|»5 Minute Wrap Up by Equitymaster|
On This Day - 24 MARCH 2011
This is where most investors go wrong!
In this issue:
-------------------------------------------- Free Guide -------------------------------------------- The Definitive Guide To Financial Planning
And therein lies the biggest secret to investing one would believe. Just invest in a company that has blockbuster products and one's life is sorted out. If you too, like most other investors fall for this logic, you are treading a dangerous path we believe. Indeed, Apple has gone on to give fantastic returns in the last decade or so. But can we say with a great degree of certainty what the business model of the company would look like 5-10 years from now? May be not. The thing is that Apple belongs to an industry that is subject to rapid technological change. And unless one is very intimately associated with the industry, one cannot be certain how the business model of a firm will evolve over time.
This is exactly the reason why Warren Buffett recently quoted that he would rather prefer Coca-Cola over Apple when it comes to long term investing. He opined that it is very easy for him to come to a conclusion as to what Coca-Cola will look like economically in five or ten years. However, it is not easy for him to come to a conclusion about Apple.
We know for sure that close to 60% of human body weight will comprise of water even 5, 10, 50 years for now and in order to replenish the same, he will have to have a drink like Coca Cola. However, the same thing cannot be said about Apple's products. Just as we didn't know 10 years ago that access to information will be revolutionised by the likes of i-phones and i-pads, we don't know what will revolutionise information technology 10 years from now.
Thus, what most investors miss is not how successful a product currently is but what will the economics of a company look like 5-10 years from now. And this we believe is one of the cornerstones of investment success.
What do you think? Do you think investing in all successful products is the way to go or the long term economics of the business also needs to be taken into account? Share your views or post your comments on our facebook page.
The reason being that the company is expected to see larger orders as clients increase their discretionary spending. And Infosys has a greater number of discretionary orders as compared to TCS. However, we believe that the continued focus on emerging markets especially the domestic markets as well as higher proportion of BFSI (Banking and Financial Services) orders would work favourably for TCS. Whether Infosys actually does outperform TCS or not, only time will tell.
Shiller's hunch about the next candidates for bubbles is set on two different asset classes. One is commodities, which is quite understandable. The other one, a little obscure, is farmlands. Both have a "new era" story attached to them. There are increasing fears of global warming and extreme weather conditions drastically escalating food and fuel prices. The political turmoil in the Middle East has sent oil prices beyond the century mark. We have fiscal deficits and reckless money printing exercises by central governments across the globe. All these factors have already resulted in a significant rally in food and commodity prices. In recent times, farmland prices too have been booming in both the UK and the US. And while real home prices have fallen by 37% from their 2006 peaks, farmland prices are only down 5% from their 2008 highs.
Let's see if Mr Shiller's hunches hit the nail this time as well.
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