Warren Buffett
Warren E. Buffett, 2005
Teaching Note
Synopsis and Objectives
Suggested complementary case about investment managers and superior performance: “Bill Miller and Value Trust”
(Case 2). Set in May 2005, this case invites the student to assess Berkshire Hathaway’s bid, through MidAmerican Energy Holdings Company, its wholly owned subsidiary, for the regulated energy-utility PacifiCorp. The task for the student is to perform a simple valuation of PacifiCorp and to consider the reasonableness of Berkshire’s offer. Student analysis readily extends into the investment philosophy and the remarkable record of Berkshire’s chair and CEO, Warren E. Buffett.
The case is an introduction to a finance course or a module on capital markets. The analytical tasks are straightforward and intended to provide a springboard into discussion of the main tenets of modern finance. Thus, the case would be useful for:
• setting themes at the beginning of a finance course, including risk-and-return, economic reality (not accounting reality), the time value of money, and the benefits of alignment of agents and owners
• linking valuation to the behavior of investors in the capital market
• modeling good practice in management and investment using Warren Buffett as an example by returning to the image of Buffett repeatedly during a finance course to ask students what Buffett would likely do in a situation
• characterizing stock prices as equaling the present value of future equity cash flows
• exercising simple equity-valuation skills
While the numerical calculations in the case are simple, novices will find it to be a meaty introduction to a number of important concepts in finance. Ideally, the case could be positioned near the beginning of a course or module, after which it can be reinforced by other cases and exercises.
Suggested Questions for Advance Assignment
1. What is the possible meaning of the changes in stock price
Teaching Note
Synopsis and Objectives
Suggested complementary case about investment managers and superior performance: “Bill Miller and Value Trust”
(Case 2). Set in May 2005, this case invites the student to assess Berkshire Hathaway’s bid, through MidAmerican Energy Holdings Company, its wholly owned subsidiary, for the regulated energy-utility PacifiCorp. The task for the student is to perform a simple valuation of PacifiCorp and to consider the reasonableness of Berkshire’s offer. Student analysis readily extends into the investment philosophy and the remarkable record of Berkshire’s chair and CEO, Warren E. Buffett.
The case is an introduction to a finance course or a module on capital markets. The analytical tasks are straightforward and intended to provide a springboard into discussion of the main tenets of modern finance. Thus, the case would be useful for:
• setting themes at the beginning of a finance course, including risk-and-return, economic reality (not accounting reality), the time value of money, and the benefits of alignment of agents and owners
• linking valuation to the behavior of investors in the capital market
• modeling good practice in management and investment using Warren Buffett as an example by returning to the image of Buffett repeatedly during a finance course to ask students what Buffett would likely do in a situation
• characterizing stock prices as equaling the present value of future equity cash flows
• exercising simple equity-valuation skills
While the numerical calculations in the case are simple, novices will find it to be a meaty introduction to a number of important concepts in finance. Ideally, the case could be positioned near the beginning of a course or module, after which it can be reinforced by other cases and exercises.
Suggested Questions for Advance Assignment
1. What is the possible meaning of the changes in stock price
Bibliography: Cunningham, Lawrence A. How to Think Like Benjamin Graham and Invest Like Warren Buffett. (New York: McGraw-Hill), 2002. ———. The Essays of Warren Buffett: Lessons for Corporate America. 1st rev. ed. (New York: Cunningham Group), 2001. Hagstrom, Robert G. The Warren Buffett Way. 2nd ed. (New York: John Wiley & Sons), 2004. Heller, Robert. Business Masterminds: Warren Buffett. (Dorling Kindersley Publishing), 2000. Kilpatrick, Andrew. Of Permanent Value: The Story of Warren Buffett. (New York: Andy Kilpatrick Publishing Empire), 2004. ———. Warren Buffett: The Good Guy of Wall Street. reprint ed. (New York: Plume), 1995. Lowe, Janet. Warren Buffett Speaks: Wit and Wisdom from the World’s Greatest Investor. 2nd ed. (New York: John Wiley & Sons), 1997. Lowenstein, Roger. Buffett: The Making of an American Capitalist. (Main Street Books), 1996. Morio, Ayano. Warren Buffett: An Illustrated Biography of the World’s Most Successful Investor. (New York: John Wiley & Sons), 2004. O’Loughlin, James. The Real Warren Buffett: Managing Capital, Leading People. (London: Nicholas Brealey Publishing), 2003. Reynolds, Simon. Thoughts of Chairman Buffett: Thirty Years of Unconventional Wisdom from the Sage of Omaha. (New York: Collins), 1998. Steele, Jay. Warren Buffett: Master of the Market. (New York: Harper Paperbacks), 1999. Train, John. The Midas Touch: The Strategies That Have Made Warren Buffett America’s Preeminent Investor. Reprint ed. (New York: HarperCollins), 1988.