One of the finest investors of all-time Warren Buffet started his investment journey under the shadow of Benjamin Graham. Benjamin Graham’s “low-priced-common stock” strategy involves selectively buying common stocks whose past performance was great during favorable market conditions and the share price has been corrected significantly from the previous high in a severe bear market. Holding them for a medium time-period would provide a spectacular return. Buffet achieved extraordinary results, significantly beating the S&P index every single year over his initial thirteen years.
But around the 1960s, Buffet made two large investments – American Express and Disney which do not follow Graham’s investment philosophy. This was a strategic shift towards higher-quality companies with strong competitive barriers.
What kind of companies Buffet actually likes:
One simple answer would be higher quality businesses. But which are higher quality businesses? These are the kind of companies that maintain a moat (competitive advantage) that is the ability to raise prices and mostly business with “franchises”. This led him to invest in consumer products and media properties. Along with this, he made an important shift to longer holding periods which allows for long-term pretax compounding of investment values.
Based on this investment style in 1972, Buffet acquired a stake in See’s Candies. At that time, the company was trading over three times its book value and expensive by Graham’s standards. But the stock gave a stellar 32 percent compound return on Berkshire’s investment over its first twenty-seven years.
The Contrarian Approach:
The majority of Buffet’s large investments were made at the time of a crisis in an industry or company. Buffet made an investment in GEICO at the time of potential insolvency, Wells Fargo in 1989 recession, Freddie Mac in 1989 recession, and the S&L crisis.
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Co-incidentally, I had also started analyzing the current market for opportunities to seek patterns as a Buffett type investment. I totally agree with your view that Buffett made investments in high-quality companies at times when they faced some sort of crisis.
While the exact agenda of this thread is not clear, but I suggest we can use this for identifying such opportunities.
The companies may have their own thread and the detailed discussion might shift there, but this thread can serve as a starting point for consideration of such investments.
Whatever happening in the stock market is unprecedented. Buffet is not finding any value in the current stock market hence sitting with ~135 bn cash and i do echo same sentiments. stock market is running up ignoring deteriorating fundamentals and it has been that way at least for last 3 years. Indian GDP is in downward spiral and if you try to find companies whose 3Y EPS growth rate more than 5Y EPS growth rate there are hardly any. NIFTY 50 earnings growth rate has been flat which is pushing up NIFTY P/E higher and higher. It touched ~30 before corona crash now we are at ~23 and it may be 30 next quarter due to expected de growth.
Current market is liquidity driven which doesn’t seem to be in consonance with earnings growth of companies so finding something which matches buffet style of investment hasn’t been easy
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Quoting Buffett :- “The future is never clear. You pay a very high price in stock market for a cheery consensus”
Why Buffett isnt investing or finding value in U.S markets is an all together different issue. The purpose of this thread, frm wat I can make out is to identify opportunities in Indian stock Markets at any time and compare the same to one of Buffett’s historical investments and see if thr’s a pattern on how things play out
Those who are confused about why Buffet is not able to find value in the current market scenario, for them, I would like to explain my point of view.
Let’s say you have 2 lakh crore rupees to invest in Indian equity, how will you invest if you intend to buy only a handful of companies(let say less than 10)? So basically on average, you can invest 20,000 crore rupees in each company. Let’s assume you can invest only up to 20% in a company. So the minimum market cap of a company in which you can invest has to be 1 lakh crore ( as 20% -> Rs.20k).
Now you may already know Buffet has some parameters which he applies before investing in a company e.g. sector, competitive advantage, valuation, management, etc. Just imagine, how many companies you can find in India which fulfill all these criteria. The reason why Buffet is not finding any value in the current market scenario is pretty obvious, isn’t it?
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Buffet doesn’t want to invest in India because he doesn’t like the way our corporates function.
Having said that he didn’t even invest in America because market was and is expensive. There aren’t many quality companies which are trading at discount.
A person who has already built a significant portfolio and is significantly invested is in no hurry to buy stocks. The keenness to make use of every opportunity does not matter when they reach that level. You know yourself more, your choice of companies more and have matured enough not to eye every pie.
With such maturity, finding the pie that tastes just right, you would not need any global crisis. You do that when the pie is rightly cooked and hot - doesn’t matter if it’s a roaring bull around that time.
I think the purpose of this thread is GROSSLY MISUNDERSTOOD.
@SOUBHIK_RAKSHIT : Plz correct me if I’m wrong.
The purpose of this thread is not to comment on how WARREN BUFFETT will invest in today’s market in India or anywhere else.
This thread’s sole aim is this : -
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We have a rich study of different investments made by Warren Buffett at different points of time. Those details include why he invested, what valuation he ascribed, wat were the market conditions at that time
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Using the above as reference, we will identify potential investment opportunities today and compare them with one of Warren Buffett’s investment case studies. We might\might not find a pattern - But the discussion will bring out an angle as to why dis particular investment today is similar\different than the one W.B made at that time.
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Though History doesn’t repeats itself; it rhymes very well
So request everyone to do 2 things before posting out on this thread - Read Warren Buffett’s investment cases - AMEX, DISNEY, WELLS FARGO, APPLE, GEICO( in 1951) etc.
From your stock watchlist, try and identify if u find something similar vis-a-vis above cases. If yes present that idea here, not a detailed analysis as it is in its specific thread but an explanation w.r.t why it matches\not matches wid WB’s investment case
We might uncover some hidden gem by from the detailed cos. threads in this forum by looking at it frm this angle.
Thanks for your post. Yes! you are absolutely correct about the purpose of the post. I believe the current market scenario has given an opportunity to invest for the next one or multiple decades. From our end, we should try our best so that we make minimum mistakes in our investments. Reminiscing Buffet’s history may help us to do better.
