12 Basic Immutable Tenets
As we all know Warren Buffett may be the most successful investor in the world. Some people try to dismiss Buffetts’ prowess of picking successful securities on the basis of a certain degree of luck or inside information that the regular small investor could never hope to have. However what many people do not understand is that, according to Robert G. Hagstrom, Buffett does not invest in stocks but in companies and their underlying businesses. and instead of luck Buffett uses his twelve immutable tenets. These twelve tenets are broken into four sections of the companies: 1) Business, 2) Management 3) Financial and 4) Market. By analyzing 3Ms’ annual report, its financial statements, and by examining all aspects of the company and its’ industry we can come to a conclusion of whether or not 3M would make an attractive investment to Buffett.
The first group of Buffetts’ tenets is the Business tenets. The business tenets are broken into three areas of concentration. The first business tenet is the business must be simple and understandable. 3M has thousands of different products, a few of which are simple (and thus interesting to Buffett) such as Post-It Notes, Scotch Tape, adhesives, and cleaning agents. But some of 3Ms’ other products are not as simple such as flexible circuits, and electronic and liquid crystal displays. These highly technical products would be out of Buffetts’ “circle of confidence”, products that Buffett does not know very much about and therefore Buffett would not be able to interpret and react to developments with as much confidence. The second business tenet is that the business must have a consistent operating history. Companies with a consistent operating history are firms that are in a stable industry, have spent years producing the same product, and that are not currently involved in changing directions. 3M could easily be categorized as having a consistent operating history as shown by its strong core products (Post-It notes, Scotch tape, Scotch guard etc…) which have dominated their market for years. Also 3Ms’ consistency can be measured by its’ longevity in the fact that 3M was established over 100 years ago in 1902. The last of the business tenets is favorable long term prospects. Favorable long term prospects ca...
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...he last group of tenets, the market tenets, helps the investor decide if the price of the shares is acceptable. The first market tenet is deciding the value of the business. To value a business Buffett estimates a companies total future cash earnings and discounts the owners’ earnings by a risk free rate (30 year T-bond). 3M had total owner earnings of $2,690,000,000 in 2003. If we assume that owners’ earnings will grow by 12% per year for the next ten years (which is what analysts predict as the industry as a whole is expected to grow 11% per year) we can calculate that 3Ms’ intrinsic value in 2003 would be $35,085,216,000. Even if 3M grows at 5% per year the company would still be worth $25,780,818,000. The final market tenet, buying at attractive prices, is buying at a sensible price that will give your investment a “margin of safety”, and also buying at prices that are below their indicated value. 3Ms’ value is calculated at $63,480,000,000. This value is almost double our calculated intrinsic value, which would indicate to us that the stock price is too high and that 3M would not represent a good investment until the price falls to a level that would give a margin of safety.
Andrew Jackson signed the indian removal act in 1830. This act allowed him to make treaties with the natives and steal their lands. The Trail of Tears was a forced relocation of more than 15,000 cherokee Indians. The white men/people gave the natives 2 options: 1. Leave or 2. Stay and Assimilate (learn our culture). The natives couldn’t have their own government. There were 5 civilized tribes including the cherokees. They learned english and went to american schools and when the cherokees went to court they won.
Back in 1830, Congress passed the Indian Removal Act. This act required the government to negotiate treaties that would require the Native Americans to move to the west from their homelands. Native Americans would be moved to an area called the Indian Territory which is Oklahoma and parts of Kansas and Nebraska. Some tribes that were to be moved are Cherokee, Creek, Seminole, Choctaw, and Chickasaw. All of the other tribes had relocated in the fall of 1831 to the Indian Territory besides the Cherokee who did not relocate until the fall of 1838. They did not move from their homeland without a fight. Their homeland was parts of Georgia, Alabama, Tennessee, and North Carolina. They started this march in the fall of 1838 and finished in early
President Andrew Jackson wanted the white settlers from the south to expand owning land from Five Indian tribes, which was called Indian Removal Policy (McNamara). The Five Indian tribes that were affected were Choctaws, Muskogee, Chickasaws, Cherokees, and the Seminoles. In the 1830, the Removal Act went into effect. The Removal Act gave President Andrew Jackson the power to remove Indian tribes living east of the Mississippi river by a negotiate removal treaties (James). The treaties, made the Indians give up their land for exchange of land in the west (James). There were a few tribes that agreed to sign the treaties. The others that did not sign the treaty were forced into leaving their land, this was known as the Trail of Tears.
Unfortunately, this great relationship that was built between the natives and the colonists of mutual respect and gain was coming to a screeching halt. In the start of the 1830s, the United States government began to realize it’s newfound strength and stability. It was decided that the nation had new and growing needs and aspirations, one of these being the idea of “Manifest Destiny”. Its continuous growth in population began to require much more resources and ultimately, land. The government started off as simply bargaining and persuading the Indian tribes to push west from their homeland. The Indians began to disagree and peacefully object and fight back. The United States government then felt they had no other option but to use force. In Indian Removal Act was signed by Andrew Jackson on May 18, 1830. This ultimately resulted in the relocation of the Eastern tribes out west, even as far as to the edge of the Great Plains. A copy of this act is laid out for you in the book, Th...
