|»5 Minute Wrap Up by Equitymaster|
On This Day - 11 JANUARY 2013
Why Buffett will never buy an 'Apple'?
In this issue:
Even then, Buffett would never buy the stock we believe. The reason is that while looking at moat, the important thing to look at is its durability. Investors need to ask whether a company's moat could endure over the longer term.
And this is exactly where Apple may leave you with a pinch of doubt. An article in Business Insider suggests that Apple is already losing its edge. For a major part of the last five years, Apple led the world in smartphones, tablets, gadget market share and cloud-based services and applications. In fact, it even enjoyed the best pricing power. But a lot has changed in the last two years. Apple has lost its lead in some areas, whereas in others it has fallen even further behind. Competitors such as Samsung and Google have posed a strong challenge to Apple's dominance in the smartphones market. In the mass smartphones market in emerging economies, Samsung has taken a significant lead over Apple. It's hardly surprising that Apple's stock price is down 25% from its peak.
Investors must understand that the problem here is not with Apple. The problem lies in the sector in which it operates. As Buffett himself says, "Technology is based on change; and change is really the enemy of the investor. Change is more rapid and unpredictable in technology relative to the broader economy." It is this changeability that poses the biggest risk to the durability of Apple's moat. On the other hand, a company like Coke still makes and sells the same products it did half a century ago. No wonder the soft drinks giant has seen its moat getting stronger and stronger over time.
So while making your investment decisions, do not solely focus on the company's current competitive position. If the future of the business seems uncertain or the sector is exposed to too many changes, it would be best to avoid such stocks. Buy stocks with durable moats and long term earnings visibility.
The Indian IT industry is facing tough times given the uncertainty haunting the global arena. IT majors are looking at markets beyond the US and Eurozone to drive growth. At the same time, they are also cutting back on their hiring plans as well as looking at ways to trim costs. The thing is that every industry has a down cycle and an up cycle. But these cycles are short term in nature. Eventually things would get sorted out. But the essential thing is that only companies that have strong business models and are able to adapt to the changing environment will survive. And those who do will clearly come out as winners.
However, raising the debt ceiling is not the easiest of jobs out there. For under US law, while the congress can sanction any budget, its ability to borrow is restricted by the debt ceiling. And this ceiling can only be raised with a separate vote. In other words, the process of arriving at the debt ceiling is separate and distinct from financing government operations. What this has done is that it has effectively given a tool in the hands of the opposition to force the Government to arrive at some sort of compromise. And the last time such compromise was being reached, it took a downgrade in US credit ratings to arrive at some sort of consensus. We just hope the history doesn't repeat itself again.
It may be noted that FY2013-14 will be the second year of the 12th five year plan. And in that year, let's assume that the plan expenditure registers just a modest increase of 5% as predicted. If that happens then the overall projections for expenditure in the 12th plan could go for a toss. It may be noted that the 11th plan had witnessed plan expenditure of Rs 15.9 trillion. And in the 12th plan the expenditure is expected to more than double to Rs 35.7 trillion. Thus, any slowdown in spend in the initial years will make the target difficult to achieve.
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