How I Recommended 15 Winners in a Row by Ignoring Warren Buffett

Feb 15, 2021

Rahul Shah, Editor, Profit Hunter

Warren Buffett once said, 'It's always better to buy a good business at a fair price than buy a fair business at a good price.'

Buffett should know as he has dabbled in both. In the early years of his long career, he used to buy 'fair' businesses at 'good' prices. Later, he switched to buying 'good' businesses at 'fair' prices.

He has made much more money buying stocks of the first kind than the second. Yet, he has voted in favour of buying a good business. Even if this means paying a small premium for it.

However, he has not completely abandoned the second approach. Even now, he is not averse to taking positions in 'fair businesses at good prices' as and when the opportunity presents itself.

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His investments in South Korean stocks back in 2004-05 is a classic case in point. This was the time when the Korean stock market was recovering after a brutal 40% fall from the top. Many stocks were available for pennies on the dollar. They were a value investor's dream come true.

What did Buffett do?

Did he fly all the way to South Korea to look for good businesses at fair prices and study them in detail?

Absolutely not.

He got hold of a manual of South Korean stocks and spent a weekend afternoon zeroing in on 20-25 stocks with good fundamentals and attractive valuations.

He then went ahead and invested US$ 100 m of his own money into these stocks.

Well, given how we had a global stock market bull run over the next few years, Buffett would have certainly made a killing in those stocks.

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While he may be a strong supporter of buying a good business at a fair price, he will easily lap up any opportunity to buy a fair business at a good price as well.

I believe a lot of Warren Buffett followers in India miss this important aspect of his investing. They think that Warren Buffett is all about investing in good companies with strong management teams and holding on to them forever.

Thus, they will burn the midnight oil trying to go through every little detail about a stock and completely ignore the opportunity that lies in plain sight.

The opportunity of buying a fair business at a good price and earning market beating returns for it.

It may take us longer than the 5-6 hours that Buffett put in to buy a basket of South Korean stocks. Still, it's a lot less effort than reading 500 pages per day that Buffett recommends.

In fact, I have been using this approach in my penny stock recommendation service to some great results. I focus in recommending fair businesses at a good price.

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This strategy has resulted in 15 consecutive positive recommendations.

I am talking about gains like 105% in a little over a year, 82% in less than three months, 70% in less than 2 months and 64% in 5 months.

However, I may not be done with this streak yet. There are stocks that are still in the 'buy zone'.

The one I am most positive about is a company that publishes newspapers. Its flagship daily is one of the largest circulated dailies in India.

Despite a subdued 2020, the cash collections remained healthy and the company continues to be net debt free.

However, the icing on the cake is its mouth-watering valuations. The company is available at a fraction of its book value. As per my estimates, is a strong candidate for being a multi-bagger over the next year or two.

In fact, I won't call it a 'fair' stock available at a 'good' price. It's the best of both worlds i.e. a 'good' stock available at a 'good' price.

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Good Investing,

Rahul Shah
Rahul Shah
Editor, Profit Hunter
Equitymaster Agora Research Private Limited (Research Analyst)

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1 Responses to "How I Recommended 15 Winners in a Row by Ignoring Warren Buffett"

raphjo

Feb 15, 2021

The tide was up anyways in Dec'20 and hence, these 15 stocks rose alongwith the tide but the returns are paltry (% in 20s) compared to the 3-4 times increase in many other shares. Had you shown these results before March'20 that would had been something. Misleading article.

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