Case Study of Warren E. Buffet
In 1995 Berkshire Hathaway has made a bid for the shares of GEICO.
This report reviews the offer made by Warren Buffet and will try to
prove that the acquisition of GEICO will serve the long-term goal of
Berkshire Hathaway and the bid price was appropriate. Furthermore, it
will explain what may have caused for the share price increase for
Berkshire Hathaway at the announcement of GEICO’s acquisition.
Would the GEICO acquisition serve the long-term goals of Berkshire
Hathaway?
In 1976, Warren Buffet paid $45.7 million for 34.25 shares of GEICO.
Review of GEICO’s historical dividends shows that GEICO has been a
very profitable investment for Berkshire Hathaway. The growth rate for
1994 is a sharp increase, but even if the growth rate for 1994 is not
considered, GEICO’s historical increase in dividends has been
considerably high so that acquisition of GEICO will serve the
long-term goals of Berkshire Hathaway.
What might account for the share price increase for Berkshire Hathaway
at the announcement?
Review of Warren Buffet’s historical investment success might explain
the increase in share price for Berkshire Hathaway at the
announcement. Given that he has had a good track record, it is
expected that shareholders respond positively. In 1977, the price of
Berkshire Hathaway was $89 closing at $25,400 by 1995, an unparalleled
annual growth of 37.7%. In comparison, the growth rate of the S&P 500
over the same period was 14.3%. Warren Buffet’s formidable investment
performance was also demonstrated when Berkshire Hathaway acquired
Scott & Fetzer. Berkshire Hathaway paid $315 million for Scott &
Fetzer in 1985 after which they received significant dividends. Again,
Buffet’s investment performance on the acquisition of Scott & Fetzer
outperformed the S&P 500 evident by an internal rate of return (IRR)
of 26.4% including the 1994 cash flow or 14.9% without 1994 cash flow
on the Scott & Fetzer investment.
Clearly, Warren Buffet’s positive investment performance carried a
significant weight and influences the market to have a more optimistic
outlook on his investments. Conversely, his historical records of
investment success do add value to shareholders trust.
Was the bid price appropriate?
GEICO Corp was selling for $55.75 at the time Warren Buffet and
Berkshire Hathaway made an offer of $70 including a 26% premium over
the current GEICO stock price. One would expect that what appeared to
be an overprice bid would lead to a negative market reaction. On the
contrary, Berkshire Hathaway’s shares closed up 2.4% for the day for a
gain in market value of $718 million after the announcement. The
gain’s effect was twofold – it increased the value of GEICO shares
(34.25 million) Berkshire Hathaway already owned and it also made the
In 1800 Jefferson entered office with the intention to move away from the Federalist policies of Washington and Adams and to put the nation onto a path that he thought would be best. He wished to minimize the power of the central government by strengthening the state governments. “Our country is too large to have all its affairs directed by a single government…” (Document A). Jefferson and the Republican Party envisioned a government that was going to work for the people, a government with the people’s interests at heart. They believed that having stronger state governments would accomplish this. The leaders of a state were closer to the people they were governing; therefore they should know what the public needed. Document B refers to Jefferson’s belief in the strict interpretation of the Constitution, especially when it is about the freedom of religion. “Certainly no power to prescribe any religious exercise, or to assume authority in religious...
The Bernie Madoff Ponzi Scheme is a well-known case and is known as one of the biggest Ponzi scheme’s. In summary the scheme occurred for many reasons that I will some up into 3 points; A lack in competency by regulatory agencies, a lack of regulation, and finally a breach in ethics by Bernie Madoff himself. To explain further, the regulatory agencies like the lawyers and SEC are supposed to prevent schemes such as this one from happening but because they lacked the skills to correctly assess the situation, interpreting the number of tips they had received regarding scheme that had been filed, and to act on those in an efficient manner. One of the tips was made by Harry Markopolos in 2000, of who correctly predicted that Madoff was guilty of fraud. Even after this tip from Markopolos, Madoff was not arrested until 2009. Many family members were also a part of the fraud along with some non-family members such as Frank DiPascali and a team known as the 17th floor team, who helped Madoff carry out his fraud. The idea behind Madoff’s fraud was that he would produce false statements of their investments and when people wanted to pull out their investments, the money wasn’t actually there, which rightfully rose more than a few eyebrows and ultimately led to his arrest.
