File Name: berkshire hathaway and geico an ma case study .zip
Berkshire Hathaway , American holding company based in Omaha , Nebraska , that serves as an investment vehicle for Warren Buffett. In the early 21st century, it was one of the largest corporations, measured by revenues, in the United States. Berkshire Hathaway traces its history back to two Massachusetts textile firms: Hathaway Manufacturing Company incorporated and Berkshire Cotton Manufacturing Company incorporated
Capitalists and financiers—United States. Portfolio management. B84 L8 DDC First, I would like to thank Eddie Ramsden at the London Business School, who encouraged me to turn what was originally a personal research project into a full-fledged book. Without his vision on what was still miss- ing, I would have concluded that there were already too many books writ- ten about Warren Buffett and would never have ventured to write about this topic in this form.
I want to thank Bridget Flannery-McCoy and Stephen Wesley at Columbia University Press, who directly worked with me and together spent countless hours giving me feedback and editing my writing. Thank you so much for your dedication to this project and for sharing your talent. Without you and the help of the entire Columbia University Press organiza- tion, this book, as it is written, would not have been possible.
Very important, I would like to acknowledge my current colleagues at Shareholder Value Management AG in Frankfurt, Germany for the critical role that they have individually played.
Thank you, Frank Fischer and Reiner Sachs, for creating an organization that has provided me with both an amazing environment and the freedom to continually improve my understanding of value investing, without which I could not have written this book.
You are, honestly, each in your own way, two of the most incred- ible and positive individuals I have ever had the opportunity to work with.
Thank you also to my colleagues Suad Cehajic, Gianluca Fer- rari, Ronny Ruchay, Simon Hruby, and Cedric Schwalm for our frequent discussions on this topic and for taking time out of your busy schedules to read my manuscript drafts and give me detailed feedback.
Together, this organization and its individuals have added very significantly to what I know about value investing and about life. I also would like to thank my previous colleagues at Forum Family Office in Munich. All the individuals in that organization, led by Dr. Bur- khard Wittek, have taught me much of the remainder of what I know about value investing.
Special thanks goes to Frank Weippert, Till Campe, Jeremie Couix, and Sasha Seiler, who even today are wonderful sparring partners for investment ideas and my valued peers in the German value investing community that I am glad to be a part of. From this network, I also want to thank Norman Rentrop and Jens Grosse-Allermann, who host the yearly German investor get-together at the Berkshire Hathaway annual meeting.
I have had the pleasure of attend- ing on several occasions and have found this a great resource and service especially for the German value investor community. I owe a significant debt to several other individuals: Rob Vinall of RV Capital, who helped review several chapters of this book and who over the years has taught me about many aspects of value investing for which I am grateful; Frederik Meinertsen of SEB, who took an interest in my rather academic work and gave valuable feedback on several parts of this book; Chris Genovese of Sanborn Maps, who was responsible for historical archiving of the company as of , and who helped me significantly in my research for original materials for that company; Professor T.
Lindsay Baker at Tarleton State University, who helped me greatly with the case study of Dempster Mill Manufacturing; and all the individuals, including Ralph Bull and Daniel Teston, who allowed me to use their artwork and photography in my book.
Finally, I want to thank my loving family, Nora, Lily, my parents Xuan- yong and Lizhu, and my brother Felix, who have all supported me in this long endeavor, putting up with my countless hours typing away on my computer at home, at the beach, and everywhere in between.
Thank you so much for your understanding, your patience, and your love. Likewise, Omaha, Nebraska is no longer an unknown midwestern town for anyone in the investment community.
Moreover, what can we learn from his experience? Specifically, I look at the twenty investments Buffett made that I feel had the largest material impact on his trajectory. I selected a cross-section of different types of investments and investments I found especially informative. I also considered the relative size of each investment at the time it was made.
My approach in analyzing these key investments was to look at the detailed actions Buffett took when he made his investment decisions and try to understand from a third-party perspective what rationales he or any investor was likely to have seen in each situation. In this way, unlike the many biographical books written about Buffett, this book focuses on telling the story of Buffett only as it relates to his key investments.
