WARREN E BUFFET, 1995

Acquisition of GEICO Corporation

Agustus 2005, Warren Buffet, CEO dari Berkshire Hathaway mengumumkan akan mengakuisisi 49,6% dari GEICO.

Saham yang beredar akan dibeli dengan harga premium sebesar $70 dari harga pasar $55,75.

Pengakuisisian yang dilakukan Buffet sangat mengherankan. Dia membayar sebesar 26% premium atas GEICO, tanpa mengubah apa pun mengenai GEICO. Padahal GEICO dan Bershire tidak memiliki sinergi sama sekali.

Pada hari pengumuman tersebut, harga penutupan dari Berkshire 2,4% dan S&P 500 sebesar 0,5%.

Berkshire Hathaway

Perusahaan ini didirikan pada 1889 sebagai Perusahaan Manufaktur Berkshire Cotton

Akhirnya berkembang menjadi salah satu produsen textil terbesar di Inggris yang menguasai 25 persen dari produksi tekstil di negara itu.

Pada tahun 1955, Berkshire merger dengan Hathaway Manufaktur dan mulai mengalami penurunan sekuler karena inflasi, perubahan teknologi, dan persaingan intensif dengan Pesaing Asing

Di tahun 1965, Buffet yakin penurunan ini akan mengalami pemulihan. Selama 20 tahun ke depan, investasi modal yang besar di perlukan supaya tetap kompetitif.

Di tahun 1985, Berkshire Hathaway keluar dari industri textil dan membeli 2 perusahaan Asuransi di Omaha.

Pengakuisisian di bisnis lain diikuti pad tahun 1970-an dan 1980-an.

Kinerja saham dari Berkshire Hathaway sangat menakjubkan. Pada tahun 1977, harga penutupan saham sebesar $89. Dan pada 25 Agustus 1995 harga penutupan saham sebesar $25.400

Sebagai perbandingan, rata-rata return tahunan saham besar dari tahun 1977 sampai akhir 1994 sebesar 14,3%.

Pada periode yang sama, index S&P 500 tumbuh dari 107 sampai 560.

Beberapa pengamat meminta Buffet untuk melakukan split stock, akan tetapi Buffet menolak.

Pada tahun 1994, Berkshire menggambarkan perusahaan mereka sebagai perusahaan induk yang memiliki anak perusahaan dengan sejumlah kegiatan bisnis yang beragam.

Bisnis dari Berkshire Hathaway

Insurance Group Fechheimer A manufacturer and distributor of uniforms. Kirby. A manufacturer and marketer of home cleaning

systems and accessories. Nebraska Furniture. A retailer of home furnishings. See's Candies. A manufacturer and distributor of boxed

chocolates and other confec tionery products. . Childcraft and World Book A publisher and distributor of

encyclopedias and related ed ucational and instructional material.

Campbell Hausfeld. A manufacturer and distributor of air compressors, air tools, and painting systems.

H.H Brown Shoe Company : Lowell Shoe, Inc.; and Dexter Shoe Company. A manufaturer importer, and distributor of footwear.

BERKSHIRE HATHAWAY’S ACQUISITION POLICY

Kriteria bisnisnya:1. Large purchase2. Demonstrated consistent earning power3. Businesses earning good return on equity

while employing little or no debt4. Management in place5. Simple business6. An offering price

The larger the company the greater will be our interest

We won’t engage unfriendly hostile takeover

BERKSHIRE HATHAWAY’S ACQUISITION POLICY

BUFFET’S INVESTMENT PHILOSOPHY

1. Economic reality, not accounting reality.2. The cost of lost opportunity.3. Value creation: time is money.

Market value PV @ 15% of 124 = $61,65Market/book = 61,65/50 = 1,23

year 1 2 3 4 5 6

Investment/book equity value

50 60 72 86 104 124

Value Destruction

Market value = PV@15% 0f $81 = 40,30Market/book = 40,30/50 = 0,80

BUFFET’S INVESTMENT PHILOSOPHY

year 1 2 3 4 5 6

Investment/book equity value

50 55 60 67 73 81

Buffet’s Philosophy (cont’d)

