Is this one of the key reasons for Buffett's success? - The 5 Minute WrapUp by Equitymaster
Investing in India - 5 Minute WrapUp by Equitymaster

Is this one of the key reasons for Buffett's success? 

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In this issue:
» Another gloomy sign in the Indian real estate sector...
» What does the high credit-deposit ratio say about Indian banks?
» Will Indians loosen their purse strings this Diwali?
» What we need to do to salvage India
» ...and more!

No investor in the world has been the subject of so much curiosity and scrutiny as the legendary value investor Warren Buffett. What is the secret to Buffett's unparalleled success as an investor? There is long list of books that have attempted to unravel the reasons behind the Oracle of Omaha's immense fortunes.

There is yet another interesting book that has tried to decode the master key to Buffett's success. Authored by Louann Lofton, the book bears an intriguing title 'Warren Buffett Invests Like a Girl - And Why You Should Too.'

As per Lofton, the real reason for Buffett's extraordinary accomplishments is his temperament. Let us elaborate some of the key arguments of the author. Temperament is the cornerstone of investment success. It is this temperament that gives women an advantage over men.

Lofton has listed some key characteristics that she feels are common between most women and Buffett. Women tend to take a longer term view and hence do not trade as frequently as men do. Women also tend to be less overconfident, more risk-averse and less optimistic and hence look for a greater margin of safety. They also tend to research more, are not easy prey to the institutional imperative. And above all, women are more comfortable admitting and learning from their mistakes.

Lofton points out at some research in the US to prove her point. Women-managed hedge funds have outperformed their male counterparts on an average by over 3% annually. In fact, they were even more resilient during the 2008 financial crisis. While men-led funds dropped by 19% during the crisis, women-led funds declined by less than 10%.

While the author's views may appear to lack the scientific and statistical rigor to arrive at a very concrete conclusion and seem to overemphasize one aspect over others, we do believe there are some important lessons to take home.

Temperament does seem to be one of the most critical components of success in any field. And more so in the field of investing because irrationality and the extremes of greed and fear are inherent features of stock markets.

According to you, which is the most important factor that determines investment success? Let us know your comments or post them on our Facebook page / Google+ page

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01:20  Chart of the day
The Indian realty sector is facing several headwinds. High interest rates and demand slowdown have resulted in a significant inventory pile-up. Now, the housing launch figures are also painting a very gloomy trend. As the chart of the day shows, in key housing markets such as Pune, Gurgaon, Navi Mumbai, Noida and Kolkata, housing launched till July 2013 dropped by 38% to 59% compared with the corresponding period of the previous year. Noida has witnessed the steepest decline, with just 5,994 launches during the current period compared to 14,797 launches in same period last year. Overall, housing launches across 15 major Indian cities were down 15.8% on a year-on-year (YoY) basis. The only major city that contradicted the trend was Bangalore. The city saw 36,669 launches till July 2013, a 31.2% YoY increase.

Sharp fall in new housing launches
Data source: Business Standard
*Residential apartment units, representative of organised real estate developers

Despite the flood of cheap money in overseas markets, the past few months have been rather difficult for cash strapped companies in India. Ones with high levels of debt on their balance sheet have been literally scouting for funds at every nook and corner. The high demand for working capital and short term loans has meant that banks have raised their credit deposit ratio. Typically, out of every Rs 100 of deposits, the bank can lend Rs 73. This is after keeping aside Rs 23 and Rs 4 respectively for SLR (statutory liquidity ratio) and CRR (cash reserve ratio).

However, as per Economic Times, the outstanding credit deposit ratio is currently 78%. Moreover the incremental credit deposit ratio is 83%. This means a substantial part of the lending is from high cost borrowing rather than cheaper CASA (current and savings accounts). Effectively banks themselves will have to frequently re-price their short term lending at higher rates to keep their margins (NIMs) stable. Without that banks will have to compromise on their own profitability and asset quality. All said, the cost of funding for cash strapped companies is set to go higher. And investors would do well to give such companies a miss.

