Warren Buffett's Perspective Case Study

Pages: 4 (1473 words)  ·  Style: APA  ·  Bibliography Sources: 8  ·  File: .docx  ·  Level: College Senior  ·  Topic: Economics

If one can not beat the benchmark then it is better to buy it. This will save money and time in the long run (Traganidas, 2010). If a stock or fund consistently shows good performance over a ten to twelve year period then to me it is a good investment and one that should be strongly considered.

(b) What might explain the fund's performance? To what extent do you believe an investment strategy, such as Miller's, explains performance?

When using a valuation approach in order for investors to choose a company that will be worthy of the investment, investors often use a payback period. The payback period is the number of years needed to return the original investment from the net cash flows (net operating income after taxes plus depreciation). If the investor has the policy of employing payback period, which means that, which ever Value Trust has the minimum years of having the investment or the cost of capital back, that Value Trust will be accepted for investments. The advantages of the payback period are that, it is easy to calculate, however wrong calculations may lead to wrong decisions. The output of this approach will determine the number of years the capital investment will be returned that will be the basis of the investor's decisions. Another advantage of this approach is, it put more emphasis to quick return of the invested fund so that this fund may be used again in other places or for meeting other needs; moreover this approach is easy to apply and simple to understand.

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However, the approach does not consider post-payback cash flows and does not include the time value of money which is also essential in decision making. Moreover, another disadvantage of this approach is, it does not explicitly consider risk and the suitable time period is just arbitrary. Without these things, the investor might make wrong decision that may pull their business or stocks back from scratches.

(c) Consider the mutual fund industry. What roles do portfolio managers play? What are the differences between fundamental and technical securities analysis? How well do mutual funds generally perform relative to the overall market?

Case Study on Warren Buffett's Perspective, What Is Assignment

The portfolio manager is one of the most important factors to consider when looking at fund investing. Portfolio management can be active or passive. Historical performance records indicate that only a minority of active fund managers beat the market indexes (Portfolio manager, 2012).

(d) What is capital-market efficiency? What are its implications for investment performance in general? What are the implications for fund managers if the market exhibits characteristics of strong, semi-strong, or weak efficiency?

Capital market efficiency is an analysis of the efficiency of capital markets. This looks at how fair current market prices are for an asset given current market situations. For example, if major news breaks out for a company, an analysis would occur on the stock's price to see how it should be valued given the news. Capital market efficiency measures the extent of the accuracy of the stock's price (Capital market efficiency, 2012).

(e) Suppose that you are an advisor to wealthy individuals in the area of equity investments. In 2005, would you recommend investing in Miller's Value Trust? What beliefs about the equity markets does your answer reflect?

I would not recommend investment in Miller's Value Trust due to the fact that the fund had been riding a high for so long it would only be a matter of time before it fell. History has shown that equity markets are one of the most vital areas of a market economy because it gives company's access to capital and investors a slice of ownership in a company with the potential to realize gains based on its future performance (Equity market, 2012).


Accounting profit. (2012). Retrieved from http://www.investopedia.com/terms/a/accountingprofit.asp#axzz22xNQ3xjD

Bruner, R.F., Eades, K.M. & Schill, M.J. (2009). Case studies in finance. Columbus, OH:

Mcgraw Hill

Capital market efficiency. (2012). Retrieved from http://www.investorwords.com/7540/capital_market_efficiency.html

Discounted Cash Flow -- DCF. (2012). Retrieved from http://www.investopedia.com/terms/d/dcf.asp#axzz22xNQ3xjD

Equity market. (2012). Retrieved from http://www.investopedia.com/terms/e/equitymarket.asp

Intrinsic value. (2012). Retrieved from http://www.investopedia.com/terms/i/intrinsicvalue.asp#axzz22xNQ3xjD

Portfolio manager. (2012). Retrieved from http://www.investopedia.com/terms/p/portfoliomanager.asp#axzz22xNQ3xjD

Traganidas, G. (2010). How to measure investment performance. Retrieved from http://www.thepracticalway.com/2010/01/13/how-to-measure-investment-performance/ [END OF PREVIEW] . . . READ MORE

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