Warrent Buffet by Robert Heller

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Warren Buffett
Business Masterminds

By Robert Heller

Introduction

• All his investments were channeled through Berkshire Hathaway. • Buffett snubbed high-tech super growth stars and bough massive stakes in ordinary shares in long-established giants like AMEX, Coca Cola and Gillette • Never invest unless you can find something worth buying • He is interested only in realities and is free from any illusions • Common sense and consistent rationality win the day even in irrational markets

• He always looked for businesses whose intrinsic value was greater than the stock price • Anyone who invested $10,000 in Berkshire Hathaway in 1965 would now be worth $51 million • Warren Buffett is worth $40 billion – almost all of it is invested in Berkshire Hathaway • Berkshire also owns General Re, America’s largest re-insurance company which cost $22 billion in 1998 • Buffett’s unique success as an investor has depended on others not following his ideas • Berkshire had a net worth of $57.4 billion in May 1999 • Buffett almost always purchases in cash and not in stocks (save for General Re and 4.3% share in McDonalds in 1995) • Buffett prefers companies that are focused on a single powerful brand that has a dominant share in an easily understood market • 74% or Berkshire’s assets consist of shares in other companies • Buffett presides over $82 billion in wholly owned operating companies which employ no less than 47, 566 workers • Insurance investments bring in $14 billion, home furnishings $793 million, flight services $850 million and Scott Fetzer (everything from vacuum cleaners to encyclopedias) $1 billion • Most conglomerates have subtracted rather than added to the value of their subsidiaries • Buffett is striving to build a company that will outlast him: a portfolio for stock market investments would not serve that purpose

Chapter 1

• Buffett maintains that market values diverge often markedly, from the intrinsic value of a business which represents real and lasting worth of its economic attributes • Buffett looks at companies that have a history of stability as well as above-average performance • It is simply more probable that a company with a good history will remain good than a bad company, based on historical record • “Choose a few stocks that are likely to produce above-average returns over the long haul, concentrate the bulk of your investments in those stocks, and have the fortitude to hold steady during any short-term market gyrations”. • Fund managers use a shot-gun approach rather than a rifle approach – buying a variety of stocks to spread the risk • Buffett beliefs that rationality rules in all matters, including how you identify an outstanding company. He applies 3 non-financial crieteria: o It is simple and understandable

o It has a consistent operating history
o It has favorable long-term prospects
• If you cannot understand the business, you cannot make a rational judgment of its investment value – why go into a situation where one arm is tied behind your back? • Buffett bets on probabilities and on the long-term

• The company must also enjoy a management that follows three requirements: o It must be rational
o It must be candid with shareholders
o It must resist the irrational tendency of corporate leaders to imitate other managements’ practices and policies, irrespective of their stability or sense • Buffett watches indicators that specifically relate to managerial excellence: o Return on equity (not earnings per share)

o Owner earnings
o Profit margins
o ROI profits (which must create at least $1 of market value for every dollar reinvested) • This narrows the list of possible investment opportunities considerably, given the above criteria and that you must understand...
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