Found these excerpts on the fool.com website.
This speech is useful in resovling some question we all have as investors
- how do i accumulate a decent nest egg
- what to focus on when analysing a business (important and knowable)
- how to investigate / research a company
The first section of the speech I have quoted was Mr. Buffett's answer to the moderator's question on how individuals can grow their investment portfolio. I think this is the first time I have heard of him using the snowball analogy.
Mr. Buffett: “The first thing to realize is that it takes a long time. I started when I was eleven. Accumulating money is a little like having a snowball going downhill, it's important to have a very long hill. I've had a fifty-six year hill. It's important to work in sticky snow and you need a little snowball to start with, which I got from delivery the post actually. It's better if you're not in too much of a hurry and keep doing sound things.”
“The biggest thing I've had going for me is that we have never had big loses. I think almost everyone on Wall Street has had winners that were comparable to what we've had at Berkshire Hathaway but we have tended to avoid the losers and we have done that by trying to stick in what I call my circle of competence. I think that is the biggest thing in business, figuring out where you are good and where you are not. It doesn't make any difference how big the circle is the important thing is that you know where the perimeter is. You can have a very small circle but if you stay within that circle you'll do fine. It's like Tom Watson said, “I'm no genius but I'm smart in spots and I stay around those spots.
”“Well that is what I try to do in investments. I try to stick with companies that I can understand. You don't always have huge winners that way but you'll almost never lose any significant money. So come back and see me in 56 years and tell me how it worked.
”The second section of the speech is important because it provides us with an understanding of exactly what ideas of Mr. Graham actually caught the interest of Mr. Buffett. I also find it interesting that another great investment mind besides Mr. Graham found that technical analysis is useless. Another idea that he brings up in this section is how knowledge builds on itself. I think that is especially true for investors that already think of the investment process correctly but could present problems to those that follow technical analysis or believe in the EMT.
Mr. Buffett: “Well, the biggest thing was picking up a book when I was nineteen by Benjamin Graham called the Intelligent Investor. I had been interested in stocks since I was six or seven and I'd charted and done all this technical analysis, it was a lot of fun but it wasn't very profitable. I read the Intelligent Investor and it really had three important ideas in it: Think of a stock as part of a business, don't think of it as some little ticker symbol moving around but think of it as actually buying a piece of a business just like you'd buy a service station or a dry cleaning establishment in your hometown. Instead you're buying one-onehundredth of a percent of General Motors.”“Think of what you understand about the business and how you can value it. If it's one you can't understand then go onto the next one. His second concept of your attitude toward stock market changes is prices so that he said the stock market was there to serve you not to instruct you. So essentially he said that when a stock goes down that is good news if you know what you're doing because it just means that you can buy more of a business that you like even cheaper.
“Finally the concept of a Margin of Safety which he said if you were driving a car or a truck that weighs 9800 pounds and you see a bridge that says limit 10,000 pounds you go look for another bridge that says 20,000 pounds and you only buy securities when you think they are substantially below what you think they are worth. Those concepts all made sense to me.” “Those fundamental principles applied in various ways are the key to it [investing]. I've had an additional advantage in that I have been in both business and in investments so I have actually seen businesses.
”“Owning See's Candies, which we bought in 1972, really taught me a lot about the value of brands and what could be done with them so I understood Coca-Cola better when it came along in 1988 then if I had never been in Sees. We've got a profit of close to $10 billion dollars in Coke now a significant part of that is attributable to the fact that we bought Sees Candy for $25 million dollars in 1972.
”“The nice thing about investments is that knowledge accumulates on you and if you understand a business or industry once you are going to understand it for the next fifty years. There may be whole big areas you don't understand, like technology would be with me) but once you understand candy you understand candy.
”The following quote, in my opinion, is a little plug in favor of focus investing.
Mr. Buffett: “When I miss on a business that I can understand, that I know about, and I don't so something big, doing something small is a great sin in my view. [Those situations] have cost us billions of dollars literally”.
This next answer provides investors with a compelling way to think about investing. His advocating on focusing on the real issues and ignoring the items that don't matter in the overall equation is a great repudiation of the investing theories behind momentum market players.
Mr. Buffett: “Well, if I could do it would eliminate a lot of other problems. I wouldn't have to sit and think about whether Coca-Cola had a decent business or Gillette or something of the sort. It's just that I don't know how to do it and in business you're looking for things that are important and knowable. If they're not important than forget them and if they're not knowable forget them but if they are important they are knowable and then the question is can you find things that are important and knowable? And you can but predicting the market is one that may be important but in my view is not knowable and I don't know anyone who has made large amounts of money by predicting the market. If you can't do it then you don't want to let it interfere with something you can do.
”“Coca-Cola went public in 1919 or 1920 at $40 a share. It went to $19 within the year. It lost over 50% of its value, sugar went up in price and there were some other things. Now if you thought the market was there to instruct you might think this was a terrible business and I'd better get out of it. Or if you thought you saw the Great Depression coming or World War II, or all of these things you could sit there and think about all kinds of things. The important thing was to recognize what Coca-Cola was so if you put $40 dollars or $19 dollars at the start of that year it would be worth about $5 million now. That is what you really want, the big idea that you can understand.
”In the following answer Mr. Buffett explains how investors can use their own circle of competence in the investment process. I think you'll enjoy the investigative reporter analogy.
Mr. Buffett: “Well, it is interesting that you mention reporting because Bob Woodward I think back in 73 or 74 when I first got interested in the post we had lunch at the Madison and he was saying what he might so with his money and I said Bob why don't you assign yourself a story, get up an hour early every morning and work on a story you've assigned yourself. Now a sensible story to assign yourself would be what is the Washington Post Company worth. Now if Bradley gave you that story to work on what would you do for the next week or two? You go around and talk to people at Rand Television stations, Brokered Television Stations [?] bought them, and you would try to figure out what are the key variables in valuing a television station and you would look at the four that the Post has and apply those standards to that.”
“You would do the same thing to newspapers. You would try to figure out how the competitive battle between the Star and the Post was going to come out and how much difference the world would might be if the Post won that war then it was at the present time and what Newsweek. All of these things are a lot easier than the problems Woodward would usually be working on. Usually people wouldn't want to talk to him but on this subject they would be glad to talk to him and then I said when you get all through with that add it up, divide by the number of shares outstanding. All he had to do was assign himself the right story and I assign myself stories from time to time.”
“I may assign myself the story about how Diary Queen works and I can figure that out a lot easier than I can figure out what an Intel is worth. It is reporting. A is getting into fairly simple businesses so there aren't huge numbers of unknowables and then it is going around and talking to suppliers, its talking to competitors, maybe talking to ex-employees.” “One question I would always ask in the past, when I worked harder at this, I would go around and talk to everyone in an industry and say if you had to buy one of your competitors stocks, if you had to go away for ten years and had to buy one of your competitors stocks, which would it be and why? And if you do this enough times, it's like reporting, it starts fitting together. It's not really a complicated proposition.”
The last answer that I he gave in response to a student's question related back to what Mr. Buffett feels is important for investors to take away from the teachings of Mr. Graham.Mr. Buffett: “Graham emphasized the quantitative in buying stocks below working capital and that sort of thing. I don't regard that as the important part of his teaching. I really regard those principles of looking at the stock as a business, the margin of safety and those things so in that respect I'm pure Graham from those building blocks the quantitative parts I have changed some from but Graham wasn't as interested in business as I am actually I mean I find it fun to go in and look at a business and try to determine what makes it tick or not tick and Graham looked at it as something we could do in an office looking at a bunch of numbers and he was very successful but he really believed in the used cigar butt approach to investing.”
Monday, July 25, 2005
Additional Buffett resources
Over the past few years i have gathered a good amount of material such as speeches, articles etc on investing greats such as warren buffett, charlie munger, graham and others.
i have added a new section on the sidebar which will provide links to these useful resources. I am now in the process of adding to the links and would be updating it on a regular basis.
i would be able to share only those resources for which i have a link and it is not copyrighted. For some stuff like buffett's letter to partners, which cannot be shared , I would not be able to post any links.
So stay tuned !!
i have added a new section on the sidebar which will provide links to these useful resources. I am now in the process of adding to the links and would be updating it on a regular basis.
i would be able to share only those resources for which i have a link and it is not copyrighted. For some stuff like buffett's letter to partners, which cannot be shared , I would not be able to post any links.
So stay tuned !!
Additional Buffett resources
Over the past few years i have gathered a good amount of material such as speeches, articles etc on investing greats such as warren buffett, charlie munger, graham and others.
i have added a new section on the sidebar which will provide links to these useful resources. I am now in the process of adding to the links and would be updating it on a regular basis.
i would be able to share only those resources for which i have a link and it is not copyrighted. For some stuff like buffett's letter to partners, which cannot be shared , I would not be able to post any links.
So stay tuned !!
i have added a new section on the sidebar which will provide links to these useful resources. I am now in the process of adding to the links and would be updating it on a regular basis.
i would be able to share only those resources for which i have a link and it is not copyrighted. For some stuff like buffett's letter to partners, which cannot be shared , I would not be able to post any links.
So stay tuned !!
Saturday, July 23, 2005
Risk Reward ratio not in favor of investors at 7400 levels
Read this interview of chetan parikh (he runs the excellent website capitalideasonline ). He is an exceptional investor from the graham - buffett school of investing and among the few investors whose views i respect.
The complete interview is available in moneycontrol website
http://news.moneycontrol.com/backends/News/frontend/news_detail.php?autono=174200
some snippets below
He says, "I would be comfortable with the levels being below 6000, because if the market goes below the 5500-6000 levels, there would be a lot more trading opportunities. But at this point of time in the market, it is difficult to find stocks with a large margin of safety."
He adds that, a good band of trading for the market would be between 12-18 times earnings, and on that basis the Sensex should be anywhere between 5000-8400 levels.
Parikh says, "At the 7300 levels, the risk reward is not in favour of investors. This does not mean that the markets cannot go up, because on liquidity the markets can go even upto 8000 levels and past that. But from the risk management point of view, the odds are not in favour of the investors, from a one year perspective."
