strategic thinker - warren buffet

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 April-2011 1 Warren Buffett Strategic Thinker 

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Page 1: Strategic Thinker - Warren Buffet

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 April-20111

Warren Buffett

Strategic Thinker 

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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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 April-20113

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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 April-20114

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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 April-20115

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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 April-20116

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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 April-20117

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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 April-20118

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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 April-2011 9

Berkshire Hathaway - Quot e

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 April-2011 10

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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 April-2011 11

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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 April-2011 12

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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