Major observation of this term paper is to analysis Role and contributions of entrepreneurs to the sustainable development of the country. Here focus on the strength and comparative advantage of Ahmed Akbar Sobhan (Chairman of Bashundhara Group) and Warren Buffett (Chairman & CEO of Berkshire Hathaway). Other discussion are to find out the reason of their success and identify their superiority. Here also mark their strength and analysis their activities and find out their role and contribution etc.
In order to understand the role played by entrepreneurs in developing an economy it is first important to understand the concept of entrepreneurship. While choosing a definition for entrepreneurship most appropriate to the economic context of a country, it is important to bear in mind the skills that will be needed to improve the quality of life for individuals, and to sustain a healthy economy and environment. Taking this into consideration, one can find that each of the traditional definitions has its own weakness. Hence, the most appropriate definition is a combination of three, wherein, entrepreneurship can be defined as—
A force that mobilizes other resources to meet unmet market demand. (Jones and Sakong, 1980); the ability to create and build something from practically nothing. (Timmons, 1989) the process of creating value by pulling together a unique package of resources to exploit an opportunity. (Stevenson, et al, 1985)
Individual characteristics, access to capital and institutions are the main factors that influences to be an entrepreneur. Social factors may also play a role in the decision to become an entrepreneur because, as shown by a growing literature, social interactions affect the payoffs from a variety of economic decisions. A widely accepted view is the following: while personal characteristics as well as social aspects clearly play some role, entrepreneurship and entrepreneurs can also be developed through conscious action.
Entrepreneurial activity and new firm formation are unquestionably considered engines of economic growth and innovation. As such, they are among the ultimate determinants of the large regional differences in economic performance. The importance of new firm formation for growth has been recognized since Schumpeter (1934). According to the Global Entrepreneurship Monitor Report (2000), about 70 percent of an area’s economic performance is dependent upon how entrepreneurial the area’s economy is.
Studies conducted by Economic Commission for Latin America and Caribbean (ECLAC) and Food and Agricultural Organization (FAO) in the Latin American and Caribbean region have indicated that rural enterprises can be an important modernizing agent for small agriculture. Governments have supported this process by creating incentives for agro-industry to invest in such regions. This has not only been in developing countries, but it has also been a clear policy of the European Union (EU) which channels a large part of the total common budget to develop the backward and poor regions of Europe.
Lyson (1995) echoes the prospects of small-enterprise framework as a possible rural development strategy for economically disadvantaged communities and provides this description of the nature of small-scale flexibly specialized firms: “First, these businesses would provide products for local consumption that are not readily available in the mass market.. Second, small-scale technically sophisticated enterprises would be able to fill the niche markets in the national economy that are too small for mass producers. Third, small, craft-based, flexibly specialized enterprises can alter production quickly to exploit changing market conditions.”
According to a study conducted in the United States it has been found that rural poverty has become as intense as that found in the inner cities, and has stubbornly resisted a variety of attempts at mitigation through economic development policies. The latest strategy for addressing this problem is the encouragement of emerging “home-grown” enterprises in rural communities. The expectation is that these new ventures-a) will provide jobs or at least self-employment; b) will remain in the areas where they were spawned as they grow; c) and will export their goods and services outside the community, attracting much-needed income. (Lyons, 2002)
Gavian, et al (2002), in a study on the importance of SME development in rural employment in Egypt, have suggested that SMEs are traditionally thought of as well poised to respond to increased demand by creating jobs.
It is important to stress here that rural entrepreneurship in its substance does not differ from entrepreneurship in urban areas. Entrepreneurship in rural areas is finding a unique blend of resources, either inside or outside of agriculture. The economic goals of an entrepreneur and the social goals of rural development are more strongly interlinked than in urban areas. For this reason entrepreneurship in rural areas is usually community based, has strong extended family linkages and a relatively large impact on a rural community.
Objective of the assignment
Behind this assignment we have following objectives:-
Main Objective: The major objective of the report is to the strength and comparative advantage of Ahmed Akbar Sobhan (Chairman of Bashundhara Group) & Warren Buffett (Chairman & CEO of Berkshire Hathaway).
- Try to know about them,
- Try to find out the reason of their success,
- To attempt to identify their superiority,
- To mark their strength,
- To analysis their activities
- To find out their role and contribution etc.
Methodology of the study
While preparing this report on two entrepreneurs, of Ahmed Akbar Sobhan (Chairman of Bashundhara Group) & Warren Buffett (Chairman & CEO of Berkshire Hathaway) and have taken information from the following sources:
(i) Practical desk work.
(ii) Personal interview.
(i) Websites, Internet.
(ii) Relevant books, Research papers and journals.
Finding and analysis of Ahmed Akbar Sobhan
Ahmed Akbar Sobhan, the founder of the “Bashundhara Group”, the leading industrial & business conglomerate in the country, is not only an optimistic & courageous business but also a successful entrepreneur & visionary leader in the field of real estates.
He was & still is driven by his vision of building an economically prosperous nation. He is an entrepreneur with a mission of creating strong & capable human resource which is the key behind his enormous success.
The core theme of the Bashundhara Group “for the people, for the country” is a testimony to his commitment of doing his share to create a better future for our country.
Mr. Sobhan was born on February 15, 1952 at a respectable Muslim family at Islampur in Dhaka. He is the youngest son of Mr. Abdus Sobhan & Mrs. Umme Kulsum. His father was a lawyer at Dhaka High Court.
Although he comes from an affluent & wealthy family, he never discriminated against the common folk of his neighborhoods. In fact, one can say that Mr. Sobhan is a man with friends from all walks of life. He read in Armanitola Govt. High School & graduated in business Studies from the Dhaka University.
After he was done with his studies he became a hockey player & subsequently entered into business with a vision of creating a strong & resourceful self-reliant business organization. The enterprise he launched decades before ultimately became one of the largest business organizations in country.
By dint of his deeper insight & subsequent foreseeing capacity, he first felt urgency of modest accommodations of the middle & upper-middle income segment, probably the largest group of the society, & launched the East West Property Development (private) Ltd. in 1987 (later it is known as Bashundhara Group). This project turned out to be a very successful one & had helped foster the growth of trust & confidence of the urban people in “Bashundhara”. Dhaka’s burgeoning population, coupled with a conspicuously slow growth of housing led to the landmark success of Bashundhara.
