What's common between Buffett, Gates & Tendulkar? - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster
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What's common between Buffett, Gates & Tendulkar? 

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In this issue:
» How could this happen at Berkshire Hathaway?
» India has created 60,000 jobs in the US
» Promoters raise stakes in textile companies
» Is this our PM's April Fool joke?
» ...and more!


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00:00
 
Warren Buffett... Bill Gates... Sachin Tendulkar... The sheer mention of these larger-than-life demigods fills us with awe and reverence. They seem like glorious stars; so many light years away that we are content just gazing at them.

Most of us have grown up believing that all great people have some inborn talent. As if they were just meant to be that way. Have you ever thought if it would be possible to be like them? If you haven't, you may want to reconsider after reading this. Okay, let's consider what it takes to become a super-achiever.

Achievement= Innate talent+ Opportunity+ Preparation.

There is not much to debate about this equation. These three ingredients pretty much make up the recipe for success. The interesting part is this... Research on super-achievers has led psychologists to this conclusion: Preparation plays a much bigger role in determining an individual's success than innate talent. Wow! This means that even if you're not a born genius, you haven't lost the battle. All you need is a willingness to prepare well.

Now the next question is quite obvious. How much preparation to become a world-class expert? Through extensive research in the 1990s, psychologist Anders Ericsson arrived at a precise number: 10,000 hours. Various studies strongly pointed that 10,000 hours of practice was required to achieve world-class expertise in anything. It seems that it takes the brain this long to assimilate all that it needs to know to achieve true mastery.

Warren Buffet, for instance, is famed for his discipline and the hours he spends studying financial statements of potential investment targets. But his informal schooling in business and investment started much early when he was just 5. As a kid, Buffett displayed a keen interest in making and saving money. He would go door to door selling chewing gum, Coca-Cola, or weekly magazines. While still in high school, he carried out several successful money-making ideas. By age 11 he made his first investment buying a stock. And by age 13, he had filed his first income tax return.

Take our own little master-blaster Sachin Tendulkar. He is known for spending long hours at the nets, always perfecting his cricketing reflexes. Take Microsoft's founder Bill Gates. He met the 10,000-hour rule when he gained access to a high school computer at the age of 13, and spent 10,000 hours programming on it. Practice isn't the thing you do once you're good. It's the thing you do that makes you good.

Do you think preparation is more important than innate talent to be a successful investor? Share your comments with us or post your views on our facebook page.

01:17  Chart of the day
 
The great Indian consumption story is going great guns. And private equity (PE) firms do not want to miss the party. Today's chart of the day shows that PE investments in the retail sector rose by almost 6 times between 2009 and 2010 to about US$ 372 m. Within the retail sector, PE investors are finding sub-sectors such as food and beverages, wellness chains, fashion and footwear, and home furnishing very lucrative.

Data source: Mint

01:36
 
There could be very few firms on the face of this earth that could hold a candle to Berkshire Hathaway when it comes to integrity and corporate governance. Indeed, the Oracle of Omaha's investment vehicle is the gold standard when it comes to these matters. Thus, a lot of eyebrows were raised yesterday when news surfaced that David Sokol, one of Buffett's most trusted lieutenants and also a potential successor candidate, seemed to have committed an unethical act. The act relates to Buffett's most recent buy, Lubrizol Corp.

Apparently, David Sokol had bought a sizeable number of shares in the company just before he pitched the idea to Buffett. In Wall Street parlance, such an act is an open and shut case of front running. However, to be fair to Buffett and Sokol, Buffett was in the know that the latter already holds a stake in the company but did not have the complete details. Thus, the act is not unlawful as per Buffett. His detractors though are not in a mood to listen and have taken Buffett to task for not being strict enough with Sokol.

We believe that it is a clear case of conflict between Buffett's qualitative ways of managing his managers versus the other approach that calls for near total compliance. As far as we are concerned, Buffett's track record cries out loud that we should not be too harsh on him. But it is also equally true that qualitative assessment could work as far as analysing companies are concerned. However, when it comes to matters such as these, clear rules need to be put in place by Buffett. As a gentleman rightly put it, you not only have to avoid breaking the law but also avoid the appearance of breaking the law.

02:29
 
Loss of jobs has been the excuse for the US to prevent services from being outsourced to emerging markets. Particularly to ones like India who have a lion's share of the world's back offices. But it appears that the accusation comes without a statistical study; for the latest claims from 25 Indian blue chips is of having created around 60,000 jobs in the US. That too in times of crisis when the American giants themselves were on a layoff spree! The fact that Indian IT giants have increasingly shown an inclination to hire locals for onshore projects is well known. But there are also others like SBI, Ranbaxy and Essar that did so without having any compulsions. Hence it is high time the US government acknowledges the mutual benefits of outsourcing jobs.

02:54
 
The Indian textile sector has been amongst the worst hit by the global economic slowdown since 2008. Being heavily dependent on retailers in the US and Europe for sale of high value products, their fortunes have been dim. The domestic markets have been offering high volume growth but very little pricing power over the past few quarters. Nevertheless, that had added a shade of green to the companies' bleeding P&L accounts. With these the promoters of the textile companies are hoping to pump prime the valuations of their stocks. Whether or not the companies are all geared to deliver higher returns to investors is a different question altogether. The steep input costs and hurdles in capacity expansions will continue to dog their growth and profitability plans for some time. However, the promoters of textile companies seem to be pretty confident of the future prospects. Their willingness to hike stakes in their own companies is good evidence.