The Indian economy has been gripped by a slowdown for quite some time now. And India Inc, which has also been impacted by the same, was hoping for the festive season to give the much needed boost. After all, monsoons this year were rather good providing some relief in an otherwise grim year. But along with Indian companies, the common man has also been hit hard. And so in a survey conducted across the main cities, most people in the middle and lower classes intend to slash their festive budget. And not by a tiny amount, but a sizeable 40% as reported in an article in the Economic Times.

The reasons for this are not hard to find. Inflation continues to burn a hole in the pockets of the common man. And declining job prospects combined with shrinking wages are only compounding their woes further. Discounts will become an important factor to lure customers. But even then it is quite obvious that the splurge one was used to in the previous festive seasons will not be replicated this year. Ultimately a broader recovery in the economy is essential if the fortunes of households and industries have to improve.

India's polity has been subject to stringent criticism of late. Cases of bribery, corruption and poor governance have plagued Indian politics. Efficient bureaucracy once considered as an advantage over China is now turning out to be a bane. Poverty, poor sanitation facilities and nepotism have been the symbols of India. And what have we as citizens done to overcome this? Rather than overturning the inept polity we have adjusted ourselves. We have criticized the government for its inefficient functioning. But we should ask ourselves whether we are responsible enough to criticize the government? Fathom this. More than half of us do not vote. In fact, when it comes to paying taxes you would be surprised to know that less than 3% of the population pays taxes honestly. So, when, we ourselves are party to corruption how can we expect the government to improve for the better?

Be the change you wish to see in the world. This is what the father of our nation said. And we believe it is the right time to effect the change now. The nation is fed up with bad governance. And we as responsible citizens should take the onus of repairing it. After all we are living in democracy. And the right to vote is a very powerful tool in democracy. We should exercise our franchise carefully. We also need to change ourselves. Pay taxes rather than bribes. Fight injustice. Join politics or civil service for that matter. If not, we have no right to criticize poor governance. First BE the change and then SEE the change.

In the meanwhile, the Indian share markets were trading firm with stocks across the board (barring FMCG) being in favour. Those from the metal and information technology spaces were amongst the top performers today. At the time of writing, the BSE-Sensex was trading higher by about 300 points or 1.5%. Midcaps and smallcaps were trading firm with the BSE Mid Cap and BSE Small Cap indices up by about 0.7% and 1.2% respectively. Stock markets in other parts of Asia were trading firm with China and Hong Kong up by 0.7% and 1% respectively. Japan was, however, trading marginally lower.

04:35  Today's investing mantra
"If you understood a business perfectly and the future of the business, you would need very little in the way of a margin of safety. So, the more vulnerable the business is, assuming you still want to invest in it, the larger margin of safety you'd need. If you're driving a truck across a bridge that says it holds 10,000 pounds and you've got a 9,800 pound vehicle, if the bridge is 6 inches above the crevice it covers, you may feel okay, but if it's over the Grand Canyon, you may feel you want a little larger margin of safety..."- Warren Buffett
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3 Responses to "Is this one of the key reasons for Buffett's success?"


Oct 4, 2013

Authored by Louann Lofton, the book 'Warren Buffett Invests Like a Girl - And Why You Should Too.' It is wrong to assume that Girls invest better. There are many men who have become successful and also Warren Buffet is himself a man.It depends only on individuals temperament and not because it is men or women.



