Warren Buffet and the Company

Category: Company, Investment, Money
Last Updated: 19 May 2021
Pages: 3 Views: 89

Warren Buffet, CEO of Berkshire Hathaway, is one of the most successful investors and business executives of all time. He has invested in many industries which can be seen in the following figure. From the above graph, we can see that the sectors that Warren Buffet has invested are quite similar to the sectors that we have selected. Buffet has invested most (i.e. 42.6%) on the financial services.

Likewise, we have also selected one of the companies from the financial sector i.e. National Australian Bank. In terms of their value of ordinary shares using PE ratio valuation model, we have ranked National Australian Bank on the third position as per our desirability to invest. Similarly, in the above table, we can see that Buffett has invested 23.4 % of their investment in consumer defensive product.

Likewise, among ten, two of the companies that we have selected are also from consumer defensive sector i.e. Woolworths and Coca Cola. Like everyone, we very well know that Coca Cola is the favorite stock of Buffett. Frankel (2017) also indicated that the company of Buffett i.e. Berkshire Hathaway owns US 16.7 billion dollar worth of share of Coca Cola, making this company the third largest stock investment of Buffett. In the above figure, we can also see that Buffett has invested 4.3% on the energy sector. We have also selected three companies from the energy sector and ranked the AGL Energy on the top list of our desirability to invest as this company has got the highest value of ordinary share from PE ratio valuation Model.

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Since real estates and EFT, options, preferred are the least invested company as per the Warren Buffett's portfolio, it seems we are quite similar in that field, as we also have not chosen any companies from those sectors. 5. Comparison between Warren Buffet's Approach and Share Valuation Techniques used in the ReportWarren Buffet uses various approaches to estimate the value of shares, such as, earning yield, historical earning growth and sustainable growth.

Buffett uses earning yield approach as it represents the rate of return which can be used to compare with other investment more quickly. Buffet normally compares the earning yield of a company with long term government bond yield and selects the one which earning yield is near to the government bond yield. In terms of historical earning approach, Buffett project the annual compound rate of return on the basis of historical earnings per share increased.

The next approach of Buffett is based on the sustainable growth rate model where he utilizes the average rate of return on equity and average retention ratio so as to calculate the sustainable growth rate (Bajkowsi, n.d.).Sustainable growth model approach of Warren Buffett is similar to one of the share valuation techniques used in week 6- Chapter 10 i.e. P/E ratio valuation model.

It is because, according to Bajkowsi, the sustainable growth rate is utilize to estimate the book value per share in year ten and earnings per share can be measured in year 10 by multiplying the average return on equity with the projected book value per share. Then, estimate earning per share is multiplied with average P/E ratio to get the future price. Therefore, we prefer to use the P/E ratio valuation model because it is also one of the approaches used by the best investor of the world, Warren Buffet.

Recommendation

In terms of company, it is very wise to invest in AGL Energy Company as this company has the highest value of ordinary shares from P/E ratio valuation model compare to others. In terms of approaches and techniques regarding share valuation, it is wise to go for PE ratio valuation model. When making the investment decision, it is very useful to follow the techniques and approaches used by the best investor of the world, Warren Buffett, as his experience, techniques and approaches can be very well utilized to select the best investments.7. ConclusionTherefore, in terms of investments, we have come to conclusion that we will be investing in AGL Energy Company as it has the highest value of ordinary share from PE ratio valuation model which is also highly utilized by Warren Buffet in terms of his share valuation.

Warren Buffet is one of the best valued investor of the world, thus, it is very wise to follow the approach and techniques used by the Warren Buffet. Warren Buffett has invested most on the financial and Consumer defensive sector, thus, apart from AGL Energy, the companies that have occupied the second and third position in terms of our desirability to invest are Woolworths and National Australia Bank. Though there are various share valuation approached used by Warren Buffet and mentioned in our week 6-chapter 10, we prefer to use PE ratio valuation model as this approaches also helps to compare the prices of the firms in the same area of economy.

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Warren Buffet and the Company. (2018, Apr 25). Retrieved from https://phdessay.com/warren-buffet-and-the-company/

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