He says, "My sense is that the operating margins have peaked, and going forward, operating margins could come under pressure. A whole lot of companies have gone in for capital expenditure, and therefore the return on capital employed will come down. We are also seeing the bottom of the interest rate cycle, so there will be a pressure on margins, on return on net worth and capital employed, in the future.
i would completely with his analysis on the return on capital and other fundamentals. The BSE sensex stocks at an aggregate are returning 20 % + ROE (with the past no.s around 16-18 % at best ). So although the pe are not high , i would kind of wary of putting any more money. on the contrary i have started looking at reducing some of my holdings which seems to be get in the over valued territory.
The complete interview is available in moneycontrol website
http://news.moneycontrol.com/backends/News/frontend/news_detail.php?autono=174200
some snippets below
He says, "I would be comfortable with the levels being below 6000, because if the market goes below the 5500-6000 levels, there would be a lot more trading opportunities. But at this point of time in the market, it is difficult to find stocks with a large margin of safety."
He adds that, a good band of trading for the market would be between 12-18 times earnings, and on that basis the Sensex should be anywhere between 5000-8400 levels.
Parikh says, "At the 7300 levels, the risk reward is not in favour of investors. This does not mean that the markets cannot go up, because on liquidity the markets can go even upto 8000 levels and past that. But from the risk management point of view, the odds are not in favour of the investors, from a one year perspective."
He says, "My sense is that the operating margins have peaked, and going forward, operating margins could come under pressure. A whole lot of companies have gone in for capital expenditure, and therefore the return on capital employed will come down. We are also seeing the bottom of the interest rate cycle, so there will be a pressure on margins, on return on net worth and capital employed, in the future.
i would completely with his analysis on the return on capital and other fundamentals. The BSE sensex stocks at an aggregate are returning 20 % + ROE (with the past no.s around 16-18 % at best ). So although the pe are not high , i would kind of wary of putting any more money. on the contrary i have started looking at reducing some of my holdings which seems to be get in the over valued territory.
Risk Reward ratio not in favor of investors at 7400 levels
Read this interview of chetan parikh (he runs the excellent website capitalideasonline ). He is an exceptional investor from the graham - buffett school of investing and among the few investors whose views i respect.
The complete interview is available in moneycontrol website
http://news.moneycontrol.com/backends/News/frontend/news_detail.php?autono=174200
some snippets below
He says, "I would be comfortable with the levels being below 6000, because if the market goes below the 5500-6000 levels, there would be a lot more trading opportunities. But at this point of time in the market, it is difficult to find stocks with a large margin of safety."
He adds that, a good band of trading for the market would be between 12-18 times earnings, and on that basis the Sensex should be anywhere between 5000-8400 levels.
Parikh says, "At the 7300 levels, the risk reward is not in favour of investors. This does not mean that the markets cannot go up, because on liquidity the markets can go even upto 8000 levels and past that. But from the risk management point of view, the odds are not in favour of the investors, from a one year perspective."
He says, "My sense is that the operating margins have peaked, and going forward, operating margins could come under pressure. A whole lot of companies have gone in for capital expenditure, and therefore the return on capital employed will come down. We are also seeing the bottom of the interest rate cycle, so there will be a pressure on margins, on return on net worth and capital employed, in the future.
i would completely with his analysis on the return on capital and other fundamentals. The BSE sensex stocks at an aggregate are returning 20 % + ROE (with the past no.s around 16-18 % at best ). So although the pe are not high , i would kind of wary of putting any more money. on the contrary i have started looking at reducing some of my holdings which seems to be get in the over valued territory.
The complete interview is available in moneycontrol website
http://news.moneycontrol.com/backends/News/frontend/news_detail.php?autono=174200
some snippets below
He says, "I would be comfortable with the levels being below 6000, because if the market goes below the 5500-6000 levels, there would be a lot more trading opportunities. But at this point of time in the market, it is difficult to find stocks with a large margin of safety."
He adds that, a good band of trading for the market would be between 12-18 times earnings, and on that basis the Sensex should be anywhere between 5000-8400 levels.
Parikh says, "At the 7300 levels, the risk reward is not in favour of investors. This does not mean that the markets cannot go up, because on liquidity the markets can go even upto 8000 levels and past that. But from the risk management point of view, the odds are not in favour of the investors, from a one year perspective."
He says, "My sense is that the operating margins have peaked, and going forward, operating margins could come under pressure. A whole lot of companies have gone in for capital expenditure, and therefore the return on capital employed will come down. We are also seeing the bottom of the interest rate cycle, so there will be a pressure on margins, on return on net worth and capital employed, in the future.
i would completely with his analysis on the return on capital and other fundamentals. The BSE sensex stocks at an aggregate are returning 20 % + ROE (with the past no.s around 16-18 % at best ). So although the pe are not high , i would kind of wary of putting any more money. on the contrary i have started looking at reducing some of my holdings which seems to be get in the over valued territory.
Friday, July 15, 2005
Investing rules from Jim Rogers
Read a very good article on Jim Rogers in capitalideasonline.com . He was a partner with gorge soros , i think, and has published quite a few good books like investment biker etc .
The link is given below
http://www.capitalideasonline.com/articles/index.php?id=1554
some excerpts
Rule 1: Do your own work. Don't be afraid of being a loner.
"I learned early in my career that if you read the annual reports, you've done more than 90% of the people on Wall Street. If you read the notes to the annual report, you've done more than 95% of the people on Wall Street, and if you actually sit down and do a spread sheet, you've done more than 98% of the people on Wall Street." (emphasis mine)
Rule 2: Good investors need a historical perspective.
Rule 3: Think conceptually about the world.
Rule 4: Don't buy stocks at high multiples.
"I don't buy them because, by the time they reach a high multiple, it's probably about time for it to come to an end. Wall Street and politicians are the last to catch on to anything," said Jimmy. He doesn't sell a stock just because it happens to have a high multiple. He either waits for a fundamental change or for an indication that something is about to go wrong.
Rule 5: Be selective in your investing and look for one good idea.
"The most important trick for getting rich on Wall Street is not to lose money. There are many guys," he said, "who do well for two years and then get creamed. Wait until you have a winner and are sure. In the meantime, keep your money in treasury bills. Professional money managers feel that they have to do something all the time and are the worst at following this advice.
"Even if you only have one play every ten years, you're going to do a lot better than most people."
Rule 6: Every investment should be considered a commodity that will be affected by supply and demand changes. It's just a question of when.
Everything has its own supply and demand cycle, which may be a twenty-, thirty-, or fifty-year cycle, and everything is basically a commodity in the end. American Standard was a great growth stock when people went from outdoor to indoor plumbing, but it isn't considered one today. Avon, a cosmetics firm, boomed after the war when the country became more affluent. By the late Sixties, Avon had a multiple of 50, and the market was saturated with many competing cosmetics brands.
Rule 7: Every investor should lose some money, because it teaches you about yourself
The link is given below
http://www.capitalideasonline.com/articles/index.php?id=1554
some excerpts
Rule 1: Do your own work. Don't be afraid of being a loner.
"I learned early in my career that if you read the annual reports, you've done more than 90% of the people on Wall Street. If you read the notes to the annual report, you've done more than 95% of the people on Wall Street, and if you actually sit down and do a spread sheet, you've done more than 98% of the people on Wall Street." (emphasis mine)
Rule 2: Good investors need a historical perspective.
Rule 3: Think conceptually about the world.
Rule 4: Don't buy stocks at high multiples.
"I don't buy them because, by the time they reach a high multiple, it's probably about time for it to come to an end. Wall Street and politicians are the last to catch on to anything," said Jimmy. He doesn't sell a stock just because it happens to have a high multiple. He either waits for a fundamental change or for an indication that something is about to go wrong.
Rule 5: Be selective in your investing and look for one good idea.
"The most important trick for getting rich on Wall Street is not to lose money. There are many guys," he said, "who do well for two years and then get creamed. Wait until you have a winner and are sure. In the meantime, keep your money in treasury bills. Professional money managers feel that they have to do something all the time and are the worst at following this advice.
"Even if you only have one play every ten years, you're going to do a lot better than most people."
Rule 6: Every investment should be considered a commodity that will be affected by supply and demand changes. It's just a question of when.
Everything has its own supply and demand cycle, which may be a twenty-, thirty-, or fifty-year cycle, and everything is basically a commodity in the end. American Standard was a great growth stock when people went from outdoor to indoor plumbing, but it isn't considered one today. Avon, a cosmetics firm, boomed after the war when the country became more affluent. By the late Sixties, Avon had a multiple of 50, and the market was saturated with many competing cosmetics brands.
Rule 7: Every investor should lose some money, because it teaches you about yourself
Investing rules from Jim Rogers
Read a very good article on Jim Rogers in capitalideasonline.com . He was a partner with gorge soros , i think, and has published quite a few good books like investment biker etc .
The link is given below
http://www.capitalideasonline.com/articles/index.php?id=1554
some excerpts
Rule 1: Do your own work. Don't be afraid of being a loner.
"I learned early in my career that if you read the annual reports, you've done more than 90% of the people on Wall Street. If you read the notes to the annual report, you've done more than 95% of the people on Wall Street, and if you actually sit down and do a spread sheet, you've done more than 98% of the people on Wall Street." (emphasis mine)
Rule 2: Good investors need a historical perspective.
Rule 3: Think conceptually about the world.
Rule 4: Don't buy stocks at high multiples.
"I don't buy them because, by the time they reach a high multiple, it's probably about time for it to come to an end. Wall Street and politicians are the last to catch on to anything," said Jimmy. He doesn't sell a stock just because it happens to have a high multiple. He either waits for a fundamental change or for an indication that something is about to go wrong.
Rule 5: Be selective in your investing and look for one good idea.
"The most important trick for getting rich on Wall Street is not to lose money. There are many guys," he said, "who do well for two years and then get creamed. Wait until you have a winner and are sure. In the meantime, keep your money in treasury bills. Professional money managers feel that they have to do something all the time and are the worst at following this advice.
"Even if you only have one play every ten years, you're going to do a lot better than most people."
Rule 6: Every investment should be considered a commodity that will be affected by supply and demand changes. It's just a question of when.
Everything has its own supply and demand cycle, which may be a twenty-, thirty-, or fifty-year cycle, and everything is basically a commodity in the end. American Standard was a great growth stock when people went from outdoor to indoor plumbing, but it isn't considered one today. Avon, a cosmetics firm, boomed after the war when the country became more affluent. By the late Sixties, Avon had a multiple of 50, and the market was saturated with many competing cosmetics brands.
