Is your stock suffering from 'Shoe Button Complex'?
In this issue:
» Will Greece learn a lesson from history?
» Who are the ants and the grasshoppers in India?
» Will China's stimulus really work?
» Is this the 'Last Great Ponzi Scheme'?
» ...and more!
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The prospects of the retail chain seemed quite bright until Mr Biyani decided to plunge into several other businesses. Those ranging from launching an insurance company to selling mobile phone connections. As it turned out, not everything that he touched turned into gold. Moreover, in its haste to grow fast, Future Group accumulated a huge quantum of debt that became a drag on the core business. So much so that Mr Biyani recently agreed to sell out a controlling stake in his highly lucrative clothing business, Pantaloons, to the Aditya Birla Group. There are also rumours doing the rounds that he might even sell stake in Big Bazaar and another listed subsidiary Future Capital Holdings. Whether that happens or not is a different matter altogether. But the way things have unfolded certainly cannot be ignored.
Let us ask you. What is the root cause behind all this mess? In our view, the answer is the 'Shoe Button Complex'. In simple terms, the 'Shoe Button Complex' means that success in one area can give a person an illusion that he can be successful in other fields as well. Businesses often fall prey to this complex and end up burning their fingers. Do you now understand why Warren Buffett lays so much emphasis on staying within one's circle of competence? It is worth recalling that while the world rode the tech bubble of the 1990s with stocks soaring to incredible heights, Buffett stuck to his discipline. He did not invest a single penny into tech stocks. The result is that while he missed some big investment opportunities, he saved himself from the extreme losses that many suffered when the bubble burst. Even Wal-Mart, whom Mr Biyani mimicked so well always stuck to its core competency and did not enter unrelated businesses.
We believe investors have a very crucial lesson to take home. For one, stick to investing in businesses that you know and understand best. If you're putting your hard-earned money into something that you do not understand, you're simply speculating. We certainly don't think relying on chance luck is a good investment strategy. Secondly, invest in companies that operate within their circle of competence. If you sense that the management is pursuing diverse businesses purely for the sake of growth, be wary of such stocks.
According to you, should a company focus on what it knows best or should it pursue growth wherever it seems possible? Share your comments with us or post your views on our Facebook page / Google+ page.
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Chart of the day | |
Do you think the government was right in bailing out Air India? If not, then raise your voice and participate in our Ban Bailouts campaign. Remember every vote counts.
Data source: The Times of India
*Figures have been summed up for Air India and Indian Airlines from FY05 to FY07. Figures from FY08 to FY12 pertain to the merged entity. #provisional figure |
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In January 2002 the fixed 1:1 Peso-US dollar parity that had been in place for ten years was renounced. In a matter of days, the peso lost a large part of its value. Also, bank accounts denominated in US dollars were converted to Pesos at official rate. Foreign investment fled the country, and capital flow towards Argentina ceased almost completely. However, the Argentine government kept a firm stance. Finally, it got a deal in 2005 by which 76% of the defaulted bonds were exchanged by others. That too, at a much lower nominal value (25-35% of the original) and at longer terms.
In Greece's case, however, the government seems less resolved to bite the bullet. Unless it takes lessons from the past, it will put not just its own but the entire Eurozone's future at stake.
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Today's Investing mantra |
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2 Responses to "Is your stock suffering from 'Shoe Button Complex'?"
sunilkumar tejwani
May 14, 2012fingers in too many pies, result: burn your fingers. This is the best message for all listed and unlisted corporate entities. Stick to your core competency.
Adi Daruwalla
May 18, 2012If Mr. Biyani was a smart observer, he would have seen the follies of Mr. Parvez Damania too, who had too many fingers in many pies. Mr. Biyani should have stuck to his core competencies of Pantaloons, retail and the Bare Classica brand that was a super hit in 1993, when Viv Richards et all were brought into advertising his product, thanks to your truly.