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Buffett’s speech to students at univ of Florida

By Rohit Chauhan
In Uncategorized, Warren buffett
July 8, 2005
2 Min read
5 comments
B

A free link to the video was posted at www.fool.com by a board member. i have put the link below

http://tinyurl.com/c85or
several very interesting comments by buffett

1. why smart people do dumb things – buffett discussed about the LTCM episode. how a bunch of very smart people with very high IQ and knowledge, managed to blow up everything they had. i like the statement – ‘why risk what you have and need for what you dont have and dont need’ ? i think this statement is very important to an investor. just think about it …if i am well off , why do i need to risk my networth for a few extra percentage points and if i am poor , i cannot afford to do it. i guess it makes sense to invest conservatively (in companies with strong competitive advantage )

2. buffett discusses at length the economics of coke / see’s and p&g. this was in response to a question on what is it he looks in a business. buffett discusses in detail about the what qualitative factors one should look for in a business. One new point which struck me and kept me thinking is buffetts reference to the pricing power of a company. companies with strong pricing power like coke tend to have a very formidable competitive advantage. in comparison commodity companies have poor or no pricing power (except during supply shortage )

3. buffett also discussed about reit investment and how although the discount to book looks enticing , but is justified due to inability of such companies to move / sell the big amount of real estate on their books

4. buffett talks of various other topics (which he has repeated in several other forums) , like developing good habits (example of taking a 10 % option on your classmate ), not prediciting the market etc

5.buffett also talk of the ‘important and knowable’ v/s ‘important and unknowable’ , when some one asked his opinion on interest rates. he pointed out that is better to focus on the first and get into good companies than worry about the second and let go of opportunities.

a very good speech and worth the 1.5 hours (in addition it is free)

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Evaluating the cement industry – porter’s model

By Rohit Chauhan
In Industry analysis, Uncategorized
July 4, 2005
2 Min read
2 comments
E

I have been trying to assess the cement industry on the five factor model and have been able to come to the following evaluation

Entry barrier – Entry barriers are not too high in the industry. The technology is easily available. The only constraint is capital which a big player will have access to. The key barriers would be
– economies of scale which would favor the bigger players like Birla group or Gujarat ambuja
– Brands are not so critical. price plays a big factor
– Cost advantage is critical. Companies which can have a sustainable low cost position will have a competitive advantage. The major players in India do seem to have a similar cost position. Gujarat ambuja has been able to sustain a low cost position and has been able to reward shareholders.

Supplier power – Has very low impact. Mainly limited to coal / power wherein the government pricing would have an impact. But this would be common to all companies

Buyer power – Very low to no impact

substitute product – Almost no substitute product

Rivalry – High rivalry in the industry as the industry is still fragmented. Top 6 players have 60 % capacity as there has been consolidation recently. however local players can have an impact on pricing as cement as the industry depends on local supply. Cement being bulky is generally not transported from long distance

In summary due to low brand strength, high fragmentation, low cost advantages (except in case of some players ), the competitive intensity is high. Pricing is poor and depends on demand scenario. If demand drops , the profitability suffers as the players cut price to run plants at full capacity (due to high fixed costs).

Not an ideal industry for long term investment ( except if one can find a player with a sustainable low cost position )

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A good website – equitymaster.com

By Rohit Chauhan
In Uncategorized
July 3, 2005
1 Min read
1 comment
A

i regularly visit this website (equitymaster.com). One of the few indian websites which focuses on the fundamental analysis of companies and provides a good analysis of their quarterly/ annual results.

In addition, there are sometimes articles (views on news ) which give sensible advise to an investor in terms of various personal finance options .

The knowledge centre is good as it has some good articles on the economics of a number of industries such as cement / FMCG etc. There are some good articles on various investing principles too.

Only disadvantage is that a lot of the content is paid (especially the stock recommendation ). But if you believe in doing your own research and forming your own conclusions, then it is a non issue

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The market at 7200 ! so what ??

By Rohit Chauhan
In Market analysis, Uncategorized
July 3, 2005
2 Min read
Add comment
T

Look at any financial website / papers and there is euphoria all around …

Cant figure out a rational reason other than that it is good to excite people, get more hits or sell copies.

what’s the big deal about 7200 !! or any other number .

The market is selling at 14.3 times backward pe . If the economy does fairly ok , and the corporate profits continue to grow at 10-15 % , then some time in the future we could have the sensex touching 8000 and then maybe 8900 …provided there is no major shock to the world economy / indian economy … anyway how does it matter

well if the market was selling at say 20 times pe , then it would matter as i would start selling ..or if it was selling at say 10-11 times pe (like 2003 ) then it would matter …as one can buy some very good companies at good prices …but now we have pockets of overvaluation and to be fair pockets of undervaluation …so it means more work ..

so i guess if the markets shoots to 8000 + soon or drops to 6000 types , then it is action time …otherwise it is back to reading annual reports and better off watching the discovery channel

seems like a lot of noise ..but then what can once expect from the most of the financial media !!

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