CASE STUDY OF ORACLE OF OMAHA

ABSTRACT

The article dwells at length about the life of investment guru, Mr. Warren Edward Buffet. The case study focuses about his early life and how his personality was shaped. It focused on his investment nuggets, personal, professional and social life. Buffet’s principles and philosophy related to investments are highlighted with a message at the end calling the aspiring investors to take leaf out of his style and prosper.

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WHAT IS CASE STUDY?

Yin has defined case study as “an empirical inquiry that investigates a contemporary phenomenon with in its real life context, when the boundaries between phenomenon and context are not clearly evident, and in which multiple sources of evidence are used”.


WARREN EDWARD BUFFET:

“Only when the tide goes out do you discover who has been swimming naked”, Warren Buffet.

Mr. Warren Edward. Buffet has been crowned as the richest man in the world by Forbes with an estimated net worth of around US $ 62 billion recently. That too some one coming to number one slot in the financial services sector is something strange and unique to note. To be on the top of the world is something everyone craves as it is the most coveted position. Let us know how he made it possible surpassing Mr. Bill Gates, Chairman of Microsoft.

Mr. Warren Buffet is often called as the “Oracle of Omaha”. He was born on 30 Aug 1930 to his father Howard a stockbroker-turned Congressman in Omaha. During the course of his early life he came across with various people and all these things led to what he is now today. Besides he has entrepreneurial spirit and flair for investments. When he was eleven years old, he purchased 3 shares of Cities Services Preferred at $ 38 per share for both himself and his older sister Doris. Just after buying the stock it fell to just over $ 27 per share. He felt bit nervous but waited patiently till the stock went up to $ 40 and sold.

As a child he involved in business dealings that included purchasing bottles of cola cheaply and selling them for a profit. His basic strategy is to buy when in cheap, hold and then sell when in appreciation. As a teenager he knew more than his professor at the college level. At the age of 17 he made handsome money of US $ 5000 by delivering newspapers. He graduated from the University of Nebraska and post-graduated from the University of Columbia in the area of economics.

He has uncanny ability to spot the value stocks whose value is hidden and when unlocked would pay huge dividends.

Buffet learnt many tricks of the trade from his mentor – Ben Graham. He was also influenced by the investment style of Phil Fisher. Buying Berkshire Hathaway, a textile company was the turning point in his investment career. There were tough times while doing textile business and he changed his strategies with the changing times and ventured into other business areas like insurance but retained the name of Berkshire Hathaway. One success led to another success and he has grown steadily and consistently in his life. Now he is the Chairman and CEO of Berkshire Hathaway. And ultimately he has become a legend in investments. Below are the few investment nuggets useful for all aspiring investors.

INVESTMENT NUGGETS:

• Look at the company if its expenses are lower. If the expenses are more it will be a dent on its profits.
• Whether the company is having considerable profits for its expansions and diversifications.
• The company must have consistent and continuous earnings growth.
• Look at the company whether it is investing back its profits with its capital.
• Does the company have high and consistent Returns on Invested Capital?
• Whether the growth of the company is surpassing the inflation.
• Have a keen look at the track record of the company.
• Being in the debt for any company is not an issue. But what is to be noted is that whether the company is in a position to repay its debts.
• Always invest when there is a market scare. Be a value investor. Buy whenever the market is under correction.
• Ensure that debt to equity is low, or earnings to debt are high.
• Look at the fundamentals and also at the brand loyalty of the company.
• He strictly follows his mentor’s advice (Benjamin Graham’s) strategy of buying the scrips by comparing with their intrinsic value.
• Check whether the company has the consumer monopoly.

PERSONAL LIFE:

He is a humble person and leads a simple life. He is a great humanist and a philanthropist. He was giving more than $USD12 million each year to the Buffet Foundation. He declared that he would gradually give away 85 per cent of his Berkshire holdings to five foundations in annual gifts to stock, starting in July 2006. The largest contribution will go to the Bill and Melinda Gates foundation.

PROFESSIONAL LIFE:

He is thorough down to earth and he goes by logic and reasoning. He is basically a value investor. He lays stress on importance of integrity. He strongly believes in ethical values in his professional life. He is conservative in his investment approach. His critics say that he missed many opportunities because of his conservative approach.

SOCIAL LIFE:

He is born to give not to take. He has passion for bridge game. He spends twelve hours a week playing the game. He often plays with Bill Gates and Paul Allen. In 2007, he was listed among Time’s 100 most influential people in the world.

PRINCIPLES AND PHILOSOPHY:

• He predicts that the US dollar will lose value in the long run.
• He strongly feels that gold of no utility.
• For any business preservation of capital is vital. He says, “The first rule is not to lose. The second rule is not to forget the first rule”.
• He feels that investor of today does not profit from yesterday’s growth.
• In share market patience is the virtue.
• He strongly advises the investors to look at the intrinsic value.

MESSAGE:

People reached from nowhere to number one position. Buffet started with $ 100 thousand and now his net worth is $ 62 billion. Of course, his net worth fluctuates with the fluctuations in the share prices. The case study of Warren Buffet is a clear example for others to emulate and follow. Everything is possible in this world if there is proper preparation, passion, patience, perseverance and persistence.

T H E E N D