"BUFFETTOLOGY" (MARY BUFFETT & DAVID CLARK).   Term Paper ID:25399 Click to get this paper

Essay Subject: Critical review of work on billionaire Warren Buffett's investment philosophy & strategies.... More...

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Paper Abstract: Critical review of work on billionaire Warren Buffett's investment philosophy & strategies. Paper Introduction: Introduction Warren Buffett is one of the wealthiest Americans today, but gained that wealth through investing, not through running a company which produces a product or service for sale to others. Buffett's company, Berkshire Hathaway, is the most expensive stock traded on the New York Stock Exchange, and his company's performance mirrors his own personal success. Buffett counts other wealthy Americans, including Bill Gates of Microsoft, among his close friends, but has chosen not to publish books on his investment strategy. The annual reports of Berkshire Hathaway are replete with information about the company's activities, and others have analyzed his strategy and noted his published comments from interviews. His success has generated considerable interest in his methods. In 1997, his daughter-in-law, Mary Buffett, published Buffett Text of the Paper: The entire text of the paper is shown below. However, the text is somewhat scrambled. We want to give you as much information as we possibly can about our papers and essays, but we cannot give them away for free. In the text below you will find that while disordered, many of the phrases are essentially intact. From this text you will be able to get a solid sense of the writing style, the concepts addressed, and the sources used in the research paper. 28). If an investor isinterested in a particular company, it is up to that investor to learnabout the company by examining the raw data, making the requisitecalculations, then determining whether the company is worth pursuing and atwhat price. Critique Providing information about how to find good companies for investmentopportunity is not the only aid that the authors give their readers. References Buffett, M., & Clark, D. When the market suffers losses due to extraneous variables andshort-term investors, those who want to emulate Buffett should view thesituation as a prime buying opportunity since they can expand theirportfolios with considerably less expense than if stocks were pricedaccording to their (in his opinion) inherent value. Buffett places the greatest emphasis not on external business factors,such as the interest rates set by the Federal Reserve, but on businessfundamentals (p. In offering tips for identifying excellent businesses, the authorsinitially present three guidelines: look for businesses with brand names,that are used up quickly, and which are required by other companies to stayin business; look for companies that specialize in communications productsoffering a repetitive service; look for companies that provide repetitiveservice that is consistently in demand (p. This can help investors sort through the many "expert"opinions now available both through the traditional business press and onthe Internet, and Buffettology even dedicates two chapters to the subjectof how to find companies which might be worth an investor's attention. Despite this, the book does offer well-thought out reasons forwhy Buffett has made the decisions he has, and gives the reader plenty toconsider when making his or her own investment decisions. Theybegins the book with a brief overview of those (including Graham) whoinfluenced Buffett and what he learned from each, and then explore basicbusiness terms and explanations. The book concludes with a section detailing individual companies anda case study which can be used to evaluate some 54 companies outlined inthe text. This is an important part of Buffett's strategy; it is not until aninvestor decides that a company is worth purchasing that the comparison ofthe current price against an attractive price is performed. (1997). Mary Buffett also provides mathematical tools which are relativelysimple and which can be used to quickly establish benchmark positions for acompany. When Buffett followedthis strategy, he found that he was left with stocks which wereunderperforming (because they never reached their intrinsic value), so hechanged his philosophy and his success rate. The author do not explore, forobvious reasons, how others might have fared taking a more speculativeapproach. According to the authors, Buffett considers only two questionsfundamental to the successful investor: what to buy, and at what price (p.65). According to his daughter-in-law, there is danger in relying on otherpeople's information and other people's opinions. This follows Buffett's long-term investment strategy, and puts him at direct odds with Graham, whosuggests that stocks should be sold when they reach their intrinsic valueto take advantage of more favorable opportunities. Investment Strategy/Philosophy Buffett's fundamental strategy is to think of himself not as apurchaser of shares of stock, but as a purchaser of companies. Grahamtaught Buffett at Columbia University, and also hired Buffett at his NewYork investment company. Buffett alsofavors holding a relatively small portfolio which offers greater controland the opportunity to remain current on opportunities and challengesfacing all of the companies within the portfolio (p. This chapter is short and may appear a bit simplistic tothose readers who have taken basic accounting, but its presentation is well-laid out and easy to follow; for one thing, the authors use small amounts(1 s of dollars) in order to make a point, so the reader does not getbogged down in the arithmetic. This research examines the book and considers theinvestment strategies and philosophy of one of the nation's most successfulpersonal investors. If a company demonstrates excellence in its fundamentals, its stockprice may well be higher than what Graham would consider acceptable andstill be acceptable to Buffett from a strictly business perspective. From Buffett'sstandpoint, penny stocks are worth far more than those with much higherprices, and some stocks with high absolute prices may be more valuable thanthose with more "affordable" prices. Where Buffett's philosophy and strategy fail those who would emulatehim is in the details. 