Driven by the ramifications of this success, Bashundhara geared up to invest in new fields, including manufacturing & trading. More enterprises of domestic demands were established later like mild & heavy & basic steel, paper, tissue, cement, liquid petrol gas, sanitary napkin, oil refinery, dredging, shipping, food & beverage & galvanized iron pipe significantly cutting down the dependence on imported materials.
Latest addition to the group is-
Media house titled “East West Media Group Ltd” (established in 2009)
Bangla daily- “The Kaler Kantho”, “The Bangladesh Protidin”
English daily “The Daily Sun”
Online portal “Banglanews24.com” & a fortnightly Diplomatic Journal
Also planning to launch a FM radio & a TV channel as well.
Bashundhara is now operating with fourteen vital enterprises of highly esteemed commercial and technological superiority having profound degree of specialization in the field of real estate, industrial ventures and commercial enterprises.
Total assets- About Tk. 15000 million equivalents to US$ 300 million.
Total business turnover – Around Tk. 16000 million equivalent to US$ 325 million.
MORE ABOUT BASHUNDHARA GROUP
The bashundhara group of companies started off as a real-estate venture known as “bashundhara” under the aegis of the group’s first concern-the east-west property development (pvt) ltd. This project turned out to be very successful and had helped foster the growth of trust and confidence of the urban people in “bashundhara”. Dhaka’s burgeoning population, combined with a conspicuously slow growth of housing-LED to the landmark success of bashundhara.
Driven by the ramifications of this success, bashundhara geared up to invest in new fields, including manufacturing and trading. More enterprises were established in the early 1990s, covering diverse activities involving the production of cement, paper and pulp, tissue paper, steel, lpg bottling and distribution, and a trading company, among others. All these had happened in a span of less than 10 years. During this period, additional schemes on land development and real estate were launched and these focused more sharply on increasing responsiveness to client needs. At present, the group employs over 3500 people. The group’s first publicly-traded company, the meghna cement mills limited, is currently listed on the two stock exchanges of Bangladesh.
The group now has 14 major concerns located in different areas of the country. The most-recent addition to the group is a multi-faceted shopping mall-cum-recreation centre called the bashundhara city (bcdl) the bcdl is one further step in our longstanding effort to strengthen our links with the general public through the unique offering of commercial operations and recreation facilities under one roof. It houses theme parks, food courts, multi-screen cinemas, fitness centres, space for over 2800 shops, basement-level parking for over a thousand vehicles, skating and bowling rinks, a supermarket, and office space spread over several floors.
Undistorted aim, absolute integrity, patience & untiring efforts were the secrets of his unobstructed success despite many adversities & hazards ultimately let him become the father of a giant group of enterprises comprised of nearly 30 moderate to heavy industrial & business unit.
Diversity in business & entrepreneurship helped the group to become the leader amongst the cutting edge business houses directly employing a workforce not less than 50 thousand which indirectly covered livelihood of half a million people.
Two welfare foundations established by the Bashundhara Group have been working tirelessly for the betterment of the poor & unprivileged of this country. These two foundations have been living up to Bashundhara’s promise of “For the people, for the country”. He also endorsed different development tasks for the group under the coverage of Corporate Social Responsibility (CSR).
Today Mr. Sobhan finds himself as the proud father of four brilliant sons- Sadat Sobhan, Shafiat Sobhan, Sayem Sobhan & Safwan Sobhan- who have all excelled in their respective fields. Mr. Sobhan has brought up his sons in a fashion that enables them to shoulder their father’s responsibilities quite admirably.
Mr. Ahmed Akbar Sobhan is one of the rare individuals who easily derive attention & affection from the people who come by him irrespective of cast & creed. Mr. Sobhan has inspired & motivated each & every soul he has touched in lifelong efforts to make a change for the better.
As recognition to his outstanding contributions to the society as well as whole nation, he achieved the following awards and honoree:
|Year||Name of Award||Reason|
|1994.||“President Gold Medal”||for the country’s housing sector the government conferred him the|
|1992||“Kazi Nazrul Islam Medal”||for significant roles in social development|
|2002||Janata Bank “Prime Customer Award”||for good dealings with bank|
|2002||“USA Summit International Award”||what eventually brought international recognition for the Bashundhara Group,|
|2009||“Bangladesh Cultural Foundation Award”||for contributing for the society|
|2010||“Best Client Award of Agrani Bank Ltd”||for good dealings with bank|
However in spite of achieving so much success & recognition in life, at both national & international levels, Ahmed Akbar Sobhan remains a humble down-to-earth man, who prefers having his feet on the ground, so that he can reach the masses & continue to work for a better future for the people & the country. And Mr. Sobhan always says, “Business builds some commitment”.
As per our analysis and by speaking with him we have found out following strength of him:
- Excellent way of approach
- Excellent forecast power
- Thinking ahead
- Way to talk to people
- Extremely Focused
- Undistorted aim
- Absolute integrity
- Patience &
- Untiring efforts
- City based investment
- Unbelievable risk taking capacity etc.
Ahmed Akbar Sobhan always says and also strongly believes that
“Business builds some commitment”.
Finding and analysis of Warren Buffett
Warren Edward Buffett is an American business magnate, investor, and philanthropist. He is widely regarded as one of the most successful investors in the world. Often introduced as “legendary investor, Warren Buffett”, he is the primary shareholder, chairman and CEO of Berkshire Hathaway. He is consistently ranked among the world’s wealthiest people. He was ranked as the world’s wealthiest person in 2008 and is the third wealthiest person in the world as of 2011.
Buffett is called the “Wizard of Omaha”, “Oracle of Omaha”, or the “Sage of Omaha”.
Buffett was born in 1930 in Omaha, Nebraska, the second of three children and only son of U.S. Representative Howard Buffett, a fierce critic of the interventionist New Deal domestic and foreign policy, and his wife Leila (née Stahl). Buffett began his education at Rose Hill Elementary School in Omaha. In 1942, his father was elected to the first of four terms in the United States Congress, and after moving with his family to Washington, D.C., Warren finished elementary school, attended Alice Deal Junior High School, and graduated from Woodrow Wilson High School in 1947, where his senior yearbook picture reads: “likes math; a future stock broker.”
