Warren E. Buffett 2005

Warren E. Buffett, 2005

This case begins by talking about the extremely smart investments and acquisitions that multibillionaire Warren Buffett made in 2005. Arguably acquiring PacifiCorp was one of the best investments recorded in history and this case explains the philosophies that lead Buffett to make this and many more great decisions in terms of business. The diversity of business activities of Berkshire Hathaway ( Buffett’s company) includes insurance, apparel, building products, finance and financial products, flight services and retail. Every single one of these industries has been successful under the great managing skills of the Nebraska native Warren Buffett who’s estimated net worth is $44 Billion. What lead Warrant Buffett to make such good decisions could be accounted to his various business philosophies that he acquired over the years of business and education. His philosophy in terms of investment was unusual and very effective, it was different to a lot of other investors, which is the key to his incredible success. Economic reality over accounting reality is a principle to Buffett’s consideration when making an investment, he believes accounting reality is too conservative and even though GAAP believes intangible assets have little or no value, the multibillionaire believes these are extremely important factors in order to make an educated decision to make a successful investment. If accounting reality was too conservative, one can determine that Warren Buffett can be aggressive in terms of business would tend to take risks. The case explains that this might be the case as he considers the cost of the lost opportunity, which means that in terms of making decisions he would always have an alternative and would compare in order to benchmark performance. Value creation was important to Buffett as well; evaluating intrinsic value is vital for Buffett because according to him this is the only logical way to measure the attractiveness of investments and businesses. As we can see Warren Buffett likes to predict the future in a sense when making an investment and he bets for the future. As he explains in an example about college education, one can determine the intrinsic value by looking at an individual who chooses to go to college instead of working and then compare the money he or she invested on that educations versus the amount of money they made after earning a college degree. Warren Buffett also focuses on diversification, after figuring out a business and focusing on it one can make better decisions instead of trying to make many decisions and being wrong in all of them, according to his words, many investors try to have many different stocks and in consequence they aren’t able to fully understand certain industries. Warren Buffett also believes that information has to be the key to making investments, emotion is not. The person who understands the market well is the person who will make the best decision. Many times individuals make investments before directing an analysis or gathering information, however according to Warren Buffett, this is a crucial mistake and it is something he avoids.

Putting all these philosophies together and some others, Warren Buffett was able to make an acquisition that will be remembered in history as one of the greatest ones. The way Warren Buffett made the decision shows that he is a person who understands the business principles well and also focuses on the important factors of business, which are many times disregarded by investors. It is important to remember that a good understanding of the market will make the decision making process a lot easier and to focus on that will probably lead to a successful decision.

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