
strategies for the 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 similar companies in the
same industry. It is not always easy to find exact
duplicates, but even relative performance comparison
can yield insights
15. What type of investor is
Buffett?
Value Investor
What is a value
investor, and what
makes Warren “the
best” ?
Amex
16. The Buffett Way
“Economic 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?
17. 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."
19. Methodology
1. Has the company consistently performed
well?
ROE for 5-10 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. 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. Methodology
W. Buffett’s mmoosstt iimmppoorrttaanntt sskkiillll!!!!!!
6.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 assets
Usually higher than 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. conclusion
Complete understanding of the
industry
Value investing (based on fundamental analysis)
Longevity (in established businesses, for long-term)
23. Questions?
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."
