Warren Buffett Questions

Question 1

Let’s say you had $10 million to invest in anything. What would you do with it?

Answer 1

Always ask for the investor’s goals first. Are they looking to have big capital gains over 30- 40 years? Are they looking for tax-free retirement income? What types of assets interest them?

Based on the response, you can give an appropriate answer. So if they’re investing over 30-40 years and going for high capital gains, a well-diversified portfolio is probably best; if they are more concerned with tax-free income, maybe you should tell them about municipal bonds.
http://bre

Question 2

If you owned a small business and were approached by a larger company about an acquisition, how would you think about the offer, and how would you make a decision on what to do?

Answer 2

The key terms to consider would be:

1. Price
2. Form of payment – cash, stock, or debt
3. Future plans for the company vis-à-vis your own plans.

Question 3

We do most of our work with ___ companies. Can you talk about a trend or company in the industry that has piqued your interest lately?

Answer 3

1. Describe something recent and relevant
2. Explain the why
3. Impact on the market

Question 4

Let’s say you could start any type of business you wanted, and you had $1 million in initial funds. What would you do?

Answer 4

I would buy a piece of property in a good location and have a mattress store. Consistent customers, easy to inventory, and then wait for the property to appreciate, sell or refinance, rinse and repeat.

Question 5

Can you talk about a company you admire and what makes them attractive to you?

Answer 5

I admire Patagonia. Patagonia has a very strong presence in everyday consumers because of their quality products and corporate social responsibility. Patagonia has a well-diversified customer base and a unique competitive advantage by being one of the first companies to charge more for helping out the environment.

Question 6

Let’s assume you are going to start a laundry machine business. How would you analyze whether it’s viable?

Answer 6

I would have to determine whether it would be profitable or not. To do this I would look at locations, arguably the most import part for any retail business, determine the customer base, and how often they do laundry and how much they pay. This would give me the revenue then I would have to calculate the expenses. The biggest expense would be the upfront costs of construction and buying the machines. Then I would have to account for the cost of maintaining and servicing the machines, building maintenance, and hiring someone to collect cash, clean, and open/close the building each day.

Question 7

Pitch me a stock.

Answer 7

Structure your answer with the following 5 points in mind:

1. Give the name and summarize what the company does.
2. Give a brief overview of its financials to indicate its size and how profitable it is. (P/E and if it’s higher or lower than competitors)
3. State how it’s undervalued or more attractive than its rivals, due to any competitive advantages it has.
4. Say how there is a long-term trend in its favor – it’s not just looking good in the
   past month.
5. Talk about how the next 5-10 years will be really good for the company.

Question 8

Can you explain to me, in simple terms, the subprime crisis?

Answer 8

In simple terms, banks made mortgage loans to people who were in no position to pay them off – or even meet monthly payments. Since interest rates were at historical lows, borrowing was easy.

At the same time, mortgages were no longer just loans made to individuals – they were sliced up, combined and “packaged” into securities that banks traded, acquired and sold to investors.

A typical “package” might contain mortgages given to both “credible” borrowers as well as mortgages granted to more risky borrowers – the more risky ones were labeled “subprime.”

Banks acquired these “packaged” assets on the argument that even if one “piece” of the asset was risky or likely to default, the rest still had value.

As it turns out, this was false and no one knew what any of these mortgage-related assets were worth – but as unqualified homeowners began defaulting, buyers disappeared overnight and the value of these assets plummeted to $0.

As a result, the value of many banks also approached $0 and quite a few failed or went bankrupt in the process – all because the securities were so complex that no one understood their value or the true risks involved.

Question 9

Do you agree with the $700 billion bank bailout?

Answer 9

No I do not. It is anti capitalism to bailout corporations. No business should be able to become “too big to fail.” Large corporations learned a few things from the bailouts, they can leverage themselves to the max, not save for black swan events, and don’t have to be risk adverse because at the end of the day tax payers will have to pay to bail them out if anything happens. Instead corporations should look at Lehman brothers for an example to see what could happen if they fail and do everything they can to make sure that it does not happen to them.