|»5 Minute Wrap Up by Equitymaster|
On This Day - 5 SEPTEMBER 2012
Can investors know more than what companies tell?
In this issue:
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In his internationally acclaimed book 'Common Stocks and Uncommon Profits', Mr Fisher has outlined the investment process that he himself followed. The process is easy and simple in its outline. But of course like any other investment process or philosophy, it also requires determination and discipline to follow. In the book he has outlined the importance of something called 'scuttlebutting'. This involves talking not just to the company's management but also to its clients, suppliers, etc. Basically cover the entire value chain in order to get a clear picture of the company's past, present and future. If everything is in order and there are no negative surprises, the idea is to then invest in such a company and hold it for a long period of time.
Mr Fisher's book and investment philosophy can be a guiding light even to investors who are not acquainted well enough with sophisticated investment terminologies. But it is important to note here that just following his philosophy cannot do away with an opinion on the numbers altogether. Fundamental analysis is the prudent combination of numbers and scuttlebutting. The two complement each other to make it an ideal way of earning long term returns. Following one without the other can lead to disasters as numbers can be misleading. And competitors, clients and suppliers can have a larger than life viewpoint which may or may not hold true.
We will continue to review more such books, which are a must have in an investor's shelf, over next few days.
In a country plagued with extreme income inequality and rampant caste-based discrimination, reservations do have an important role to play. They give neglected and underprivileged people an opportunity to raise their standard of living. But reservations should be implemented in a way that the right people get its benefit. Hence, the conditions placed by the apex court were indeed necessary. But the UPA's move seems to be simply aimed at gaining political mileage. This, we believe, can turn out to be just a burden to the nation.
The problem is that even if the global economy accelerates, these youth may not find a job soon enough. As a result, unemployment rate would continue to be high. Considering that this is the generation that will spearhead future economic growth, the unemployment rise is a serious concern for all countries. As per ILO, the only way to resolve the situation is through global policy reforms. Reforms that would drive growth in every economy. That is the foundation for long term sustainability.
But despite these near term headwinds, auto companies have not really cut back. They have been investing to keep up the pace of new product launches. These developments will be mirrored in the performance of auto ancillaries as well. The sector is cyclical. So, despite some near term hiccups, the long term story remains intact as the government lays emphasis on ramping up infrastructure (especially roads). What is more, the Heavy Industries Minister Praful Patel also holds a favourable view on the sector. He expects the auto as well as the auto parts industry to touch US$ 145 bn by 2016.
And Business Week takes the support of these very arguments to present its case. It opines that the shift of Chinese labour from agriculture and into manufacturing and services could alone account for 30% of the country's continued growth. And then there are the considerable opportunities to increase labour productivity through education. Thus, by 2025, the dragon nation will have to reach levels of university enrolment similar to those of Western European nations. And this might alone add more than 6% to growth rates.
Well, there's no arguing that the route suggested by the business magazine is certainly the right one. But the China of today appears ill equipped to go down this path we believe. Its growth up to this point has come about mainly due to infrastructure spending and thrust on exports. But to move into a still higher orbit, it may have to completely overhaul its present way of functioning. And how the dragon nation solves this problem will ultimately decide its fate over the next few decades.
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