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Investment Principles, Strategies, and Decisions: An Inquiry into Warren Buffett`s Perspective on his Roller Coaster Ride with Select Stocks

Investment Principles, Strategies, and Decisions: An Inquiry into Warren Buffett`s Perspective on his Roller Coaster Ride with Select Stocks
Case Code: FINC172
Case Length: 15 Pages
Period: 2011-2019
Pub Date: 2021
Teaching Note: Available
Price: Rs.400
Organization: Berkshire Hathaway
Industry: Conglomerate
Countries: United States
Themes: Investment Decisions, Leadership & Values, Investment Philosophy, Stock Market
Investment Principles, Strategies, and Decisions: An Inquiry into Warren Buffett`s Perspective on his Roller Coaster Ride with Select Stocks
Abstract Case Intro 1 Case Intro 2 Excerpts

Abstract

As of 2019, US-based conglomerate Berkshire Hathaway (Berkshire) Inc., the fifth largest company in the S&P 500 Index, operated, owned, and held stakes in several companies like GEICO, Duracell, Helzberg Diamonds, Kraft Heinz, Coca-Cola, Bank of America, and Apple. The company whose Class A shares were valued at US$ 300,000 each, was also popular for its Chairman and CEO Warren Buffett, who was largely responsible for the investments that the company had made over the years. The returns on these investments topped all the US stocks and mutual funds in 40 years.

Buffett, the third richest person in the world with wealth of US$ 82.9 billion in 2019, was popular for his investment philosophy of value investing. He invested in securities that were priced low compared to their intrinsic worth. He believed in investing in companies whose business he understood, run by a management with the right orientation and rationality. It had also to be strong on financial indicators like Return on Equity, and create long term value for the shareholders. For several years, Buffett’s philosophy proved to be highly successful and yielded rich returns to the company.

Buffett, who generally shied away from technology companies, made his first investment in tech stock in 2011 when he invested in IBM. He bought the stock based on the company’s past performance and future goals. But the stock soon lost ground, and Buffett exited IBM. Later on, he invested in Oracle, but sold the stock within a quarter. Betting on the future of Apple, he invested in the company at the beginning of 2016. Apple went on to become Berkshire’s largest holding, making up for more than 21% of its portfolio as of early 2019, with Buffett claiming that Apple was more of a consumer product company and not a tech company. The shares of Apple started falling after the company faced several challenges due to ongoing US-China trade war.

At the same time, Buffett’s other investments in companies like Kraft Heinz did not yield the expected results. Another major investment of Berkshire – the one in Wells Fargo – also came under a cloud after the bank was caught in a fraud scandal. This case essentially debates the relevance and validity of Buffett’s investment principles in light of these five stocks. With the company set for a transition with the chosen successors ready to take over any time, does Buffett need to revise his philosophy to determine the future course of action for the company? Once the successors take over, should they continue with Buffett’s value investing or look for better ways of investing?

Issues

The case is structured to achieve the following teaching objectives:

  • To evaluate the value-centric and principle-centric leadership of Warren Buffett.
  • To understand the investment philosophy of Warren Buffett and the Warren Buffett Way.
  • To understand the succession challenges in Berkshire Hathaway.
  • To examine the value investment and growth investment trade-off.

Contents

Keywords

Berkshire Hathaway; Warren Buffett; Investment Philosophy; Selected Stocks; Portfolio; Value Investment; diversification; valuation; investment decisions

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