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Case Study of Investment Criteria
Case Study of Investment Criteria
Warren Buffett is the world's most successful investor and a self-made billionaire. He is consistently ranked among the world's Top 3 wealthiest people. Buffett runs and owns about 31% of Berkshire Hathway, a $136 billion investment company, that has substantial stakes in Coca Cola, Wells Fargo and American Express. A $1 investment in Berkshire in 1965 would bring about $5,500 in 2005. Since 1951, Buffett generated an average annual return of about 31%. The average annual return for the Standard & Poor's 500-stock over that period is 11%.
Corporate Investing:
Corporations are a major and rapidly growing source of funds for new ventures. Strategic benefits of corporate venture investing may include: Passion-driven: Discovery of unmet customer needs and unserved emerging markets. Potentially high return on investment. Supplements to internal research and product/service development investments. Improved efficiency of the value chain management, in particular supply chain and customer relationships. Development of new business relationships. Preparing potential candidates for strategic alliance or acquisition. Fear-driven: Reducing the risk of missing a new turn in technological development. Preventing competitors from acquiring a breakthrough technology.
Hands-Off Management:
Buffett believes that managers of the companies he is investing in ought to be left to run their businesses without interference from him and without having to hew any to any unifying corporate strategies or goals. "We delegate to the point of abdication," Buffett says in Berkshire's Owner's Manual. Despite its investment size, Berkshire Hathways has a tiny staff. It's headquarters is staffed by just 17 employees. The company has no public-relations, human-relations, investorrelations, legal departments, or investment committee. It holds no quarterly earning calls for investors and analysts, has no asset allocation guidelines, and gives no guidance on future earnings. Warren Buffet tells the chiefs of his business units not to produce any special reports for him.