Discussion Questions: Case 01, “Warren E. Buffett”
4430.02
1. In finance we talk about the risk-return trade-off. What is this?
a. What contributes to return?
b. What contributes to risk?
2. What is the relevance of time-value of money?
a. How do we use this to assets stock price?
b. What are the components of the computation?
3. Over the last year, the price of Berkshire Hathaway stock has fallen.
a. How much? A & B shares?
b. Does Buffett’s asset mix reflect the benefits of diversification?
4. Buffett lists eight elements to his investing philosophy. Discuss
a. Economic reality, not accounting reality.
b. The cost of the lost opportunity.
c. Value creation; time is money.
d. Measure performance by gain in intrinsic value, not accounting profit.
e. Risk and discount rates.
f. Diversification.
g. Investing behavior should be driven by information, analysis, and selfdiscipline.
h. Alignment of agents and owners.
5. Discuss the acquisition of MidAmerican Energy Holdings Company.
6. Discuss the acquisition of PacifiCorp.
a. Discuss the criteria listed in Exhibit 8.
b. Why do we need the information provided in Exhibit 9?
c. What does enterprise value refer to vis-à-vis market value?
d. What is the price to be paid for PacificCorp? Is it too much?
7. How has Buffett been doing lately?
a. What has he invested in?
b. Do you think that his cash position is a positive or negative to overall
returns?
8. In the context of the Canadian economy, do you think that there are acquisitions
of real assets that a Canadian Buffett might be interested in acquiring?
a. Where would you go to find high intrinsic value?