Warren Buffet Case Study Essay

1866 Words Aug 30th, 2011 8 Pages
CASE 1: Warren Buffett
a) From Warren Buffett’s perspective, what is the intrinsic value?
Intrinsic value is succinctly summed up by Warren Buffett as “the present value of future expected performance” (Bruner, Eades, & Schill, 2009). This intrinsic value can encapsulate how well the company is run, its cash flow and places a premium on management competency.
Why is it accorded such importance?
Intrinsic value is considered important in value investing as it allows Buffett to identify stocks or businesses which are undervalued. This is important as “intrinsic value is the value of a company's business, not its stock” (Carbonara, 1999).
How is it estimated?
Buffett readily admits that intrinsic value is highly subjective (Bruner et
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In 2008, Value Trust had a disastrous result with a -55% loss. Despite this Bill Miller had a turn around situation, much like some of his stocks, outperforming the S&P 500 by 14% in 2009 (Wang, 2009).

In making that assessment, what benchmark(s) are you using?
The benchmark used is the S&P 500 index.
How do you measure investment performance?
The S&P 500 is a good benchmark to use as it is the weighted index of prices of 500 common stocks actively traded. The Net asset value (NAV) also allows you to work out changes in investment performance in percentage.
What does good performance mean to you?
For capital investments I would want capital growth %. For income investments I would want a low Price-to-earning ratio and income growth %. Additionally using key performance indicators, such as NAV or Annual total return, to measure performance.
b) What might explain the fund’s performance?
Bill Miller is a value investor who does not shy from risks and big gambles and invests based on a contrarian strategy. One key factor is that Miller has chosen markets which seem pessimistic and undervalued. This has paid off big time for Miller. A famous example would be investing in Amazon.com, a company without profits, and holding on to it even while others are denouncing the stock as being overpriced and destined to fail (Wine, 2002). Consistent with his contrarian strategy, Miller does not shy from

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