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8/6/2019 Strategic Thinker - Warren Buffet
http://slidepdf.com/reader/full/strategic-thinker-warren-buffet 1/13
April-20111
Warren Buffett
Strategic Thinker
8/6/2019 Strategic Thinker - Warren Buffet
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April-20112
Who is Warren Buffet
� One of the most successful investor s in the world.
� Primary shar eholder, Chair man and CEO of Berkshir e Hathaway.
� Ranked as the world's wealthiest per son $62.0 Billion in 2008
� Ranked as the third wealthiest per son $50 Billion in 2011.
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Career
� Employed f r om 1951±54 at Buffett-Falk & Co., Omaha as aninvestment salesman.
� Fr om 1954 ±1956 at Gr aham-Newman Corp., New York as a securitiesanalyst.
� Fr om 1956 ±1969 at Buffett Associates, Ltd., Omaha as a gener al par tner.
± Raised $105,000 f r om family and f riends
± Result: ear ned mor e than 30% annually, while the gener al market ear ned only about 8% annually
� Fr om 1970 ± Pr esent at Berkshir e Hathaway Inc, Omaha as itsChair man, CEO.
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Philosophy
� Fr om the school of value investing, look for securities with prices thatar e unjustif iably low based on their intrinsic wor th.
� Seek pr oducts that ar e benef icial and of high quality but under-priced.
� Tries to f ind those items that ar e valuable but not r ecognized by themajority of other buyer s.
� Seeks not capital gain but owner ship in quality companies extr emely capable of gener ating ear nings.
� He isn't concer ned with whether the market will eventually r ecognize itswor th; he is concer ned with how well that company can make money as a business.
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Equity Investing Strategy
� Buffet: ³we want the business to be one
± That we can under stand
± With favor able long-ter m pr ospects
± Oper ated by honest and competent people
± Available at a very attr active price
� We try to buy into businesses with favor able long-ter m economics. Our goal is to f ind an outstanding business at a sensible price, not amediocr e business at a bar gain price´
� ³Gr owth is always a component of value.
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Methodology
� Has the company consistently per for med well?
± Looks at ROE to see whether or not a company has consistently per for med well in comparison to other companies in the same industry.
± ROE = Net Income / Shar eholder's Equity
± Looking at the ROE f r om the past f ive to 10 year s to get a good idea of
historical per for mance.
� Has the company avoided excess debt?
± Pr efer s small amount of debt so that ear nings gr owth is being gener ated f r om shar eholder s' equity as opposed to borr owed money.
± debt/equity r atio = Total Liabilities / Shar eholder s' Equity
� Ar e pr of it mar gins high? Ar e they incr easing?
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Methodology
� How long has the company been public?
± Consider s only companies that have been ar ound for at least 10 year s
± Historical per for mance demonstr ates the company's ability (or inability) toincr ease shar eholder value
� Do the company's pr oducts r ely on a commodity? ± He tends to shy away f r om companies whose pr oducts ar e indistinguishable
f r om those of competitor s, and those that r ely solely on a commodity suchas oil and gas.
� Is the stock selling at a 25% discount to its r eal value?
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Berkshire Hathaway - Shares Held as
of 9/30/08
Company % of Portfolio
ConocoPhillips 8.17%
Pr octer & Gamble Co. 8.00%
Kr aft Foods Inc. 5.62%
Wells Far go & Co. Del 3.55%
Wesco Finl Corp. 2.91%
US Bancorp 2.55%
Johnson & Johnson 2.44%
Moody's 2.34%
Wal-Mar t Stor es, Inc. 1.71%
Anheuser Busch Cos. Inc. 1.29%
American Expr ess Co. 1.28%
Union Pacif ic Corp. 0.91%
M & T Bank Corpor ation 0.84%
Washington Post Co. 0.83%
Nike Inc. 0.73%
USG Corpor ation 0.63%
Costco Wholesale Corp. 0.49%
Car max Inc. 0.37%
Comcast Corp 0.34%
Company % of Portfolio
Gener al Electric Co. 0.28%
Inger soll-Rd Company LTD. 0.25%
Bank of America Corp. 0.25%
Eaton Corpor ation 0.23%
United Health Gr oup Inc. 0.23%
Lowes Companies Inc. 0.22%
Sun Tr usts Banks Inc. 0.21%
Nor folk Souther n Corp. 0.18%
NRG Ener gy, Inc. 0.18%
Coca Cola 0.16%
Sanof i Aventis 0.16%
Wabco Holdings Inc. 0.14%
Home Depot Inc. 0.14%
United Par cel Ser vice Inc. 0.13%
Ir on Mountain Inc. 0.12%
GlaxoSmithKline 0.09%
Gannett Inc. 0.08%
Tor chmark Corp. 0.05%
Comdisco Holding Co. 0.02%
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Berkshire Hathaway - Quot e
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Golden Investment Rules
� Don¶t worry about what the stock market will do. Focus on what thecompany will do.
� Find companies with endless demand for their pr oducts.
� Stick to what you know. Bill Gates is a good f riend, and I think he may be the smar test guy I ever met. But I don't know what those little thingsdo. So I didn¶t invest in Micr osoft.
� Don¶t buy stocks with an exit str ategy. Buy to keep.
� Bet on what you know. Never bet on the unknown.
� Be suspicious of companies that tr umpet ear nings pr ojections and gr owth expectations.
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Golden Investment Rules
� Always invest in a business you under stand, with favor able long-ter meconomics, able and tr ustwor thy management, and a sensible pricetag.
� A simple r ule dictates my buying: Be fear ful when other s ar e gr eedy, and be gr eedy when other s ar e fear ful.
� Good investment decisions ar e not about f inding the biggest motor, butthe most eff icient motor.
� For ce your self to write down why you ar e pur chasing a stock it mightkeep you f r om making some dumb decisions.
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Advice to young people
� Stay away f r om cr edit cards (bank loans) and invest in your self
� Money doesn't cr eate man but it is the man who cr eated money.
� Live your life as simple as you ar e.
� Don't do what other s say, just listen them, but do what you feel good.
� Don't go on br and name; just wear those things in which you feel comfor table.
� Don't waste your money on unnecessary things; just spend on themwho r eally in need r ather.
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