Even as a child, Buffett displayed an interest in making and saving money. He went door to door selling chewing gum, Coca-Cola, or weekly magazines. For a while, he worked in his grandfather’s grocery store. While still in high school he was successful in making money by delivering newspapers, selling golf balls and stamps, and detailing cars, among other means. Filing his first income tax return in 1944, Buffett took a $35 deduction for the use of his bicycle and watch on his paper route. In 1945, in his sophomore year of high school, Buffett and a friend spent $25 to purchase a used pinball machine, which they placed in the local barber shop. Within months, they owned several machines in different barber shops.
Buffett’s interest in the stock market and investing also dated to his childhood, to the days he spent in the customers’ lounge of a regional stock brokerage near the office of his father’s own brokerage company. On a trip to New York City at the age of ten, he made a point to visit the New York Stock Exchange. At the age of 11, he bought three shares of Cities Service Preferred for himself, and three for his sister. While in high school he invested in a business owned by his father and bought a farm worked by a tenant farmer. By the time he finished college, Buffett had accumulated more than $90,000 in savings measured in 2009 dollars.
Buffett entered college as freshmen in 1947 at the Wharton Business School of the University of Pennsylvania and studied there for two years from 1947 to 1949. In the year 1950, when he entered his junior year, he transferred to the University of Nebraska–Lincoln where at the age of nineteen, he graduated with a Bachelor of Science in business administration. After the completion of his undergraduate studies, Buffett enrolled at Columbia Business School after learning that Benjamin Graham (author of “The Intelligent Investor” – one of his favorite books on investing) and David Dodd, two well-known securities analysts, taught there. He earned a Master of Science in economics from Columbia in 1951. Buffett also attended the New York Institute of Finance.
In Buffett’s own words:
“I’m 15 percent Fisher and 85 percent Benjamin Graham.
The basic ideas of investing are to look at stocks as business, use the market’s fluctuations to your advantage, and seek a margin of safety. That’s what Ben Graham taught us. A hundred years from now they will still be the cornerstones of investing.”
Warren Buffett was employed from 1951–54 at Buffett-Falk & Co., Omaha as an investment salesman, from 1954–1956 at Graham-Newman Corp., New York as a securities analyst, from 1956–1969 at Buffett Partnership, Ltd., Omaha as a general partner and from 1970 – Present at Berkshire Hathaway Inc, Omaha as its Chairman, CEO.
In 1950, at the age of 20, Buffett had made and saved $9,800. In April 1952, Buffett discovered Graham was on the board of GEICO insurance. Taking a train to Washington, D.C. on a Saturday, he knocked on the door of GEICO’s headquarters until a janitor allowed him in. There he met Lorimer Davidson, Geico’s Vice President, and the two discussed the insurance business for hours. Davidson would eventually become Buffett’s life-long friend and a lasting influence and later recall that he found Buffett to be an “extraordinary man” after only fifteen minutes. Buffett graduated from Columbia and wanted to work on Wall Street, however, both his father and Ben Graham urged him not to. He offered to work for Graham for free, but Graham refused.
Buffett returned to Omaha and worked as a stockbroker while taking a Dale Carnegie public speaking course. Using what he learned, he felt confident enough to teach an “Investment Principles” night class at the University of Nebraska-Omaha. The average age of his students was more than twice his own. During this time he also purchased a Sinclair Texaco gas station as a side investment. However, this did not turn out to be a successful business venture.
In 1952 Buffett married Susan Thompson at Dundee Presbyterian Church and the next year they had their first child, Susan Alice Buffett. In 1954, Buffett accepted a job at Benjamin Graham’s partnership. His starting salary was $12,000 a year (approximately $97,000 adjusted to 2008 dollars). There he worked closely with Walter Schloss. Graham was a tough man to work for. He was adamant that stocks provide a wide margin of safety after weighting the trade-off between their price and their intrinsic value. The argument made sense to Buffett but he questioned whether the criteria were too stringent and caused the company to miss out on big winners that had more qualitative values. That same year the Buffetts had their second child, Howard Graham Buffett. In 1956, Benjamin Graham retired and closed his partnership. At this time Buffett’s personal savings were over $174,000 ($1.2 million inflation adjusted to 2009 dollars) and he started Buffett Partnership Ltd., an investment partnership in Omaha.
Buffett’s home in Omaha
In 1957, Buffett had three partnerships operating the entire year. He purchased a five-bedroom stucco house in Omaha, where he still lives, for $31,500. In 1958 the Buffett’s third child, Peter Andrew Buffett, was born. Buffett operated five partnerships the entire year. In 1959, the company grew to six partnerships operating the entire year and Buffett was introduced to Charlie Munger. By 1960, Buffett had seven partnerships operating: Buffett Associates, Buffett Fund, Dacee, Emdee, Glenoff, Mo-Buff and Underwood. He asked one of his partners, a doctor, to find ten other doctors willing to invest $10,000 each in his partnership. Eventually eleven agreed, and Buffett pooled their money with a mere $100 original investment of his own. In 1961, Buffett revealed that Sanborn Map Company accounted for 35% of the partnership’s assets. He explained that in 1958 Sanborn stock sold at only $45 per share when the value of the Sanborn investment portfolio was $65 per share. This meant that buyers valued Sanborn stock at “minus $20” per share and were unwilling to pay more than 70 cents on the dollar for an investment portfolio with a map business thrown in for nothing. This earned him a spot on the board of Sanborn.
As a millionaire
In 1962, Buffett became a millionaire because of his partnerships, which in January 1962 had an excess of $7,178,500, of which over $1,025,000 belonged to Buffett. Buffett merged all partnerships into one partnership. Buffett invested in and eventually took control of a textile manufacturing firm, Berkshire Hathaway. Buffett’s partnerships began purchasing shares at $7.60 per share. In 1965, when Buffett’s partnerships began purchasing Berkshire aggressively, they paid $14.86 per share while the company had working capital of $19 per share. This did not include the value of fixed assets (factory and equipment). Buffett took control of Berkshire Hathaway at the board meeting and named a new president, Ken Chace, to run the company. In 1966, Buffett closed the partnership to new money. Buffett wrote in his letter: “… unless it appears that circumstances have changed (under some conditions added capital would improve results) or unless new partners can bring some asset to the partnership other than simply capital, I intend to admit no additional partners to BPL.”
