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Read the WSJ article and then answer 5 of these 7 questions:
1. How did Berkshire Hathaway’s book and market values change over the past year? How does its market-to-book ratio today compare to its average over the past 20 years?
2. How would you explain the change in Berkshire Hathaway’s market-to-book ratio?
3. Why might Berkshire Hathaway’s past performance provide little indication of its future performance?
4. Do you agree with the argument that investors with a shorter investment horizon fail to understand the value of a firm as well as investors with a longer investment horizon? Explain.
5. Do you agree that Warren Buffet’s contributions of shares to charities might be depressing Berkshire Hathaway’s share price? Explain.
6. The article states “Analysts don’t value the stock using price/earnings ratios because a large component of Berkshire’s earnings comes from insurance.” Why is the valuation of insurance companies so different from other firms?
7. Berkshire Hathaway’s stock price has risen 19% since it announced a share buyback program. Why might share buybacks push a firm’s stock price higher?
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