Professors engage students in Buffett’s annual letter

Julia de la Parra, Staff writer

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The School of Management and the Economics Department collaborated to present a panel on March 29 that analyzed Warren Buffet’s annual letter to Berkshire Hathaway shareholders. Buffet is an American businessman who is widely considered the most successful investor in the world.

What exactly is Buffett’s annual letter to shareholders? The document is published at the end of February and essentially emphasizes Buffett’s personal philosophies and how he has been able to generate growth in the American economy. Additionally, the document is comprised of financial information in language accessible to people in professions such as accounting, finance, valuation, and economics.

“Warren Buffett’s annual letter is a must-read for any professional in the United States,” Visiting Adjunct Associate Professor of Finance Frank Schreiner said.

The event featured three presentations and concluded with a Q&A session. Assistant Professor of Management Curtis Nicholls kicked off the panel by exploring the idea of intrinsic value versus the market value of a share of Berkshire stock. In his letter, Buffett underscores the importance of intrinsic value, which is the actual value of a company or an asset based on an underlying perception of its true value, including all aspects of the business. Nicholls explained how the intrinsic value of a share or company, a value which investors are concerned about, exceeds the book value, since the intrinsic value accounts for growth and opportunity while book value does not.

Nicholls also spoke about a unique type of measurement mentioned in Buffett’s letter, revenue ton-miles, which calculates the miles by tons of a train transporting materials. Companies that utilize this method of measurement use it to bill the people that use their services.

Assistant Professor of Management Cindy Guthrie spoke about investments in insurance and goodwill. Berkshire Hathaway is in the property and casualty insurance industry. In order for the company to make money, it must capitalize on float, which is the money that results from the time lapse between a person paying an insurance premium and the insurance company underwriting a claim. This float is then invested.

Associate Professor of Economics Gregory Krohn spoke last and discussed the relationship between productivity and prosperity. He discussed Buffett’s ability to convert inputs into outputs by explaining the production function and gross domestic product (GDP) of a nation.

Students from various different disciplines attended the panel.

“[T]he talk was great in the sense that we were able to hear perspectives from four different professors with varying backgrounds and interests,” Tim Howard ’16 said.

“[The panel featured] such an interesting topic … about Warren Buffett, who has been one of the most influential people in the world,” Zach Crowley ’16 said. 

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