In a second letter, Buffett announced his first investment in a private business — Hochschild, Kohn and Co, a privately owned Baltimore department store. In 1967, Berkshire paid out its first and only dividend of 10 cents. In 1969, following his most successful year, Buffett liquidated the partnership and transferred their assets to his partners. Among the assets paid out were shares of Berkshire Hathaway. In 1970, as chairman of Berkshire Hathaway, Buffett began writing his now-famous annual letters to shareholders. However, he lived solely on his salary of $50,000 per year, and his outside investment income. In 1979, Berkshire began the year trading at $775 per share, and ended at $1,310. Buffett’s net worth reached $620 million, placing him on the Forbes 400 for the first time.
In 1973, Berkshire began to acquire stock in the Washington Post Company. Buffett became close friends with Katharine Graham, who controlled the company and its flagship newspaper, and became a member of its board of directors. In 1974, the SEC opened a formal investigation into Warren Buffett and Berkshire’s acquisition of WESCO, due to possible conflict of interest. No charges were brought. In 1977, Berkshire indirectly purchased the Buffalo Evening News for $32.5 million. Antitrust charges started, instigated by its rival, the Buffalo Courier-Express. Both papers lost money, until the Courier-Express folded in 1982.
In 1979, Berkshire began to acquire stock in ABC. Capital Cities announced $3.5 billion purchase of ABC on March 18, 1985 surprised the media industry, as ABC was four times bigger than Capital Cities at the time. Berkshire Hathaway chairman Warren Buffett helped finance the deal in return for a 25% stake in the combined company. The newly merged company, known as Capital Cities/ABC (or CapCities/ABC), was forced to sell off some stations due to FCC ownership rules. Also, the two companies owned several radio stations in the same markets.
In 1987, Berkshire Hathaway purchased a 12% stake in Salomon Inc., making it the largest shareholder and Buffett the director. In 1990, a scandal involving John Gutfreund (former CEO of Salomon Brothers) surfaced. A rogue trader, Paul Mozer, was submitting bids in excess of what was allowed by the Treasury rules. When this was discovered and brought to the attention of Gutfreund, he did not immediately suspend the rogue trader. Gutfreund left the company in August 1991. Buffett became Chairman of Salomon until the crisis passed; on September 4, 1991, he testified before Congress. In 1988, Buffett began buying stock in Coca-Cola Company, eventually purchasing up to 7% of the company for $1.02 billion. It would turn out to be one of Berkshire’s most lucrative investments, and one which it still holds.
As a billionaire
Buffett became a billionaire on paper when Berkshire Hathaway began selling class A shares on May 29, 1990, when the market closed at $7,175 a share. In 1998, in an unusual move, he acquired General Re (Gen Re) for stock. In 2002, Buffett became involved with Maurice R. Greenberg at AIG, with General Re providing reinsurance. On March 15, 2005, AIG’s board forced Greenberg to resign from his post as Chairman and CEO under the shadow of criticism from Eliot Spitzer, former attorney general of the state of New York. On February 9, 2006, AIG and the New York State Attorney General’s office agreed to a settlement in which AIG would pay a fine of $1.6 billion. In 2010, the federal government settled with Berkshire Hathaway for $92 million in return for the firm avoiding prosecution in an AIG fraud scheme, and undergoing ‘corporate governance concessions’.
In 2002, Buffett entered in $11 billion worth of forward contracts to deliver U.S. dollars against other currencies. By April 2006, his total gain on these contracts was over $2 billion. In 2006, Buffett announced in June that he gradually would give away 85% of his Berkshire holdings to five foundations in annual gifts of stock, starting in July 2006. The largest contribution would go to the Bill and Melinda Gates Foundation. In 2007, in a letter to shareholders, Buffett announced that he was looking for a younger successor, or perhaps successors, to run his investment business. Buffett had previously selected Lou Simpson, who runs investments at Geico, to fill that role. However, Simpson is only six years younger than Buffett.
Late 2000s recessions
Buffett ran into criticism during the subprime crisis of 2007–2008, part of the late 2000s recession that he had allocated capital too early resulting in suboptimal deals. “Buy American. I am.” he wrote for an opinion piece published recently in the New York Times. Buffett has called the 2007—present downturn in the financial sector “poetic justice”. Buffett’s Berkshire Hathaway suffered a 77% drop in earnings during Q3 2008 and several of his recent deals appear to be running into large mark-to-market losses.
Berkshire Hathaway acquired 10% perpetual preferred stock of Goldman Sachs. Some of Buffett’s Index put options (European exercise at expiry only) that he wrote (sold) are currently running around $6.73 billion mark-to-market losses. The scale of the potential loss prompted the SEC to demand that Berkshire produce, “a more robust disclosure” of factors used to value the contracts. Buffett also helped Dow Chemical pay for its $18.8 billion takeover of Rohm & Haas. He thus became the single largest shareholder in the enlarged group with his Berkshire Hathaway, which provided $3 billion, underlining his instrumental role during the current crisis in debt and equity markets.
In 2008, Buffett became the richest man in the world dethroning Bill Gates, worth $62 billion according to Forbes, and $58 billion according to Yahoo. Bill Gates had been number one on the Forbes list for 13 consecutive years. In 2009, Bill Gates regained number one of the list according to Forbes magazine, with Buffett second. Their values have dropped to $40 billion and $37 billion respectively, Buffett having (according to Forbes) lost $25 billion in 12 months during 2008/2009.
In October 2008, the media reported that Warren Buffett had agreed to buy General Electric (GE) preferred stock. The operation included extra special incentives: he received an option to buy 3 billion GE at $22.25 in the next five years, and also received a 10% dividend (callable within three years). In February 2009, Buffett sold some of the Procter & Gamble Co, and Johnson & Johnson shares from his portfolio.