Rule 7: Every investor should lose some money, because it teaches you about yourself
The link is given below
http://www.capitalideasonline.com/articles/index.php?id=1554
some excerpts
Rule 1: Do your own work. Don't be afraid of being a loner.
"I learned early in my career that if you read the annual reports, you've done more than 90% of the people on Wall Street. If you read the notes to the annual report, you've done more than 95% of the people on Wall Street, and if you actually sit down and do a spread sheet, you've done more than 98% of the people on Wall Street." (emphasis mine)
Rule 2: Good investors need a historical perspective.
Rule 3: Think conceptually about the world.
Rule 4: Don't buy stocks at high multiples.
"I don't buy them because, by the time they reach a high multiple, it's probably about time for it to come to an end. Wall Street and politicians are the last to catch on to anything," said Jimmy. He doesn't sell a stock just because it happens to have a high multiple. He either waits for a fundamental change or for an indication that something is about to go wrong.
Rule 5: Be selective in your investing and look for one good idea.
"The most important trick for getting rich on Wall Street is not to lose money. There are many guys," he said, "who do well for two years and then get creamed. Wait until you have a winner and are sure. In the meantime, keep your money in treasury bills. Professional money managers feel that they have to do something all the time and are the worst at following this advice.
"Even if you only have one play every ten years, you're going to do a lot better than most people."
Rule 6: Every investment should be considered a commodity that will be affected by supply and demand changes. It's just a question of when.
Everything has its own supply and demand cycle, which may be a twenty-, thirty-, or fifty-year cycle, and everything is basically a commodity in the end. American Standard was a great growth stock when people went from outdoor to indoor plumbing, but it isn't considered one today. Avon, a cosmetics firm, boomed after the war when the country became more affluent. By the late Sixties, Avon had a multiple of 50, and the market was saturated with many competing cosmetics brands.
Rule 7: Every investor should lose some money, because it teaches you about yourself
Friday, July 08, 2005
Buffett's speech to students at univ of Florida
A free link to the video was posted at www.fool.com by a board member. i have put the link below
http://tinyurl.com/c85or
several very interesting comments by buffett
1. why smart people do dumb things - buffett discussed about the LTCM episode. how a bunch of very smart people with very high IQ and knowledge, managed to blow up everything they had. i like the statement - 'why risk what you have and need for what you dont have and dont need' ? i think this statement is very important to an investor. just think about it ...if i am well off , why do i need to risk my networth for a few extra percentage points and if i am poor , i cannot afford to do it. i guess it makes sense to invest conservatively (in companies with strong competitive advantage )
2. buffett discusses at length the economics of coke / see's and p&g. this was in response to a question on what is it he looks in a business. buffett discusses in detail about the what qualitative factors one should look for in a business. One new point which struck me and kept me thinking is buffetts reference to the pricing power of a company. companies with strong pricing power like coke tend to have a very formidable competitive advantage. in comparison commodity companies have poor or no pricing power (except during supply shortage )
3. buffett also discussed about reit investment and how although the discount to book looks enticing , but is justified due to inability of such companies to move / sell the big amount of real estate on their books
4. buffett talks of various other topics (which he has repeated in several other forums) , like developing good habits (example of taking a 10 % option on your classmate ), not prediciting the market etc
5.buffett also talk of the 'important and knowable' v/s 'important and unknowable' , when some one asked his opinion on interest rates. he pointed out that is better to focus on the first and get into good companies than worry about the second and let go of opportunities.
a very good speech and worth the 1.5 hours (in addition it is free)
http://tinyurl.com/c85or
several very interesting comments by buffett
1. why smart people do dumb things - buffett discussed about the LTCM episode. how a bunch of very smart people with very high IQ and knowledge, managed to blow up everything they had. i like the statement - 'why risk what you have and need for what you dont have and dont need' ? i think this statement is very important to an investor. just think about it ...if i am well off , why do i need to risk my networth for a few extra percentage points and if i am poor , i cannot afford to do it. i guess it makes sense to invest conservatively (in companies with strong competitive advantage )
2. buffett discusses at length the economics of coke / see's and p&g. this was in response to a question on what is it he looks in a business. buffett discusses in detail about the what qualitative factors one should look for in a business. One new point which struck me and kept me thinking is buffetts reference to the pricing power of a company. companies with strong pricing power like coke tend to have a very formidable competitive advantage. in comparison commodity companies have poor or no pricing power (except during supply shortage )
3. buffett also discussed about reit investment and how although the discount to book looks enticing , but is justified due to inability of such companies to move / sell the big amount of real estate on their books
4. buffett talks of various other topics (which he has repeated in several other forums) , like developing good habits (example of taking a 10 % option on your classmate ), not prediciting the market etc
5.buffett also talk of the 'important and knowable' v/s 'important and unknowable' , when some one asked his opinion on interest rates. he pointed out that is better to focus on the first and get into good companies than worry about the second and let go of opportunities.
a very good speech and worth the 1.5 hours (in addition it is free)
Buffett's speech to students at univ of Florida
A free link to the video was posted at www.fool.com by a board member. i have put the link below
http://tinyurl.com/c85or
several very interesting comments by buffett
1. why smart people do dumb things - buffett discussed about the LTCM episode. how a bunch of very smart people with very high IQ and knowledge, managed to blow up everything they had. i like the statement - 'why risk what you have and need for what you dont have and dont need' ? i think this statement is very important to an investor. just think about it ...if i am well off , why do i need to risk my networth for a few extra percentage points and if i am poor , i cannot afford to do it. i guess it makes sense to invest conservatively (in companies with strong competitive advantage )
2. buffett discusses at length the economics of coke / see's and p&g. this was in response to a question on what is it he looks in a business. buffett discusses in detail about the what qualitative factors one should look for in a business. One new point which struck me and kept me thinking is buffetts reference to the pricing power of a company. companies with strong pricing power like coke tend to have a very formidable competitive advantage. in comparison commodity companies have poor or no pricing power (except during supply shortage )
3. buffett also discussed about reit investment and how although the discount to book looks enticing , but is justified due to inability of such companies to move / sell the big amount of real estate on their books
4. buffett talks of various other topics (which he has repeated in several other forums) , like developing good habits (example of taking a 10 % option on your classmate ), not prediciting the market etc
5.buffett also talk of the 'important and knowable' v/s 'important and unknowable' , when some one asked his opinion on interest rates. he pointed out that is better to focus on the first and get into good companies than worry about the second and let go of opportunities.
a very good speech and worth the 1.5 hours (in addition it is free)
http://tinyurl.com/c85or
several very interesting comments by buffett
1. why smart people do dumb things - buffett discussed about the LTCM episode. how a bunch of very smart people with very high IQ and knowledge, managed to blow up everything they had. i like the statement - 'why risk what you have and need for what you dont have and dont need' ? i think this statement is very important to an investor. just think about it ...if i am well off , why do i need to risk my networth for a few extra percentage points and if i am poor , i cannot afford to do it. i guess it makes sense to invest conservatively (in companies with strong competitive advantage )
2. buffett discusses at length the economics of coke / see's and p&g. this was in response to a question on what is it he looks in a business. buffett discusses in detail about the what qualitative factors one should look for in a business. One new point which struck me and kept me thinking is buffetts reference to the pricing power of a company. companies with strong pricing power like coke tend to have a very formidable competitive advantage. in comparison commodity companies have poor or no pricing power (except during supply shortage )
3. buffett also discussed about reit investment and how although the discount to book looks enticing , but is justified due to inability of such companies to move / sell the big amount of real estate on their books
4. buffett talks of various other topics (which he has repeated in several other forums) , like developing good habits (example of taking a 10 % option on your classmate ), not prediciting the market etc
5.buffett also talk of the 'important and knowable' v/s 'important and unknowable' , when some one asked his opinion on interest rates. he pointed out that is better to focus on the first and get into good companies than worry about the second and let go of opportunities.
a very good speech and worth the 1.5 hours (in addition it is free)
Sunday, July 03, 2005
Evaluating the cement industry - porter's model
I have been trying to assess the cement industry on the five factor model and have been able to come to the following evaluation
Entry barrier - Entry barriers are not too high in the industry. The technology is easily available. The only constraint is capital which a big player will have access to. The key barriers would be
- economies of scale which would favor the bigger players like Birla group or Gujarat ambuja
- Brands are not so critical. price plays a big factor
- Cost advantage is critical. Companies which can have a sustainable low cost position will have a competitive advantage. The major players in India do seem to have a similar cost position. Gujarat ambuja has been able to sustain a low cost position and has been able to reward shareholders.
Supplier power - Has very low impact. Mainly limited to coal / power wherein the government pricing would have an impact. But this would be common to all companies
Buyer power - Very low to no impact
substitute product - Almost no substitute product
Rivalry - High rivalry in the industry as the industry is still fragmented. Top 6 players have 60 % capacity as there has been consolidation recently. however local players can have an impact on pricing as cement as the industry depends on local supply. Cement being bulky is generally not transported from long distance
In summary due to low brand strength, high fragmentation, low cost advantages (except in case of some players ), the competitive intensity is high. Pricing is poor and depends on demand scenario. If demand drops , the profitability suffers as the players cut price to run plants at full capacity (due to high fixed costs).
Not an ideal industry for long term investment ( except if one can find a player with a sustainable low cost position )
Entry barrier - Entry barriers are not too high in the industry. The technology is easily available. The only constraint is capital which a big player will have access to. The key barriers would be
- economies of scale which would favor the bigger players like Birla group or Gujarat ambuja
- Brands are not so critical. price plays a big factor
- Cost advantage is critical. Companies which can have a sustainable low cost position will have a competitive advantage. The major players in India do seem to have a similar cost position. Gujarat ambuja has been able to sustain a low cost position and has been able to reward shareholders.
Supplier power - Has very low impact. Mainly limited to coal / power wherein the government pricing would have an impact. But this would be common to all companies
Buyer power - Very low to no impact
substitute product - Almost no substitute product
Rivalry - High rivalry in the industry as the industry is still fragmented. Top 6 players have 60 % capacity as there has been consolidation recently. however local players can have an impact on pricing as cement as the industry depends on local supply. Cement being bulky is generally not transported from long distance
In summary due to low brand strength, high fragmentation, low cost advantages (except in case of some players ), the competitive intensity is high. Pricing is poor and depends on demand scenario. If demand drops , the profitability suffers as the players cut price to run plants at full capacity (due to high fixed costs).
