CASE STUDIES IN FINANCE
FIN3CSF – S2, 2011
CASE STUDY 1 : SETTING SOME THEMES
DUE DATE : WED AUGUST 17
CASE 1: Warren Buffett:
Using the information in Case Study 1 answer the following questions.
(a) From Warren Buffett’s perspective, what is the intrinsic value? Why is it accorded such importance? How is it estimated? What are the alternatives to intrinsic value? Why does Buffett reject them?
(b) Critically assess Buffett’s investment philosophy. Be prepared to identify points where you agree and disagree with him.
(c) Should Berkshire Hathaway’s shareholders endorse the acquisition of PacifiCorp?
8 marks
CASE 2: Bill Miller and Value Trust:
Using the information in Case Study 2 and the finance textbook by Bishop, Faff, Oliver and Twite, Corporate Finance, answer the following questions.
(a) How well has Value Trust performed in recent years? In making that assessment, what benchmark(s) are you using? How do you measure investment performance? What does good performance mean to you?
(b) What might explain the fund’s performance? To what extent do you believe an investment strategy, such as Miller’s, explains performance?
(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?
(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?
(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?
12 marks