In addition to suggestions of mistiming, questions have been raised as to the wisdom in keeping some of Berkshire’s major holdings, including The Coca-Cola Company (NYSE:KO) which in 1998 peaked at $86. Buffett discussed the difficulties of knowing when to sell in the company’s 2004 annual report:
That may seem easy to do when one looks through an always-clean, rear-view mirror. Unfortunately, however, it’s the windshield through which investors must peer, and that glass is invariably fogged.
In March 2009, Buffett stated in a cable television interview that the economy had “fallen off a cliff… Not only has the economy slowed down a lot, but people have really changed their habits like I haven’t seen”. Additionally, Buffett fears we may revisit a 1970s level of inflation, which led to a painful stagflation that lasted many years.
In 2009, Warren Buffett invested $2.6 billion as a part of Swiss Re’s raising equity capital. Berkshire Hathaway already owns a 3% stake, with rights to own more than 20%. In 2009, Warren Buffett acquired Burlington Northern Santa Fe Corp. for $34 billion in cash and stock. Alice Schroeder, author of Snowball, stated that a reason for the purchase was to diversify Berkshire Hathaway from the financial industry. Measured by market capitalization in the Financial Times Global 500 Berkshire Hathaway as of June 2009 was the eighteenth largest corporation on earth.
In 2009, Buffett divested his failed investment in ConocoPhillips, saying to his Berkshire investors, I bought a large amount of ConocoPhillips stock when oil and gas prices were near their peak. I in no way anticipated the dramatic fall in energy prices that occurred in the last half of the year. I still believe the odds are good that oil sells far higher in the future than the current $40–$50 price. But so far I have been dead wrong. Even if prices should rise, moreover, the terrible timing of my purchase has cost Berkshire several billion dollars.
The merger with the Burlington Northern Santa Fe Railway (BNSF) closed upon BNSF shareholder approval in 1Q2010. This deal is valued at approximately $34 billion and reflects an increase of a previously existing stake of about 22%.
In June 2010, Buffett defended the credit rating agencies for their role in the US financial crisis, claiming that: Very, very few people could appreciate the bubble. That’s the nature of bubbles – they’re mass delusions.
On March 18, 2011, Goldman Sachs acquired Federal Reserve approval to buy back Berkshire’s preferred stock in Goldman. Buffet has been reluctant to give up the stock which averaged $1.4 million in dividends a day, stating:
I’m going to be the Osama bin Laden of capitalism. I’m on my way to an unknown destination in Asia where I’m going to look for a cave. If the U.S. Armed forces can’t find Osama bin Laden in 10 years, let Goldman Sachs try to find me.
Announcement in November 2011 said that in the last 8 months Warren Buffett bought around 5.5 percent stock of International Business Machine Corp (IBM) with value around $11 billion. It’s surprising, because Buffett always said he would not invest in technology because he largely did not understand it. The reason to buy was IBM can retain most of their corporate clients, while the others can’t do it.
Buffett married Susan Buffett (née Thompson) in 1952. They had three children, Susie, Howard and Peter. The couple began living separately in 1977, although they remained married until her death in July 2004. Their daughter, Susie, lives in Omaha and does charitable work through the Susan A. Buffett Foundation and is a national board member of Girls, Inc. In 2006, on his seventy-sixth birthday, Warren married his never-married longtime-companion, Astrid Menks, who was then 60 years old. She had lived with him since his wife’s departure to San Francisco in 1977. It was Susan Buffett who arranged for the two to meet before she left Omaha to pursue her singing career. All three were close and Christmas cards to friends were signed “Warren, Susie and Astrid”. Susan Buffett briefly discussed this relationship in an interview on the Charlie Rose Show shortly before her death, in a rare glimpse into Buffett’s personal life.
Warren Buffett disowned his son Peter’s adopted daughter, Nicole, in 2006 after she participated in the Jamie Johnson documentary, The One Percent. Although his first wife had referred to Nicole as one of her “adored grandchildren”, Buffett wrote her a letter stating, “I have not emotionally or legally adopted you as a neither grandchild, nor have the rest of my family adopted you as a niece or a cousin.” He signed the letter “Warren.”
His 2006 annual salary was about $100,000, which is small compared to senior executive remuneration in comparable companies. In 2007 and 2008, he earned a total compensation of $175,000, which included a base salary of just $100,000. He lives in the same house in the central Dundee neighborhood of Omaha that he bought in 1958 for $31,500, today valued at around $700,000 (although he also owns a $4 million house in Laguna Beach, California). In 1989 after having spent nearly 6.7 million dollars of Berkshire’s funds on a private jet, Buffett sheepishly named it “The Indefensible”. This act was a break from his past condemnation of extravagant purchases by other CEOs and his history of using more public transportation.
Buffett is an avid player of bridge, which he plays with fellow fan Gates. He spends 12 hours a week playing the game. In 2006, he sponsored a bridge match for the Buffett Cup. Modeled on the Ryder Cup in golf, held immediately before it, and in the same city, a team of twelve bridge players from the United States took on twelve Europeans in the event. He is a dedicated, lifelong follower of Nebraska football, and attends as many games as his schedule permits. He supported the hire of Bo Pelini following the 2007 season stating, “It was getting kind of desperate around here”. He watched the 2009 game against Oklahoma from the Nebraska sideline after being named an honorary assistant coach.
Warren Buffett worked with Christopher Webber on an animated series with Chief Andy Heyward, of DiC Entertainment, and then A Squared Entertainment. The series features Buffett and Munger, and teaches children healthy financial habits for life. Buffett was raised Presbyterian but has since described himself as agnostic. In December 2006 it was reported that Buffett does not carry a cell phone, does not have a computer at his desk, and drives his own automobile, a Cadillac DTS. Buffett wears tailor-made suits from the Chinese label Trands; earlier he wore Ermenegildo Zegna.
Buffett’s DNA report revealed that his paternal ancestors hail from northern Scandinavia, while his maternal ancestors most likely have roots in Iberia or Estonia.