Not an ideal industry for long term investment ( except if one can find a player with a sustainable low cost position )
Evaluating the cement industry - porter's model
I have been trying to assess the cement industry on the five factor model and have been able to come to the following evaluation
Entry barrier - Entry barriers are not too high in the industry. The technology is easily available. The only constraint is capital which a big player will have access to. The key barriers would be
- economies of scale which would favor the bigger players like Birla group or Gujarat ambuja
- Brands are not so critical. price plays a big factor
- Cost advantage is critical. Companies which can have a sustainable low cost position will have a competitive advantage. The major players in India do seem to have a similar cost position. Gujarat ambuja has been able to sustain a low cost position and has been able to reward shareholders.
Supplier power - Has very low impact. Mainly limited to coal / power wherein the government pricing would have an impact. But this would be common to all companies
Buyer power - Very low to no impact
substitute product - Almost no substitute product
Rivalry - High rivalry in the industry as the industry is still fragmented. Top 6 players have 60 % capacity as there has been consolidation recently. however local players can have an impact on pricing as cement as the industry depends on local supply. Cement being bulky is generally not transported from long distance
In summary due to low brand strength, high fragmentation, low cost advantages (except in case of some players ), the competitive intensity is high. Pricing is poor and depends on demand scenario. If demand drops , the profitability suffers as the players cut price to run plants at full capacity (due to high fixed costs).
Not an ideal industry for long term investment ( except if one can find a player with a sustainable low cost position )
Entry barrier - Entry barriers are not too high in the industry. The technology is easily available. The only constraint is capital which a big player will have access to. The key barriers would be
- economies of scale which would favor the bigger players like Birla group or Gujarat ambuja
- Brands are not so critical. price plays a big factor
- Cost advantage is critical. Companies which can have a sustainable low cost position will have a competitive advantage. The major players in India do seem to have a similar cost position. Gujarat ambuja has been able to sustain a low cost position and has been able to reward shareholders.
Supplier power - Has very low impact. Mainly limited to coal / power wherein the government pricing would have an impact. But this would be common to all companies
Buyer power - Very low to no impact
substitute product - Almost no substitute product
Rivalry - High rivalry in the industry as the industry is still fragmented. Top 6 players have 60 % capacity as there has been consolidation recently. however local players can have an impact on pricing as cement as the industry depends on local supply. Cement being bulky is generally not transported from long distance
In summary due to low brand strength, high fragmentation, low cost advantages (except in case of some players ), the competitive intensity is high. Pricing is poor and depends on demand scenario. If demand drops , the profitability suffers as the players cut price to run plants at full capacity (due to high fixed costs).
Not an ideal industry for long term investment ( except if one can find a player with a sustainable low cost position )
Saturday, July 02, 2005
A good website - equitymaster.com
i regularly visit this website (equitymaster.com). One of the few indian websites which focuses on the fundamental analysis of companies and provides a good analysis of their quarterly/ annual results.
In addition, there are sometimes articles (views on news ) which give sensible advise to an investor in terms of various personal finance options .
The knowledge centre is good as it has some good articles on the economics of a number of industries such as cement / FMCG etc. There are some good articles on various investing principles too.
Only disadvantage is that a lot of the content is paid (especially the stock recommendation ). But if you believe in doing your own research and forming your own conclusions, then it is a non issue
In addition, there are sometimes articles (views on news ) which give sensible advise to an investor in terms of various personal finance options .
The knowledge centre is good as it has some good articles on the economics of a number of industries such as cement / FMCG etc. There are some good articles on various investing principles too.
Only disadvantage is that a lot of the content is paid (especially the stock recommendation ). But if you believe in doing your own research and forming your own conclusions, then it is a non issue
A good website - equitymaster.com
i regularly visit this website (equitymaster.com). One of the few indian websites which focuses on the fundamental analysis of companies and provides a good analysis of their quarterly/ annual results.
In addition, there are sometimes articles (views on news ) which give sensible advise to an investor in terms of various personal finance options .
The knowledge centre is good as it has some good articles on the economics of a number of industries such as cement / FMCG etc. There are some good articles on various investing principles too.
Only disadvantage is that a lot of the content is paid (especially the stock recommendation ). But if you believe in doing your own research and forming your own conclusions, then it is a non issue
In addition, there are sometimes articles (views on news ) which give sensible advise to an investor in terms of various personal finance options .
The knowledge centre is good as it has some good articles on the economics of a number of industries such as cement / FMCG etc. There are some good articles on various investing principles too.
Only disadvantage is that a lot of the content is paid (especially the stock recommendation ). But if you believe in doing your own research and forming your own conclusions, then it is a non issue
The market at 7200 ! so what ??
Look at any financial website / papers and there is euphoria all around ...
Cant figure out a rational reason other than that it is good to excite people, get more hits or sell copies.
what's the big deal about 7200 !! or any other number .
The market is selling at 14.3 times backward pe . If the economy does fairly ok , and the corporate profits continue to grow at 10-15 % , then some time in the future we could have the sensex touching 8000 and then maybe 8900 ...provided there is no major shock to the world economy / indian economy ... anyway how does it matter
well if the market was selling at say 20 times pe , then it would matter as i would start selling ..or if it was selling at say 10-11 times pe (like 2003 ) then it would matter ...as one can buy some very good companies at good prices ...but now we have pockets of overvaluation and to be fair pockets of undervaluation ...so it means more work ..
so i guess if the markets shoots to 8000 + soon or drops to 6000 types , then it is action time ...otherwise it is back to reading annual reports and better off watching the discovery channel
seems like a lot of noise ..but then what can once expect from the most of the financial media !!
Cant figure out a rational reason other than that it is good to excite people, get more hits or sell copies.
what's the big deal about 7200 !! or any other number .
The market is selling at 14.3 times backward pe . If the economy does fairly ok , and the corporate profits continue to grow at 10-15 % , then some time in the future we could have the sensex touching 8000 and then maybe 8900 ...provided there is no major shock to the world economy / indian economy ... anyway how does it matter
well if the market was selling at say 20 times pe , then it would matter as i would start selling ..or if it was selling at say 10-11 times pe (like 2003 ) then it would matter ...as one can buy some very good companies at good prices ...but now we have pockets of overvaluation and to be fair pockets of undervaluation ...so it means more work ..
so i guess if the markets shoots to 8000 + soon or drops to 6000 types , then it is action time ...otherwise it is back to reading annual reports and better off watching the discovery channel
seems like a lot of noise ..but then what can once expect from the most of the financial media !!
The market at 7200 ! so what ??
Look at any financial website / papers and there is euphoria all around ...
Cant figure out a rational reason other than that it is good to excite people, get more hits or sell copies.
what's the big deal about 7200 !! or any other number .
The market is selling at 14.3 times backward pe . If the economy does fairly ok , and the corporate profits continue to grow at 10-15 % , then some time in the future we could have the sensex touching 8000 and then maybe 8900 ...provided there is no major shock to the world economy / indian economy ... anyway how does it matter
well if the market was selling at say 20 times pe , then it would matter as i would start selling ..or if it was selling at say 10-11 times pe (like 2003 ) then it would matter ...as one can buy some very good companies at good prices ...but now we have pockets of overvaluation and to be fair pockets of undervaluation ...so it means more work ..
so i guess if the markets shoots to 8000 + soon or drops to 6000 types , then it is action time ...otherwise it is back to reading annual reports and better off watching the discovery channel
seems like a lot of noise ..but then what can once expect from the most of the financial media !!
Cant figure out a rational reason other than that it is good to excite people, get more hits or sell copies.
what's the big deal about 7200 !! or any other number .
The market is selling at 14.3 times backward pe . If the economy does fairly ok , and the corporate profits continue to grow at 10-15 % , then some time in the future we could have the sensex touching 8000 and then maybe 8900 ...provided there is no major shock to the world economy / indian economy ... anyway how does it matter
well if the market was selling at say 20 times pe , then it would matter as i would start selling ..or if it was selling at say 10-11 times pe (like 2003 ) then it would matter ...as one can buy some very good companies at good prices ...but now we have pockets of overvaluation and to be fair pockets of undervaluation ...so it means more work ..
so i guess if the markets shoots to 8000 + soon or drops to 6000 types , then it is action time ...otherwise it is back to reading annual reports and better off watching the discovery channel
seems like a lot of noise ..but then what can once expect from the most of the financial media !!
Porter's discussion of strategy
Read the next chapter of the book - 'on competiton' . This chapter talks about strategy. Porter has detailed the difference between operational excellence and strategy.
Operational excellence to put it simplistically is doing the various operationally activities as efficiently as possible. For example , a company like Gujarat ambuja uses sea transport to move raw material and finished good and has thus reduced its transportation cost. This is operational excellence.
Strategy, according to porter is the specific choice of activities which a firm decides to perform to create a distinctive position or enduring low cost position and thus achieve competitive advantage. for example , blue star has chosen to focus on the commercial airconditioning market and has built its value chain accordingly (although they are still trying to tap the home a/c market)
In addition, by choosing specific activities and performing them differently and ensuring a fit between them, a firm is able to derive a distinct position and a competitive advantage. Such a position is difficult to replicate as a competitor can duplicate some or all the activities but may not be able to manage the fit between the activities and the tradeoffs between the activities (like blue star may focus more R&D v/s carrier would have to focus on a dealer network )
This book is good to get a deep understanding of strategy and how it can create a sustainable competitive advantage
Operational excellence to put it simplistically is doing the various operationally activities as efficiently as possible. For example , a company like Gujarat ambuja uses sea transport to move raw material and finished good and has thus reduced its transportation cost. This is operational excellence.
