 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%.

 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.

 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 confec­tionery products..  Childcraft and World Book A publisher and distributor of encyclopedias and related ed­ucational 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.

Kriteria bisnisnya: 1. Large purchase 2. Demonstrated consistent earning power 3. Businesses earning good return on equity while employing little or no debt 4. Management in place 5. Simple business 6. An offering price

 The larger the company the greater will be our interest  We won’t engage unfriendly hostile takeover

1. Economic reality, not accounting reality. 2. The cost of lost opportunity. 3. Value creation: time is money. Market value 15% of 124 = $61,65 Market/book = 61,65/50 = 1,23 year Investment/ book equity value

Value Destruction Market value = 0f $81 = 40,30 Market/book = 40,30/50 = 0,80 year Investment/ book equity value

 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”

 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

 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”

 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”

 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

 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”

 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

 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.

“ 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.

YearGEICO Dividend per share Total dividends to Berkshire Hathaway 1976$ $

YearGEICO Dividend per share Total dividends to Berkshire Hathaway

 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.

Low end of rangeHigh end of range Forecast Dividends 1996$ $1.25$ $1.34$ $1.44$ $1.55$2.07 Forecasted stock price in 2000$90.00$125.00