This document provides an overview of Warren Buffett's biography and investment approach. It describes how he began buying stocks at age 11 and worked for his mentor Benjamin Graham. It outlines his strategy of focusing on companies with sustainable competitive advantages, high returns on equity, and purchasing stocks at a discount to their intrinsic value. The document also discusses Buffett's management philosophy of looking for rational, candid and independent thinking among a company's leadership.

1. Warren Buffett- “the Sage of Omaha”
Ping Hu
Matt Neeve
Olena Olenchuk
Rachel Caldie

2. Agenda
 Bio
 Management style
 Investment approach
 Methodology

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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. What type of investor is
Buffett?
Value Investor
 What is a value
investor, and what
makes Warren “the
best” ?
 Amex

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. Buffet’s famous statements
 RuleNo.1: Neverlosemoney. RuleNo.2: Never
forgetruleNo.1.”
 “Thestockmarketis designedtotransfermoney
fromtheactivetothepatient.”
 “Themostimportantqualityforaninvestoris
temperament, notintellect.”
 "Riskcomes fromnotknowingwhatyou're
doing."

17. His Portfolio

18. performance
Berkshire Hathaway’s
Class A shares vs. S&P 500
Berkshire Hathaway’s
Class A & B shares vs. S&P 500

19. Methodology
1. Has the company consistently performed
well?
 ROEfor5-10 years
2. Has the company avoided access debt?
 Small amount of debt indicating that earnings growth is
being generated from equity as opposed to borrowed
money
3. 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 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. conclusion
 Complete understanding of the
industry
 Value investing (based on fundamental analysis)
 Longevity (in established businesses, forlong-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."

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/