In 1999, Buffett was named the top money manager of the Twentieth Century in a survey by the Carson Group, ahead of Peter Lynch and John Templeton. In 2007, he was listed among Time’s 100 Most Influential People in the world. In 2011, President Barack Obama awarded him the Presidential Medal of Freedom. Most recently, Buffett, along with Bill Gates, was named the most influential global thinker in Foreign Policy’s 2010 report.
In addition to other political contributions over the years, Buffett has formally endorsed and made campaign contributions to Barack Obama’s presidential campaign. On July 2, 2008, Buffett attended a $28,500 per plate fundraiser for Obama’s campaign in Chicago hosted by Obama’s National Finance Chair, Penny Pritzker and her husband, as well as Obama advisor Valerie Jarrett. Buffett backed Obama for president, and intimated that John McCain’s views on social justice were so far from his own that McCain would need a “lobotomy” for Buffett to change his endorsement. During the second 2008 U.S. presidential debate, candidates John McCain and Barack Obama, after being asked first by presidential debate mediator Tom Brokaw, both mentioned Buffett as a possible future Secretary of the Treasury. Later, in the third and final presidential debate, Obama mentioned Buffett as a potential economic advisor. Buffett was also finance advisor to California Republican Governor Arnold Schwarzenegger during his 2003 election campaign.
Warren Buffett’s writings include his annual reports and various articles. Buffett is recognized by communicators as a great story-teller, as evidenced by his annual letters to shareholders. He warned about the pernicious effects of inflation:
The arithmetic makes it plain that inflation is a far more devastating tax than anything that has been enacted by our legislatures. The inflation tax has a fantastic ability to simply consume capital. It makes no difference to a widow with her savings in a 5 percent passbook account whether she pays 100 percent income tax on her interest income during a period of zero inflation, or pays no income taxes during years of 5 percent inflation. —Buffett, Fortune (1977)
In his article The Superinvestors of Graham-and-Doddsville, Buffett rebutted the academic Efficient-market hypothesis, that beating the S&P 500 was “pure chance”, by highlighting the results achieved by a number of students of the Graham and Dodd value investing school of thought. In addition to himself, Buffett named Walter J. Schloss, Tom Knapp, Ed Anderson (Tweedy, Brown Inc.), Bill Ruane (Sequoia Fund, Inc.), Charles Munger (Buffett’s own business partner at Berkshire), Rick Guerin (Pacific Partners, Ltd.), and Stan Perlmeter (Perlmeter Investments). In his November 1999 Fortune article, he warned of investors’ unrealistic expectations:
Let me summarize what I’ve been saying about the stock market: I think it’s very hard to come up with a persuasive case that equities will over the next 17 years perform anything like—anything like—they’ve performed in the past 17. If I had to pick the most probable return, from appreciation and dividends combined, that investors in aggregate—repeat, aggregate—would earn in a world of constant interest rates, 2% inflation, and those ever hurtful frictional costs, it would be 6%! —Buffett, Fortune (1999)
Buffett’s speeches are known for mixing business discussions with humor. Each year, Buffett presides over Berkshire Hathaway’s annual shareholder meeting in the Qwest Center in Omaha, Nebraska, an event drawing over 20,000 visitors from both United States and abroad, giving it the nickname “Woodstock of Capitalism”. Berkshire’s annual reports and letters to shareholders, prepared by Buffett, frequently receive coverage by the financial media. Buffett’s writings are known for containing quotations from sources as ranging between the Bible and Mae West, as well as advice in a Midwestern folk style, and numerous jokes.
In 2008 he was ranked by Forbes as the richest person in the world with an estimated net worth of approximately US$62 billion. In 2009, after donating billions of dollars to charity, Buffett was ranked as the second richest man in the United States with a net worth of US$37 billion with only Bill Gates ranked higher than Buffett. His net worth is up to $47 billion in the past 12 months.
The following quotation from 1988 highlights Warren Buffett’s thoughts on his wealth and why he long planned to re-allocate it:
I don’t have a problem with guilt about money. The way I see it is that my money represents an enormous number of claim checks on society. It’s like I have these little pieces of paper that I can turn into consumption. If I wanted to, I could hire 10,000 people to do nothing but paint my picture every day for the rest of my life. And the GDP would go up. But the utility of the product would be zilch, and I would be keeping those 10,000 people from doing AIDS research, or teaching, or nursing. I don’t do that though. I don’t use very many of those claim checks. There’s nothing material I want very much. And I’m going to give virtually all of those claim checks to charity when my wife and I die. (Lowe 1997:165–166)
From a NY Times article: “I don’t believe in dynastic wealth”, Warren Buffett said, calling those who grow up in wealthy circumstances “members of the lucky sperm club”. Buffett has written several times of his belief that, in a market economy, the rich earn outsized rewards for their talents:
A market economy creates some lopsided payoffs to participants. The right endowment of vocal chords, anatomical structure, physical strength, or mental powers can produce enormous piles of claim checks (stocks, bonds, and other forms of capital) on future national output. Proper selection of ancestors similarly can result in lifetime supplies of such tickets upon birth. If zero real investment returns diverted a bit greater portion of the national output from such stockholders to equally worthy and hardworking citizens lacking jackpot-producing talents, it would seem unlikely to pose such an insult to an equitable world as to risk Divine Intervention.
His children will not inherit a significant proportion of his wealth. This is consistent with statements he has made in the past indicating his opposition to the transfer of great fortunes from one generation to the next. Buffett once commented, “I want to give my kids just enough so that they would feel that they could do anything, but not so much that they would feel like doing nothing”.
In June 2006, he announced a plan to give away his fortune to charity, with 83% of it going to the Bill & Melinda Gates Foundation. He pledged about the equivalent of 10 million Berkshire Hathaway Class B shares to the Bill & Melinda Gates Foundation (worth approximately US$30.7 billion as of June 23, 2006), making it the largest charitable donation in history, and Buffett one of the leaders of philanthrocapitalism. The foundation will receive 5% of the total donation on an annualised basis each July, beginning in 2006. (Significantly, however, the pledge is conditional upon the foundation’s giving away each year, beginning in 2009, an amount that is at least equal to the value of the entire previous year’s gift from Buffett, in addition to 5% of the foundation’s net assets.) Buffett also will join the board of directors of the Gates Foundation, although he does not plan to be actively involved in the foundation’s investments.
