Michael Steinhardt Stay in Your Lane

Posted on March 9, 2019 by Jimit Zaveri under Bibliophile, Bibliophile: Big Mistakes

We can create wealth from trading and investing to equities, commodity, currency, real estate etc. but we should do what is comfortable for us. Each and everything is not comfortable for us which is not comfortable for us, we should not do it at all. A performing task which is out of our comfort zone can prove as expensive for us. If Sachin Tendulkar starts singing and Legendary Lata Mangeshkar start playing cricket than both might meet failure.

We have to follow Mr. Buffett’s advice of circle of competence. Mr. Buffett did not buy any IT stocks during an IT bubble though he under-performed. We can prepare a circle of incompetence for not doing anything which falls into that circle.

Consider fool among others is better than losing capital to demonstrate as a smart.

Michael Steinhardt has a decent performance over the S&P500. If anyone has invested $10000 in the year 1967 then those funds turn out to be $4.8 million and $190000 in the year 1995 from Michael firm and S&P500 respectively.

During the year 1993, Hedge fund has shown a bull run where every investor wants to give their fund to hedge fund manager to make an investment. Here, Mr. Michael also got a huge fund to manage which is around 200 times more than the amount with he has started a fund. But due to huge fund size, he faced difficulties to deploy fund to small & midcap companies so that he has started roaming around the world and started deploying fund to the area which is out of his competence. His major fortune was made through trading to the US stocks but out of US, he was little aware with the economy of businesses and political systems. He has started deploying fund across the world which is out of his expertise.

This mistake has broken him badly psychologically and he could not able to retrieve himself again.

We always have to focus on to the eliminate errors because that is only into our control, everything else we cannot control. If we keep on eliminating errors, then we have a better chance to win the game. During the FY14-18, the majority of the equity fund manager at India got a huge fund inflow due to the huge liquidity and not enough return from other assets class. Hence, many of them have occurred mistakes due to overconfidence and started to go outside their expertise.

I was a deep discount and bargain hunter investor. My investment career gets to evolve with the time and my investment philosophy slowly transform from great bargain to quality businesses. But I have always take care of not losing capital so that I have invested with a lower percentage of my portfolio to the evolving area. Such a way I have made an experiment with my investment decision. (Still, my attraction towards bargain is with me).

Read for more detail: Big Mistakes: The Best Investors and Their Worst Investments by Michael Batnick

BIBLIOPHILE: WARREN BUFFETT’S LETTER 1957 – 2017

Posted on January 13, 2019 by Jimit Zaveri under Bibliophile, E-BOOK

Mr.Buffett has taught us –

Never count on making a good sale. Have a purchase price be so attractive that even a mediocre sale gives good results. The better sales will be the frosting on the cake.

Our business is making excellent purchases – not making extraordinary sales.

Mr. Buffett believes that big money can be made by making investment decisions based on qualitative factors whereas sure money can be made by making investment decisions based on quantitative factors. And hence, on the basis of this; he considers himself as a quantitatively focused investor.

The primary test of managerial economic performance is the achievement of a high earnings rate on equity capital employed (without undue leverage, accounting gimmickry, etc.) and not the achievement of consistent gains in earnings per share.

Business must have two characteristics: (1) an ability to increase prices rather easily (even when product demand is flat and capacity is not fully utilized) without fear of significant loss of either market share or unit volume, and (2) an ability to accommodate large dollar volume increases in business (often produced more by inflation than by real growth) with only minor additional investment of capital.

Many a time, management only focuses on the increasing future Earning Per Share (EPS) by sacrificing the strength of the balance sheet. But they forget that if the balance sheet does not remain strong for a longer period of time then business is going to have a tough time into the future.

Accounting numbers, of course, are the language of business and as such are of enormous help to anyone evaluating the worth of a business and tracking its progress. Charlie and I would be lost without these numbers: they invariably are the starting point for us in evaluating our own businesses and those of others. Managers and owners need to remember, however, that accounting is but an aid to business thinking, never a substitute for it.

“What we learn from history is that we do not learn from history.”

Any company’s level of profitability is determined by three items: (1) what its assets earn; (2) what its liabilities cost; and (3) its utilization of “leverage” – that is, the degree to which its assets are funded by liabilities rather than by equity. Great companies = Float + Investment + Cash with higher return ratio

If the choice is between a questionable business at a comfortable price or a comfortable business at a questionable price, we much prefer the latter. What really gets our attention, however, is a comfortable business at a comfortable price.

Buy commodity, sell brand has long been a formula for business success.

Capital-intensive business, look for PBT / interest cost rather EBITDA / interest cost.

When we are fearful with our investment decisions then we focus on the each and every aspects which can result in the erosion of the capital.

Mr.Buffett has taught us many concepts and wisdom which is essential to us while making an investment decision. I am hereby compiling all my learning from the letters of Mr.Warren Buffett. Also an evolution of Mr.Buffett from bargain to quality businesses.

For all in one learning from Mr.Warren Buffett’s Letters, Click here –> BIBLIOPHILE WARREN BUFFETT’S LETTER 1957-2017

WARREN BUFFETT’S LETTER – 2011 – 2012

Posted on December 23, 2018 by Jimit Zaveri under Bibliophile

Warren Buffett’s Letter 2011

Mr.Warren Buffett has explained on the commodity to brand-

One of the plastic product manufacturing company which use crude oil & it’s derivatives as a raw material but due to selling a brand company can increase a profit higher than growth to the sales

One of the footwear manufacturing company which use rubber, plastic I.e. crude oil derivatives as a raw material but due to selling a brand company can increase a profit higher than growth to the sales

Mr.Buffett on investing-

When we make a compromise with our need and make an investment of those savings to the proper assets, we can able to receive more purchasing power in the future. We need to majorly focus on the beating inflation for the longer period of time which will provide us a more purchasing power in the future. Our minimum target to earn a return from our investment should be inflation rate + GDP growth rate. This is an appropriate return which will provide us a more purchasing power in future and also build us wealthier. During the current scenario in India, inflation rate 3.77% + GDP growth rate 8.20% = 11.97%, it should be a minimum threshold return from the investment we make.

If we look at the 10 years average inflation rate and GDP growth rate in India then it is 7.71% and 7.17% respectively. So that if we have made an investment in the year 2007-2008 than we should have minimum threshold return of 14.88%. and for the last 20 years is 14.60%.

Warren Buffett’s Letter 2012

Mr.Buffett on intrinsic value creation –

Mr.Buffett on capital-intensive business –

We can use a similar parameter for analyzing a capital-intensive business. Here, we can check that whether the company has higher interest coverage after paying current year interest cost or not. This parameter indicates that the company can pay comfortably interest cost on additional borrowing or not. Such quality will not easily available with all the capital-intensive companies so that we can able to filter out good company from the capital-intensive business segment.

One of the FMCG Company which is the manufacturing and marketing of household products and personal care products