A compilation of world's best investing wisdom - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster

A compilation of world's best investing wisdom 

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In this issue:
» Another famous investor bats for gold
» Will Infosys' latest mantra bring back its glory days?
» I've never seen so much uncertainty, says Howard Marks
» What laid the foundation of the Coalgate scam?
» ....and more!

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Warren Buffett is one name that stands out when it comes to value investing. His intelligence and investment methodology have helped him amass a fortune over the years. It would not be wrong to say that value investors across the world are keen to know what the Oracle of Omaha has to say about investing, his methods as well as his own experiences. As a result, the annual letter to investors in which Buffett discusses some of his investments, is a very much awaited document for his followers. For the simple reason that there great insights on investing as a process in each of these letters. Make no mistake, going through each of his letters is essential. However, it can be quite a task especially for someone who prefers to get the knowledge in a single place. For those in search for the same, there is a solution. The book 'The Essays of Warren Buffett: Lessons for Corporate America' is a collection of Buffett essays over the years.

These essays are virtually a treasure trove of information on the legendary investor's approach to investing. They touch upon various topics, right from from good corporate governance and value investing to importance of moats and management quality . What more, the book also talks about how conventional accounting can sometimes be grossly misleading. The book is aimed not just at investors. It can also make a very good reading for business managers and entrepreneurs. Simply because it discusses matters like the need for managers to think of themselves as owners of the business. Such an approach is essential if a business has to amass value over time.

We believe the editor of the book, Lawrence A. Cunningham, has done a good job of organizing the topics from various letters and put them in order for the convenience of the readers. All in all, a very highly recommended book from our side.

Important to add that we have made our own humble effort to analyse each of the Buffett's letter to shareholders over the years. The entire series of such articles can be accessed from here

01:03  Chart of the day
News flow coming out of India, especially on the economic front, has been nothing to write about these past few months. Thankfully though, as today's chart of the day highlights, India still has the distinction of being home to largest number of world's fastest growing public companies. In other words, nearly one fourth of the 1000 fastest growing public firms across the world are Indian as per a study conducted by the International Business Times. The sheer variety of the firms and also the fact that India has left its arch rival China far behind on this front, does make us positive about the long term India growth story. If only the Government could put its house in order on the reforms front and we could well be the envy of the rest of the world.

Source: IB Times

Our parents have always warned us against spending unwisely when times are good. The habit of savings has in fact proven to be a boon in tough times for most Asian economies. At the same time, over-leveraging has brought some of the strongest Western economies to their knees. However, it seems that nobody advised our government on the merits of thriftiness. And we are all left to suffer due to the government's callous wastage of precious resources.

Be it telecom spectrum or coal, these are at the end of the day precious resources. And giving it away free or at throw away prices cannot be justified with any economic logic. Hence, it is rather difficult for us to buy into the government rationale of allocating coal reserves. Giving them away free to private sector enterprises to cap input costs was a clearly misplaced logic. Add to that the miniscule growth rate in coal output shown by the country's largest coal miner, Coal India. As a result, despite having one of the largest coal reserves (7% of global share), India is having to import coal at expensive rates. As per an article on Firstpost, between 2005 and 2009, the government gave away 149 coal blocks for free. An act that laid the foundation of the Coalgate scam.

Do you think the Government is justified in arguing that coal was given away free in order to cap input costs. Share your views or you can also comment on our Facebook page / Google+ page

Are we living in times which are more uncertain than in the past? Chairman of Oaktree Clients Howard Marks certainly thinks so. He says, "The world seems more uncertain today than at any other time in my life." Marks is of the view that the US is going to see relatively sluggish economic growth for a prolonged period of time. Recovery, if any, would be lacklustre at best. Why is that? Economic growth is a function of many scenarios such as population gains, a conducive infrastructure, positive aspiration and profit motive, advances in technology and productivity. While these are the factors that catapulted the US straight to the top in the past, things are no longer hunky dory. To add to that, the crisis has left a bitter taste in the mouth of Americans. As a result, with the prospect of unemployment looming large, most Americans have begun deleveraging and consuming less. While this is a positive from an individual point of view, less consumption adversely impacts overall GDP growth. Confidence is also at an all time low as a result of which the outlook for the economy has remained bleak.

So what is the strategy for this? It depends on how you answer to questions such as whether you expect prosperity or not, is the risk of losing money greater than the risk of missing opportunities, whether you should have an aggressive or cautious investment approach. He also believes that one shouldn't automatically settle for assets believed to be entirely safe. The idea is to take control of one's fate and look for reasonable returns while at the same time handling risks responsibly.