This is a significant shift from previous statements Buffett has made, having stated that most of his fortune would pass to his Buffett Foundation. The bulk of the estate of his wife, valued at $2.6 billion, went to that foundation when she died in 2004. He also pledged $50-million to the Nuclear Threat Initiative, in Washington, where he has served as an adviser since 2002.
In 2006, he auctioned his 2001 Lincoln Town Car on eBay to raise money for Girls, Inc. In 2007, he auctioned a luncheon with himself that raised a final bid of $650,100 for a charity. On June 27, 2008, Zhao Danyang, a general manager at Pure Heart China Growth Investment Fund, won the 2008 5-day online “Power Lunch with Warren Buffett” charity auction with a bid of $2,110,100. Auction proceeds benefit the San Francisco Glide Foundation. The following year, executives from Toronto-based Salida Capital paid US$1.68 million to dine with Buffett.
In a letter to Fortune Magazine’s website in 2010 Buffett remarked:
My luck was accentuated by my living in a market system that sometimes produces distorted results, though overall it serves our country well… I’ve worked in an economy that rewards someone who saves the lives of others on a battlefield with a medal, rewards a great teacher with thank-you notes from parents, but rewards those who can detect the mispricing of securities with sums reaching into the billions. In short, fate’s distribution of long straws is wildly capricious. (Buffett Says ‘Capricious’ Economy Requires Charity (Update1) by Hugh Son, Bloomberg, June 16, 2010 16:17 EDT)
This statement was made as part of a joint proposal with Bill Gates to encourage other wealthy individuals to pool some of their fortunes for charitable purposes.
Bill Gates’s wife Melinda urged people to learn a lesson from the philanthropic efforts of the family that sold its home and gave away half of its value, as detailed in The Power of Half. On December 9, 2010, Buffett, Bill Gates, and Mark Zuckerberg (Facebook’s CEO), signed a promise they called the “Gates-Buffett Giving Pledge”, in which they promised to donate to charity at least half of their wealth over time, and invited others among the wealthy to donate 50% or more of their wealth to charity.
Buffett has described the health care reform under President Barack Obama as insufficient to deal with the costs of health care in the US, though he supports its aim of expanding health insurance coverage. Buffett compared health care costs to a tapeworm, saying that they compromise US economic competitiveness by increasing manufacturing costs. Buffett thinks health care costs should head towards 13 to 14% of GDP. (Under the PPACA, the CMS actuary has projected health care costs will reach almost 20% of GDP by 2020.) Buffett said “if you want the very best, I mean if you want to spend a million dollars to prolong your life 3 months in a coma or something” then the US is probably the best, but that other countries spend much less and receive much more in health care value (visits, hospital beds, doctors and nurses per captia). Buffett faults the incentives in the US medical industry, that payers reimburse doctors for procedures (fee-for-service) leading to unnecessary care (overutilization), instead of paying for results. Buffett has cited Atul Gawande’s 2009 article in the New Yorker as being a useful study in the problems of US health care, with its documentation of unwarranted variation in Medicare expenditures between McAllen, Texas and El Paso, Texas. Buffett also brought up the problem of lobbying by the medical industry, saying that they are very focused on maintaining their income.
Buffett stated that he only paid 19% of his income for 2006 ($48.1 million) in total federal taxes (due to their being from dividends & capital gains), while his employees paid 33% of theirs, despite making much less money. “How can this be fair?” Buffett asked, regarding how little he pays in taxes compared to his employees. “How can this be right?” He also added: “There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning.”
Buffett favors the inheritance tax, saying that repealing it would be like “choosing the 2020 Olympic team by picking the eldest sons of the gold-medal winners in the 2000 Olympics”.
In 2007, Buffett testified before the Senate and urged them to preserve the estate tax so as to avoid a plutocracy. Some critics have argued that Buffett (through Berkshire Hathaway) has a personal interest in the continuation of the estate tax, since Berkshire Hathaway has benefited from the estate tax in past business dealings and had developed and marketed insurance policies to protect policy holders against future estate tax payments. Buffett believes government should not be in the business of gambling, or legalizing casinos, calling it a tax on ignorance.
Buffett views the United States’ expanding trade deficit as a trend that will devalue the US dollar and US assets. He believes that the US dollar will lose value in the long run, as a result of putting a larger portion of ownership of US assets in the hands of foreigners. In his letter to shareholders in March 2005, Warren Buffett predicted that in another ten years’ time the net ownership of the U.S. by outsiders would amount to $11 trillion.
Americans … would chafe at the idea of perpetually paying tribute to their creditors and owners abroad. A country that is now aspiring to an ‘ownership society’ will not find happiness in – and I’ll use hyperbole here for emphasis – a ‘sharecropping society’.
Author Ann Pettifor has adopted the image in her writings and has stated: “He is right. And so the thing we must fear most now, is not just the collapse of banks and investment funds, or of the international financial architecture, but of a ‘sharecropper society, angry at its downfall”.
Dollar and gold
The trade deficit induced Buffett to enter the foreign currency market for the first time in 2002. However, he substantially reduced his stake in 2005 as changing interest rates increased the costs of holding currency contracts. Buffett continues to be bearish on the dollar, and says he is looking to acquire companies which derive a substantial portion of their revenues from outside the United States. Buffett emphasized the non-productive aspect of a gold standard for the USD in 1998 at Harvard:
It gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.
In 1977 Buffett was also quoted as saying about stocks, gold, farmland, and inflation:
Stocks are probably still the best of all the poor alternatives in an era of inflation – at least they are if you buy in at appropriate prices.
Investing in China
Buffett invested in PetroChina Company Limited and in a rare move, posted a commentary on Berkshire Hathaway’s website stating why he would not divest from the company despite calls from some activists to do so, due to its connection with the Sudanese civil war that caused Harvard to divest from the company in 2005. He did, however, sell this stake soon afterwards, sparing him the billions of dollars he would have lost had he held on to the company in the midst of the steep drop in oil prices beginning in the summer of 2008.
In October 2008, Buffett invested in new energy automobile business by paying $230 million for 10% of BYD Company (SEHK: 1211), which runs a subsidiary of electric automobile manufacturer BYD Auto. In less than one year, the investment has reaped him over 500% return of profit.