In May 1830, Congress passed the Indian Removal Act which forced Native American tribes to move west. Some Indians left swiftly, while others were forced to to leave by the United States Army. Some were even taken away in chains. Andrew Jackson, the seventh president of the United States, strongly reinforced this act. In the Second State of the Union Address, Jackson advocated his Indian Policy. There was controversy as to whether the removal of the Native Americans was justified under the administration of President Andrew Jackson. In my personal opinion, as a Native American, the removal of the tribes was not in any way justified.
As he recounts in "Doing What Matters," Mr. Kilts was fortunate to have a wise board that included Warren Buffett and Henry Kravis. Mr. Kilts says that in Mr. Buffett's view, unrealistic earnings estimates were the problem. Mr. Buffett made his opinion known "both at Gillette board meetings and in public comments," Mr. Kilts writes, quoting him saying: "For a major corporation to predict that its per share earnings will grow over the long term at, say, 15 percent annually, is to court trouble." And: "Managers that always promise to 'make the numbers' will at some point be tempted to 'make up' the numbers.
Known for being an internationally successful philanthropist, Warren Buffet has great knowledge of how a business functions. Because of this, he has written several essays that discuss much of the responsibilities involved with business ownership. Growing up in a family that has been involved in ownership of local business, I can relate to Buffet’s worries of business failure he talks about in his essay, The Anxieties of Business Change. I have seen two companies that are similar in function have two completely different outcomes in terms of profits, but could not understand the reasoning behind it. After reading Buffet’s essay, which discussed reasons for econimic loss in a company, I support his argument. He claims that success of a company, measured in economic returns, ultimately comes down to the type of business you enter. If a business is not in demand, no matter how hard you work towards making a company in that field of business financially successful, you will not reach your goal.
The company, General Mills, for which I was assigned, proved to be a worthwhile investment researching since it contains a large portion of the market share of its “niche,” that being breakfast cereals and the like. In conducting the research necessary to find out if a potential investor might strike interest upon General Mills, we find out a myriad of things. By drawing our attention towards the spreadsheet, which contains the bits of information we need to infer conclusions, we can see the patterns that develop over a 5 or 10 year period involving such things as: stock price, EPS, ROI, and many others. The following will give some insight into the history of General Mills among other things.
Buffett now spent his days analyzing S&P reports, and looking for investment opportunities. It was during this time Buffett and Graham realized the difference in their philosophies. Although this problem occurred the two managed to overcome it temporarily. During 1950-1956 Buffett built up his personal capital ...
In 1996 Jim Collins asked the question, "Can a good company become a great company and if so, how?" (Collins, p195) Collins and a dedicated band of 22 researchers set out to discover what transforms good companies into truly great companies. Their criteria for greatness was tough: The researchers sought companies that had underperformed the general stock market for at least 15 years, then went through a transition, and subsequently outperformed the general stock market by at least three times for the next 15 years.
Janice Corporation UK is a corporate company that manufactures technology, and the changes like introducing a new product line and redesigning the package will not directly appear on the company’s financial statement, but these changes can improve the company’s competitive advantages in the market. Therefore, the investors look into the company’s future cash flow and assume that will be higher going forward by calculating the fair value. Calculating the fair value, the company and investors estimate future growth rates, profit margins and other risk factors that can influence the company’s cash flow. This paper will address about the economic consequences, the advantages and disadvantages of fair value, and
As it continued to acquire other company holdings, the company itself grew with more and more stakeholders and investors participating. More success factors that are important to note are that the companies in Berkshire Hathaway 's portfolio are all safe and profitable companies such as insurance companies. These companies are easy to manage with simple business models . Many of these businesses prove what the company needs the most to reinvest, large amounts of cash flows. The key factor to Berkshire 's success also ties back to the company 's ability to later take in companies as a whole instead of just buying shares of common stock from each company. This method allowed the company to make it easier to reinvest whatever cash each company
"Our Core Principles - Edward Jones: Making Sense of Investing." Edward Jones. Web. 12 Apr.
Accounting profit can serve as an alternative to intrinsic value. But Buffett states that “...we do not measure the economic significance or performance of Berkshire by its size; we measure by per-share progress.” Accounting reality was conservative, backward looking, and governed by GAAP (measures in terms of net profit), therefore Buffett rejects this alternative. According to the world’s most famous investor, investment decisions should be based on economic reality, not on accounting
From Indian investors like Rakesh Jhunjhunwala, Rajiv Khanna and Chandrakant Sampat, to the Oracle of Omaha Warren Buffet himself, most successful investors are fundamentalists who study stocks diligently before investing in