MGMT 702 (401) CRAFTING AND EXECUTING STRATEGY

Fall 2021: Professor Jai Goolsarran

Research and Case Analysis No. 1 (10%): Part A (Warren Buffett and
Berkshire Hathaway Inc.)

Directions: Please use this Word document (and no other document of yours) and
provide your word-processed answers immediately below each of the questions asked
and send your completed work to me by e-mail as an attachment to your email by
Monday, September 20, 2021, 6.00 pm Toronto time. My e-mail address is:

jgoolsar@my.centennialcollege.ca

Student name and number: Daniel Rios Escorche, 300813860

Refer to the assigned videotaped presentation of Warren Buffett, the link to which is
indicated hereunder and answer the questions indicated below.

Warren Buffett | Lecture | University Of Georgia | 2001 - YouTube

1. Our course is entitled Crafting and Executing Strategy. Did Warren Buffett use the
word "strategy" in his presentation? Do explain your answer briefly. (2 marks)

He did not use the word strategy in his presentation; however, he used a metaphor to
explain his strategy for investment. He said, "That is all to know to invest; how many
birds are in the bush, when are you going to get them out, and how sure are you?".

2. The topic of dividend policy is typically included in courses on corporate finance.

What has been the dividend policy of Berkshire Hathaway Inc., as explained by
Warren Buffett? (2 marks)

Berkshire Hathaway does not pay a dividend because they understand the power of
compound interest and think its ability to distribute increases as its business value
increases.

3. Warren Buffett stated that mistakes in business were typically of two kinds. What
were they? And which kind carried the more significant impact on Berkshire
Hathaway Inc., according to Warren Buffett? (2 marks)

The two kinds of mistakes are omission and spent time with the lousy business.
Omission cost $5 billion to Berkshire Hathaway Inc.

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 4. According to Warren Buffett, the total profit of the US airline industry since its

inception up to end of the year 1991 was ___less than zero_______ .

(1 mark)

5. What qualities did Warren Buffett look for in prospective candidates for managerial
positions at Berkshire Hathaway Inc.? And which of these qualities has Buffett
deemed to be the most important one and why? (3 marks)

They look for intelligence, initiative, and energy. The most important quality is integrity
because if you are going to get someone without integrity, you want them lazy and
dumb, someone without honest and moral principles.

6. What was the definition of the intrinsic value of a business offered by Warren
Buffett? (2 marks)

He defines the intrinsic value as the number that If you were all-knowing the future and
we can predict all the cash that the business would give us between now and day that
we decided to take out our money, discounted at the proper discount rate. The only
reason to spent money in a business now is to earn money later on.

7. What was the real piece of advice did Warren Buffett give to the young man from
the Harvard Business School who picked him at the airport when, during the drive,
Buffett commented that "that is like saving up sex for your old age". Be sure that
there is clarity in your answer. (2 marks)

Warren Buffett's advice to the young man was, do not waste your time doing something
that you do not like to do. He said that he should work for someone who admires and
start doing what he loves, avoiding wasting your young age doing something you hate.

8. Explain fully and clearly Warren Buffett's idea of his "circle of competence" which he
has found to be very useful in his investment decision making. (3 marks)

The circle of competence is what you know about something; it does not care how large
is de circle because you do not have to be an expert on all topics, but you need to know
what your perimeter is and what you know and what you do not know. He explains that
his success in the stock market has been for maintaining inside of this circle.

9. What did Warren Buffett say about the performance of the US stock market, as

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 indicated by the Dow Jones Industrial Average, in the twentieth century? (2 marks)

Warren Buffett says that there were six big periods in the stock market in both
directions. There were three big bull markets from 1900 to 1921; the Dow went from 66
to 71. From 1921 to 1929, it went to 71 to 381; in September of 29 went to 500 until the
end of 1948 when it went to 381. Besides, He explained there were few long periods of
stagnation, which means that the market does nothing, and the reason is that investors
behave in very human ways, which means they look for a different way to make more
money.

10. Warren Buffett advised the students that they could be become very rich as
investors in the securities market if they develop one key quality. What is that
quality? Do explain your answer fully. (2 marks)

Warren Buffet says if they can stay objective and can detach themselves
temperamentally from the crowd. The essential quality is to be objective; it refers to
avoiding following the crowd and thinking by yourself what is an excellent opportunity to
invest and what does not.

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