Category: Excerpts

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Excerpts

Are you a Warren Buffett phoney?

Buffett has often said, “I could improve your ultimate financial welfare by giving you a ticket with only twenty slots in it so that you had twenty punches – representing all the investments that you got to make in a lifetime. And once you’d punched through the card, you couldn’t make any more investments at all. Under those rules, you’d really think carefully about what you did, and you’d be forced to load up on what you’d really thought about. So you’d do so much better.”

There are plenty of people out there who call themselves Buffett acolytes – and as far as I can see they are all phoneys. Every last one of them. 
Find any investor who models themselves off Warren Buffett and look at what they do.
And look at their investments against a twenty punch card test. 
They fail. They don’t even come close. Several big-name so-called Buffett acolytes have made more than three to five large investments in the last three years and at prices that can’t possibly meet the twenty punch card test. Most phoney Buffett acolytes have been turning stock over faster than that.
Warren Buffett’s two juniors (Todd Combs and Ted Weschler) have turned over many stocks in the past few years too – and at prices that don’t reconcile with any twenty-punch-card philosophy. They are phoneys too. Just a little less egregious than many other so-called Buffett acolytes.  
Many so-called Buffett acolytes (phoneys, all of them) have imbibed that a concentrated portfolio is a good idea. And so they present as having five to twelve stock portfolios and are prepared to take 30 percent positions. 
But the stocks often don’t meet the twenty punch-card test. And so these investors wind up with large positions in second rate investments. When one goes wrong it is deeply painful. When three go wrong simultaneously it is devastating. 
The lesson here is easily stated: “if you are going to fill your portfolio with crap, it better be diversified crap”. 
Several of my favourite phoney Buffett acolytes have been posting catastrophic losses. It was due. The phoney Buffett acolytes still here are just waiting for their turn to have catastrophic losses. –wrote John Hempton
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Excerpts

We are in a Big Fat Ugly Bubble

Now, look, we have the worst revival of an economy since the Great Depression. And believe me: We’re in a bubble right now. And the only thing that looks good is the stock market, but if you raise interest rates even a little bit, that’s going to come crashing down.

We are in a big, fat, ugly bubble. And we better be awfully careful. And we have a Fed that’s doing political things. This Janet Yellen of the Fed. The Fed is doing political — by keeping the interest rates at this level. And believe me: The day Obama goes off, and he leaves, and goes out to the golf course for the rest of his life to play golf, when they raise interest rates, you’re going to see some very bad things happen, because the Fed is not doing their job. The Fed is being more political than Secretary Clinton-said Donald Trump in the first Presidential Debate

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Banks Excerpts

How Corruption works in PSU Banks

Typically, a corrupt boss uses senior executives such as general managers and deputy general managers for sanctioning loans to undeserving borrowers and pocket a small portion of the loan amount. It could vary from 0.5% to 2-3%, depending on the profile of the borrowing company. This means for a Rs100 crore loan sanction, the “earnings” could be Rs50 lakh to Rs3 crore. The money could be paid in cash or in an overseas bank account (one banker is known to keep this money in his own bank overseas, through the so-called hawala route).

In most such cases, the pressure on giving loans without proper risk assessment mounts on senior executives just ahead of their interviews for promotion. If they don’t oblige, the risk of missing promotion is high. The senior executives also run the risk of being transferred to places not to their liking if they reject a loan proposal, recommended by the boss. The current boss of a government-owned bank has recently told his executives to sanction loan proposals that he recommends (of course, verbally) and not bother about whether they will turn bad. His philosophy is: As long as the loan book is growing, none should bother about non-performing assets as bad loans as a percentage of overall loans can be contained through aggressive loan growth.-wrote Tamal

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Excerpts

Don’t roll the dice

I keep getting calls from friends regarding investments.

Nearly all of them want that one stock pick on which they can Bet Big (aka all their life savings) and wait for the money to roll in.

My advice to them is the same as what Katusa writes:

Successful investing is a marathon.

It’s not a sprint.

Building long-term wealth for your family comes down to regularly making intelligent decisions that provide a good balance between capital growth and capital safety.

It does not come down to rolling the dice and “going big” on a single stock. 

But frankly nobody is interested in listening to sensible advice !

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Excerpts

Naren on Buying Cyclicals

Many of the commodity-based sectors see cyclical trends as can be seen in metals, oil, shipping, sugar, commercial vehicles, capital goods etc.

The point to remember while investing in these pockets is that there will be times when these companies will do very badly, which should be the ideal time to buy, and there will be times when these companies do very well, which are times to sell.

The key understanding here is the best time to buy a cyclical stock is when their share price is low and not when their earnings are high.

For example, when sugar prices are at their bottom, sugar stocks will be at the bottom, but their valuation in terms of price to earnings, will be very costly.

So it is important to buy cyclicals based on share prices rather than earnings.

–said S Naren,CIO,ICICI Prudential Asset Management