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Wit, Wisdom, Warren (Issue #13): Spoiled Princess, Toads, and Acquisitions

“All of humanity’s problems stem from man’s inability to sit quietly in a room alone.” ~ Blaise Pascal

You must have heard the fairy tale where a spoiled princess reluctantly befriends a toad, who magically transforms into a handsome prince triggered by the princess kissing it.

Well, those were the older times.

Today’s capitalistic society has been witness to a large number of spoiled princesses trying the same trick on a large number of toads, only to realize that the tale of them turning into princes they had heard of was just that…a fairy tale.

If you are confused why I am writing today about the tale of the toad and princess, let me get straight to the point now.

As the title of today’s post says, I will cover Warren Buffett’s thoughts on corporate acquisitions. In this case, the spoiled princess is the company that is looking to acquire another company, and the toad is that other company that’s waiting to be acquired.

It’s the Base Rate, Stupid!

Retailing is a tough business. During my investment career, I have watched a large number of retailers enjoy terrific growth and superb returns on equity for a period, and then suddenly nosedive, often all the way into bankruptcy. This shooting-star phenomenon is far more common in retailing than it is in manufacturing or service businesses.

In part, this is because a retailer must stay smart, day after day. Your competitor is always copying and then topping whatever you do. Shoppers are meanwhile beckoned in every conceivable way to try a stream of new merchants. In retailing, to coast is to fail.

~ Warren Buffett, in his 1995 letter to shareholders

Buffett called retailing as “have-to-be-smart-every-day business”, and retailers after retailers have proved that over the years, in India and abroad.

Prof. Sanjay Bakshi’s Presentation…and a Warning

“It’s a funny thing about life; if you refuse to accept anything but the best, you very often get it.” ~ W. Somerset Maugham – English dramatist & novelist (1874-1965)

Maugham’s thought holds a great relevance when it comes to picking up businesses for investment. The results of your investing efforts are decided not after you make or lose money in 5-10 years, but at the very moment you decide to own a specific business.

Pick up a business with good economics and with good margin of safety, and the probability of making money in the long run is high. Pick up a business with poor economics with any margin of safety, and the probability of losing your shirt, and entire wardrobe, in the long run is very high.

Warren Buffett says – “Time is the friend of the wonderful business, the enemy of the mediocre.”

While this principle may seem obvious, most of us learn it the hard way. In fact, most of us learn it several times over.

Wit, Wisdom, Warren (Issue #12): Business of Life

He’s been dubbed the Oracle of Omaha. Some call him America’s hero, while some a questionable St. Warren.

Several books attempt to capture the personality, the philosophy, and the very essence of the world’s most successful investor; but words fail to adequately describe this unique individual…except perhaps his own words.

“Nobody does Warren Buffett as well as Warren Buffett,” writes Janet Lowe in Warren Buffett Speaks.

Apart from doling out thousands of quotes over the decades on the business of investing, Buffett has been a great teacher on the business of life as well.

Despite his influence and affluence, Buffett continues to be plainspoken, honest, optimistic, and funny…and especially when it comes to his thoughts on life.

In today’s post, I carry a few of his thoughts on how to live a happy and fulfilling life. I have not added any explanation of mine to any of his thoughts because, as Charlie Munger would say, “I have noting to add.” 🙂

Wit, Wisdom, Warren (Issue #11): Risk

“Risk means more things can happen than will happen.” ~ Elroy Dimson.

Warren Buffett likes to say that the first rule of investing is “Don’t lose money,” and the second rule is, “Never forget the first rule.”

Read any literature from any legendary investor, and “avoiding permanent loss” or “avoiding risk” emerges as the primary factor that has helped him or her become successful, and legendary.

Howard Marks writes in The Most Important Thing…

Investing consists of exactly one thing: dealing with the future. And because none of us can know the future with certainty, risk is inescapable. Thus, dealing with risk is an essential— I think the essential — element in investing.

It’s not hard to find investments that might go up. If you can find enough of these, you’ll have moved in the right direction. But you’re unlikely to succeed for long if you haven’t dealt explicitly with risk.

The first step consists of understanding it. The second step is recognizing when it’s high. The critical final step is controlling it.

12 Mahatma Gandhi Quotes to Inspire You as an Investor

If there’s one person who has seen the greatest amount of dishonesty and corruption right under his nose, he’s none other than Mahatma Gandhi.

Gandhi is mentioned countless times in speeches by Indian politicians, whether the speech is related to economic growth or corporate governance.

This man’s biggest message to the world was that of morality as an important part of life, business, and of course politics. But he is the only one standing testimony to all immoral activities that happen in the highest corridors of power in the country.

Anyways, leaving that aside, I thought it would be a nice thing on Gandhi’s birthday to remind myself (and you) of the inspiration that he served through his teachings.

The Analyst Who Sold His Ferrari

Imagine a stock market analyst appearing on CNBC advising traders to “stay long on L&T”, “short M&M”, and “buy IRB on dips”.

Given enough of dirt we may have thrown at such analysts in the past, I am sure what kind of a person you may be imagining. Someone dressed in a crisp, formal shirt and tie, and sharing his expertise on accumulating stocks.

Maybe someone like this…

Now, imagine seeing the same person clad in a loose khadi kurta, sporting a French beard, wearing a hearty smile, and advising you to give all your stocks away.

I am sure you may not be able to imagine that, given that there’s a negligible probability of a stock market analyst appearing in this second avatar.

Value Investing, the Rohit Chauhan Way

If you have been a reader of Safal Niveshak for long, you know how I have been greatly inspired by investors and value investing teachers like Graham, Buffett, Munger, Howard Marks, and Prof. Sanjay Bakshi.

But if there is one “value investor-cum-blogger” who inspired me to start putting my thoughts on investing out to the world, it was Rohit Chauhan.

Rohit is a self-taught value investor who has been investing for the last 13+ years and blogging for the last nine.

If you do a Google search on “value investing in India”, Rohit’s blog stands right up there, which suggests his preeminence among all Indian value investing bloggers.

Anyways, I was a bit nervous writing to him asking for his interview for Safal Niveshak. But Rohit eased all my nervousness and agreed to share his thoughts and also his amazing investment checklist, which I present to you today.

So, here’s Rohit and his simple yet amazing thoughts on the art and science of becoming a successful value investor.

A Smart, Thoughtful Investor in the Making

In the third issue of Safal Niveshak TribeStar, I bring to you another brilliant, thoughtful investor in the making, Neeraj Marathe.

While I have met Neeraj just once, I have come to respect his investing acumen via whatever little discussions we’ve had. In this interview, Neeraj lays bare his investment philosophy for us to learn.

Wit, Wisdom, Warren (Issue #10): Businesses – The Good and Gruesome

In my previous post on analyzing Warren Buffett’s letters, I covered the part on how Buffett defines a great business.

Here is a checklist to serve you a reminder. As per Buffett, a great business is one that…

Generates much more cash than it consumes.
Has “moats” — a metaphor for the superiorities they possess that make life difficult for their competitors and helps the business earn high returns.
Operates in a stable industry.
Requires little incremental investment to grow.
Has an ability to increase prices rather easily without fear of significant loss of either market share or unit volume

In today’s post, I cover Buffett’s description of “good” and “gruesome” businesses.

First, the Good Business
Buffett writes that while a great business earns a “great” return on invested capital that creates a moat around itself, a good business earns a “good” return on capital.

So what is the core difference here?