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 |
Abstract Case Intro 1 Case Intro 2 Excerpts
Excerpts
Buffett’s Investment Philosophy
Buffett’s investment philosophy, which was instrumental in the making of Berkshire, was based on certain rudimentary principles. His philosophy, considered a theory in investment circles, was called Value investment. (Refer to Exhibit III for Berkshire’s Broad Economic Principles of Operation). Buffett was more interested in the intrinsic value of the stock as against its current market value. He identified stocks that traded below their intrinsic value owing to temporary factors. He classified the factors of value investment broadly into four components – Business, Management, Financial Measures, and Value..
Buffet’s Investments
Buffett had considered investing in H J Heinz right in the 1980s. In 2013, he teamed up with Brazil-based 3G capital to acquire the company for $23.2 billion, valuing each share at $72.5, Later on in 2015, Heinz merged with Kraft Foods. After the merger, Berkshire had a stake of 26.7% ($11 billion) in the merged entity..
Is buffett’s philosophy relevant?
Buffett did not seem convinced with his own philosophy. In 2016, Berkshire Hathaway bought 9.8 million shares in Apple. Buffett went on increasing his stake in Apple. After the investment, Berkshire owned over 5% in Apple..
Way Ahead
Berkshire Hathaway's portfolio of around 48 US-listed stocks lost around $38 billion in value over the three months ending December, the SEC filings noted, as the S&P 500 slumped nearly 15% in a global market sell-off triggered by slowing growth and a then-hawkish US Federal Reserve. Some of his favorite stocks like Well Fargo and Kraft Heinz and experimental stocks like IBM and Oracle had disappointed Buffett in the recent past. However, he was apparently unperturbed over the adverse developments..
Exhibits
Exhibit I: Berkshire Hathaway Vs S&P 500
Exhibit II: Investments with Largest Market Value
Exhibit III: Berkshire’s Broad Economic Principles of Operation (Abridged)
Exhibit IV: Kraft Heinz – Stock Price Chart (2016-2019)
Exhibit V: Kraft Heinz’s RoE during 2016-2018
Exhibit VI: Margins – IBM (2011-2018)
Exhibit VII: IBM Stock Price Chart
Exhibit VIII: Apple’s Share Price (January 2018 – January 2019)
Exhibit IX: Apple’s Gross Profit Margin
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