Strategy, according to porter is the specific choice of activities which a firm decides to perform to create a distinctive position or enduring low cost position and thus achieve competitive advantage. for example , blue star has chosen to focus on the commercial airconditioning market and has built its value chain accordingly (although they are still trying to tap the home a/c market)
In addition, by choosing specific activities and performing them differently and ensuring a fit between them, a firm is able to derive a distinct position and a competitive advantage. Such a position is difficult to replicate as a competitor can duplicate some or all the activities but may not be able to manage the fit between the activities and the tradeoffs between the activities (like blue star may focus more R&D v/s carrier would have to focus on a dealer network )
This book is good to get a deep understanding of strategy and how it can create a sustainable competitive advantage
Porter's discussion of strategy
Read the next chapter of the book - 'on competiton' . This chapter talks about strategy. Porter has detailed the difference between operational excellence and strategy.
Operational excellence to put it simplistically is doing the various operationally activities as efficiently as possible. For example , a company like Gujarat ambuja uses sea transport to move raw material and finished good and has thus reduced its transportation cost. This is operational excellence.
Strategy, according to porter is the specific choice of activities which a firm decides to perform to create a distinctive position or enduring low cost position and thus achieve competitive advantage. for example , blue star has chosen to focus on the commercial airconditioning market and has built its value chain accordingly (although they are still trying to tap the home a/c market)
In addition, by choosing specific activities and performing them differently and ensuring a fit between them, a firm is able to derive a distinct position and a competitive advantage. Such a position is difficult to replicate as a competitor can duplicate some or all the activities but may not be able to manage the fit between the activities and the tradeoffs between the activities (like blue star may focus more R&D v/s carrier would have to focus on a dealer network )
This book is good to get a deep understanding of strategy and how it can create a sustainable competitive advantage
Operational excellence to put it simplistically is doing the various operationally activities as efficiently as possible. For example , a company like Gujarat ambuja uses sea transport to move raw material and finished good and has thus reduced its transportation cost. This is operational excellence.
Strategy, according to porter is the specific choice of activities which a firm decides to perform to create a distinctive position or enduring low cost position and thus achieve competitive advantage. for example , blue star has chosen to focus on the commercial airconditioning market and has built its value chain accordingly (although they are still trying to tap the home a/c market)
In addition, by choosing specific activities and performing them differently and ensuring a fit between them, a firm is able to derive a distinct position and a competitive advantage. Such a position is difficult to replicate as a competitor can duplicate some or all the activities but may not be able to manage the fit between the activities and the tradeoffs between the activities (like blue star may focus more R&D v/s carrier would have to focus on a dealer network )
This book is good to get a deep understanding of strategy and how it can create a sustainable competitive advantage
Tuesday, June 21, 2005
Porter's five forces model and buffet's concept of moat
Buffet refers to the concept of moat or sustainable competitive advantage as one of the most critical factor in determining the returns for a long term investor (in addition to other criteria)
I have been reading porter's book 'on competition' and trying to get a better understanding of how to evaluate a company's competitive advantage for a long term investment.
The five forces model is very helpful in understanding the industry structure and kind of long term returns to expect in an industry. What i was able to 'understand' this time (have read the topic several times ) is that not all the factors are equally important and for an investor it is critical to asses which factors impact the industry and the company more and would influence the long term returns.
More important for a long term investor is to understand, how the five factors of competition will change and determine the future returns.
I am now trying the above exercise for some industries like FMCG/IT services / Banking etc . A good evaluation and insight into the trends would be far more useful that chasing some price targets or trying to predict the next quarter which in munger's words would be 'twaddle'
I have been reading porter's book 'on competition' and trying to get a better understanding of how to evaluate a company's competitive advantage for a long term investment.
The five forces model is very helpful in understanding the industry structure and kind of long term returns to expect in an industry. What i was able to 'understand' this time (have read the topic several times ) is that not all the factors are equally important and for an investor it is critical to asses which factors impact the industry and the company more and would influence the long term returns.
More important for a long term investor is to understand, how the five factors of competition will change and determine the future returns.
I am now trying the above exercise for some industries like FMCG/IT services / Banking etc . A good evaluation and insight into the trends would be far more useful that chasing some price targets or trying to predict the next quarter which in munger's words would be 'twaddle'
Porter's five forces model and buffet's concept of moat
Buffet refers to the concept of moat or sustainable competitive advantage as one of the most critical factor in determining the returns for a long term investor (in addition to other criteria)
I have been reading porter's book 'on competition' and trying to get a better understanding of how to evaluate a company's competitive advantage for a long term investment.
The five forces model is very helpful in understanding the industry structure and kind of long term returns to expect in an industry. What i was able to 'understand' this time (have read the topic several times ) is that not all the factors are equally important and for an investor it is critical to asses which factors impact the industry and the company more and would influence the long term returns.
More important for a long term investor is to understand, how the five factors of competition will change and determine the future returns.
I am now trying the above exercise for some industries like FMCG/IT services / Banking etc . A good evaluation and insight into the trends would be far more useful that chasing some price targets or trying to predict the next quarter which in munger's words would be 'twaddle'
I have been reading porter's book 'on competition' and trying to get a better understanding of how to evaluate a company's competitive advantage for a long term investment.
The five forces model is very helpful in understanding the industry structure and kind of long term returns to expect in an industry. What i was able to 'understand' this time (have read the topic several times ) is that not all the factors are equally important and for an investor it is critical to asses which factors impact the industry and the company more and would influence the long term returns.
More important for a long term investor is to understand, how the five factors of competition will change and determine the future returns.
I am now trying the above exercise for some industries like FMCG/IT services / Banking etc . A good evaluation and insight into the trends would be far more useful that chasing some price targets or trying to predict the next quarter which in munger's words would be 'twaddle'
Wednesday, June 15, 2005
Checking on britannia industries - further update
After the last post, i started analysing britannia further. Liked the following in the company then
- An ROE of 25 %
- almost zero debt
- growth in upper single digits
- A p/e of around 13
- Cash / investment on balance sheet of around Rs 100 / share
In addition the company has good brands, good marketing and distribution infrastructure and reasonable economies of scale.
However on doing a bit of detailed check , i realised that almost 40-50 % of the NP is other income from investment activities which makes the operating pe of almost 20-22 ( after
So the company no longer looks very cheap. in addition i cant get my hands around how the management proposes to use the cash flows. Its core business needs very little cash. They are doing buybacks ...but not much ( share count has come down by some 5 - 10 % ). So the company seems to be piling cash and putting it into various investment.
now the above situation although not worrying , does not excite me into putting my money into the company. Most likely i will watch the company for some more time, before doing something
so i guess its time to move the next company !!!
- An ROE of 25 %
- almost zero debt
- growth in upper single digits
- A p/e of around 13
- Cash / investment on balance sheet of around Rs 100 / share
In addition the company has good brands, good marketing and distribution infrastructure and reasonable economies of scale.
However on doing a bit of detailed check , i realised that almost 40-50 % of the NP is other income from investment activities which makes the operating pe of almost 20-22 ( after
So the company no longer looks very cheap. in addition i cant get my hands around how the management proposes to use the cash flows. Its core business needs very little cash. They are doing buybacks ...but not much ( share count has come down by some 5 - 10 % ). So the company seems to be piling cash and putting it into various investment.
now the above situation although not worrying , does not excite me into putting my money into the company. Most likely i will watch the company for some more time, before doing something
so i guess its time to move the next company !!!
Checking on britannia industries - further update
After the last post, i started analysing britannia further. Liked the following in the company then
- An ROE of 25 %
- almost zero debt
- growth in upper single digits
- A p/e of around 13
- Cash / investment on balance sheet of around Rs 100 / share
In addition the company has good brands, good marketing and distribution infrastructure and reasonable economies of scale.
However on doing a bit of detailed check , i realised that almost 40-50 % of the NP is other income from investment activities which makes the operating pe of almost 20-22 ( after
So the company no longer looks very cheap. in addition i cant get my hands around how the management proposes to use the cash flows. Its core business needs very little cash. They are doing buybacks ...but not much ( share count has come down by some 5 - 10 % ). So the company seems to be piling cash and putting it into various investment.
now the above situation although not worrying , does not excite me into putting my money into the company. Most likely i will watch the company for some more time, before doing something
so i guess its time to move the next company !!!
- An ROE of 25 %
- almost zero debt
- growth in upper single digits
- A p/e of around 13
- Cash / investment on balance sheet of around Rs 100 / share
In addition the company has good brands, good marketing and distribution infrastructure and reasonable economies of scale.
However on doing a bit of detailed check , i realised that almost 40-50 % of the NP is other income from investment activities which makes the operating pe of almost 20-22 ( after
So the company no longer looks very cheap. in addition i cant get my hands around how the management proposes to use the cash flows. Its core business needs very little cash. They are doing buybacks ...but not much ( share count has come down by some 5 - 10 % ). So the company seems to be piling cash and putting it into various investment.
now the above situation although not worrying , does not excite me into putting my money into the company. Most likely i will watch the company for some more time, before doing something
so i guess its time to move the next company !!!
Saturday, May 21, 2005
Analysing Goldiam industries
Heard of this company some time back. I have started looking at it. This company is into Diamond and gold jewelry exports. It's main market is US . It is into designing jewelry, managing the logisitics etc . Some positives
- Good ROE
- Very low fixed assets
- moderate WCAP requirement. Mainly in the Raw material inventory
- 10 % plus Net margins
- No debt
- 40 Rs / share of cash on the balance sheet
Some points which i need to figure
- what is the nature of the 'investments' in the balance sheet.
- what are the long term plans of the company
- nature of competition ?
- How good is the management. The company seems to have good Fresh cash flow. Other than some captial required for WCAP , the FA requirements are very low. So most of the Net profit is free cash for the company. Need to figure out what the company would be doing with the cash.
The biggest pain however is that the company's website does not have their annual report or detail financial results. That is could be real dampener !!
- Good ROE
- Very low fixed assets
- moderate WCAP requirement. Mainly in the Raw material inventory
- 10 % plus Net margins
- No debt
- 40 Rs / share of cash on the balance sheet
Some points which i need to figure
- what is the nature of the 'investments' in the balance sheet.
- what are the long term plans of the company
- nature of competition ?
- How good is the management. The company seems to have good Fresh cash flow. Other than some captial required for WCAP , the FA requirements are very low. So most of the Net profit is free cash for the company. Need to figure out what the company would be doing with the cash.
The biggest pain however is that the company's website does not have their annual report or detail financial results. That is could be real dampener !!
