In today’s VMA (Valuation, Mergers and Aquisitions) class, we read a rather interesting case on Warren E Buffet’s aquisition of GEICO. The case was really good, but it also highlighted a lot of interesting things about the psyche and attitude of the man himself! I have put down a couple of points i thought were interesting and would benefit all those Warren-Buffet-wannabes… 🙂
- He always takes a controlling stake in all his aquisitions… Almost a majority or a near-majority share holder. He takes over the company’s management but doesnt act as a complete controller.
- He doesnt believe in Accounting profits but rather always concentrates on Economic profits. Accounting consequences does not influence his operating or capital-allocation process.
- He always compares an investment opportunity against the next best alternative – the so-called lost opportunity. He usually asks questions “either/or” and not “yes/no”
- He believes that book value is meaningless as an indicator of intrinsic value. Value at all times should be created in the aquisition
- He does not believe in Risk. In his own words “I put a heavy weight on certainty. If you do that, the whole idea of a risk factor doesnt make sense to me. Risk comes from not knowing what you are doing“.
- Investing behavior should be driven by information, analysis and self-discipline, not by emotion or “hunch”.
- An investor’s biggest enemy is not the stock market, but he himself. Superior training can not compensate for the absence of the requisite temperament for investing.
Finally, in words of the man himself – “The market, like the Lord, helps those who help themselves. But, unlike the Lord, the market does not forgive those who know not what they do“