Warren Buffett Case Study

How does Warren Buffet see through the noise?

“I try to buy stock in businesses that are so wonderful that an idiot can run them, because sooner or later, one will.” (Warren Buffet)

Why are some investors more successful than others? How is it possible that some people are simply better at evaluating the real “intrinsic” value of a company, and make lots of money out of it? After reading Nate Silver’s book, I came to the conclusion that forecasting is not only based on science, but it might also be an art. It is about being able to see through the noise to find what really matters. In the 50 years since 1964, which was the beginning of the fiscal year in which he took control, Warren Buffett has increased Berkshire Hathaway’s book value
He started investing in companies that just started or were about to start with globalization. On top of that, he was humble enough to admit that he did not understand certain companies and, therefore would never invest in them even if that might signify that he could miss some opportunities. As an investor, he is advocating for exceptionally long holding periods. He does not believe in "flipping" his holdings unless something very dramatic changes with the underlying business. Since inception, he welcomed weakness in the companies he owns because it occurred to him as another way to edge his bets, and gave him the opportunity to accumulate even more shares. These concepts are the key to his success: being able to fully understand a topic, researching all there is about that industry, and making a significant investment in an area where he will have a real influence on the company, and find out before anyone what is really going on with that
Furthermore, as a “novice” in the modeling business, I have observed how complex, but prodigious, that tool is for any investor who is able to master and apply it correctly. The main point of that method is to grasp how a company will do in the future, thus giving a view of its real or intrinsic value to an investor. The goal is to find firms that are undervalued compared to the market, this is where Warren Buffet came into place, and invested heavily in those firms from an early point. Unlike other investors, Buffett since his debut, decided to use a rate for his DCF that was equal to a risk free return which was very high. Buffett’s choice to discount by the treasury rate was his minimum required return. He also used the treasury rate as a measuring stick for all businesses, rather than assigning a different rate for different businesses. The main point is that because he thought he would get a stream of cash over the thirty years that he felt extremely certain about, he decided to use a discount rate that would be somewhat less than if it was one where he expected surprises or where he thought there was a greater possibility of surprises. On top of that, where Warren Buffet excels the most, is that with whatever rate he chooses, he never forgets to apply a margin of safety because as even Nate Silver’s points out, not even him can accurately