Essay on Berkshire Executive Summary

599 Words Nov 28th, 2014 3 Pages
Bradford KilshawFIN 3717Shan He

Warren E. Buffett, 2005
On May 24, 2005, CEO of Berkshire Hathaway Inc., Warren Buffet, stated that one of the company's subsidiaries, MidAmerican Energy Holdings Company, acquired the electric utility PacifiCorp. MidAmerican bought PacifiCorp from its parent company, Scottish Power plc, for $5.1 billion cash and $4.3 billion in preferred stock and liabilities. This acquisition was the second largest of Buffet's career and his largest since 1998. Warren Buffet has long been viewed as one of the most savvy investors in the world. With an estimated net worth of $44 billion, he is one of the richest men walking the planet. Public interest in Buffet rose highly again with the large scale purchase of
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His philosophy, Value Creation: Time is Money, keys in on intrinsic value. Buffett defines intrinsic value as the discounted value of the cash that can be taken out of a business during its remaining life. He mentions that, “intrinsic value is all important and is the only logical way to evaluate the relative attractiveness of investments and businesses.” Buffett’s fifth philosophy focusses on risk and discount rates. In a conventional approach, the more risk one takes, the more return there should be on the investment. However, Buffett constantly avoids risk, and therefore uses a “risk-free” discount rate. He focused solely on firms with predictable and stable earnings. Buffett says, “Risk comes from not knowing what you’re doing.” To a normal person/investor, this might sound arrogant. It is known that Buffett is an expert who clearly knows what he’s doing.
Warren Buffet and his partners are looking for very particular criteria in acquiring businesses, as they have been doing this for many years. Buffet speaks of searching for “simple businesses,” but at the same time they are constnatly searching for the proverbial “elephants,” which could be smart invetment opportunities. PacifiCorp would fall under a "large purchase", being that it earned $420.2M before taxes in 2005 and $393.5M in 2004. After taxes, PacifiCorp had net incomes of $248.1M and $251.7M in 2004 and 2005, respectively. The increase in income from 2004

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