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Stocks that Failed to Live up to the Buffett Magic
Jun 28, 2017

In a recent move, the Oracle of Omaha, Warren Buffett acquired stake in home financing company, Home Capital Group Inc. However, the company has struggled to maintain its reputation. The regulator recently accused the company of extending loans to dozens of people who had falsified documents. Post the regulator's accusations, the stock fell by 80%.

Nevertheless, Buffett endorsed the company stating that it had strong assets which makes it a very attractive investment. However, it is pertinent to note that Buffett entered the stock through a private placement at a considerable discount resulting in intra-day gains of around 90%. Getting Buffett on board, the company tried to restore its credibility.

Post the Buffett stamp of approval, the stock rose as much as 18%. However, historically it is seen that following Buffett blindly does not bode well for the investors. Buffett's earlier picks, Goldman Sachs and Bank of America, acquired during the financial crisis have given below par returns to the shareholders.

Therefore blindly following investment gurus can backfire at times.

Over the last few months, my colleagues Rohan Pinto and Kunal Thanvi have put in a lot of efforts in meeting and seeking the process followed by super investors of India. They do not blindly recommend the stock picks of these fund managers. Rather they follow the process which is being used by these super investors.

They have developed a proprietary filtering tool, Equitymaster's Smart Money ScoreTM, to narrow down the stocks these gurus are investing in to the creme de la creme.

Their goal is simple. Catch these super investors early in action. Use the smart money tool to filter out the best stocks they are buying. And if the stock has sufficient upside, recommend it.

Their first Smart Money Secrets recommendation - in which super investor Ashish Kacholia, not to mention DSP Blackrock Microcap Fund, have increased their holdings - is already up about 7%. Nearly three thousand have already signed up. You can get access to Smart Money Secrets here.

Data Source:Economic Times, Bloomberg

This Chart Of The Day was published in The 5 Minute WrapUp - What Buffett's Recent Buys Tell Us about the Prospects of Indian Small Caps

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