Warren E. Buffett, 2005

Read the case:

Introduction

  1. Understand the environment in which the company operates
  • The worldwide socioeconomic and political environment
  • The industry situation
  • The domestic environment

Introduction

The case discusses the history and background of one of the most successful entrepreneurs, Warren E. Buffett, and the company that he built Berkshire Hathaway Inc. as well as other important subsidiary that made this company very important within in the market. The investment genius of Buffett who is affectively call “Oracle of Omaha” is examined in such a detail ways. This company grew very rapidly and had many business strategies; but mainly the philosophy of Buffet. The case shows different ways on how the business operated and what were some worldwide economic effects and political environment. In a business like this; domestic environment is very important because it can affect the industry in many ways.

Buffet was  a hard core investor and as results his company and the entire business was mainly to invest in volume. As the case explains, he used four different strategies to understand what is was to be an investor. 1. Understand the business in which you are investing 2. was mainly to understand the fundamentals of economics 3. Find competent leadership honest, capable, hardworking leader are needed to lead companies with sustainable economic advantage and 4. Buy at the right price if you want an investment to pay off. With all these types of strategies; his company and the rest were able to perform and create a strong solid business environment. His experience, combined with a reputation for honest, hard work, and an encyclopedic knowledge of securities and finance stood him in a good stead. His work towards his company was unstoppable; and the business environment was well driven because he did not believe in stock tips; preferring instead that investors do the work, as he did, to find worthy of investment. He believed that all stewardship of funds demanded an accounting and that leaving money at rest was unconscionable when there were opportunities to put this event to work.

The worldwide socioeconomic and political environment 

The world socio-economic environment in 2005 was largely polarized. The worldwide economy had shown a positive growth in the year 2004 and it was anticipated that 2005 would be yet another great year. But China had been growing economically. The enormous growth of Chinese economy had let Chinese companies take over different international firms. China had started investing in the energy sector as well.

The growth of the Chinese economy was considered as a threat to the American economy and its international interests. China had been using its economic growth for its political influence. The increased political influence of China was not received as a positive signal by the US political leadership.

The domestic environment

Warren Buffett is one of the richest people in the world. Although, Buffett’s company the Berkshire Hathaway started as a cotton company that controls 50 % of the United States Market. Even though, Buffett’s company started as a cotton company yet buffett’s investment philosophy is different than others. Buffett’s philosophy is to invest into different varieties and in different sectors in the business field. Instead of, waiting for an exceptional company to investment in. Buffett’s investing technique is really different than what I have learned so far in college, and that is because the way things that Buffett consider before investing is the  simplicity of the business, operating history, the long-term return prediction, the quality of  its management, and how the firm will create value. these characteristics are all domestic characteristics to judge how well the company would be.

In addition, Buffett’s point of view in investing is basically buying the business itself or buying shares are the same thing there is no fundamental differences. Moreover, Buffett’s opinion into how to know whether to invest or not, is the relation between value destruction and value creation is correlated directly by the discount rate and required rate of return. As a result, Buffett looks into the company’s future prediction and stable earnings which shows the importance of the domestic environment if considering on investing.

In addition, buffet always invest into different sectors and fields in the business world such as: insurance, Apparel, building products, Finance and Financial products, flight services, retail, grocery distribution, and carpet and floor covering. As a result, this shows how the domestic environment of Berkshire Hathaway is really diversified and hold different cultures from different backgrounds. Having that said it shows how such a diversified domestic environment grow semi-rapidly and accurately, and that is if  and only if before investing in a company one should consider the domestic environment of the company that will be invested on. in the Warren E. Buffett, 2005 case have showed how important the domestic environment

Background:

Warren E. Buffett was involved in the business world almost all his life. He started since he was young as he saw his father dealing with business as well. Buffet had lived his educational life, and had experiences in other companies as well. After the great depression things were not looking so bright; and Buffet had created new strategies for the business. In 1962, Buffet started to buy shares in the company, (Hathaway)  believing that it’s then price was substantially below its intrinsic value. By 1963, Buffett and his associates were the largest stockholders and Buffet began to take more active interest in the company. His company background is so talented that many want to know the secret of investments. The majority of Buffets considerable was amassed through Berkshire Hathaway, for which is the largest shareholder and CEO once ranked as forbes wealthiest man in 2008, his net worth was estimated at roughly $44 billion. This company had a rapidly growth and it has kept the same strategy throughout the years. According to the Motley Fool last year was not kindley well for Hathaway, three components of the business are being tested: Insurance underwriting, BNSF, the stock portfolio and put options. These are certain problems that the company is dealing with. Its past, show very great numbers. The present is having difficulty getting the company back on track. The future looks like will be very interesting for them because if the company is facing problems now things could go downhill for them.  This could cause possible effects of changes in the environment, both domestic and worldwide.

Analyze and Risk and returns of the options:

Buffet will be successful with the present venture in the long run. To be successful and overcome the short run management and financial difficulties, Buffet would need strategic planning. There are no serious risks involved in the options opted by Buffet. This option does not provide any opportunity for any competitor to come in to compete on bidding for the acquisition of PacificCorp Energy Company. There is also no risk of leasing payments involved here. Buffet is well known for the success they had with the previous acquisitions. The fact that Buffet is famous for valuable management and thoughtful investments in acquiring other companies, the price of the stock was anticipated to increase.