Analysing Goldiam industries
Heard of this company some time back. I have started looking at it. This company is into Diamond and gold jewelry exports. It's main market is US . It is into designing jewelry, managing the logisitics etc . Some positives
- Good ROE
- Very low fixed assets
- moderate WCAP requirement. Mainly in the Raw material inventory
- 10 % plus Net margins
- No debt
- 40 Rs / share of cash on the balance sheet
Some points which i need to figure
- what is the nature of the 'investments' in the balance sheet.
- what are the long term plans of the company
- nature of competition ?
- How good is the management. The company seems to have good Fresh cash flow. Other than some captial required for WCAP , the FA requirements are very low. So most of the Net profit is free cash for the company. Need to figure out what the company would be doing with the cash.
The biggest pain however is that the company's website does not have their annual report or detail financial results. That is could be real dampener !!
- Good ROE
- Very low fixed assets
- moderate WCAP requirement. Mainly in the Raw material inventory
- 10 % plus Net margins
- No debt
- 40 Rs / share of cash on the balance sheet
Some points which i need to figure
- what is the nature of the 'investments' in the balance sheet.
- what are the long term plans of the company
- nature of competition ?
- How good is the management. The company seems to have good Fresh cash flow. Other than some captial required for WCAP , the FA requirements are very low. So most of the Net profit is free cash for the company. Need to figure out what the company would be doing with the cash.
The biggest pain however is that the company's website does not have their annual report or detail financial results. That is could be real dampener !!
Thursday, May 19, 2005
Evaluating asian paints
asian paints has been the no.1 paints company for the last 20+ years. This company has returned almost 24% p.a returns since its IPO. Are these returns sustainable ?
Even if the level of returns may not be , i have always felt the company has strong and sustainable competitive advantages like
- A strong distribution network with lockin at key retail dealers through their color world package
- Strong brands in the paints industry like apcolite, apex, gattu etc
- economies of scale in manufacturing, adverstising distribution due to the high market shares (40 %+ )
- good pricing power as the company has been able to sustain margins inspite of raw material price increases
- good management - evident through the track record of managing low WCAP, low debt, sensible accquisitions and good brands and products
In the medium to long term the company should continue to do well in india. The challenge for the company is to port these strengths to their internation operations. That seems to be happening for the time being
Even if the level of returns may not be , i have always felt the company has strong and sustainable competitive advantages like
- A strong distribution network with lockin at key retail dealers through their color world package
- Strong brands in the paints industry like apcolite, apex, gattu etc
- economies of scale in manufacturing, adverstising distribution due to the high market shares (40 %+ )
- good pricing power as the company has been able to sustain margins inspite of raw material price increases
- good management - evident through the track record of managing low WCAP, low debt, sensible accquisitions and good brands and products
In the medium to long term the company should continue to do well in india. The challenge for the company is to port these strengths to their internation operations. That seems to be happening for the time being
Evaluating asian paints
asian paints has been the no.1 paints company for the last 20+ years. This company has returned almost 24% p.a returns since its IPO. Are these returns sustainable ?
Even if the level of returns may not be , i have always felt the company has strong and sustainable competitive advantages like
- A strong distribution network with lockin at key retail dealers through their color world package
- Strong brands in the paints industry like apcolite, apex, gattu etc
- economies of scale in manufacturing, adverstising distribution due to the high market shares (40 %+ )
- good pricing power as the company has been able to sustain margins inspite of raw material price increases
- good management - evident through the track record of managing low WCAP, low debt, sensible accquisitions and good brands and products
In the medium to long term the company should continue to do well in india. The challenge for the company is to port these strengths to their internation operations. That seems to be happening for the time being
Even if the level of returns may not be , i have always felt the company has strong and sustainable competitive advantages like
- A strong distribution network with lockin at key retail dealers through their color world package
- Strong brands in the paints industry like apcolite, apex, gattu etc
- economies of scale in manufacturing, adverstising distribution due to the high market shares (40 %+ )
- good pricing power as the company has been able to sustain margins inspite of raw material price increases
- good management - evident through the track record of managing low WCAP, low debt, sensible accquisitions and good brands and products
In the medium to long term the company should continue to do well in india. The challenge for the company is to port these strengths to their internation operations. That seems to be happening for the time being
Buffet's talk at Notre Dame
I recently came across the transcript of a talk which buffet gave at Notre dame. A few gems from the talk (paraphrased )
'You don't want to buy a dollar bill that's sitting for 50 cents, and it demands positive
capital, and its going to be a dollar bill ten years from now. You want a dollar bill that's
going to compound at 12%'
capital, and its going to be a dollar bill ten years from now. You want a dollar bill that's
going to compound at 12%'
'A couple of fast tests about how good a business is. First question is "how long does the
management have to think before they decide to raise prices?" You're looking at
marvelous business when you look in the mirror and say "mirror mirror on the wall, how
much should I charge for Coke this fall?" That's a great business. When you say, like we
used to in the textile business, when you get down on your knees, you know you call in
all the priests, rabbis, and everyone else, "just another half cent a yard". Then you get up
and they say "We won't pay it". Its just night and day. You KNOW those businesses. I
mean, if you walk into a drugstore, and you say "I'd like a Hershey bar" and the man says
"I don't' have any Hershey bars, but I've got this unmarked chocolate bar, and its a nickel
cheaper than a Hershey bar" you just go across the street and buy a Hershey bar. THAT is
a good business.'
The ability to raise prices; the ability to differentiate yourself in a REAL way, and a REAL way means you can charge a different price, that makes a great business.
I'd like to talk to you for just a few minutes about what I regard as the most important
thing in investments and also in terms of your career. Because in your career what train
you get on makes a lot of difference. Because frequently, perhaps generally, when people
get out of business school, they don't give enough thought to exactly what sort of train
they're going to get on. And it makes a tremendous difference whether you get involved
in a prosperous company; one that's going to really do well. On balance, you want to go
with a company whose stock is going to be a good investment over the years because
there's going to be much more opportunity; there's going to be more money made, you're
going to (garbled). And if you get involved with some of the businesses I've been
involved with like trading stamps
One is a marvelous, absolutely sensational business, the other one is a terrible business. If
you have a choice between going to work for a wonderful business that is not capital
intensive, and one that is capital intensive, I suggest that you look at the one that is not
capital intensive.
I read all kinds of business publications. I read a lot of industry publications. Coming in
today on the plane (garbled). I'll grab whatever comes in the morning. American Banker
comes every day, so I'll read that. I'll read the Wall Street Journal. Obviously. I'll read
Editor and Publisher, I'll read Broadcasting, I'll read Property Casualty Review, I'll read
Jeffrey Meyer's Beverage Digest. I'll read everything. And I own 100 shares of almost
every stock I can think of just so I know I'll get all the reports. And I carry around
prospectuses and proxy material. Don't read broker's reports. You should be very careful
with those.
- In addition buffet goes the economics of various businesses such as coke, gillette, textile and other commodity business
A must read for an investor.
Buffet's talk at Notre Dame
I recently came across the transcript of a talk which buffet gave at Notre dame. A few gems from the talk (paraphrased )
'You don't want to buy a dollar bill that's sitting for 50 cents, and it demands positive
capital, and its going to be a dollar bill ten years from now. You want a dollar bill that's
going to compound at 12%'
capital, and its going to be a dollar bill ten years from now. You want a dollar bill that's
going to compound at 12%'
'A couple of fast tests about how good a business is. First question is "how long does the
management have to think before they decide to raise prices?" You're looking at
marvelous business when you look in the mirror and say "mirror mirror on the wall, how
much should I charge for Coke this fall?" That's a great business. When you say, like we
used to in the textile business, when you get down on your knees, you know you call in
all the priests, rabbis, and everyone else, "just another half cent a yard". Then you get up
and they say "We won't pay it". Its just night and day. You KNOW those businesses. I
mean, if you walk into a drugstore, and you say "I'd like a Hershey bar" and the man says
"I don't' have any Hershey bars, but I've got this unmarked chocolate bar, and its a nickel
cheaper than a Hershey bar" you just go across the street and buy a Hershey bar. THAT is
a good business.'
The ability to raise prices; the ability to differentiate yourself in a REAL way, and a REAL way means you can charge a different price, that makes a great business.
I'd like to talk to you for just a few minutes about what I regard as the most important
thing in investments and also in terms of your career. Because in your career what train
you get on makes a lot of difference. Because frequently, perhaps generally, when people
get out of business school, they don't give enough thought to exactly what sort of train
they're going to get on. And it makes a tremendous difference whether you get involved
in a prosperous company; one that's going to really do well. On balance, you want to go
with a company whose stock is going to be a good investment over the years because
there's going to be much more opportunity; there's going to be more money made, you're
going to (garbled). And if you get involved with some of the businesses I've been
involved with like trading stamps
One is a marvelous, absolutely sensational business, the other one is a terrible business. If
you have a choice between going to work for a wonderful business that is not capital
intensive, and one that is capital intensive, I suggest that you look at the one that is not
capital intensive.
I read all kinds of business publications. I read a lot of industry publications. Coming in
today on the plane (garbled). I'll grab whatever comes in the morning. American Banker
comes every day, so I'll read that. I'll read the Wall Street Journal. Obviously. I'll read
Editor and Publisher, I'll read Broadcasting, I'll read Property Casualty Review, I'll read
Jeffrey Meyer's Beverage Digest. I'll read everything. And I own 100 shares of almost
every stock I can think of just so I know I'll get all the reports. And I carry around
prospectuses and proxy material. Don't read broker's reports. You should be very careful
with those.
- In addition buffet goes the economics of various businesses such as coke, gillette, textile and other commodity business
A must read for an investor.
Friday, May 13, 2005
Checking on Britannia industries
Started looking at britannia industries. It is selling for around 14 times FY05 earnings. The bottom line seems to be growing in low teens. There is very low debt on the balance sheet. In addition found the following interesting
- 30 % ROE
- almost 100 Rs / per investment - need to figure out what is this investment ( net of debt )
- Very high asset TO ratios.
- good free cash flow
- slight improvement in the margin (which seem adequate for an FMCG company )
- strong brands , extensive distribution network, good history of new products
What i still need to figure out
- The NP growth is almost to the tune of 30 % for the year. How sustainable is it ?