My overall aim is to give read- ers a realistic analysis of the key investments that Buffett made and then have them draw their own insights and conclusions. The book consists of three sections, ordered chronologically. The second section details nine investments Buffett made between and , the first two decades when Berkshire Hathaway served as his investment vehicle.
The third and final section focuses on the period at Berkshire since Individual chapters in each section focus on the specific investments, treating each as a case study. The final section of the book reflects upon the broader evolution of Buffett as an investor. In evaluating an investment, my approach was, first, to understand the qualitative factors and context of the investment and then its valuation. For the valuation, I accessed the intrinsic value based primarily on earnings that I considered the sustain- able level of earnings for the company.
Often this included adjustments made based on the cyclicality of a business. In a few instances, where I felt it was warranted, I used an asset-based valuation instead of, or in addition to, the earnings-based valuation. The qualitative assessment and the valuation methodologies I have chosen are not the only ways to assess these companies. My analysis has a significant degree of interpretation, and 1. In sum, however, this book aims to provide an accurate investment analysis of the companies based on the available data.
Following two years of work- ing as a securities analyst at the Graham-Newman Corporation and the well-documented experience of studying at the Columbia Business School under Benjamin Graham, Buffett established Buffett Partnership Limited BPL with the funding of a few friends, family, and close associates.
Foremost is the focus on being a buyer at a good price. Second, Buffett adopts a strong view of a moving market; Mr. Market either overvalues or underval- ues a company, but over the long run does pass around the intrinsic value. Third, Buffett also pays attention to investor psychology as pertains to who is investing in the market and what impact this investor thinking has.
Spe- cifically, he mentions several times the concept of whether investors have steady hands and the manias of different periods. Such an open-mouth policy could never improve our results and in some situations could seriously hurt us. For this reason, should anyone, including partners, ask us whether we are interested in any security, we must plead the Fifth Amendment. At times BPL would invest up to 35 per- cent of its net assets into a single company and at times, given the opportu- nity, take a majority ownership stake in the company.
When Buffett ran his partnership during the late s and s, the United States was enjoying relatively calm and economically prosperous times: on the heels of the Korean War in the s and in the midst of the Cold War at the beginning of the s, the U.
In the s the Dow climbed from approximately points in to roughly points in a percent increase. Although there was a small recession at the beginning of the s that saw the Dow pull back into the s in from a high in the s at the end of a decrease of 27 percent , the Dow would rise again to over by a 70 percent increase from the low.
The economy continued to grow through the Kennedy years, with signs of the first serious concerns only surfacing at the end of the s when inflation rates started increas- ing ever more quickly. By the time Buffett closed his investment partner- ship in , economic prosperity abounded to a level where he found it increasingly difficult to find the value investments that he was looking for.
This was in fact one of the key rationales for ending his partnership amidst great performance. In the s a young surveyor by the name of D. Sanborn was hired by the Aetna Insurance Company to produce several maps of the city of Boston.
Aetna used these maps to assess the fire insurance risks for specific buildings in the areas surveyed. The maps produced proved so successful that D. Sanborn started his own company, which came to be known as the San- born Map Company. Throughout the s and s, Sanborn expanded regionally, and by the late s he had already mapped over fifty cities. To better understand Sanborn Maps and what it produced, it is impor- tant to understand the fire insurance industry. During the s and s, this industry migrated over to the United States, administered first by British companies that had the royal decree to operate this business, and later by American firms that pioneered the industry locally.
By the late s, fire insurance companies were prominent in larger cities such as Boston and Philadelphia. The methodology used thus required a field inspection by a professional surveyor. As field inspections were both time-consuming and very expensive, a company that produced maps with enough detail to assess fire risk appropriately had obvious advantages. More impor- tant, rather than using the generated information once for one insurer, a map had the advantage of scale; once produced, a map could be used by multiple insurance companies to assess the risk for the same set of underly- ing structures.
Companies such as TGS-Nopec, for example, benefit from similar benefits of scale. TGS-Nopec conducts 2D and 3D surveys of ocean floor regions such as the Gulf of Mexico and then sells this information to major oil companies who are interested in drill- ing in the region. Although the initial cost of producing such detailed maps was extremely high, once Sanborn had invested the large up-front costs of mapping a city, its continued operations in a region were much less capital intensive.
