Warren Buffet Financial Case
Warren Buffet is the chairman and CEO of the Berkshire Hathaway and has been since 1965. Buffet, applying what he had been taught by Professor Benjamin Graham at Columbia, uses an investment strategy which that avoids risk and focuses on high returns over long periods of time. His company, Berkshire Hathaway is a holding company that has investments in various industries and businesses such as insurance, apparel, building products, finance and financial products, flight services, retail, grocery distribution, and carpet and flooring coverings. Buffet searches for healthy and profitable companies to buy and hold for long periods of time and he eliminates risk by only buying companies that are easy to understand. For example, Warren tries to stay away from technology firms (for the most part) because they are difficult to understand and it is not easy to see exactly where their money is coming from. He prefers companies like coca cola that have simply business models and steady revenues. Buffett believes that a firm gets its value from the amount of money it will bring in in the future. He looks at their cash flows and projects future cash flows to see how much money it will be making in the future. This strategy keeps him from getting caught up in the hype of popular companies that are being bought up in the market. He never buys things because they are popular, in fact that has nothing to do with his investment strategy. By looking at their cash flows and their growth rate, he eliminates a lot of the risk that comes along with buying stock. Also, by being a long-term investor he is more likely to make gains because short-term losses will not hurt him. Another strength that Berkshire Hathaway has is its diversity. It holds companies in a large number of industries and this protects them from taking a huge loss if there is an industry crash. They have holdings in insurance, apparel, building products, financial products, and many more. Their holdings are very diverse and it would take way more than an industry crash to hurt them financially. Warren’s investment strategy is world famous because of the results that he has had. He has consistently beaten the market and he clearly is doing something right. On the other hand, this does not mean that investing in complicated companies should be avoided completely. I believe that Warren’s strategy works great for him but it will not work as well for those of us without billions of dollars at our exposure. Investing at the level that most of us are at requires taking some risk and that would force us to deviate from Warren’s strategy.
This particular case study deals with Berkshire Hathaway’s acquisition of the electric utility company called PacifiCorp. PacifiCorp was bought out by MidAmerican Energy Holdings Company, which is a subsidiary of Berkshire Hathaway, from Scottish Power plc. On the day of the acquisition announcement, Berkshire Hathaway’s Class A stock