Warren Edward Buffet (2)

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WARREN EDWARD WARREN EDWARD BUFFETT BUFFETT AND HIS AND HIS INVESTMENT INVESTMENT PHILOSOPHY PHILOSOPHY

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Transcript of Warren Edward Buffet (2)

Page 1: Warren Edward Buffet (2)

WARREN EDWARD WARREN EDWARD BUFFETTBUFFETTAND HIS AND HIS

INVESTMENT INVESTMENT PHILOSOPHYPHILOSOPHY

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WHO IS WARRENWHO IS WARREN

BUFFETT ?BUFFETT ?

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WARREN EDWARD BUFFETWARREN EDWARD BUFFET

Announced the second richest indivİdual in Announced the second richest indivİdual in the world with his $62 billion in 2009 by the the world with his $62 billion in 2009 by the Forbes magazine.Forbes magazine.

Donated the biggest amount money -$31 Donated the biggest amount money -$31 billion- to Bill and Melinda Gates Charitable billion- to Bill and Melinda Gates Charitable Foundation .Foundation .

Chairman and CEO of Berkshire Hathaway Chairman and CEO of Berkshire Hathaway Inc. –the biggest holding company of the Inc. –the biggest holding company of the world-world-

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The second largestThe second largest

holding company holding company

of the worldof the world

BERKSHIRE BERKSHIRE

HATHAWAY INCHATHAWAY INC..

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BERKSHIRE HATHAWAY INC.BERKSHIRE HATHAWAY INC. Incorporated in 1889 Berkshire Cotton Incorporated in 1889 Berkshire Cotton

Manufacturing.Manufacturing.

Merged with Hathaway Manufacturing in Merged with Hathaway Manufacturing in 1955.1955.

Textile producer.Textile producer.

Purchased two insurance company (National Purchased two insurance company (National Indemnity Company and National Indemnity Company and National Fire&Marine Insurance Company ).Fire&Marine Insurance Company ).

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Berhshire’s portfolio of businessBerhshire’s portfolio of business

InsuranceInsurance ApparelApparel Building productBuilding product Finance and financial products.Finance and financial products. Fight servicesFight services RetailRetail Grocery distributionGrocery distribution Carpet and floor coverings Carpet and floor coverings

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Berkshire’s Portfolio of BusinessBerkshire’s Portfolio of Business

Insurance;Insurance; The largest component of portfolioThe largest component of portfolio

Property,casualtyProperty,casualty Apparel;Apparel; Manufacturing and Distribution ofManufacturing and Distribution of footwear and clothing (uniforms active-footwear and clothing (uniforms active-

wear children’clotheswear children’clothes ) ) Building Products;Building Products; Manufacturing and Distribution of Manufacturing and Distribution of

building materials building materials

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Berkshire’s Portfolio of BusinessBerkshire’s Portfolio of Business

Finance and Financial ProductsFinance and Financial Products;; Proprietary investing ,manufacturing housingProprietary investing ,manufacturing housing

Fight services;Fight services; Aircraft,aviationAircraft,aviation

Retail;Retail; Retail sales of electronics,appliances,fine jewelery.Retail sales of electronics,appliances,fine jewelery.

Grocery Distribution;Grocery Distribution; Nonfood items,grocery itemsNonfood items,grocery items

Carpet and Floor CoveringsCarpet and Floor Coverings;; Carpet,floorCarpet,floor

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Buffett’s Investment PhilosophyBuffett’s Investment Philosophy

1) Economic reality,not accounting reality1) Economic reality,not accounting reality2) The cost of the lost opportunitiy2) The cost of the lost opportunitiy3) Value creation3) Value creation4) Measure performance by gain in intrinsic 4) Measure performance by gain in intrinsic

value not accounting profit value not accounting profit 5) Risk and discount rate 5) Risk and discount rate 6) Diversification6) Diversification7) Investing behavior should be driven 7) Investing behavior should be driven

information analysis and self-discipline not information analysis and self-discipline not by emotionby emotion

8) Alignment of agents and owners8) Alignment of agents and owners

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Buffett’s Investment PhilosophyBuffett’s Investment Philosophy

1) 1) Economic reality ,not accounting reality;Economic reality ,not accounting reality;

Accounting reality is conservative and governed Accounting reality is conservative and governed by GAAP.by GAAP.

Investment decision should be based on Investment decision should be based on economic reality of a business.economic reality of a business.

GAAP is based on GAAP is based on net profitnet profit; economic reality is ; economic reality is based on based on flows of cash.flows of cash.

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Buffett’s Investment PhilosophyBuffett’s Investment Philosophy

2) 2) The cost of the lost opportunityThe cost of the lost opportunity;;

An opportunity against the next best alternative An opportunity against the next best alternative the ‘lost opportunity’.the ‘lost opportunity’.

Buffett frames his choices as either/or decisions Buffett frames his choices as either/or decisions rather than yes/no decisions.rather than yes/no decisions.

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Buffett’s Investment PhilosophyBuffett’s Investment Philosophy

3)Value Creation3)Value Creation

Time is money.Time is money.

Buffett assesed intrinsic value as the present Buffett assesed intrinsic value as the present value of future expected performance.value of future expected performance.

Intrinsic value is Intrinsic value is the only logical waythe only logical way to to evaluate the attractiveness of investments.evaluate the attractiveness of investments.

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Buffett’s Investment PhilosophyBuffett’s Investment Philosophy

4)Measure 4)Measure performance by performance by gain in intrinsic gain in intrinsic value,not value,not accounting profitaccounting profit

The gain in intrinsic The gain in intrinsic value was value was analogous to the analogous to the economic profit and economic profit and market valuemarket value

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Buffett’s Investment PhilosophyBuffett’s Investment Philosophy

5) Risk and discount rate5) Risk and discount rate

Risk is the possibility of loss or injuryRisk is the possibility of loss or injury The more risk one took,the more one should get The more risk one took,the more one should get

paidpaid Discount rate determined by the risk of cash Discount rate determined by the risk of cash

flowsflows

Buffett saysBuffett says

‘ ‘Risk comes from not knowing what you are Risk comes from not knowing what you are doing.’doing.’

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Buffett’s Investment PhilosophyBuffett’s Investment Philosophy

6) Diversification6) Diversification

Purchasing far too many stocks rather than Purchasing far too many stocks rather than waiting for one exceptional company to shed waiting for one exceptional company to shed risk.risk.

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Buffett’s Investment PhilosophyBuffett’s Investment Philosophy

7) Investing behavior should be driven by 7) Investing behavior should be driven by information analysis and self-discipline information analysis and self-discipline not by emotionnot by emotion

Emphasized awareness and information Emphasized awareness and information

Buffett saysBuffett says

‘ ‘Anyone not aware of the fool in the market Anyone not aware of the fool in the market probably is the fool in the market.’probably is the fool in the market.’

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Buffett’s Investment PhilosophyBuffett’s Investment Philosophy

8) Alignment of 8) Alignment of agents and agents and ownersowners

I am a better I am a better businessman businessman because I am an because I am an investor and I am a investor and I am a better investor better investor because I am a because I am a businessman.businessman.

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