- Competitive scenario - ITC / HLL entry into brakery business, how will it impact britannia
- How will the management handle the free cash flows ? will they continue share buybacks or make some bad accquisitions or investments ( need to figure out these investments)
One the strangest points is that britannia does not have a website. How can a 1000 crore + company not have a website ? So it is diffcult to get their annual report
- 30 % ROE
- almost 100 Rs / per investment - need to figure out what is this investment ( net of debt )
- Very high asset TO ratios.
- good free cash flow
- slight improvement in the margin (which seem adequate for an FMCG company )
- strong brands , extensive distribution network, good history of new products
What i still need to figure out
- The NP growth is almost to the tune of 30 % for the year. How sustainable is it ?
- Competitive scenario - ITC / HLL entry into brakery business, how will it impact britannia
- How will the management handle the free cash flows ? will they continue share buybacks or make some bad accquisitions or investments ( need to figure out these investments)
One the strangest points is that britannia does not have a website. How can a 1000 crore + company not have a website ? So it is diffcult to get their annual report
Checking on Britannia industries
Started looking at britannia industries. It is selling for around 14 times FY05 earnings. The bottom line seems to be growing in low teens. There is very low debt on the balance sheet. In addition found the following interesting
- 30 % ROE
- almost 100 Rs / per investment - need to figure out what is this investment ( net of debt )
- Very high asset TO ratios.
- good free cash flow
- slight improvement in the margin (which seem adequate for an FMCG company )
- strong brands , extensive distribution network, good history of new products
What i still need to figure out
- The NP growth is almost to the tune of 30 % for the year. How sustainable is it ?
- Competitive scenario - ITC / HLL entry into brakery business, how will it impact britannia
- How will the management handle the free cash flows ? will they continue share buybacks or make some bad accquisitions or investments ( need to figure out these investments)
One the strangest points is that britannia does not have a website. How can a 1000 crore + company not have a website ? So it is diffcult to get their annual report
- 30 % ROE
- almost 100 Rs / per investment - need to figure out what is this investment ( net of debt )
- Very high asset TO ratios.
- good free cash flow
- slight improvement in the margin (which seem adequate for an FMCG company )
- strong brands , extensive distribution network, good history of new products
What i still need to figure out
- The NP growth is almost to the tune of 30 % for the year. How sustainable is it ?
- Competitive scenario - ITC / HLL entry into brakery business, how will it impact britannia
- How will the management handle the free cash flows ? will they continue share buybacks or make some bad accquisitions or investments ( need to figure out these investments)
One the strangest points is that britannia does not have a website. How can a 1000 crore + company not have a website ? So it is diffcult to get their annual report
Friday, May 06, 2005
Business mirage
A few years back i became interested in moser baer. This company seemed (on the face of it ) to be doing very well. It was getting into a product (CD) which was growing fast. The margins were great. The return on capital was high. The valuation looked great.
But then digging deeper, there were a few things which troubled
- was the depreciation enough to take care of the rate of obselence of the Fixed assets in the fast changing memory business
- how would the margins behave when 1) growth slowed down 2) the price deflation continued and accelerated ( memory prices have dropped by factor of 10 in the last 3-4 years )
- the business seems to be needing regular equity infusion for growth (maybe not important if the business is in high growth phase )
I was looking at the latest results and inspite of the topline growth the margins seem to be dropping. In addittion CD/DVD are getting cheaper by the month. so there is going to a constant pressure on margins. End of the day, it is a commodity business where the price of the product just keeps dropping. In addition , any new memory would require new captial equipment and hence more capital ( especially if it is a new technology )
So the business looks profitable , but if one looks closely ,the money coming out has a mirage like feel ...you can see it , but never touch it
But then digging deeper, there were a few things which troubled
- was the depreciation enough to take care of the rate of obselence of the Fixed assets in the fast changing memory business
- how would the margins behave when 1) growth slowed down 2) the price deflation continued and accelerated ( memory prices have dropped by factor of 10 in the last 3-4 years )
- the business seems to be needing regular equity infusion for growth (maybe not important if the business is in high growth phase )
I was looking at the latest results and inspite of the topline growth the margins seem to be dropping. In addittion CD/DVD are getting cheaper by the month. so there is going to a constant pressure on margins. End of the day, it is a commodity business where the price of the product just keeps dropping. In addition , any new memory would require new captial equipment and hence more capital ( especially if it is a new technology )
So the business looks profitable , but if one looks closely ,the money coming out has a mirage like feel ...you can see it , but never touch it
Business mirage
A few years back i became interested in moser baer. This company seemed (on the face of it ) to be doing very well. It was getting into a product (CD) which was growing fast. The margins were great. The return on capital was high. The valuation looked great.
But then digging deeper, there were a few things which troubled
- was the depreciation enough to take care of the rate of obselence of the Fixed assets in the fast changing memory business
- how would the margins behave when 1) growth slowed down 2) the price deflation continued and accelerated ( memory prices have dropped by factor of 10 in the last 3-4 years )
- the business seems to be needing regular equity infusion for growth (maybe not important if the business is in high growth phase )
I was looking at the latest results and inspite of the topline growth the margins seem to be dropping. In addittion CD/DVD are getting cheaper by the month. so there is going to a constant pressure on margins. End of the day, it is a commodity business where the price of the product just keeps dropping. In addition , any new memory would require new captial equipment and hence more capital ( especially if it is a new technology )
So the business looks profitable , but if one looks closely ,the money coming out has a mirage like feel ...you can see it , but never touch it
But then digging deeper, there were a few things which troubled
- was the depreciation enough to take care of the rate of obselence of the Fixed assets in the fast changing memory business
- how would the margins behave when 1) growth slowed down 2) the price deflation continued and accelerated ( memory prices have dropped by factor of 10 in the last 3-4 years )
- the business seems to be needing regular equity infusion for growth (maybe not important if the business is in high growth phase )
I was looking at the latest results and inspite of the topline growth the margins seem to be dropping. In addittion CD/DVD are getting cheaper by the month. so there is going to a constant pressure on margins. End of the day, it is a commodity business where the price of the product just keeps dropping. In addition , any new memory would require new captial equipment and hence more capital ( especially if it is a new technology )
So the business looks profitable , but if one looks closely ,the money coming out has a mirage like feel ...you can see it , but never touch it
Charlie munger - Wesco meeting 2005
I was reading the transcipts of the meeting on fool.com . There were several comments from munger which really impressed me.
- He referred to a “seamless web of deserved trust” which is necessary to run any large coporation. This is a profound idea. how companies in india work this way ?
- he talked out currency trading being a zero sum game. he would prefer equity where it is not a zero sum game
- he talked about lowering return expectations in the current environment. Annhieser busch could that example. A certain investment with lower return. This is important. Better to be sure of lower returns that optimisitic of fantastic results
Found the Q&A really fantastic.
- He referred to a “seamless web of deserved trust” which is necessary to run any large coporation. This is a profound idea. how companies in india work this way ?
- he talked out currency trading being a zero sum game. he would prefer equity where it is not a zero sum game
- he talked about lowering return expectations in the current environment. Annhieser busch could that example. A certain investment with lower return. This is important. Better to be sure of lower returns that optimisitic of fantastic results
Found the Q&A really fantastic.
Charlie munger - Wesco meeting 2005
I was reading the transcipts of the meeting on fool.com . There were several comments from munger which really impressed me.
- He referred to a “seamless web of deserved trust” which is necessary to run any large coporation. This is a profound idea. how companies in india work this way ?
- he talked out currency trading being a zero sum game. he would prefer equity where it is not a zero sum game
- he talked about lowering return expectations in the current environment. Annhieser busch could that example. A certain investment with lower return. This is important. Better to be sure of lower returns that optimisitic of fantastic results
Found the Q&A really fantastic.
- He referred to a “seamless web of deserved trust” which is necessary to run any large coporation. This is a profound idea. how companies in india work this way ?
- he talked out currency trading being a zero sum game. he would prefer equity where it is not a zero sum game
- he talked about lowering return expectations in the current environment. Annhieser busch could that example. A certain investment with lower return. This is important. Better to be sure of lower returns that optimisitic of fantastic results
Found the Q&A really fantastic.
Sunday, April 24, 2005
Warren Buffett's talk with students at Tuck school of business
I came across a transcript buffett's talk with the students at Tuck school of business. I have pasted the link below. What i found intersting (actually the entire talk was very interesting) were the replies to the following two questions
Q: I have worked in various technologies businesses, but I understand that you do not typically invest in the technology sector. Why is that? How do you view technology as an individual and as an investor?
A: Technology is clearly a boost to business productivity and a driver of better consumer products and the like, so as an individual I have a high appreciation for the power of technology. I have avoided technology sectors as an investor because in general I don't have a solid grasp of what differentiates many technology companies. I don't know how to spot durable competitive advantage in technology. To get rich, you find businesses with durable competitive advantage and you don't overpay for them. Technology is based on change; and change is really the enemy of the investor. Change is more rapid and unpredictable in technology relative to the broader economy. To me, all technology sectors look like 7-foot hurdles.
Q: I worked in the paper and packaging business this past summer and really enjoyed my experience. None of my classmates are interested in the paper business and the company I worked for has not had MBA interns in years. Clearly the paper business has its challenges, but do you see this as an opportunity or a roadblock?
A: Well, you've got it right that the paper business is challenged. High capital intensity, low margins, cyclical. It is a brutal business; no one cares who made the box their Dell computer came shipped in. In general, commodity businesses, even you're the low-cost producer, are difficult. There are generally two recommendations I offer to college and business school graduates. The most important thing about where you work is that you admire/love it. So it sounds like you liked your experience, and that's great. But we come to my second recommendation, which is to get on the right train; that is, moving in the right direction. There's no course in business school called "Getting on the Right Train", but it's really important. You can be an average passenger but if you get on the right train it will carry you a long way. You want to learn from experience, but you want to learn from other people's experience when you can. Managing your career is like investing - the degree of difficulty does not count. So you can save yourself money and pain by getting on the right train.
So makes one think, how will some of the current 'performers' like maruti, tisco, telco and others will perform in the long run. Some of these have high return on equity, but is it sustainable over a complete business cycle
here's the link :http://mba.tuck.dartmouth.edu/pages/clubs/investment/WarrenBuffet.html
Q: I have worked in various technologies businesses, but I understand that you do not typically invest in the technology sector. Why is that? How do you view technology as an individual and as an investor?