This meant that as time went on, Sanborn would make very nice margins. However, if a competitor were to enter that same market and both Sanborn and the competitor had to share the revenues available from customers in the city, the smaller amount of revenues in a divided market would no lon- ger justify the up-front investment of mapping. Hence, once Sanborn had mapped a city, no second competitor would enter a market. This second point left the industry ripe for consolidation.
Given this background, it is not difficult to understand how a well-run company like Sanborn Maps, which focused meticulously on training its staff to produce exacting and high-quality maps, and which was aggressive in its expansion both organically and later via acquisitions, would become very successful.
By , when Warren Buffett invested, Sanborn had been the domi- nant player in its industry for several decades. For an idea of the product that Sanborn produced, see figures 1. Sanborn map of the city of Boston key Sanborn map of the city of Boston Insurance Map of Boston. New York: The commercial product sold to its customers would typically be a large volume of maps that weighed approximately fifty or so pounds, which would cover the detailed layouts for a particular city.
It provided a critical service to its customers and in return got steady and profitable recurring revenues. Instead of using maps to gauge insurance risks based on structures and surroundings, insurance companies could now depend on algorithmic calculations based on financial information such as costs of the structures.
For someone considering investing in Sanborn Maps when Buffett was investing, the assessment likely would have been as follows: Sanborn was a near-perfect business for a long time, a sole provider of a critical service, with high returns on capital; however, in the last several years prior to , the business had faced serious substitution by newer technology, which had clearly and significantly eroded its core business within the fire insurance industry.
Despite its proud heritage, to an analyst who just started looking at the business, the business would have looked rather poor fundamentally as it seemed to be in a structural decline.
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Buffett was born in Omaha , Nebraska. He developed an interest in business and investing in his youth, eventually entering the Wharton School of the University of Pennsylvania in before transferring to and graduating from the University of Nebraska at He went on to graduate from Columbia Business School , where he molded his investment philosophy around the concept of value investing pioneered by Benjamin Graham. He attended New York Institute of Finance to focus his economics background and soon after began various business partnerships, including one with Graham.
The information found in this document may only be used for educational or personal use purposes and any reproduction, copying, or redistribution electronic or otherwise, including on the World Wide Web , in whole or in part, is strictly prohibited without the express written permission of John Yannone. You should be aware that investment markets have inherent risks and there can be no guarantee of future profits. Information contained herein is obtained from sources believed to be reliable, but its accuracy cannot be guaranteed. Any investments recommended by John Yannone should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company. The author has made such material available for nonprofit educational purposes.
The financial world set a record in for mergers and acquisitions. The author has an explanation for this persistent failure and offers a way forward. Acquirers, he notes, tend to look at acquisitions as a way of obtaining value for themselves—access to a new market or capability.
Read the full text here. Warren Buffett released his annual letter to Berkshire Hathaway shareholders on Saturday. Read the full text here:.
Benjamin Graham, Becky Quick CNBC : If you could keep one company that Berkshire owns, either a wholly- owned subsidiary, or that Berkshire owns a common equity in, which one would you keep and why? It goes back to the -- 62 years ago it changed my life. It's also a wonderful company. I would have both things going for me, but that if I hadn't of gone to GEICO when I was 20 years-old and had a fellow there explain the insurance business to me, my life would be vastly different. CNBC interview March 13, Two of the greatest "Value" investors of all-time owe a substantial part of their wealth and public reputations and deserved accolades - to a singular great Growth company, the Government Employees Insurance Company GEICO.
L'investitore intelligente. Come arricchirsi quando gli altri perdono manual take connect on this article or you should directed to the able booking create after the free registration you will be able to download the book in 4 format. Not Buffett. He lives in the same residence in Omaha, Neb. Buffett has no intention of putting his own home up for sale. Warren Buffett is the godfather of modern-day investing. For nearly 50 years, Buffett has run Berkshire Hathaway, which owns over 60 companies, like Geico an.
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