Now everybody is talking about the crash in stock market, US financial crunch and how it is going to affect the India. But I don’t think it is going to alter foundation of the Indian Economy. Here I am not talking about the stock market. Stock market is one thing which runs by many factors like sentiments, FIIs’ inflow, countries fundamentals, speculations and many others. In present condition, Sentiments, speculations are riding on by sidelining Fundamentals/Technical. But where as our economy which is built by strong demand, development, knowledge, and very strict regulations (Unlike in the US).
Anyway I am not talking about the Indian economy or economics (but I would love to post on some basics of economics). Today when I was browsing through rediff I got this. I hope this boost the sentiments my readers and you may find it best opportunity to invest. So here we go…
When Warren Buffett's Berkshire Hathaway invested $5 billion in Goldman Sachs, it came as a major surprise.
Since the billionaire's massive investment comes at a time when the United States has been rocked by its worst financial crises and the country is still debating whether the $700 billion bailout plan should be cleared or not, it has set tongues wagging.
Was Buffett making a mistake? Should he have waited till a final decision on the bailout plan was taken?
On September 24, Goldman Sachs announced that it had reached an agreement to sell $5 billion of perpetual preferred stock to Berkshire Hathaway in a private offering. The preferred stock has a dividend of 10% and is callable at any time at a 10%premium. Berkshire will also receive warrants to purchase $5 billion of common stock with a strike price of $115 per share, which are exercisable at any time for a five-year term.
So, why would the world's greatest investor invest in Goldman Sachs, given that the other investment banking giants on the Wall Street have bitten the dust and fallen by the wayside, so to speak?
Obviously Warren Buffett practices what he preaches. His strategy to buy stocks whose prices have been driven down due to fear is very evident in his latest move. Wall Street is in the grip of unprecedented panic and stock prices have plummeted, even those of one of the world's most prestigious banks like Goldman.
"Be fearful when others are greedy. Be greedy when others are fearful," Buffett has often said. Buy when people are selling and sell when people are buying. His investment in Goldman Sachs stems directly from this investing principle of his.
Buffett's investment in Goldman not only boosted the bank's confidence, but also that of investors worldwide. Essentially, Buffett's investment is an endorsement of his faith in the stability of America's financial and banking system.
It is also his way of saying 'yes' to the $700 billion bailout plan that has been criticized by many a taxpayer, economist, and politician.
That his decision to invest $5 billion in Goldman was right was proven within hours as Buffett made a notional profit of $783 million (over Rs 3,620 crore) no soon than the deal was made.
So let’s have look at who is actually this person???
As a young boy, Buffett, the son of a stockbroker, always yearned to make more money. He started making pocket money by delivering newspapers.
When he was just eleven years old, Buffett bought his first stock. He purchases 6 shares of Cities Service preferred stock: 3 shares for himself, 3 for his sister, Doris, at $38 per share. The stock fell to $27 but went up to $40. Warren and Doris sold their stock for a small margin. Immediately after that, the stock zoomed to $200 per share, much to his disappointment.
That's when he learnt a very important lesson in life: Patience pays!
A staunch follower of value investing, he started with an initial fund of $105,000 in 1956, the rest is history. Over the next five decades, Buffett's wealth rose to over $50 billion.
At the age of 14, with the money he had saved from part-time businesses and delivering newspapers, he bought a Nebraska farmland, which he later leased to a farmer.
After his graduation from the University of Nebraska, he pursued further studies at the Columbia Graduate Business School under Benjamin Graham. He started his career with Graham where he learned a lot about stock investment.
After Graham retired, Buffett started a company in his native place Omaha funded by family and friends. It turned out to be a great success. Later, he bought a majority holding in Berkshire Hathaway.
Some of his success mantras are…
The first rule is not to lose. The second rule is not to forget the first rule.
An investor needs to do very few things right as long as he or she avoids big mistakes.
Want high value? Focus on return on equity, not earnings per share. Calculate "owner earnings" to get a true reflection of value.
How to choose the right companies to invest? In the 2007 letter, he says Charlie and I look for companies that have a) a business we understand; b) favorable long-term economics; c) able and trustworthy management; and d) a sensible price tag.
The ability to say 'no' is a tremendous advantage for an investor.
Always invest for the long term. It is not necessary to do extraordinary things to get extraordinary results.
Much success can be attributed to inactivity. Most investors cannot resist the temptation to constantly buy and sell.
Price is what you pay, value is what you get. Prices keep changing. Don't get worried by the ups and downs. Investing is all about creating wealth. It's important to understand the value of a stock than its price.
Focus on not losing money rather than making it. Don't own any stock for 10 minutes that you wouldn't own for 10 years.
It is not necessary to do extraordinary things to get extraordinary results.
Buffett says one must invest in 'old economy' businesses, companies that have been around for fifty years and will continue to have a long innings.
You don't need to be a genius to succeed in the stock markets. People who can stay cool will succeed in the long run.
You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right.
Invest in businesses with great management. Always keep a track of the management of the company.
Don't target just stocks, look at businesses.
Never be disappointed when markets fall. Take it as a buying opportunity.
Avoid diversification. Invest in companies with sound business models. Choose a few good ones and stay invested, it will give you the benefits.
Doing nothing pays at times! One must not jump at price fluctuations and take impulsive decisions.
I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.
If a business does well, the stock eventually follows.
It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price.
Source…
Rediff
Keep reading…
Keep investing…
No comments:
Post a Comment