A: Technology is clearly a boost to business productivity and a driver of better consumer products and the like, so as an individual I have a high appreciation for the power of technology. I have avoided technology sectors as an investor because in general I don't have a solid grasp of what differentiates many technology companies. I don't know how to spot durable competitive advantage in technology. To get rich, you find businesses with durable competitive advantage and you don't overpay for them. Technology is based on change; and change is really the enemy of the investor. Change is more rapid and unpredictable in technology relative to the broader economy. To me, all technology sectors look like 7-foot hurdles.
Q: I worked in the paper and packaging business this past summer and really enjoyed my experience. None of my classmates are interested in the paper business and the company I worked for has not had MBA interns in years. Clearly the paper business has its challenges, but do you see this as an opportunity or a roadblock?
A: Well, you've got it right that the paper business is challenged. High capital intensity, low margins, cyclical. It is a brutal business; no one cares who made the box their Dell computer came shipped in. In general, commodity businesses, even you're the low-cost producer, are difficult. There are generally two recommendations I offer to college and business school graduates. The most important thing about where you work is that you admire/love it. So it sounds like you liked your experience, and that's great. But we come to my second recommendation, which is to get on the right train; that is, moving in the right direction. There's no course in business school called "Getting on the Right Train", but it's really important. You can be an average passenger but if you get on the right train it will carry you a long way. You want to learn from experience, but you want to learn from other people's experience when you can. Managing your career is like investing - the degree of difficulty does not count. So you can save yourself money and pain by getting on the right train.
So makes one think, how will some of the current 'performers' like maruti, tisco, telco and others will perform in the long run. Some of these have high return on equity, but is it sustainable over a complete business cycle
here's the link :http://mba.tuck.dartmouth.edu/pages/clubs/investment/WarrenBuffet.html
Warren Buffett's talk with students at Tuck school of business
I came across a transcript buffett's talk with the students at Tuck school of business. I have pasted the link below. What i found intersting (actually the entire talk was very interesting) were the replies to the following two questions
Q: I have worked in various technologies businesses, but I understand that you do not typically invest in the technology sector. Why is that? How do you view technology as an individual and as an investor?
A: Technology is clearly a boost to business productivity and a driver of better consumer products and the like, so as an individual I have a high appreciation for the power of technology. I have avoided technology sectors as an investor because in general I don't have a solid grasp of what differentiates many technology companies. I don't know how to spot durable competitive advantage in technology. To get rich, you find businesses with durable competitive advantage and you don't overpay for them. Technology is based on change; and change is really the enemy of the investor. Change is more rapid and unpredictable in technology relative to the broader economy. To me, all technology sectors look like 7-foot hurdles.
Q: I worked in the paper and packaging business this past summer and really enjoyed my experience. None of my classmates are interested in the paper business and the company I worked for has not had MBA interns in years. Clearly the paper business has its challenges, but do you see this as an opportunity or a roadblock?
A: Well, you've got it right that the paper business is challenged. High capital intensity, low margins, cyclical. It is a brutal business; no one cares who made the box their Dell computer came shipped in. In general, commodity businesses, even you're the low-cost producer, are difficult. There are generally two recommendations I offer to college and business school graduates. The most important thing about where you work is that you admire/love it. So it sounds like you liked your experience, and that's great. But we come to my second recommendation, which is to get on the right train; that is, moving in the right direction. There's no course in business school called "Getting on the Right Train", but it's really important. You can be an average passenger but if you get on the right train it will carry you a long way. You want to learn from experience, but you want to learn from other people's experience when you can. Managing your career is like investing - the degree of difficulty does not count. So you can save yourself money and pain by getting on the right train.
So makes one think, how will some of the current 'performers' like maruti, tisco, telco and others will perform in the long run. Some of these have high return on equity, but is it sustainable over a complete business cycle
here's the link :http://mba.tuck.dartmouth.edu/pages/clubs/investment/WarrenBuffet.html
Q: I have worked in various technologies businesses, but I understand that you do not typically invest in the technology sector. Why is that? How do you view technology as an individual and as an investor?
A: Technology is clearly a boost to business productivity and a driver of better consumer products and the like, so as an individual I have a high appreciation for the power of technology. I have avoided technology sectors as an investor because in general I don't have a solid grasp of what differentiates many technology companies. I don't know how to spot durable competitive advantage in technology. To get rich, you find businesses with durable competitive advantage and you don't overpay for them. Technology is based on change; and change is really the enemy of the investor. Change is more rapid and unpredictable in technology relative to the broader economy. To me, all technology sectors look like 7-foot hurdles.
Q: I worked in the paper and packaging business this past summer and really enjoyed my experience. None of my classmates are interested in the paper business and the company I worked for has not had MBA interns in years. Clearly the paper business has its challenges, but do you see this as an opportunity or a roadblock?
A: Well, you've got it right that the paper business is challenged. High capital intensity, low margins, cyclical. It is a brutal business; no one cares who made the box their Dell computer came shipped in. In general, commodity businesses, even you're the low-cost producer, are difficult. There are generally two recommendations I offer to college and business school graduates. The most important thing about where you work is that you admire/love it. So it sounds like you liked your experience, and that's great. But we come to my second recommendation, which is to get on the right train; that is, moving in the right direction. There's no course in business school called "Getting on the Right Train", but it's really important. You can be an average passenger but if you get on the right train it will carry you a long way. You want to learn from experience, but you want to learn from other people's experience when you can. Managing your career is like investing - the degree of difficulty does not count. So you can save yourself money and pain by getting on the right train.
So makes one think, how will some of the current 'performers' like maruti, tisco, telco and others will perform in the long run. Some of these have high return on equity, but is it sustainable over a complete business cycle
here's the link :http://mba.tuck.dartmouth.edu/pages/clubs/investment/WarrenBuffet.html
Thursday, April 21, 2005
BRK buys Annhieser Busch (BUD)
Looks like a typical buffett move. A company with strong brands such as Budwieser, oligopolistic industry , very high Return on equity for the company, strong distribution, a product / business model which will not change (who is going to stop drinking beer ??) and hence predicable.
seems the only disadvantage is the mcap of the company is small so BRK cannot take a very big position
seems the only disadvantage is the mcap of the company is small so BRK cannot take a very big position
BRK buys Annhieser Busch (BUD)
Looks like a typical buffett move. A company with strong brands such as Budwieser, oligopolistic industry , very high Return on equity for the company, strong distribution, a product / business model which will not change (who is going to stop drinking beer ??) and hence predicable.
seems the only disadvantage is the mcap of the company is small so BRK cannot take a very big position
seems the only disadvantage is the mcap of the company is small so BRK cannot take a very big position
Friday, April 01, 2005
buffet partnership letter - 1969
just read the 1969 partnership letter. This was the year when buffet shocked his partners by deciding to close his partnership. That was highly unusual for a money manager , especially if the preceeding year had been as good as it had been for buffet and on top of that if the market was in a bull phase. But buffet rationally decided that there were no bargains to be found and it was better to quit the game than set yourself up for failure.
what struck me in the letter were two points
a) buffet in 1969 clears says that considering the situation then, the conventional wisdom that stocks are a better investment than bonds did not hold true and an investor could expect the same level of return from both. As a result an investor would be better off holding bonds instead of stocks. now this is important as most of the people equate buffet with 'buy and hold' which has now become buy and hold ( irrespective of the valuations). This letter clearly shows buffet's thinking in this matter. Hold you stock till one has rational and well thought out reasons that the stock is not grossly overvalued
b) the second point is mainly buffet's recommendation of bill ruane to his investor and his very rational and sound assesment of bill ruane's past performance and ethics. He logically explains and sets the right expectations for his investor and also gives some pointers of how to evaluate a money manager. i found this very enlighting
what struck me in the letter were two points
a) buffet in 1969 clears says that considering the situation then, the conventional wisdom that stocks are a better investment than bonds did not hold true and an investor could expect the same level of return from both. As a result an investor would be better off holding bonds instead of stocks. now this is important as most of the people equate buffet with 'buy and hold' which has now become buy and hold ( irrespective of the valuations). This letter clearly shows buffet's thinking in this matter. Hold you stock till one has rational and well thought out reasons that the stock is not grossly overvalued
b) the second point is mainly buffet's recommendation of bill ruane to his investor and his very rational and sound assesment of bill ruane's past performance and ethics. He logically explains and sets the right expectations for his investor and also gives some pointers of how to evaluate a money manager. i found this very enlighting
buffet partnership letter - 1969
just read the 1969 partnership letter. This was the year when buffet shocked his partners by deciding to close his partnership. That was highly unusual for a money manager , especially if the preceeding year had been as good as it had been for buffet and on top of that if the market was in a bull phase. But buffet rationally decided that there were no bargains to be found and it was better to quit the game than set yourself up for failure.
what struck me in the letter were two points
a) buffet in 1969 clears says that considering the situation then, the conventional wisdom that stocks are a better investment than bonds did not hold true and an investor could expect the same level of return from both. As a result an investor would be better off holding bonds instead of stocks. now this is important as most of the people equate buffet with 'buy and hold' which has now become buy and hold ( irrespective of the valuations). This letter clearly shows buffet's thinking in this matter. Hold you stock till one has rational and well thought out reasons that the stock is not grossly overvalued
b) the second point is mainly buffet's recommendation of bill ruane to his investor and his very rational and sound assesment of bill ruane's past performance and ethics. He logically explains and sets the right expectations for his investor and also gives some pointers of how to evaluate a money manager. i found this very enlighting
what struck me in the letter were two points
a) buffet in 1969 clears says that considering the situation then, the conventional wisdom that stocks are a better investment than bonds did not hold true and an investor could expect the same level of return from both. As a result an investor would be better off holding bonds instead of stocks. now this is important as most of the people equate buffet with 'buy and hold' which has now become buy and hold ( irrespective of the valuations). This letter clearly shows buffet's thinking in this matter. Hold you stock till one has rational and well thought out reasons that the stock is not grossly overvalued
b) the second point is mainly buffet's recommendation of bill ruane to his investor and his very rational and sound assesment of bill ruane's past performance and ethics. He logically explains and sets the right expectations for his investor and also gives some pointers of how to evaluate a money manager. i found this very enlighting
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