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Wit, Wisdom, Warren (Issue #6): Method of Operations

Image Source: Rediff

Last time, I reviewed lessons from Warren Buffett’s 1961 letter to partners of Buffett Partnership, with a special focus on “conservative investing” .

Today, I review another part of the same letter – this time on Buffett’s method of operations i.e., how he categorized his investment in three (and later four) buckets and how this has helped him differentiate from most other investors.

Why we can’t be like Buffett
A lot of fund management companies abroad ape the Warren Buffett portfolio – they buy what he buys and they sell what he sells.

Not only that, there are companies across the world who are trying to sell research services to retail investors that aim to mimic Buffett’s style to earn them huge wealth.

Wit, Wisdom, Charlie: Elementary Worldly Wisdom from Charlie Munger (Issue #3)

By the time you read this article, the world’s largest economy would have decided its President for the next 4 years.

There is always an excitement in the markets worldwide when it comes to the US election and especially this time, given the state of the US and world economy. The parties have left no stones unturned and the gravity of the election is obvious from the fact that the current campaign was the most expensive ever.

I personally find the US election campaigns very interesting and there are great marketing and economic lessons to be learned from them.

Even though the tactics and key agenda points differ according to the time and the state of economy, there is always one common element to all such campaigns.

The campaigns try to channel and exploit two of the most primitive emotions of human beings. In fact, these emotions have been the central drivers of most of the historical movements, be it the mythological Mahabharata, the ancient wars, the Nazi camps, or various freedom revolutions over the course of history.

When I Met the Legends of Investing – Part 2

“In the morning, if you see me smiling in my sleep, please do not wake me up!” I advised my wife before going to sleep.

“Why?” she asked.

“Because last time you woke me up just when I was starting to learn the art of investing straight from the legends who visited me in my dreams!

“This time, if you see me smiling and talking to myself in the morning, know that I am seeing a similar dream. So don’t wake me up!”

“You sound so funny so often!” she told me as I switched off the lights.

Anyways, I saw the second part of my dream, and here’s the transcript. (Read first part here)

When I Met the Legends of Investing – Part 1

I recently had a dream, where I met the legends of investing – Warren Buffett, Charlie Munger, Peter Lynch and Jim Rogers.

Since you have the right to see anything in your dream, I saw these legends visiting my home to personally teach me the nuances of investing. As I remember, the year was 2003, and I had not yet started investing in stocks. I was confused then, and thus found their visit as a great opportunity to pick their brains on investing.

Here is the transcript of my dream based on what I remember.

How to Become Graham’s “Intelligent” Investor

In 1949, when asked what it means to be an “intelligent” investor, Benjamin Graham, the father of Value Investing, said…

The word “intelligent”…will be used…as meaning “endowed with the capacity for knowledge and understanding.” It will not be taken to be “smart” or “shrewd”, or gifted with unusual foresight or insight. Actually the intelligence here presupposed is a trait more of the character than the brain.

Then, in 1976, he summed up “investing” with these words…

The main point is to have the right general principles and the character to stick with them.

Wit, Wisdom, Warren (Issue #5): Conservative Investing

Image Source: Rediff

Last time, I reviewed lessons from Warren Buffett’s 1960 letter to partners of Buffett Partnership.

Today, I review the letter for 1961. Buffett wrote two letters during 1961 – once in July 1961 and then the annual letter in Jan. 1962. The first letter carried Buffett’s core rules for the partnerships. It was the annual letter where Buffett talked about his philosophy.

So I’m reviewing just the annual letter (written in Jan. 1962). From this time onwards, I’m also making a change in the way I analyse Buffett’s philosophy.

Given that I am reviewing the letters in a chronological order, I might write about a certain philosophy that Buffett followed in a particular year, which changed in subsequent years.

So, apart from analysing a particular year’s letter, I will try to cull out one specific theme from that letter and then see how that theme evolved for Buffett in the future.

Anyways, let’s start with the analysis of the 1961 letter.

Wit, Wisdom, Charlie: Elementary Worldly Wisdom from Charlie Munger (Issue #2)

Let me begin by thanking all the readers for their appreciation of the previous article on ‘availability bias’. And a special thanks to a particular reader, who indirectly gave me the idea about how I wanted to present this next nugget of wisdom by Munger.

This goes on in form of a conversation over a coffee. So without any further delay, here is a transcript of the conversation.

Thank You Matadin Babu!

I received several email and text messages over the past few days with people asking about my whereabouts.

“Where have you been? No posts for the past two days?” emailed a reader.

“I hope you are fine,” wrote another.

“Alive?” asked a friend who is also a reader.

Well, if you have been wondering where I’d been over the past few days, just want to let you know that I am still here…alive and kicking.

Over the past few days, I was in a small, nondescript town of Bankura in West Bengal – the place I was born. [Read more…] about Thank You Matadin Babu!

How to Invest and Not Get Killed

A company’s financial statements can be an investor’s best friend, or biggest foe.

If read carefully, an investor can gain valuable insights into the company – like finding durable sustainable moats a la Buffett.

However if these statements are read without care, and one acts upon his hunch, thinking – “Let me buy the stock since it’s rising! I’ll read the annual report later.” – he or she can lose his/her entire investment.

Like it happened in the case of Deccan Chronicle recently, or for that matter, Suzlon. Of course there are hundreds of other companies that come to mind, but then that’s not the point here.

The point is that some financial statements shout out to be read – and carefully – by investors who are buying into these stocks without looking into the deep mess the balance sheet and cash flows are hinting at.

If you have been a buyer of such messy businesses in the past, and have now vowed to find out the red flags that lie within a company’s financial statements, there is one book you must read right away.

Notes from Value Investing Conference

If you are a budding cricketer, and suddenly find yourself in the company of Sachin Tendulkar, Rahul Dravid, and Kapil Dev, what would you feel like? Great, isn’t it?

Also, what if they spend the entire day with you, sharing the simple batting and bowling tactics that made them immortals – tactics that are so simple that you can learn them yourself to make your own mark as a cricketer? Amazingly lucky, isn’t it?

Well, I felt something like this yesterday, while attending a value investing conference organized by a leading Indian financial advisory company.

I found myself extremely lucky to be in the company of the doyens of value investing in India – Chandrakant Sampat, Chetan Parikh, Prof. Sanjay Bakshi, Prashant Jain, and Parag Parikh – and several other practitioners of this beautiful art.