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The Warren Buffett Way Workbook by Russell Rhoads, Robert G. Hagstrom

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Chapter 1

A Five-Sigma Event

THE WORLD’S GREATEST INVESTOR

Answers to Multiple-Choice Questions

1. C. Berkshire Hathaway is best thought of as a holding company that owns companies and additionally owns shares in publicly traded companies. The growth of Berkshire Hathaway can be attributed to a combination of earnings generated by the companies owned and the appreciation of the investment portfolio.

2. D. An investor or businessperson should have several considerations before investing in or purchasing a company. How much capital reinvestment is required to keep the company running, the debt obligation of the company, and management’s track record and vision should all be considered. In addition, other questions to ask include who is the competition, is the competition better off than the company under consideration, what the return on investment for the company is, what is the company worth, and is the price to buy the company higher or lower than the value of the business.

3. B. Warren Buffett believes there should be no difference between the investment approach of a businessperson and an investor. Both should look at their investments or ownership in businesses in the same way. In both cases consideration should be given to a company’s products and services along with the strength of a company’s competition.

4. A. The point in the investing process where many investors considering purchasing a publicly traded stock deviate from an individual considering buying an entire company ...

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