Submitted by: Submitted by Jessica24135
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Category: Business and Industry
Date Submitted: 09/05/2010 02:00 PM
Warren E. Buffett
- Chairperson and CEO of Berkshire Hathaway, Inc.
- Announced subsidiary would acquire electric utility PacifiCorp from Scottish Power plc, for $5.1 billion in cash and $4.3 billion in liabilities and preferred stock
o Berkshire Hathaway shares increased 2.4 percent for day, gaining 2.55 billion
o Scottish Power shares increased 6.28 percent
- Berkshire Hathaway
o Began as textile producer before purchasing 2 insurance companies and, later, other businesses (exited textile business in 1985)
o In 1977, year-end closing share price was $102; in 2005, year-end closing share price was $85,500 (for Class A shares)
o Refused stock split, but later issued Class B stock, which had economic interest equal to 1/30 and voting interest equal to 1/200 that of firm’s Class A shares
- Shareholder letters emphasized several elements:
o Economic reality, not accounting reality (financial statements might not adequately represent economic reality of the business)
o Cost of lost opportunity (compare investment opportunities against next best alternative, lost opportunity)
o Value creation: time is money (assess intrinsic value as present value of future expected performance)
o Measure performance by gain in intrinsic value, not accounting profit
o Risk and discount rates (discount rates used in determining intrinsic values should be determined by risk of cash flows being valued)
o Diversification (investors often purchase far too many stocks rather than waiting for 1 exceptional company
o Investing behavior should be driven by information, analysis, and self-discipline, not by emotion or hunch (awareness and information are the foundation to investing because daily market quotations are unreliable measure of value)
o Alignment of agents and owners
- MidAmerican Energy Holdings Company (subsidiary of Berkshire Hathaway)
o Leader in production of energy from diversified sources
o In 2000, Berkshire Hathaway took $1.24 billion investment in common...