Jack Stauber 1

FIN 635
09/06/2023
Case 1. Warren Buffett

1. Briefly describe Berkshire Hathaway’s acquisition of PCP. In your opinion, is this a good
deal for Berkshire’s shareholders? Why or why not?

- In my opinion Berkshire Hathaway’s acquisition of PCP is a good deal for shareholders

based on the available data that is at our disposal (balance sheets, Income statements and
P/L) including how it compares to other similar firms which is superior in a number of
categories and it meets most of Berkshire Hathaway’s Acquisition Criteria of a good firm
that is undervalued in their market. The leaders and management of PCP are highly
ranked individuals that have lots of experience, they dominate their industry, they have a
lower debt to asset ratio and their cash flows/income streams along with their profit
margins are greater than their competition. Berkshire Hathaway got a good deal by
acquiring PCP.

2. Describe Berkshire Hathaway’s portfolio of investments. Does it resemble a diversified

portfolio?

- When I look at Berkshire Hathaway’s portfolio of investments I see a semi diversified

portfolio of different companies in overlapping industries that compliment each other. For
example they have a number of insurance companies that insure property and access
casualty risks based on a number of factors that occur within each respective industry.
They control one of the largest railroad companies in N.A. They supply energy and
utilities for their businesses based out of their Berkshire Hathaway subsidiary company.
They have a number of manufacturing businesses in their portfolio that includes (1)
industrial products, (2) building products and (3) consumer products. They also are in the
service and retailing business including finance and financial products industry. All of
these businesses are in different industries but they overlap and compliment each other.

3. Under the topic of “Buffett’s Investment Philosophy”, pick two elements. Do you agree
or disagree with Buffett’s opinion? Briefly explain.

- “Economic reality, not accounting reality”. I agree with Buffett’s point of view because
while financial statements are a great indicator of short-term and long-term success of a
company and in determining its intrinsic value among other things, it is not the only value
metric that should be considered in valuing a company because then you miss a lot of
other key points that should have been looked at that may point to a decline in the overall
business structure. Accounting reality is not the same thing as Economic reality because
it doesn’t take into consideration intangible assets such as patents, trademarks, and a great
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management team. Instead GAAP only measured net profits instead of other important
metrics like its cash flows, income streams and expertise.

- “Invest based on information, analysis, and self-discipline, not on emotion or hunch”. I

wholeheartedly agree with Buffett’s stance because in order to be a successful investor
and achieve long-term success in the market one must be able to look at all the facts that
are present within the companies financial statements, balance sheets and reporting data
including assets that are intangible that are harder to value. Traders and retail investors
mostly allocate their capital to the next big hype based on what is trending in the news to
try to take advantage of irrational price volatility rather than fundamental analysis on
companies that are trading below market value or at intrinsic Value. Rather than trying to
“time the market” one should learn to invest in patience and take advantage of great
fundamental companies in the long-term.