During the RJR Nabisco, Inc. hostile takeover fight in 1987, Buffett was quoted as telling John Gutfreund:
I’ll tell you why I like the cigarette business. It costs a penny to make. Sell it for a dollar. It’s addictive. And there’s fantastic brand loyalty.
—Buffett, quoted in Barbarians at the Gate: The Fall of RJR Nabisco
Speaking at Berkshire Hathaway Inc.’s 1994 annual meeting, Buffett said investments in tobacco are:
fraught with questions that relate to societal attitudes and those of the present administration. I would not like to have a significant percentage of my net worth invested in tobacco businesses. The economy of the business may be fine, but that doesn’t mean it has a bright future.
—Buffett, Berkshire Hathaway annual meeting (1994)
In 2007, Buffett’s PacifiCorp, a subsidiary of his MidAmerican Energy Company, canceled six proposed coal-fired power plants. These included Utah’s Intermountain Power Project Unit 3, Jim Bridger Unit 5, and four proposed plants previously included in PacifiCorp’s Integrated Resource Plan. The cancellations came in the wake of pressure from regulators and citizen groups, including a petition drive organized by Salt Lake City commercial real estate broker Alexander Lofft and directed at Buffett personally. The 1,600 petitioners, who described themselves in a letter to Buffett as “a collection of citizens, business owners and managers, service professionals, public servants, and organization representatives … your friends and new customers here in Utah,” explained that, in their view, any further expansion of coal generation in Utah would “compromise our health, obscure our viewsheds, shrink and contaminate our watersheds, and thin out our most beloved snow pack,” concluding that “our attractiveness as a place to live and work is also threatened, and so is our economic competitiveness as a major metro area and a state, compromising our recent gains in income and property values”.
Expensing of stock options
He has been a strong proponent of stock option expensing on the Income Statement. At the 2004 annual meeting, he lambasted a bill before the United States Congress that would consider only some company-issued stock options compensation as an expense, likening the bill to one that was almost passed by the Indiana House of Representatives to change the value of Pi from 3.14159 to 3.2 through legislative fiat.
When a company gives something of value to its employees in return for their services, it is clearly a compensation expense. And if expenses don’t belong in the earnings statement, where in the world do they belong?
American Indian tribes and salmon fishermen sought to win support from Warren Buffett for a proposal to remove four hydroelectric dams from the Klamath River. He had David Sokol respond that the FERC would decide the question.
Books about Buffett
Numerous books have been written about Warren Buffett and his investment strategies. In October 2008, USA Today reported that there were at least 47 books in print with Buffett’s name in the title. The article quoted the CEO of Borders Books, George Jones, as saying that the only other living persons named in as many book titles were U.S. presidents, major world political figures, and the Dalai Lama. Buffett said that his own personal favorite is a collection of his essays called The Essays of Warren Buffett, which he described as “a coherent rearrangement of ideas from my annual report letters” as edited by Larry Cunningham.
As per our analysis and we have found out following strength i.e. comparative advantage of in his character him:
- Risk taking mentality
- Saving habit
- Visionary leading attitude
- Ability to handle present situation
- Ability to choose the best investment sectors
- Knowledge of acute calculation
- Strong commitment etc.
Some notable books about Buffett:
- Roger Lowenstein, Buffett, Making of an American Capitalist
- Robert Hagstrom, The Warren Buffett Way.
- Alice Schroeder, The Snowball: Warren Buffett and the Business of Life. (Written with Buffett’s cooperation.)
- Mary Buffett and David Clark, Buffettology and four subsequent books. (Combined sales of more than 1.5 million copies.)
- Janet Lowe, Warren Buffett Speaks: Wit and Wisdom from the World’s Greatest Investor.
- John Train, The Midas Touch: The Strategies That Have Made Warren Buffett ‘America’s Preeminent Investor’
- Andrew Kilpatrick, Of Permanent Value: The Story of Warren Buffett. (The longest of the books about Buffett, with 330 chapters, 1,874 pages and 1,400 photos, weighing 10.2 pounds.)
- Robert P. Miles (2004). Warren Buffett wealth: principles and practical methods used by the world’s greatest investor. John Wiley and Sons. ISBN 9780471465119. http://books.google.com/?id=OOZWykmT-KUC&pg=PA26&lpg=PA26&dq=buffett+city+services+preferred#v=onepage&q&f=false.
- John P. Reese, “The Guru Investor: How to Beat the Market Using History’s Best Investment Strategies” (Includes step-by-step stock-picking method based on Buffett’s approach)
- Janet M. Tavakoli, Dear Mr. Buffett: what an investor learns 1,269 miles from Wall Street, John Wiley and Sons, 2008, ISBN 9780470406786
There are 4 factors of production- land, labor, capital and organization. The most crucial role of organization is played by whom is an entrepreneur. To be an entrepreneur as pre our analysis on this two we found at first an entrepreneur should fix his vision i.e. where he wants to achieve in his entire life. For example- we have found that Akbar Ahmed Sobhan has a vision that he would like to see Bangladesh as a developed country. Beside vision s/he should have the following capabilities-
- Ability to make rational mission supportive to vision
- Ability to combine all relevant factors efficiently
- Excellent way of approach
- Good forecasting power
- Thinking ahead
- Good interaction with people
- Extremely Focus
- Patience & tolerance power
- Untiring efforts
- Risk taking capacity etc.
We found that Akbar Ahmed Subhan wanted to make Bangladesh a less foreign aid dependent country. That’s why he concentrated on setting manufacturing based organization so that we can minimize our dependency form imported goods. Again, he found that Bangladesh is an over populated country and unemployment problem is very common here. So, he made his industries more labor intensive to create huge employment opportunity in various sectors of his several organizations.
We find American economy is not foreign aid dependent, rather its financial strength is exemplary. So, he wanted to do something special so that American economy can run well i.e. America can maintain sustainability in its economical progression. That’s is why, he concentrated on money market and become an investor. His keen knowledge in identifying the sectors in which he will invest was acute. For the early stage of the life Warren Buffett was very economical, still now his life style is very simple and exemplary.