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Warren Buffett's Dividend Discount Model

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A wise man once said: Risk comes from not knowing what you 're doing (Warren Buffett). When said about Warren Buffett, no one denied his capabilities and influences in investment sector. Great quantities of interest and effort in business and investment showed by him since young age. Undeniably, Warren Buffett always been role model of mine for future career. From the 80/20 Rule, in the financial management, 20% of the people use their assets to do investment for increment of their net worth, while 80% of the people didn’t utilize their assets, they saved it in bank, buy new houses, cars or other material needs instead which indirectly increasing their debt. No crisis consciousness is the biggest life crisis for everyone. This explained why …show more content…

Stock valuation is the process of determining the current worth of an asset or a company. There are two types of valuation, which include fundamental analysis (FA) and technical analysis (TA). The example of the first one is top-down approach and bottom-up approach for the second. FA is the more enhance than TA as it involve the financial and economic analysis to visualize the movement of stock prices, while TA is more on forecasting future prices based on the inspection of past price movements while avoiding losses. Dividend Discount Model (DDM) is one of the example among TA. DDM is the most commonly widely used fundamental stock valuation model in practice. Although this method is a bit old-style, in fact, there are also specified companies remain DDM model as a useful tool for estimating value of the …show more content…

I have explained from the very basic. In this study, I will demonstrate the application of DDM and EMA in one question for reader to understand easily. Moreover, DDM have three stages which explained from the first stage, DDM is designed to value stock in a stable growth firm, the second is applied for firm which has unstable growth rate and a subsequent steady state and is expected to remain so for long term, while the third stage, when an initial period of high growth, a transitional period where growth declines and a final stable growth

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Warren Buffett is also an active politician and he worked as the economic advisor of the 44th President of the United States Barack Obama. Buffett supported Obama’s presidential campaign in 2008 and helped him since he got over the maximum power of the country. Warren admitted that he grew up in a ‘republican family’ and that he became democrat thanks to his wife Susan. Buffett admitted that as time passed he disagreed many times with the President’s proposals such as the health care program and that he had to work on it so it wouldn’t fail. In 2011, one of the most arguable economic problems the country had to face was the implementation of a new tax plan named the ‘Buffett Rule’.

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The DCF method has a lot of advantages over the Multiples approach, one would be that the DCF method considers the future of a company and values the future cash flows for every debt or equity holder. So, this method forces us to explicitly explore and analyze the fundamental factors that drive business value creation. Another advantage is the discount factor which shows us if a given company will be able to generate cash flows equivalent to its riskiness. A disadvantage of the DCF method is its complexity. The Multiples approach is usually only used to get a rough estimate how much a company could be worth.

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I cannot marshal concentration to even read the financial statements about my own investments... moneymaking seems a useful skill, but not much more,” these sentences add to his intention of debunking the myth that success merits an opinion on worldly matters. The tone of the piece is clear

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In the late 18th century entrepreneurs set out to be in charge of their industries, even before the government began influencing business. They set forward using tactical skills to produce a successful business such as vertical/ horizontal integration, trusts, and communism vs. capitalism. With these opportunists, they developed one of the highest classes of society know today, billionaires/millionaires, but their morals of being a trustee and the control over trusts were questioned. After Teddy Roosevelt’s “Trust Buster”, the end of monopoly greed came to a halt and it finally became illegal to hold a trust. The trusts were only beneficial to the trustee and left the consumer in distress.

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Besides, he urges them to learn from their mistakes and work to earn, invest and grow rich (Edelman, 2013). Perhaps as an encouragement to those who may lose hope at some point, he argues that each and every other rich person has made losses at some point. However, this should not discourage one from keeps trying. Above all, he argues that for one to be rich, he or she should be in control, surround himself or herself with the right people and have a clear purpose in

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Furthermore, crisis requires people to confront their emotions, consequently letting individuals speak things that otherwise would not be spoken. The true character of people can be established. Possible the most substantial reason however, is that it challenges humans to focus on what is important. Trivial problems seem insignificant

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Q3. How much value, if any, does Buffett derive from the credit agreement? There are two parts of the credit agreement, the 8-year term loan and the penny warrants. The $400 million term loan accompanying with a $45 million revolving credit facility will give Buffett a chance to earn at an interest rate of 10.5%.

