When the best investor in the World visited India

Some of the key takeaways from the interview of Buffet in India for a Credit Person or an Investor.

1.    Understand the Business –

We are investing in the business as a whole. So it is imperative to understand its very nature. Financials are outcome of business activities, they assist in understanding the nature, performance and also the future trends of the enterprise. But barring that, there are other factors which comprise the business – The Nature of the Product(s)/Service(s) dealt in, existing economic conditions, demand in the market, competitive edge etc. Understanding the business is a detailed understanding of all such factors.

2.    Industry knowledge –

Despite Bill Gates being a long-time pal, Berkshire has minimal investment in “IT Sector”. Buffet explains “I did not have any idea about the IT companies. I first met Bill in 1991. He was already a success by then. But I did not have any idea what Microsoft was doing. I did not knew what Google was up to. Hence I remained aloof”. We may not have the privilege to exercise such sectoral preferences. Therefore its crucial for us to research various industries. As Buffet reiterates, “In the 1930s, there were large number of automobile companies in the US. All were experiencing a boom. But few became success stories like Ford Corporation or General Motors. Majority withered away”. Therefore you should know which horse to bet on.

3.    Independence –

An investor’s work is an independent exercise. He/She is not supposed to be guided or coaxed by what others are doing. Like Ajit Jain (Head of Berkshire Insurance wing) explains, “we don’t sign a deal just because other market players are doing. Neither do we reject proposals as our competitors are doing so. Our job demands an independent evaluation”. When the world refused to lay eyes on Coca-Cola, Buffet backed it heavily. Such a conviction can only arise if one takes charge independently. Not that you will be right every-time in your decision-making, but jeopardising independence will surely have fatal consequences on the business of investing.

4.    The importance of saying “NO” –

Buffet opines that the foremost reason why BH has been largely successful is that they have been able to decline proposals which deemed unfit to them. There were huge resistances but they did not budge. Ajit jokingly remarks “There are times when I don’t approve deals for a month. When I inform Warren about the same, he also remarks humorously “I have not done anything for a month either.”. They take every care in ensuring that money doesn’t get drained as poor investment.

5.    Stick to the Basics –

Aerodynamics as well as investing follow a complex structure but the latter does not involve the application of profound intellect. Buffet remarks “You don’t need an IQ of 160 to be in investing. If your IQ is 130, you can sell off 30 with ease”. The analysis is no rocket science but it revolves around the fundamental principles of finance. Compliance or interpretation of the same may be tedious in certain cases but you don’t need anything exceptional to pull it off. So remain confident.