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The shareholders of berkshire hathaway should endorse the acquisition of pacificorp

Why is it accorded such importance? How is it estimated? What are the alternatives to intrinsic value? Why does Buffett reject them? Intrinsic value is per-share progress. Buffett assessed intrinsic value as the present value of future expected performance.

Because if focuses on ability to earn returns in excess of the cost of capital, not accounting profit. Only logical way is to evaluate the relative attractiveness. The gain in intrinsic value could be modeled as the value added by a business above and beyond the charge for the use of capital in that business.

Accounting profit, performance of Berkshire by its size, consolidated reported earnings e. Accounting reality was conservative, backward looking, and governed by GAAP measures in terms of net profit.

Investment decisions should be based on economic reality. This includes intangible assets such as patents, trademarks, special managerial expertise, reputation, etc.

Purinex, Inc Warren Buffett Essay

The definition of intrinsic value according to Mr. Buffet is the present value of all future expected cash flows or performance. The measurements of intrinsic value are focused on the ability of the company to earn a return in excess of the cost of capital including the opportunity cost. Intrinsic value is not based only on the net profit. Alternatives to intrinsic value: Buffet believes that the true value of a company is based on its intrinsic value not on its accounting profit.

Financial statements prepared by accountants are conformed around rules that do not adequately represent the economic reality of business. Buffet rejects the technical analysis that attempts to predict the stock prices based on momentum of trends. He believes in long term investment. Buffet rejects the efficient market hypothesis theory EHM. He believes that there are opportunities out there.

Investing should be based on information analysis of the company. Be prepared to identify points where you agree and disagree with him. Warren Buffett has a very simple method of investment strategy compared to other investors. We will discuss whether we agree or disagree with each one individually.

  1. Investing should be based on information analysis of the company. He believes that there are opportunities out there.
  2. We agree with his belief on the alignment of owners and investors. Buffet is the present value of all future expected cash flows or performance.
  3. Buffett assessed intrinsic value as the present value of future expected performance.
  4. Even he, the guru of investments is losing money, so we know that the risk is there. Factors that make it a good acquisition include the fact that PacifiCorp is a low-cost energy producer but has the biggest market share among the energy companies which is 1.

By analyzing expected returns of an investment compared to the rate of return of using that same investment money in another investment, Buffett takes a simple idea that everyone uses in almost every decision, and applies it to a much more complex investment strategy. Buffett uses the third element of intrinsic value instead of book value or historical data to determine his investment choices.

We agree with this element, but do believe a combination of the two methods would work better to show historically how the company has performed, and how much that company will be worth in the future.

The rate of return reflects more of the economic value of an investment. In the fourth element, Buffett measures performance by per share basis. We do agree with his reasoning for using this method, but we think overall performance should be measured as well to show a better figure of what the whole is worth compared to the parts.

Buffett uses a 30 year U. We disagree with his choice for rate of return because all investments have a degree of risk, and return should be factored according to that level of risk.

  • Accounting reality was conservative, backward looking, and governed by GAAP measures in terms of net profit;
  • Buffett uses a 30 year U;
  • Buffett not believing in risk is like someone not believing we breathe air.

Buffett not believing in risk is like someone not believing we breathe air. The sixth element is also a point of disagreement for me. What Buffett does not realize is that by saying he does not believe in diversification, he is being a hypocrite.

The shareholders of berkshire hathaway should endorse the acquisition of pacificorp

Berkshire Hathaway itself is a massively diverse company with several subsidiaries and holdings in many different industries from apparel to energy. Buffett may own most of his stock in his own company, but he knows by diversifying Berkshire, he will avoid adding more risk, which is exactly the strategy that is used by other investors when diversifying their stocks.

We agree with the seventh element that investment decisions should be made by doing proper research on information about the company, and not by following an anonymous tip or a gut feeling. Management should have most of their wealth in company stock so as to serve the shareholders better in day-to-day decision making that affects the value of their investments.

Buffet does not believe in diversification. We believe that diversification helps in times like the one that the market is having right know.

This also means that market risk is still there. We believe that Mr. Buffet has not had a situation in the economy such as the one that the country is having now. Even he, the guru of investments is losing money, so we know that the risk is there.

  1. The gain in intrinsic value could be modeled as the value added by a business above and beyond the charge for the use of capital in that business. Accounting profit, performance of Berkshire by its size, consolidated reported earnings e.
  2. Berkshire should look at adding more of these type safer investments to their portfolio. Investing should be based on information analysis of the company.
  3. What Buffett does not realize is that by saying he does not believe in diversification, he is being a hypocrite. He believes in long term investment.

We agree on his philosophy on investing behavior. It should not be driven by emotion or hunch but should be a well thought out plan that came about by information, analysis and self-discipline. If you go by hunch or emotion then anyone can work you up and sell you the worst deal of your life, but make you think it is the best one you will ever get.

We agree with his belief on the alignment of owners and investors. This added net income will increase shareholder wealth in Berkshire Hathaway and provide a stable long term investment for the future.

Berkshire should look at adding more of these type safer investments to their portfolio. The Berkshire Hathaway shareholders should endorse the acquisition of PacifiCorp. It took a while for Mr. Factors that make it a good acquisition include the fact that PacifiCorp is a low-cost energy producer but has the biggest market share among the energy companies which is 1.

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