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The Equitymaster Research Digest

Car buying v/s value investing, good quality businesses and more...
Sep 29, 2015

'Rahul, I could do with some help here. I am in a Catch-22 situation and just not able to come to a meaningful conclusion". This was one of my friends wanting to pick my brains over a dilemma he was facing. Thinking it would be around finance and investing, I readily agreed. But few minutes into the conversation and my face turned a shade of white. My friend hadn't come to me to discuss investing. He wanted to discuss something that's pretty much as alien to me as him.

His dilemma answered to the name of cars! He had been contemplating buying a car for a long time now and still wasn't able to come to some sort of definite conclusion. His biggest source of confusion was whether to go for a brand new or a used car.

Used cars these days offer a great value-for-money proposition. However, the chances of getting fleeced are also quite high. Especially for someone with very little technical expertise. Therefore, if he wasn't ready for what could follow if a used car starts acting up, it made sense for him to stay away from it.

A brand new car bought from a manufacturer of repute on the other hand, hardly ever acts up. The first few years of ownership are almost hassle free and give great customer satisfaction. The flip side of course is that a brand new car costs substantially more than a used one. Therefore, if you have to pay for quality, be ready to shell out more.

I don't know whether I provided any insight my friend wasn't already aware of. But I couldn't help but notice how eerily similar car buying was to the act of value investing. If you think hard enough, you will realise how Benjamin Graham School of investing has a lot of parallels to buying a used car.

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