Have the facts of value investing changed?
In this issue:
» Equity investments at three decade low
» Should power be ceded to the state governments?
» The mystery in farm credit
» Is it easy for India to bail out Europe?
» ...and more!----------------------------- Now get free daily updates on Global Economy! -----------------------------
Will Italy be able to get back on its feet again?
Will Euro die faster than the Dollar?
Will China now replace US as the new superpower?
Know all that's going on in the global markets through the free daily financial e-column The Daily Reckoning.
Authored by Bill Bonner, a three-time New York Times best-selling author, the Daily Reckoning is published in 3 languages and is read by millions of people across the globe.
Sign up now for free updates on global markets!
---------------------------------------------------------------------------------------
00:00 | ![]() | |
Let us explain. Buffett's distaste for tech stocks was because of his perception of the business being complex. Over the years that seems to have been sorted out especially with his reputation of being a lifelong learning machine. Hence his buying a tech stock is something that should not worry you at all. As far as the valuations are concerned, Mr Buffett seems to have got the math right there too. Investors must understand that unlike in India, Buffett and his peers in the US contend with risk free rates that are near zero. Hence that brings the cost of capital drastically low and improves the investor's appetite for risk. IBM's fundamentals and long term prospects seem to have fitted well in Buffett's risk reward calculations.
But does that leave you with enough reasons to buy stocks that look cheap only in the very long term? Well, the fact that the return on investment must offer a huge premium over the cost of capital does not change. Hence even if the business has tremendous prospects in the very long term, the margin of safety in current valuations must be adequate. For Buffett the lure of investing in safe stocks be it in the US or emerging markets, is far more than hoarding cash at near zero yields. In fact we will not be surprised if he were to show some interest in Indian IT heavyweights too given their strict adherence to Buffett's investing criterions.
Do you agree with Buffett decision to buy the stake in IBM? Let us know your comments or post them on our Facebook page / Google+ page.
01:15 | Chart of the day | |
![]() |
Data source: Morgan Stanley Report |
01:50 | ![]() | |
Well, we don't quite exactly have the same amount of data at our disposal to try and prove him wrong. But we do contend that it is almost impossible to believe that a nation can grow at such a good pace for such a long time without having any major problems. Sooner or later, the principle of reversion to the mean is bound to catch up with the dragon nation. Besides, there may not be an investment bubble in China currently and it would be earning good return on its investments. But as Michael Porter observed, if you are dependent on a few major customers, then your bargaining power and also your revenues, the GDP in this case, may not have the strength they should have. In other words, a machine that is overly reliant on only one motor to power itself up, may come to a screeching halt if that lone motor breaks down. China surely needs more motors and pretty fast at that.
02:30 | ![]() | |
03:10 | ![]() | |
03:40 | ![]() | |
While concrete evidence is still some years away till we get results of decennial All-India Debt and Investment Survey, there is something definitely fishy in farm credit disbursals. The question is- will we just wait till the fears are confirmed or do some damage control in the mean time?
04:15 | ![]() | |
04:40 | ![]() | |
04:50 | Today's investing mantra |
Today's Premium Edition.
Recent Articles
- All Good Things Come to an End... April 8, 2020
- Why your favourite e-letter won't reach you every week day.
- A Safe Stock to Lockdown Now April 2, 2020
- The market crashc has made strong, established brands attractive. Here's a stock to make the most of this opportunity...
- One Stock that is All Charged Up for the Post Coronavirus Rebound April 1, 2020
- A stock with strong moat is currently trading near 5-year lows.
- Sorry Warren Buffett, I'm Following This Man Instead of You in 2020 March 30, 2020
- This man warned of an impending market correction while everyone else was celebrating the renewed optimism in early 2020...
Equitymaster requests your view! Post a comment on "Have the facts of value investing changed?". Click here!
3 Responses to "Have the facts of value investing changed?"
AJAY
Nov 15, 2011Pls stop writing about Uncle Warren ... check this out
Guess who sold his soul !
"......Now we know why Warren Buffett exploded onto the political scene late this summer. At first, we thought his calls for higher taxes on the rich were a ploy to help him "earn" a seat on Obama 2.0's cabinet.
It's something much more sinister -- much more greedy.
It was nothing but a ruse to keep regulators out of his hair. You scratch my back, he told the feds, and I'll scratch yours.
WARNING: What you are about to read is a graphic display of what is wrong in America...
As of Oct. 28, Warren's Berkshire Hathaway had $29.7 billion worth of credit-default swaps linked to its debt. It's a figure that is hair-raisingly close to a number pulled out of thin air on Oct. 11 by the Financial Stability Oversight Committee -- the Wall Street sheriff's department created by Frank-Dodd.
The proposed rule says if a firm creates $30 billion worth of CDS exposure, it gets extra scrutiny from Bernanke and his troops at the Fed.
Imagine that... Uncle Warren slips under the radar by a whisker. And all he had to do was make a few pro-tax headlines.
Now that the rules are on paper, where's Warren? We haven't heard anything from him on his tax plans since, oh, say, 30 days ago. Go figure.
It begs a question... why would Uncle Warren sell his soul to throw the feds off his scent?
We'll answer with a question... Would you want Tim Geithner and Ben Bernanke running your business?..." (Andrew Snyder )
kirit shah
Nov 15, 2011Sir, everything you wrote and observed cannot be neglected , but investing is an art and there is no common formula that can be blindly followed, yes one has to have the judgement and satisfation on achieving goal. Market will definitely confuse short term and long term investors.Your artical and study of indian situation is informative and useful.
sethu
Nov 15, 2011enviromental clearance power should not be given to state governments; they are nothing but corrupt.For instance people like Karunanidhi will bring legislation to grant environment clearance on caste basis meaning if the project is promoted by a backward perso ,it will be cleared irrespective of what impact it makes on environment.
there are many MITTALS in india also who suffer because of costly acquisition funded by debt..may be tatasteel..vijay mallaya..