End short-termism: Warren Buffett - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster

End short-termism: Warren Buffett 

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In this issue:
» Adopt a long term focus, says Buffett
» Supreme Court asks Mayawati to halt statue building
» China now buying US real estate
» Retailers hiring again
» ...and more!!

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Among the most famous traits of Warren Buffett is his genuinely long term outlook. And he is urging managements, regulators and institutional investors to adopt a long term outlook instead of the current focus on short term returns.

As per CNBC, Warren Buffett has signed a statement that calls for an end to value-destructive short term focus of the financial markets. He is joined by twenty six other eminent businessmen, academicians and government officials. The statement recommends incentives like lower capital gains tax rates for longer holding periods. It also calls for a closer alignment of the interests of mutual funds and their investors, and greater transparency in investor disclosures to make it harder for investors to use their influence to achieve short-term gains.

We couldn't agree more. After all, all of these points are equally, if not more valid in India. In fact, we have stood for a long term investment horizons for retail investors even when the environment around us creates obstacles for retail investors in India and does not have much patience for a long term outlook.

00:45  Chart of the day
The global financial meltdown bought the two camps of world trade- the importing nations and the exporting ones - into focus like never before. A positive current account balance is caused by more exports than imports. The US and India are net importers of goods and services, while China is a net exporter.

Today's chart shows India's current account balance in 2009,along with its peers. One of the key contributors to India's current account deficit is its dependence on foreign oil. A current account surplus also increases a country's net foreign assets. Little wonder then, that the dragon nation already has investments worth US$ 776 bn in US Treasuries.

Note: Negative figures indicate current account deficit, positive indicate current account surplus
Source: International Monetary Fund

Speaking of China's current account surplus, the dragon nation now seems all set to take advantage of the cheap real estate available in the US currently. As per a Moneynews report, China's US$ 300 bn sovereign-wealth fund (SWF) is preparing to aggressively scoop up distressed real estate assets in the US, a smart move considering that with the impending hyper inflation in the US, real estate surely looks a better investment than US Treasuries.

Interestingly, the vice president of the Bank of China has recently been quite vocal in his criticism of Wall Street for its complacency in the wake of the financial crisis. He is known to have said recently, "You go to Wall Street, the people feel the crisis never happened. It's not only overconfidence, it's over-myopic. This is too much." Looks like Wall Street's arrogance isn't going to take a lot of time to come back!

It is believed that the quality of institutions that a country has plays a very important role in determining to what extent its people can improve their standard of living and let its economy grow. And if that is indeed the case, then we in India should thank our lucky stars that we have institutions like our judiciary system that is capable of stopping powerful politicians like Mayawati who fail to see the light. At a time when nearly 40% of the people in Mayawati's state fail to eat two square meals a day, spending billions of rupees on erecting statues really do not make any kind of sense and rightly so, it has been told by the honorable Supreme Court to halt work at few sites with immediate effect.

And it's not just the Chief Minister of UP that is obsessed with statues, the bug has bitten the Government of Maharashtra as well. Last heard, it had plans to build a Shivaji memorial in Arabian Sea involving investments to the tune of Rs 3.5 bn. Apparently, the state's CM wants it to be more imposing than the Statue of Liberty. Wouldn't it be better if he tried focusing on the state's infrastructure instead? Its time they got their priorities right.

Retailers, who had put their expansion and hiring plans on hold in the wake of the slowdown, seem to be back in business. As per a leading daily, buoyed by the trend of increased discretionary spending and also the onset of the festive season, some big names in retail in India have started upping their headcount and expanding their business. However, typical of the once bitten twice shy approach, these retailers are unlikely to increase hiring at the existing locations. Most of the hiring that will be done will be towards taking care of the manpower needs of new stores that have already opened or are in the process of opening. Hence, those of you who are expecting a fresh rise in employee costs as a percentage of sales, may have to tone down their expectations as it looks like the retailers have finally learned their lessons and rightly so, at least on the hiring front.

More signs of an economic recovery, coupled with rains unexpectedly reviving towards the end of the season, boosted the domestic markets during the week. India's reservoirs and prospects for the winter crop received a boost after a downpour this week, which was in fact this season's heaviest rain. The Indian benchmark index - BSE-Sensex recorded a gain of 3.7% during the week. Markets across regions were up on optimism about a global economic recovery. The gains in Hong Kong index (4.1%) came in primarily on account of buoyant Chinese economic data. All in all, a surprise upturn in Chinese industrial output, retail and production along with a weakening US dollar managed to send the world markets to new 11 month highs. As for other asset classes, while crude oil prices gained 1.6% after last week's heavy fall, gold moved up marginally by 1% during the week.

Data Source: Yahoo Finance, Kitco, CNNfn

While rising unemployment may be uppermost on the minds of everyone tracking the US economy, another equally important fact to be noted is that US' federal deficit touched a record US$ 1.38 trillion. And this has led many to question the safety of their investments in US Treasuries, China being one of them. While Treasury Secretary Geithner believes that the situation will improve once the recession ends, lack of any concrete plan in terms of reducing this deficit has made many jittery.

What has chiefly contributed to this deterioration is the worst recession since the 1930s, the cost of fighting wars in Iraq and Afghanistan and the rise in spending in areas such as unemployment benefits and food stamps. Thus, the Obama administration certainly has its hands full and will not be able to relax even when the recession ends because they will have the problem of this record deficit to attend to.

04:48  Weekend investing mantra
"It's true, of course, that, in the long run, the scoreboard for investment decisions is market price. But prices will be determined by future earnings. In investing, just as in baseball, to put runs on the scoreboard one must watch the playing field, not the scoreboard." - Warren Buffett
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4 Responses to "End short-termism: Warren Buffett"


Sep 15, 2009

I feel this wrap is short and crisp and give information more than most of the articles in leading dailies....Sincere Thanks to the whole team...Good work



Sep 14, 2009

I totally agree with the Supreme court decision to hold Mayawati from spending lavishly on statues when the state's population is struggling for their daily bread.
Such institutions are really helpful to raise concerns of what the common man thinks. I totally feel that our judiciary should have high powers in stopping the illogical operating politicians and should also have a supporting team to control corruption. Ministry of corruption won't turn fruitful if its control is with the politicians. Its control should indeed be with the judiciary system. Our judiciary system should have a method wherein the common man's voice can reach them as an input. I am not stating that everyone should complain to the supreme court for their routine issues. The supreme court should have a team who would consolidate the major issues of the common people and then immediately act on the major ones. This team should also be in co-ordination with the media.



Sep 13, 2009

Good An eye opener



Sep 13, 2009

while the five minute wrap up entangles the whole world news in the most surprisingly way.........now the world is far more smaller place

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