Bernard Madoff had full control of the organizational leadership of Bernard Madoff Investments Securities LLC. Madoff used charisma to convince his friends, members of elite groups, and his employees to believe in him. He tricked his clients into believing that they were investing in something special. He would often turn potential investors down, which helped Bernard in targeting the investors with more money to invest. Bernard Madoff created a system which promised high returns in the short term and was nothing but the Ponzi scheme. The system’s idea relied on funds from the new investors to pay misrepresented and extremely high returns to existing investors. He was doing this for years; convincing wealthy individuals and charities to invest billions of dollars into his hedge fund. And they did so because of the extremely high returns, which were promised by Madoff’s firm. If anyone would have looked deeply into the structure of his firm, it would have definitely shown that something is wrong. This is because nobody can make such big money in the market, especially if no one else could at the time. How could one person, Madoff, hold all of his clients’ assets, price them, and manage them? It is clearly a conflict of interest. His company was showing high profits year after year; despite most of the companies in the market having losses. In fact, Bernard Madoff’s case is absolutely stunning when you consider the range and number of investors who got caught up in it.
Robert E. Lucas Jr.’s journal article, “Some Macroeconomics for the 21st Century” in the Journal of Economic Perspectives, uses both his own and other economist’s models to track and predict economic industrialization and growth by per capita income. Using models of growth on a country wide basis, Lucas is able to track the rate at which nations become industrialized, and the growth rate of the average income once industrialization has taken place. In doing so, he has come to the conclusion that the average rate of growth among industrialized nations is around 2% for the last 30 years, but is higher the closer the nation is to the point in time that it first industrialized. This conclusion is supported by his models, and is a generally accepted idea. Lucas goes on to say that the farther we get from the industrial revolution the average growth rate is more likely to hit 1.5% as a greater percentage of countries become industrialized.
The three main crooks Chairman Ken Lay, CEO Jeff Skilling, and CFO Andrew Fastow, are as off the rack as they come. Fastow was skimming from Enron by ripping off the con artists who showed him how to steal, by hiding Enron debt in dummy corporations, and getting rich off of it. Opportunity theory is ever present because since this scam was done once without penalty, it was done plenty of more times with ease. Skilling however, was the typical amoral nerd, with delusions of grandeur, who wanted to mess around with others because he was ridiculed as a kid, implementing an absurd rank and yank policy that led to employees grading each other, with the lowest graded people being fired. Structural humiliation played a direct role in shaping Skilling's thoughts and future actions. This did not mean the worst employees were fired, only the least popular, or those who were not afraid to tell the truth. Thus, the corrupt culture of Enron was born. At one point, in an inter...
Jordan Belfort is the notorious 1990’s stockbroker who saw himself earning fifty million dollars a year operating a penny stock boiler room from his Stratton Oakmont, Inc. brokerage firm. Corrupted by drugs, money, and sex he went from being an innocent twenty – two year old on the fringe of a new life to manipulating the system in his infamous “pump and dump” scheme. As a stock swindler, he would motivate his young brokers through insane presentations to rile them up as they defrauded investors with duplicitous stock sales. Toward the end of this debauchery tale he was convicted for securities fraud and money laundering for which he was sentenced to twenty – two months in prison as well as recompensing two – hundred million in restitution to any swindled stock buyers of his brokerage firm (A&E Networks Television). Though his lavish spending and berserk party lifestyle was consumed by excessive greed, he displayed both positive and negative aspects of business communications.
What is the possible meaning of the change in stock prices for Berkshire Hathaway and Scottish Power plc on the day of acquisition announcement? Specifically, what does the $2.55 billion gain in Berkshire’s market value of equity imply about the intrinsic value of PacifiCorp?