The country's favorite IT company, Infosys has come under fire in recent times. Its ultra conservative approach has been blamed and criticized. The approach has helped the company weather all storms. But in recent times it has also been held responsible for the company's lackluster financial performance. The truth is that in terms of performance it has lagged its peers who have grown aggressively by combining organic with inorganic growth. Now, Infosys is working hard at rectifying things. Its latest growth mantra is to source new acquisition deals. The company has a rich purse and boasts of one of the highest cash balances in the industry. Despite the two recent acquisitions, it still has over US$ 3.4 bn in cash available to it. The company's management has stated that it is looking at deals valued at around 10% of its revenues. This translates to approximately US$ 700 m in deal size. While inorganic growth can certainly help the company expand its footprints faster. Nevertheless we hope that the company continues its conservative approach in deal selections. Otherwise, it may succumb to market pressure and end up with an acquisition that could be value destructive. The IT sector is fraught with examples of bad acquisitions.

Connectivity is the key to development. And roads are essential form of connectivity which promote infrastructure development. It is interesting to note that India's infrastructure is ranked below to that of Gautemala by the world economic forum! This highlights the importance of road development to a nation's growth.

However, in India, archaic land acquisition laws and rising interest cost are hindering the growth prospects of road builders. In fact, many companies are so troubled by the bureaucracy that they have gone on a bidding holiday. Some are trying to sell their stake in the existing road projects to raise liquidity. Rather than growth, their priority now is to protect the bottomline. We believe it's time to turn words into action. We fail to understand why the land acquisition bill introduced about a year back is still under the parliamentary review. If not enacted soon, targets of 20 km a day will always remain an illusion.

Ray Dalio is the founder and manager of an investment management firm called Bridgewater Associates. This hedge fund has the distinction of being one of the biggest in world and manages more than US$ 120 bn in assets. So, when Mr Dalio talks about the global currency gold, it pays to listen. He says gold is exactly like a currency, just like Yen, Dollar or Euro. The main advantage that gold has over other currencies is that it cannot be printed.

Now, one cannot move their entire life's savings into gold with a sweep of a magic wand. But, for a specific portion of your money, maybe 10% it is a good investment and a viable alternative to fiat currencies. In the US currently, treasury yields are at 30-year lows and cash under the mattress is as good as that in government bonds or banks. This may not be the case in India, with high interest rates on offer. However, gold may still see some upside on higher global demand. Thus, diversifying some portion of your assets into gold may just make a lot of sense.

Meanwhile, indices in the equity market in India are trading lacklustre today with the Sensex lower by around 10 points at the time of writing. Mid Cap and Small Cap indices are also trading flat currently. Amongst global indices, while Asian markets closed mixed today, Europe has opened mostly on a negative note.

04:56  Today's investing mantra
"As an investor you never have perfect information, and the biggest profits are always available when competition and information are scarce." - Seth Klarman
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4 Responses to "A compilation of world's best investing wisdom"

mukesh sanghvi

Sep 14, 2012

India has limited natural resources and compared to the massive population our Govt. should have used these resources to create massive wealth which in turn would have boosted infrastructure which would have created thousands of jobs for the needy.To cut the input cost is just eye wash and royalties are given for personal gains and not for country or common people gain.

Like (1)

Suresh Kumar

Sep 13, 2012

Coal mining involves four areas - environmental clearance and land acquisition, mine development and operation, transportation, and marketing/ distribution. Coal India should be the overall in-charge for coal business. It should evaluate its strengths and outsource through competitive bidding one or more of the areas to competent national or international players, where private players could do more efficient work. Marketing of coal at market or subsidized prices should be done by Coal India. All minerals are owned by the central government, and pricing of the same could be decided jointly by the government and Coal India.

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Kamlakar Borse

Sep 13, 2012

It is classic example that, Coal Mines in Maharashtra were given to Karnataka and Maharashtra asked to procure Coal from Odisha coal mines for its thermal power plants.
Similarly instead of allotting local coal mines to Coal India Ltd., it was asked to import coal at higher rate and give guarantee of supply.

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Sep 13, 2012

It is wrong to presume that coal/minerals are gifted free to leasee.As per MM(DR)ACT &MINERAL CONCESSION RULES,mining leases are allotted to applicant parties on recommendation of state govt and fulfilling the others conditions as laiddown in various Acts/Rules.After getting the lease party has to get clearance from various statutory authourities and get the surface rights/acquire the land.They have to pay the royalty to state govt as per prescribed rate which is 10% or more of pit-head value of minerals.Please notes that before 1973 most of the coalmines area was under the control of private organisations.It is ageold practices.MM(DR)Act & Mineral Concession Rules had been Revised Several times in the past.Last ammendment of MM(DR)Act was done in 1988.Assumption of auctioning of minerals/coal blocks will be a suicedal practice.Presently mining companies are extracting coal/minerals as per requirements ie for own use or selling in the market.But suppose if thet have to pay for whole reserve while auction then they will try to extract whole mineable reserve with in their their lease period. Suppose lease period is 20 or 30 yrs in such case no coal/minerals will be available in that lease after that period.Please note that mineral reserve can not be created/produced once it is exhausted.In such case from where our poer plants or other minerals based industries will get the raw materials, of course it can be imported if it is available in international market.Do you think that it will be a happy situation that we will be depending on the mercy of other countries.Look at China they have got huge deposit of coal & iron ore but they are importing iron ores and acquired coal mines in African countries

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