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Stocks 505: Great Investors: Warren Buffett

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1.
All of the following statements about Warren Buffett are false except _______.
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Buffett believes that he has never made a good deal with bad people. Though the economics of a business is the most important factor, Buffett believes it's important to work with competent, honest managers. He believes that he has never made a good deal with a bad person.
2.
Warren Buffett prefers to invest in companies that _______.
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He understands. He sticks to those companies that are within his circle of competence.
3.
All of the following statements about Warren Buffett are false except _______.
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Buffett believes that stock market prices are sometimes much too high or too low. Buffett focuses on the intrinsic value of businesses, not stock prices and the behavior of "Mr. Market."
4.
What does Warren Buffett think that diversification will do to your portfolio?
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Lower returns and increase risk. Buffett does not accept the common view of diversification. Rather, he sees it being detrimental in a lot of cases.
5.
If a company does not have sustainable competitive advantages over others, then it is easier to estimate the value of its future cash flows.
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False. It is harder, not easier, due to the unpredictability of its business.
6.
How does Warren Buffett determine a company's value?
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He estimates the company's future cash flows and discounts them at an appropriate rate. His method is actually common among investment professionals, and is very accurate.
7.
A margin of safety is _______.
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The difference between a company's estimated fair value and its stock price (where the price is lower than the fair value). Since no intrinsic value calculation is perfect, Buffett requires a satisfactory margin for error before he makes an investment.