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Pages:
2 pages/β‰ˆ550 words
Sources:
1 Source
Style:
APA
Subject:
Business & Marketing
Type:
Essay
Language:
English (U.S.)
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MS Word
Date:
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Topic:

Berkshire Hathaway's Purchase of Burlington Northern Santa Fe Railroad

Essay Instructions:

Berkshire Hathaway's Investment Strategy
Berkshire Hathaway Inc. has almost a “personality cult” organizational culture which essentially revolves around one man and his investing prowess. The man's name is Warren Buffett, the “Oracle of Omaha.” Historically, Berkshire Hathaway's business model has been to purchase insurance companies. One great thing about insurance companies is the “cash float,” which works as follows. Suppose that a person purchases a $100,000 whole life insurance policy from Berkshire Hathaway and pays premiums of $4,000 per year to Berkshire for this policy. The Berkshire Hathaway company is obligated to pay the $100,000 death benefit when the person dies; in the meantime it gets to invest the $4,000 per year “float.” Warren Buffett, who has been a very savvy investor, has made a huge fortune from investing this float money. But recently, Berkshire Hathaway has been moving away from purchasing insurance companies with large floats and has been buying major industrial businesses instead. In 2010, for example, it completed a $44 billion purchase of one of the nation's largest railroads, Burlington Northern Santa Fe (BNSF). Berkshire paid for this acquisition with $15.8 billion in cash it had on hand, and the remainder in Berkshire Hathaway stock. Mr. Buffett, who was born in 1930, is now well beyond the age when most workers retire.
For this activity, answer:
How does Mr. Buffett's age affect Berkshire Hathaway's recent strategic moves such as buying Burlington Northern Santa Fe Railroad instead of another large insurance company?
What does Berkshire Hathaway's purchase of BNSF Railroad say about where Buffett thinks the price of energy (oil and gasoline) is going to be in the future?
How does the energy efficiency of shipping goods via rail compare with shipping goods via truck or airplane?

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Effects of Mr. Buffett age on recent strategic moves of Berkshire Hathaway
From the strategic moves of Berkshire Hathaway, it is clear that the age of Mr. Warren Buffet affects the latest strategic moves set in place by the company. The effect bases upon the business experience that Mr. Warren has in operating the big company. It is well explainable that the older individuals within the operation of any organization tend to have a lot of experience when compared to the younger counterparts in the management sector (Resche, 2011).. The idea of the experience of the directorate is also applicable in the case of Mr. Warren Buffet in seeing the bigger picture in achieving the strategic moves aimed at by the Berkshire Hathaway. Moreover, Mr. Warren Buffet's age affects the progress of the Berkshire Hathaway as he saw the opportunity presented to him and took it immediately without considering the factors of operations and the targeted market in place.
The strategic moves may remain to be effectible by the age of Mr. Warren Buffet, as the business model represented by the Berkshire Hathaway was to buy large insurance companies that assist in ensuring a stabilized cash float in their operations. Therefore, the age factor may lead to the purchase of Burlington Northern Santa Fe Railroad that may seem to differ entirely from the usual model of business even though the outcome may remain to be the same of having stabilized cash float as per the strategic moves. The boom in the oil sector, as well as the increase in agricultural sector plus industrial shipments, makes Burlington Northern Santa Fe Railroad the perfect asset of finance for Berkshire...
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