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Financial meltdowns are affecting almost all of us how often will each of us go through a ‘crisis’ in our lifetime?” The answer is: many times. We need to have effective ways of thriving even during the tougher times we need solutions and practical day-to-day tools to help us sail thru the crisis which cannot be not negativity, whining and complaining,. As the turmoil in the economy and financial markets continues, golf teaches us to be calm, and patient to face this seemingly difficult situation, these real life experiences of the game help us to face reality when it knocks at our door, hence no doubt it is said the Many a corporate executives engage in this game for better business understanding.

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Just like how buffet strongly believed in value-investing in an environment where everyone else is chasing after high-yield stocks, one should be high disciplined in adhering to his or her investing strategy. A good strategy may not work well in all environments, but should deliver exceptional returns over the long-term. Investing in today’s markets – plenty of choices to choose

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The crisis is whether or not a person establishes an individual ego identity where their self-image fully describes them to themselves as well as everyone

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Outline the similarities and differences between the Single Index Model (SIM) and the Capital Asset Pricing Model (CAPM). Justify which of the two models makes a better assessment of return of a security (25 marks). To reduce a firm’s specific risk or residual risk a portfolio should have negative covariance or rather it should have no variance at all, for large portfolios however calculating variance requires greater and sophisticated computing power. As such, Index models greatly decrease the computations needed to calculate the optimum portfolio. The use of such Index models also eliminates illogical or rather absurd results.

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s a personal finance advisor, I can only show my clients the cold, hard realities of their financial lives and give them strategies for improvement; but until they are ready to make the necessary changes, I really can 't help them become financially successful. After learning the secrets of managing, multiplying and maintaining money, it became my mission to pass on the good news to all. At first I was naïve in believing that once people understood how to transform their finances, they would quickly adopt key principles such as budgeting, saving and debt management. Very soon I realised that it would not be quite that easy to influence some people 's personal finance habits.

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1217 Words | 5 Pages

Outline the similarities and differences between the Single Index Model (SIM) and the Capital Asset Pricing Model (CAPM). Justify which of the two models makes a better assessment of return of a security (25 marks). To reduce a firm’s specific risk or residual risk a portfolio should have negative covariance or rather it should have no variance at all, for large portfolios however calculating variance requires greater and sophisticated computing power. As such, Index models greatly decrease the computations needed to calculate the optimum portfolio. The use of such Index models also eliminates illogical or rather absurd results.

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1243 Words | 5 Pages

For which reason it is better for the company to regularly calculate for its Z-scores so as to make management aware of the potential risks the company would be facing, and therefore enable it to properly plan its next strategies. As observed in West Oyl Corporation, a company considered bankrupt as far back as 1993 and in 2005 is between bankrupt and safe, it is evident in the hasty management decision to acquire the capital-intensive machinery that techniques such as the Z-score model were not applied. The management failed to look at the company’s environment to predict future market demands and prepare for potential industry threats and opportunities. The only basis for the plant expansion was company profitability (Joy S. Rabo 2008). Multidimensional Analysis (MDA) is one of the most popular techniques used for analyzing insolvency (Perez 2006).

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I believe that identity crises happen more often during our modern era for three reasons. These three reasons are as follows: we are living longer lives than ever before; our roles are no longer clearly defined by our society, and the stresses in our lives are emotional and existential rather than physical. Firstly, as humans, we are living longer lives than those that came before us. As we age, our roles shift, often leaving gaps as we navigate the next stage of our lives. For example, it is common for people to work for a large portion of their lives.

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