Intelligent Investing

Buffett’s style can’t be implemented by Mutual funds fully, but it does not matter

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It is structurally not possible for mutual funds to implement value investing, in its completeness.

Mutual funds are essentially slaves of their investors and their temperament. Simply because of the structure of mutual funds and the need to beat an index on a monthly, quarterly, annual basis, it is almost impossible for mutual funds to replicate the ‘buy value and hold long term as long as the business stays great’ approach of Buffett in toto. And there is no reason honestly for individual investors to put their money in actively managed mutual funds if they cannot beat the index. That in itself is a structural constraint on why mutual funds will never be able to fully implement Buffett’s value investing style.

But nevertheless, I think individual investors may be in a position of advantage here, if they manage their portfolio well,  simply because of the situation that mutual funds find themselves structurally in.

One option for value oriented individual investors is clearly by not investing using mutual funds and doing value investing in a full fledged manner by directly buying stocks of great businesses at good prices and holding them, aka Buffett. But that may work for only a select few who want to do investing full-time, and may not be feasible for most individual investors. But even though most individual investors may not be able to do this, the second option for value-oriented individual investors may actually be to treat mutual funds as ‘diversified value buckets’, use them as useful stock selection mechanisms, and buy (more or less) mutual fund units based on their general assessment of value existing the market at various times.

That’s one way that individual investors can perhaps be value investors in a partial sense, without having to dabble directly in stocks – but by using funds as proxy value buckets. The need of funds to constantly beat indexes will make sure that they get at least reasonable performance (else use index funds), and treating funds as value buckets will ensure that investors can practice value investing, though to a lesser extent than Buffett, and buy general market value by timing their purchase of fund units.

Warren Buffett in India: The Wisdom and Simplicity

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Warren Buffett, the legendary investor and among the richest people on earth is in India – partly for his philanthropic activities, partly to assess investment ideas in India. But that’s not news. He is already more than a legend, and while his investing styles have been dissected and studied many times over, this being the first time he is in India – the whole business press is all into it.

[youtube=http://www.youtube.com/watch?v=4xinbuOPt7c]

But what is amazing when I see some of his interviews or interactions is that when it comes to investing tenets, he has basically the same things to say! That’s true – and I mean it in a truly appreciative sense, not derogatory. Most of it he has been sharing with his shareholders over the past 40 plus years in much detail, and is very much in the public domain. That’s because – the truth, perhaps, is – while one may try to dig into his investment gems and reasons for his stupendous investing success – he has more or less the same key things to say when it comes to investing success. They circle mostly around evaluating businesses that you understand and are confident have a great long lasting competitive advantage; and buying them at a reasonably low price and holding them for as long as that remains true. It is quite amazing that the entire business press asks him so many questions about world economy or India’s growth story or value of dollar and what not; and is looking for snippets on these topics, and he generally has nothing much to say, many times shies away from it or simply refuses to forecast the future. So you have this whole business press waiting for crystal ball advice, and what you get is basically buy great businesses at good prices and hold them! Luckily (for the press and audiences) he has an amazing honesty and sense of humor when he talks, which leaves opportunities for some quotes for the business press – things like Buffett would like to be reborn as Sophia Lauren’s boy friend and all that! Small mercies!

Anyway, it may actually be true that – perhaps that is all there is to investing success! Buy great businesses at good prices and hold on to them as long as those characteristics stay! Of course, you could spend a lifetime discussing what ‘great businesses’ are and how to identify them, or what is ‘good prices’, or what ‘hold as long as those characteristics stay’ means – but that is a different story. Beyond that – Everything else might perhaps be some shade of noise.

Just another blog!

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So I have a blog. Is it just another blog? I hope not – but we will see as it shapes up. Often, I have this habit of musing about a number of things close to my heart – like finance and investing, with my wife, family and close friends. So why not try and start writing about it, and give it some shape in the form of a blog – so said my wife. So this is just an attempt to do that!

I think over time you will find musings on a number of key topics that I am passionate about. Highest on that list are investing and finance, while some others around areas that I love – which are travel and reading.

I have no specific agenda for this blog – not at this point at least. Well -no agenda of selling anything here – I do not run a business nor of influencing opinion. One of the take-aways perhaps the reader could partake is an increase in his level of financial awareness and education – that perhaps is closest that I can assign as an objective in my writings. But as the topic of this blog says – one thing I hope stays unique. That is – I hope I help the reader cut the noise, stay away from the clutter that we have specially in this area of finance and investing, and get straight to the heart of the matter. You can expect an honest attempt towards that in my reflections! Feedback is more than welcome!

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