Why are 'talking heads' on TV endorsing Buffett? - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster

Why are 'talking heads' on TV endorsing Buffett? 

A  A  A
In this issue:
» Should young investors hold a lot of cash?
» A new benchmark lending rate for Indian banks
» Why the US Fed is wrong about gold...
» Why India could find a new ally in Japan...
» ...and more!

The high decibel opinions of the so called 'talking heads' on television have hardly been of much consequence. Those who follow such opinions on investing have by now got convinced about the lack of conviction in the judgments. Most of the experts tend to change their opinion on the markets with startling regularity. As for the investors who follow their investment tips, the experience has always been harrowing. Little wonder then that more than half of the country's roughly 2 crore demat accounts have been inactive over the past year. And most retail investors who have exited the stock markets have vowed never to return! For the talking heads, unfortunately, their trading tips now have few takers.

Interestingly, many of them have now taken to fundamental research and long term investing. Having rubbished the potential of long term value investing earlier, these very experts find themselves rooting for it. In fact, very recently, CNBC commentator Jim Cramer too defended Warren Buffett's portfolio performance. The performance of Buffett's Berkshire Hathaway has not been particularly impressive in the past year. However, according to Cramer, given the legend's true value investing style, the selection of stocks can hardly be questioned. Therefore it is only a matter of time before Buffett's bets begin to pay off. While we are completely in agreement with Cramer, we can also explain why Buffett's value investing has suddenly found wide acceptance.

Unlike investing methods that rely on speculation and warrant high risk taking ability, value investing is a method best suited to retail investors. Especially those looking to create wealth through relatively safe stocks over the long term. And the only way that retail investors can renew their confidence in stock markets is by investing in solid stocks at attractive valuations.

So while everyone right from your friendly broker to the expert on television might be endorsing the merits of value investing, it would be worthwhile to remember that this is a process that requires patience and discipline. It is not for those looking to create wealth overnight. And be it Buffett, Munger or Peter Lynch, the flag bearers of value investing have always had the best interest of retail investors in mind.

Do you think value investing is the style best suited to retail investors? Let us know in the Equitymaster Club or share your comments below.

By the way, Mark Ford, who is a very successful American publisher, entrepreneur and real estate investor, has been sharing some of his best wealth building ideas, thrice a week through The Daily Reckoning.

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01:35  Chart of the day
The RBI has over the past few days put forth several proposals to streamline banking sector's lending norms. One of the most important proposals is with regard to the lending rate. Now each bank in India has its own lending rate called base rate. And most of the lending is at rates above the base rate. However, the RBI has proposed that like in the West, Indian banks too should have a uniform lending rate called Indian Banks Base Rate (IBBR) . This will not only improve transparency in lending but also ensure parity in margins for banks across the sector. Taking the average base rates of leading PSU and private sector banks, the RBI has shown that the benchmark rate can consistently fetch 2-3% margin over the repo rate.

RBI's proposed benchmark base rate versus repo rate

Have you found yourself torn between rationality and short term emotions while making the most important decisions of your lives? Well, plenty of times isn't it? After all most of us find it too hard to resist the temptation of polishing off a generous portion of our favourite sweet dish in exchange for long term weight loss. Or what about that decision that you had to take in order to choose between a promising long term career in another city and the option of leaving behind your near and dear ones in the process? Such decisions are seldom easy to make. Well, the sad part is that this tendency manifests itself in the financial markets as well.

People who've just been exposed to a nasty recession are prone to hoard cash rather than steadily invest the same in assets with strong growth potential. Take the US young population for example. As per an investment advisor UBS, people in their early to mid-thirties are keeping 42% of their money in cash. And this is understandable given that they are in the prime of their careers which has unfortunately been dominated by the recession. But as we highlighted, they will have think beyond this short term emotion and do what works best from a long term perspective i.e. equities. Of course some cash buffer is indeed required. But anything more than that and they are falling prey to their short term fears we reckon. And this is certainly not in their best long term interest.

The central banks of the West love to hate gold. The economists at the US Fed believe that gold is just another commodity. The western media, influenced by central banks and Wall Street also present a negative view about gold. However, it must not be ignored that people in India and China hold the opposite view about gold. The combined population of these two nations along with south East Asia is larger than the population of the rest of the world. Asian nations have become steadily richer over the last twenty years. This has led to an increase in demand for physical gold. The reason is simple. Asians do not view gold as just another commodity. To them, gold represents a real store of value. It has protected their wealth from the continuous devaluation of their nation's currency. This simple fact is yet to be understood by the western financial press. They have ignored the steady rise in physical gold demand from countries like China and India. Sooner or later they will realize that the price of gold will be determined by physical demand from Asian countries. And western central banks will be unable to stop the price of gold higher.