33). If a stock is performing according toexpectations and producing a reasonable rate of return, then it should notbe sold in favor of a speculative purchase. Conclusion In all, Mary Buffett has produced a work which gives insight into howone of America's most successful investors achieved that success. 177). New York: RawsonAssociates. Evaluation of Strategy/Philosophy Buffett's strategies as laid out by the authors appear straightforwardenough. These tools identify the predictability of earnings (p. 119). 191). Buffett parts company with Graham in the sense that Graham emphasizedfinding "bargains" in the marketplace where Buffett accepts the idea thatprices can vary wildly from one company to another yet still make businesssense. At that point, and only at thatpoint, does the investor set out to determine a buy range for the stockprice. This gives him greaterpersonal control over the management of the organization and allows him tohelp shape the strategic direction that the company takes. Graham, in turn, learned from Edgar Smith, whoheld that companies which reinvest their earnings in their business aremore likely to be successful than those which do not; this was a lessonwhich Buffett later took to heart and retained earnings is one of the itemsthat he pays careful attention to in the companies he owns (p. In the next chapter, theauthors point out that many good companies can be found by wandering thelocal supermarket to see what goods others (and oneself) purchase; in thelong-term, companies such as Coca-Cola and Wrigley gum are likely to besuccessful (p. Such overviews are useful because theyhelp the reader understand what the authors are seeking to accomplish, andprovide a useful frame of reference so the reader can decide if theinformation which follows is in keeping with the reader's own philosophy. The annual reports of Berkshire Hathaway are repletewith information about the company's activities, and others have analyzedhis strategy and noted his published comments from interviews. What thebook does not take into account is the fact that the stock market duringBuffett's years of investing has reached unprecedented price levels, so itis unclear whether Buffett's extraordinary success is due to his own geniusfor investing or to external forces. Buffett's company, BerkshireHathaway, is the most expensive stock traded on the New York StockExchange, and his company's performance mirrors his own personal success.Buffett counts other wealthy Americans, including Bill Gates of Microsoft,among his close friends, but has chosen not to publish books on hisinvestment strategy. The authors also provide detailed instructions on how to place valueon a business. According to Buffett, the stock market will rewardcompanies with higher stock prices (greater value) if the fundamentals arestrong. Graham can be credited with giving Buffett thestrong belief that shareholders are owners, not merely investors. Whilediversification offers protection from risk, Buffett finds that thegreatest protection from risk comes form having a strong, manageableportfolio which relies on long-term performance and potential rather thanshort-term gains. In 1997, his daughter-in-law, Mary Buffett, published Buffettology (with David Clark), in whichshe explores his strategy and some of the factors which led to hisinvestment methods. 195), theinitial rate of return (p. Introduction Warren Buffett is one of the wealthiest Americans today, but gainedthat wealth through investing, not through running a company which producesa product or service for sale to others. 127). Buffettology. His own philosophy builds on the work of several notableeconomists and investment advisers who came before him, particularly on thework of Benjamin Graham. His successhas generated considerable interest in his methods. 199) and the earnings per share growth rate (p.2 1). Elementary as this chapter may be, it isalso critical for the sections which follow, and lays important groundworkfor helping the reader determine how much to pay for a particular stock. It is well and good to postulate that the key tosuccessful investing is merely deciding what to buy and at what price, butdetermining both of these factors in the equation can be difficult.Determining what to buy requires that investors sort through vast amountsof data which were not available when Buffett began his investing career.Buffett warns against getting bogged down in details, and instead remindsthose around him that the critical information remains the same: financialstatements and company performance (p. If an investordecides that a particular business has sound fundamentals, then thegroundwork is laid for making a purchase. Ideally, hebuys entire companies; when that is not possible, as with companies such asCoca-Cola, he buys significant amounts of stock. Buffett's philosophy on selling stocks is simple: excellent stocksare never sold (p. 55). Key to this strategy is the what to buy question because itdetermines which stocks an investor will track, which he or she willpurchase, and which ones will be divested from a portfolio. If this paper is not what you are looking for, you can search again: Search for: or Click here to request an essay written just for you.