Oct 3, 2013

These comments relate to your write up with time line 03:30 relating to corruption and poor governance plaguing Indian politics and your reference to the Father of our Nation exhorting us to be the change we want to see. I pray the readers' indulgence for my lengthy comments.
Your reference to the Mahatma comes not a day too soon. The whole country should rediscover the Mahatma.
It may not be possible today to accept or implement the Mahatma’s views on Economics with which he experimented in his Tolstoy farm in South Africa, an experiment in community living inspired by John Ruskin’s views expressed in his book Unto This Last which Gandhi translated into Gujarati as “Sarvodaya” (the Welfare of All). His Sarvodaya movement in India is well known. We cannot put the clock back on Science and Technology and today’s global economy that have brought us this far away from the Mahatma’s views and experiments relating to Sarvodaya. Of course a very distant possibility does exist that centuries from now our present ways of resources exploitation and environmental degradation might, just might, force us to revisit some views of Ruskin and Sarvodaya for sheer survival after some kind of apocalyptic collapse of post industrial human evolution turned regression. We will not dwell on this now, of course; however we can cherry pick some strands of thoughts in all this that could help us. Though that is a separate exercise in itself we can do with this much for now: pursuit of economic growth must be just humane and equitable; cooperation and competition should blend; there is a paradigm shift in evolution at the human level from ‘random mutations cum survival of the fittest’ to ‘the welfare of one is contained in the welfare of all’.
We shall now see how well we can BE the change we want to SEE.
First of all there’s no question we should all vote. And vote responsibly. That is the basis of the moral right to criticize our representatives and participate in the democratic process.
Now that ‘None Of The Above’ (NOTA) will be part of the EVM we should exercise that option also consciously and intelligently.
It would be a big fallacy to see Illiteracy as lack of intelligence.
NOTA will make Party Chiefs think twice about putting up dubious characters as candidates.
Criminals convicted to more than two years in jail for serious crimes will lose their seats now. I doubt if the UPA will ride roughshod over public outcry and force the President to sign the Ordinance. If they do have their way due to pressures from criminals in the Parliament and the State Legislatures they may face very severe voter response in the next elections. The youth of India is already sick of the old fogeys who have ruined our country by their corruption nepotism and venality. We only have to align our attitudes with the emerging realities so that we can be the change we are already witnessing and take it forward.
Even with all these changes taking place already there is something at a deeper level we have to be conscious of if we have to bring about greater honesty and integrity at the level of our whole society.
All transformational social changes are rooted in the individual. In a sense all that needs to be changed is within me, period. This kernel truth should sink in. I am the one and only person over whom I have some measure of control. All other sense of control I may exercise over others or over the environment is at best temporary and at worst a delusion. When I shift my focus on myself from other things that is when change starts to happen. This calls for courage and hope. Surprisingly we all seem to have something inside of us that comes to life and gives us all that courage and hope when we decide to try that shift of focus on to ourselves. This is the beginning of the true journey of being the change we want to see.
It is important to see here that change is not quitting what we do or our routine, or changing our job or marital status or education or whatever. That may be counter-productive for many of us. Maybe a few very courageous people with great clarity of mind and clarity of goal and an iron will may be able to do it. A vast majority of us in this day and age are not cut out for it. When you are driving at sixty miles per hour in traffic and you notice you have to reverse direction you don’t slam the brakes and careen around. Our daily grind is something very similar. First we realize we need to change. Then we need to find time to look into ourselves. Then we nuance the changeover. We space it. We change the most absurd things we do or the thoughts we think, things about which other sober, caring people, people close to us have given us feedback. We stop those absurdities first. That is easy because it makes it easy for those others as well; they help and facilitate it too. They may change too in similar fashion.
Next is seeking help and guidance. Wisdom lies in asking for help when we need it from those who are willing and able to give it. When we see we need to change something in us but we find we are not able to do so that is when we seek help. It could be a parent, sibling, relative, friend or the spouse. It could be some regimen like what is loosely called yoga or meditation or exercises that help us by releasing good nuerochemicals like endorphins, oxytocin or serotonin. It could be even a book that may help us. There are phonies who may look competent to help us but our sincerity and sense of Truth will keep them away from us.
The process of change opens up the pursuit of excellence. Our potential for excellence is truly without any limit.


virendra bapna

Oct 3, 2013

in india only insider news.see example anand rathi,deepa mehta and many many more.

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