The election verdict will be out on May 16th. And if consensus prevails, Modi led government will assume power at the centre. While the new government is expected to be business friendly it is also expected to boost ties with foreign countries especially Japan. Modi's views on border dispute with China are well known. Even US had in the past black listed Modi for his alleged role in Gujarat riots. As such, there were questions on how the new government would deal with these two super powers of the world. But as per Business Week, India under Mr Modi could find a new ally in Japan. Japan's prime minister and Mr Modi have shared cordial relations since long. And this is likely to benefit India in a great way.

For one, Japanese military and nuclear capabilities are way ahead of India. And Japan has showed willingness to help India on this front. Also, Japan is flush with liquidity due to near zero interest regime. On the other hand, India needs money to develop basic infrastructure in the country. Hence, long term money flow from Japan can play a crucial role in the development of India's basic infrastructure needs. Thus, it seems Japan could be of tremendous help to India under Modi's regime.

Only time will tell whether the Japanese card under Mr Modi will materialize or not. However, Japanese penchant does not mean India can afford to ignore the other two super powers of the world. Maintaining cordial relations with China and US is equally important for long term advancement of India.

The year gone by was a tough one for the Indian auto sector. Domestic car sales volumes, for example, declined by 4.7% on a year on year basis. This is after reporting a 6.7% YoY decline in volumes in the preceding year FY13. In fact, the decline in auto volumes in FY13 was the first in a decade. Further, the performance of the commercial vehicles segment was all the more worse. Volumes for the full year declined by over 20.2% on a year on year basis as the segment was heavily impacted by a bunch of factors not limited to the overall slowdown, slower development of infrastructure projects and ban in mining activities. As the industry continues to struggle with demand slump an estimated job loss of around 1.5 lakh across the entire value chain is expected. The two-wheeler segment however saw some respite, with volumes moving up by about 7.3%, led by growth in sales of scooters. Nevertheless, with the way some of the beaten down stocks from the sector have moved up in recent times, it seems that the growth expectations are high. Also, one should not ignore the aspect of there being a huge surge in auto volumes on the back of a large pent up demand. From what it seems, exciting times could be ahead for the auto space in the medium to long term! The performance will however depend on crucial factors such as interest rates and economic recovery going ahead.

During the week gone by, US stocks suffered their largest weekly decline since January as investors sold companies with especially high valuations and braced themselves for a disappointing corporate earnings season. The Federal Reserve provided a small cushion for the week's declines in the form of minutes from its last policy meeting. Some investors worried that policymakers had emerged from the meeting encouraged about recent job gains and were ready to raise short-term interest rates earlier than most expected. The minutes indicated that officials remained convinced that labor markets still needed time to heal. The US stock markets closed 2.4% down for the week.

European stocks also fell for the week. The European Central Bank has so far not introduced any fresh quantitative easing to ward off deflation, but it is increasingly expected to. ECB Vice President has indicated that the central bank is looking at various scenarios, which could include buying private assets.

Disappointing data from China and Japan contributed to broad investor unease. China's exports and imports both fell significantly from a year earlier. The significant declines are yet another signal that China's growth has tapered over recent years. The Chinese stock market closed 3.5% up for the week.

The Indian equity markets shielded itself from weak global cues and remained in an uptrend on hopes of a stable government at the centre that will kick start the reform process and revitalize the economy. The Indian equity markets closed 1.2% up for the week.

Performance during the week ended April 11th, 2014
Data source: Yahoo Finance

04:50  Weekend investing mantra
"Charlie and I believe in operating with many redundant layers of liquidity, and we avoid any sort of obligation that could drain our cash in a material way. That reduces our returns in 99 years out of 100. But we will survive in the 100th while many others fail. And we will sleep well in all 100." - Warren Buffett
Today being a Saturday, there is no Premium edition being published. But you can always read our most recent issue here...
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3 Responses to "Why are 'talking heads' on TV endorsing Buffett?"


Apr 17, 2014

TV advisers are giving their view point keeping in view three things , besides others :
1. Technicals , which is basically historical data analysis and interpolating the same.
2. Fundamentals , which are obvious and also include latest information like M&A , bonus, windfalls etc.
3. Political and administrative dicta-ts.
It is for us to do further examination and then go for long term of at least one year or more , so that you get some dividend and book profits at the time of annual results.
that is what I do and over a long period of over 20 years I have had no regrets. Of-course there will always be a lot of companies which will just vanish from the market and if you go to their registered address, there are only locks !!


virendra bapna

Apr 12, 2014

stock markets is only for those persons who get insider news,as these people make real profit.all other advisors,analyst,mutual funds etc etc only fool people and they get paid for this.


pinakin mamtora

Apr 12, 2014

Having had a overdose of Buffett's eulogies almost on a daily basis, it would be a real tribute to Buffettology if Mr.Ajit Dayal & the Equitymaster team give us a list of say 10 scrips that Buffett would invest in India based on his philosophy & principles. Then, we can see how these Buffett's Indian portfolio performs over say 5 or 10 years here. I think this is a more practical way to worship Buffett, if you will.

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