Case Study of Warren E. Buffet
In 1995 Berkshire Hathaway has made a bid for the shares of GEICO.
This report reviews the offer made by Warren Buffet and will try to
prove that the acquisition of GEICO will serve the long-term goal of
Berkshire Hathaway and the bid price was appropriate. Furthermore, it
will explain what may have caused for the share price increase for
Berkshire Hathaway at the announcement of GEICO’s acquisition.
Would the GEICO acquisition serve the long-term goals of Berkshire
Hathaway?
In 1976, Warren Buffet paid $45.7 million for 34.25 shares of GEICO.
Review of GEICO’s historical dividends shows that GEICO has been a
very profitable investment for Berkshire Hathaway. The growth rate for
1994 is a sharp increase, but even if the growth rate for 1994 is not
considered, GEICO’s historical increase in dividends has been
considerably high so that acquisition of GEICO will serve the
long-term goals of Berkshire Hathaway.
What might account for the share price increase for Berkshire Hathaway
at the announcement?
Review of Warren Buffet’s historical investment success might explain
the increase in share price for Berkshire Hathaway at the
announcement. Given that he has had a good track record, it is
expected that shareholders respond positively. In 1977, the price of
Berkshire Hathaway was $89 closing at $25,400 by 1995, an unparalleled
annual growth of 37.7%. In comparison, the growth rate of the S&P 500
over the same period was 14.3%. Warren Buffet’s formidable investment
performance was also demonstrated when Berkshire Hathaway acquired
Scott & Fetzer. Berkshire Hathaway paid $315 million for Scott &
Fetzer in 1985 after which they received significant dividends. Again,
Buffet’s investment performance on the acquisition of Scott & Fetzer
outperformed the S&P 500 evident by an internal rate of return (IRR)
of 26.4% including the 1994 cash flow or 14.9% without 1994 cash flow
on the Scott & Fetzer investment.
Clearly, Warren Buffet’s positive investment performance carried a
significant weight and influences the market to have a more optimistic
outlook on his investments. Conversely, his historical records of
investment success do add value to shareholders trust.
Was the bid price appropriate?
GEICO Corp was selling for $55.75 at the time Warren Buffet and
Berkshire Hathaway made an offer of $70 including a 26% premium over
the current GEICO stock price. One would expect that what appeared to
be an overprice bid would lead to a negative market reaction. On the
contrary, Berkshire Hathaway’s shares closed up 2.4% for the day for a
gain in market value of $718 million after the announcement. The
gain’s effect was twofold – it increased the value of GEICO shares
(34.25 million) Berkshire Hathaway already owned and it also made the
The case that was provided in the Stanwick textbook provided information on the Madoff Ponzi scheme which is said to be the largest of Ponzi schemes in the world. This case was a very interesting case. It showed how Bernard Madoffs massive falsehood created disaster for around 13,600 clients. The impact from Madoff did not end with his clients being impacted but also people far and in between. Madoffs Ponzi scheme was controlled through his company that consisted of his family being the head of the company, friends, and employees. This scheme was a result for the recession that hit in 2008. The two sons of Madoff that were top employees claimed to have no connections with the Ponzi scheme.
In 1800 Jefferson entered office with the intention to move away from the Federalist policies of Washington and Adams and to put the nation onto a path that he thought would be best. He wished to minimize the power of the central government by strengthening the state governments. “Our country is too large to have all its affairs directed by a single government…” (Document A). Jefferson and the Republican Party envisioned a government that was going to work for the people, a government with the people’s interests at heart. They believed that having stronger state governments would accomplish this. The leaders of a state were closer to the people they were governing; therefore they should know what the public needed. Document B refers to Jefferson’s belief in the strict interpretation of the Constitution, especially when it is about the freedom of religion. “Certainly no power to prescribe any religious exercise, or to assume authority in religious...
In 2006 and 2007 the growth rate recovered to 3.9% and 3.4% but then dr...
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Experts say that bullying begins around middle school, where children are changing to young adults. In bullying there are three people involved the bully, the victim, and the bystander. The bystander also holds responsibility when bullying occurs, because they are present but never take part because they fear the intimidator. Often targets are considered to be “different” from others, and that consists of students having specials needs, being gay, bisexual, overweight, or most importantly students who are viewed as easy prey. When bullying is attempted it can ruin a student physically and emotionally influencing the capability of a pupil to learn. It is recorded that in the United States 160,000 teenagers skip school in order to avoid bullying, and one out of ten teens quits school because of continuous tormenting. In 2014 statistics in the U.S. showed that only 20-30 percent of students who are bullied tell an adult or the authorities. The only way bullying can be prevented is when schools make a great effort to create no tolerance programs, and effective rules. That will result...
Robert E. Lucas Jr.’s journal article, “Some Macroeconomics for the 21st Century” in the Journal of Economic Perspectives, uses both his own and other economist’s models to track and predict economic industrialization and growth by per capita income. Using models of growth on a country wide basis, Lucas is able to track the rate at which nations become industrialized, and the growth rate of the average income once industrialization has taken place. In doing so, he has come to the conclusion that the average rate of growth among industrialized nations is around 2% for the last 30 years, but is higher the closer the nation is to the point in time that it first industrialized. This conclusion is supported by his models, and is a generally accepted idea. Lucas goes on to say that the farther we get from the industrial revolution the average growth rate is more likely to hit 1.5% as a greater percentage of countries become industrialized.
The three main crooks Chairman Ken Lay, CEO Jeff Skilling, and CFO Andrew Fastow, are as off the rack as they come. Fastow was skimming from Enron by ripping off the con artists who showed him how to steal, by hiding Enron debt in dummy corporations, and getting rich off of it. Opportunity theory is ever present because since this scam was done once without penalty, it was done plenty of more times with ease. Skilling however, was the typical amoral nerd, with delusions of grandeur, who wanted to mess around with others because he was ridiculed as a kid, implementing an absurd rank and yank policy that led to employees grading each other, with the lowest graded people being fired. Structural humiliation played a direct role in shaping Skilling's thoughts and future actions. This did not mean the worst employees were fired, only the least popular, or those who were not afraid to tell the truth. Thus, the corrupt culture of Enron was born. At one point, in an inter...
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“Being a hero doesn't mean you're invincible, it means you are brave enough to stand up and do what's right¨ (Rick Riordan). For Warren Buffett he stands up for global problems. Warren Buffett, a business owner and investor from Omaha Nebraska, who is 87 years old, has a net worth of $85.2 billion and still works. By some, he is considered to be the most prosperous investor of all time. Everyone has a hero in their life whether it be a family member or a historical figure certain individuals inspire others, and my hero is Warren Buffet.
Unethical accounting practices involving Enron date back to 1987. Enron’s use of creative accounting involved moving profits from one period to another to manipulate earnings. Anderson, Enron’s auditor, investigated and reported these unusual transactions to Enron’s audit committee, but failed to discuss the illegality of the acts (Girioux, 2008). Enron decided the act was immaterial and Anderson went along with their decision. At this point, the auditor’s should have reevaluated their risk assessment of Enron’s internal controls in light of how this matter was handled and the risks Enron was willing to take The history of unethical accounting practic...
was 62.1 percent and finally in 1995 it had grown to 69.7 percent (7). This
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