Measure performance by gain in intrinsic value, not accounting profit

Risk and discount rates Diversification Investing behavior should be driven by

information, analysis, and self-discipline, not by emotion or “hunch”

Measure performance by gain in intrinsic value, not accounting profit

Gain in intrinsic value was analogous to “economic profit” and “market value added”

Gain in intrinsic value focused on ability to earn returns in excess of the cost of capital

Risk and discount rates

Buffet doesn’t using CAPM in measuring discount rate and risk

Buffet using “risk-free” discount rate He said, “I put a heavy weight on

certainty. If you do that, the whole idea of a risk factor doesn’t make sense to me. Risk comes from not knowing what you’re doing”

Diversification

Buffet said, “Figure businesses out that you understand, and concentrate. Diversification is protection against ignorance, but if you don’t feel ignorant, the need for it goes down drastically”

Investing behavior should be driven by information, analysis, and self-

discipline, not by emotion or “hunch” Awareness and information is the

foundation for investing There are irritionality of stock price as

compared to true intrinsic value Over the long-term, tock prices should

have strong relationship with the economic progress of the business

But, daily market quotations were heavily influenced by momentary greed or fear

Investing behavior should be driven by information, analysis, and self-

discipline, not by emotion or “hunch” He said, “Stock market doesn’t exist. It’s

there only as a reference to see if anybody is offering to do anything foolish. When we invest in stocks, we invest in businesses. You simply have to behave according to what is rational rather than according to what is fashionable”

Investing behavior should be driven by information, analysis, and self-

discipline, not by emotion or “hunch” Don’t try to trade stocks based on

expectations of changes in the market cycle

His strategy was patient and long-term investing

Buffet also scorned the academic theory of capital market efficiency

Efficient Market Hypothesis: Stock prices were “fair” in reflecting what was known about a company

Efficient Market Hypothesis

Teori yang menyatakan bahwa harga

saham mewakili semua informasi publik

dan harga saham itu secara “fair”

mewakili apa yang sedang terjadi pada

perusahaan tersebut.

Warren buffet menolak teori ini.

8. Allignment of agents and owners

“ I am a better businessman because I am an investor. and I am a better investor because I am a businessman.”

Contoh : empat dari enam direktur Berkshire, lebih dari 50% keluarganya memiliki saham di Berkshire Hathaway.

Geico Corporation

Year GEICO Dividend per share

Total dividends to Berkshire Hathaway

1976 $0.00 $0.00

1977 $0.01 0.34

1978 0.04 1.37

1979 0.07 2.40

1980 0.09 3.08

1981 0.10 3.43

1982 0.11 3.77

1983 0.14 4.80

1984 0.18 6.17

Year GEICO Dividend per

share

Total dividends to Berkshire Hathaway

1985 0.20 6.85

1986 0.22 7.54

1987 0.27 9.25

1988 0.33 11.30

1989 0.36 12.33

1990 0.40 13.70

1991 0.46 15.76

1992 0.60 20.55

1993 0.68 23.29

1994 1.00 34.25

Informasi mengenai GEICO

Merupakan perusahaan asuransi kendaraan ketujuh terbesar di Amerika Serikat, memberikan polis asuransi untuk 3.7 juta mobil.

Senior managernya merupakan ahli di bidangnya masing-masing dan memiliki karakter investasi yang hampir sama dengan Warren Buffet.

Perusahaan asuransi dengan biaya terendah di industrinya.

Value Line Forecast Information

Low end of range High end of range

Forecast Dividends

1996 $1.16 $1.16

1997 $1.25 $1.34

1998 $1.34 $1.55

1999 $1.44 $1.79

2000 $1.55 $2.07

Forecasted stock price in 2000

$90.00 $125.00