Warren Buffet once said, “Someone is sitting in the shade today because someone planted a tree a long time ago” (Buffett, Cunningham 51). During the deepest and longest-lasting economic downturn in history, which sent Wall Street into a panic and wiped out millions of investors, the Great Depression, Warren Buffet was buying and selling his first stocks. Amid the difficult times, Warren Buffett became one of the greatest investors ever and is regularly ranked among the wealthiest people in the world with a net-worth of 66.7 billion dollars (“History”).
Unethical accounting practices involving Enron date back to 1987. Enron’s use of creative accounting involved moving profits from one period to another to manipulate earnings. Anderson, Enron’s auditor, investigated and reported these unusual transactions to Enron’s audit committee, but failed to discuss the illegality of the acts (Girioux, 2008). Enron decided the act was immaterial and Anderson went along with their decision. At this point, the auditor’s should have reevaluated their risk assessment of Enron’s internal controls in light of how this matter was handled and the risks Enron was willing to take The history of unethical accounting practic...
“Being a hero doesn't mean you're invincible, it means you are brave enough to stand up and do what's right¨ (Rick Riordan). For Warren Buffett he stands up for global problems. Warren Buffett, a business owner and investor from Omaha Nebraska, who is 87 years old, has a net worth of $85.2 billion and still works. By some, he is considered to be the most prosperous investor of all time. Everyone has a hero in their life whether it be a family member or a historical figure certain individuals inspire others, and my hero is Warren Buffet.
Experts say that bullying begins around middle school, where children are changing to young adults. In bullying there are three people involved the bully, the victim, and the bystander. The bystander also holds responsibility when bullying occurs, because they are present but never take part because they fear the intimidator. Often targets are considered to be “different” from others, and that consists of students having specials needs, being gay, bisexual, overweight, or most importantly students who are viewed as easy prey. When bullying is attempted it can ruin a student physically and emotionally influencing the capability of a pupil to learn. It is recorded that in the United States 160,000 teenagers skip school in order to avoid bullying, and one out of ten teens quits school because of continuous tormenting. In 2014 statistics in the U.S. showed that only 20-30 percent of students who are bullied tell an adult or the authorities. The only way bullying can be prevented is when schools make a great effort to create no tolerance programs, and effective rules. That will result...
Every year there is a ‘league table‘ published showing the level of economic growth achieved by each country. The comparison is made using each countries Gross Domestic Product, or GDP. An important factor to look at is the difference between actual and potential economic growth. Actual economic growth increases in real GDP. This increase can occur as result of using previously unemployed resources, or reallocating resources into more productive areas or improving existing resources. Whereas potential economic growth is the productive capacity of the economy. For example, it can be shown by the predicted ability of the country to produce goods and services. This changes when there is an increase in the quantity or quality of the resources. All countries have different ways of achieving this with the resources they have available to them. For this reason it party answers the question of why some countries are richer than others. It is widely thought that the productive capacity of an economy will increase each year largely due to improvements in education and technology. This will obviously differ from country to country. For example, in the UK the quality of fertilizer could be improved, hence forth increase the years fruit and vegetable output.
After the economic downturn in the 1980’s Ireland experienced a increase in employment which in turn then boosted competitiveness and caused rapid economic growth. This continued until 2000 when Ireland became level with western world in terms of wage levels. The growth was expected to gradual slow down, but con...
One of the main reasons for bullying is when the bully feels the need to be on top and picking on kids weaker than him/her is a way to get that feeling. Any children with disorders or disabilities are easy targets for bullies. Another reason for bullying is when the bully feels like he/she is better than everybody else. This is usually seen in groups of girls. Groups of girls are out to bully other girls. Popularity is a big thing girls use to bully other girls. When it comes to boys bulling other boys it normally has to do with whether or not they are athletic.
Bullying is unwanted, aggressive behavior among school aged children that involves a real or perceived power imbalance (Bullying Definition). Bullying happens because most bullies have a troubled life at home and take it out on other kids at school. People get bullied for many different reasons, including sexuality, weight, looks, skin color, religion, and disabilities. Bullying is a very serious and common problem in schools today. About 77% of students are bullied in some sort of way. Bullying causes mental, physical, and emotional pain to many students across America.