03:30
 
The Prime Minister, Dr. Manmohan Singh, has committed to the Indian industry that the government would take all possible steps to check corruption. This would be done by limiting discretionary decision making. The government also plans to carry out "comprehensive steps to strengthen intelligence and implement institutions to combat black money and check corruption".

He has also reiterated that the government is committed to the economic reforms and will carry them out as planned. On the tax front he plans to rollout tax reforms along with the financial reforms. As per the PM, financial reforms are just as important to ensure more transparency in the markets and to ensure proper price determination. We pray that the PM is actually committed to these reforms. And hope he does not scream out, "Boo! April Fool!"

03:53
 
The cement industry is facing huge overcapacity. In a bid to protect margins, the cement companies have decided to cut production so as to increase cement prices. But higher cement prices would hurt the real estate and construction companies. As a result the construction firms have decided to set up their own captive cement manufacturing plants. This will not only reduce their reliance on cement companies but will also protect them from cement price volatility.

However, we believe there is a catch here. Approximately Rs 5.5 bn of investment is required to set up a capacity of 1 m tonne. It would be interesting to see how these firms raise money for this. Their cash flow situation is terrible. Even banks are reluctant to lend money to them due to the corporate governance issues. Further, construction firms believe they will be able to manufacture and consume the produce at a price which is significantly lower than the cost of production of the cement companies. We believe this is unrealistic. However, only time will tell whether this is really possible or it is just a gimmick to put pressure on the cement companies to reduce their prices.

04:30
 
Indian stock markets have been trading close to the dotted line since the start of the session. At the time of writing, the benchmark, BSE Sensex was trading higher by 13 points. Stocks from the realty and power sectors were amongst the top gainers, while those from the banking and IT space were at the receiving end. The market sentiments in major Asian markets were mostly positive barring Japan.

04:50  Today's investing mantra
"If we become increasingly humble about how little we know, we may be more eager to search." - John Templeton
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12 Responses to "What's common between Buffett, Gates & Tendulkar?"

Naveen

Apr 4, 2011

and yes sorry i missed out the imp factor..

To the entire formula multiply it with Faith

Like 

naveen

Apr 4, 2011

Please add Consistency to the formula...

Like 

B V KRISHNAN

Apr 2, 2011

I think we have to add a few more ingredients to the equation, like "Self Confidence", "Perseverence" etc. Unless you have confidence in yourself and persevere with your efforts even in the face of adversitites.

Like 

John

Apr 2, 2011

But what is it that would lead someone to invest the time and attention to practice. Motivation plays a big part in what one gains from the practice that one does and it's only by being sufficiently motivated that one would practice enough to be an expert. You become an expert through practice but you practice out of interest and you gain the most from practice if you are interested. Curiosity is what these men have in common. As to where natural talent and capability comes in, success is encouraging, failure is discouraging, natural talent and capability results in early successes and hence encouragement therefore leading to interest and further practice, you cannot discount natural talent and capability except by replacing them with determination, and or a resistance to discouragement. I don't believe that the universe will conspire o give you what you want, the Universe provides randomness, it provides entropy, it's up to us to select from that selection that the Universe proffers, choose out of interest and there's a cumulative effect, choose at random and the net result is no change, choose out of pessimism and despair and the net effect is negative.

Like 

O P Sharma

Apr 2, 2011

Do tou believe " He will deliver on his promise. Noooo.
The next thing after that he has looied the tax payers money and gave 45 crore to Sharda Pawar.

Like 

Anita Srivastava

Apr 2, 2011

They are common in achieving their goals.they have only concentrated on what they want to achieve. i strongly believe if u want something with all your passion & desire you will definitely get it . it does not matter which class or category or field u belong.yes i believe in practice with passion ,and identifying ones goal

Like 

indra nath

Apr 1, 2011

All the three are billionaires , Sachin is much more, he keeps billions of his people happy with his each century worth billions!

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indra nath

Apr 1, 2011

All the three were from middle class( not sure about Gates)all of them are Icons in their own right

Like 

col. kirit joshipura

Apr 1, 2011

Ref yr write up on PM`s promise on reforms and corruption.
I wonder if he has powers or will to effect these PROMISED measures.His recent performance and actions in case of CVC and various scams does NOT generate the confidance we expect from a PM of a nation of 121 Bn.I wonder if his cabinet colligues and behind the screen advisors listen to him or give him any elbow room to act!!!He is indeed an honest man-not quite suited for this job as seen now,we pray and wish he delivers-normal- his promise -of course without ceazarion.
GOD SAVE INDIA_i mean MERA MAHAN bharat.

Like 

Dr. Atul Tiwari

Apr 1, 2011

I dont know who has made this equation. For making an equation that is related to a specific field (Sports in this case) one needs to be expert of that particualr field (Psychology is optional). They have forgotten to add Stage" at which peroformence is done to be counted as achievement. Practice of 10000 hours is a foolish concept (I am surprise how it came there)! More important is skill, that comes through Coaching. Without proper training, you cant cant gain exceptionally, even after doing practise for 1 lac hours. Ramkant Acherekar is tagge with Sachin & name of Ben Gaham is tagged with bufet! Most important is inclination. There are hundreds of examples of people, who were never inerestd in fields, they were telented in. At some late stage of life, they took interest & touched sky. See Mrs Sonia Gandhi as nearest example.Natural talent works for timing but not for finishing techniques. It is much vast topic & eliments of equation are not wrong but incmplete.
International Umpire- Table Tennis
Chairman- MP STATE Association

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