Some
time back, I came across an article with the rather provocative headline, '30
Years Ago, Warren Buffett Gave Away The Secret To Good Investing And Correctly
Predicted No One Would Listen'. Attention-grabbing headlines on websites rarely
tend to be true, but this one is an exception.
In
fact, the secret that Warren Buffett gave away had been revealed 50 years
earlier by Benjamin Graham. It was 1934, the year Graham and his collaborator
David Dodd published their seminal tome Security Analysis. Even though 80 years
have gone by, the basic principles that are at the heart of this book continue
to hold true. They also remain thoroughly ignored by investors.
Here's
what Buffett says the followers of these principles do, "...they search
for discrepancies between the value of a business and the price of small pieces
of that business in that market."
There are two parts to this. One is to think of stock investing only as an evaluation of a business for the purpose of buying a piece of it. And the other is to stay focused on this gap between the value and the price. Put together, this is what is called 'best savings plan '.
Value investing has few followers in India, but that's something that needs to change as our equity markets evolve. For long, equity investing in India has mostly been about chasing growth. Even our largest companies often grew at a pace where it became less important to try and guess the inherent value of the business simply because that value could change so rapidly.
However, I believe those days are gone forever. A sensible focus on the underlying business, as well as a fair evaluation of its intrinsic value is now indispensable for the Indian equity investor. It's often said that a rising tide lifts all boats, but many of the boats are too leaky to stay afloat no matter how high the tide rises.
There are two parts to this. One is to think of stock investing only as an evaluation of a business for the purpose of buying a piece of it. And the other is to stay focused on this gap between the value and the price. Put together, this is what is called 'best savings plan '.
Value investing has few followers in India, but that's something that needs to change as our equity markets evolve. For long, equity investing in India has mostly been about chasing growth. Even our largest companies often grew at a pace where it became less important to try and guess the inherent value of the business simply because that value could change so rapidly.
However, I believe those days are gone forever. A sensible focus on the underlying business, as well as a fair evaluation of its intrinsic value is now indispensable for the Indian equity investor. It's often said that a rising tide lifts all boats, but many of the boats are too leaky to stay afloat no matter how high the tide rises.
The
most extreme 'anti-value' investing that appears to be going on in India is in
e-commerce and related fields. Here, in what is a throwback to the worst
excesses of the dotcom era, we have venture capitalists throwing thousands of
crores of rupees at businesses that have no easy way to profitability.
It
takes my mind back to India's original high-profile ecommerce portal, one
jaldi.com which was run by a company called KLG Systel during the boom. KLG
Systel was liquidated in 2014. Will the current e-commerce darlings eventually
face the same fate? Given their CEO's open disdain for profits, the tenets of
value investing say that they might.
[Source: http://economictimes.indiatimes.com/wealth/savings-centre/analysis/value-investing-the-secret-market-mantra-that-nobody-follows/articleshow/47307990.cms]
