World’s Most Expensive Stock – A Tale of MistakeTranscending into Masterstroke
In the 1989 letter to shareholders, Warren Buffett candidly addressed his mistakes of preceding 25 years, identifying the acquisition of control in Berkshire Hathaway as a pivotal misjudgment. Despite recognizing the challenges in its textile manufacturing business, he was tempted by the seemingly attractive price of $14 in 1965.
Buffett coined the term “cigar butt approach” to describe this strategy, wherein one acquires a stock at a low price with the intention of selling it for a modest profit, even if the long-term performance of the business is suboptimal. However, Buffett acknowledged the inherent flaws in this strategy, emphasizing that in challenging businesses, solving one problem often gives rise to another—akin to the perpetual presence of cockroaches in a kitchen. Moreover, any initial advantage gained is swiftly eroded by the business’s low returns.
Recognizing the shortcomings of the cigar butt approach, Buffett advocated a shift towards acquiring businesses with excellent return on equity and promising long-term prospects.
Early on, he implemented this revised strategy, strategically acquiring various businesses under the Berkshire umbrella. Over the ensuing 88 years, Buffett successfully transformed Berkshire from a loss-making textile company into one of the largest reinsurance and investment entity, boasting substantial stakes in industry giants such as Apple, Coca-Cola, and American Express. Notably, the share price appreciated from $19 to an impressive $566,570.00 (Rs. 4.8 crore)– yielding an annual return of over 20% for nearly 9 decades, solidifying Berkshire Hathaway’s status as one of the most valuable stocks.
A profound quote from Buffett encapsulates the essence of his strategic wisdom: “Time is the friend of wonderful business and enemy of mediocre.“
Quote of the month
As I’ve come to discover, investing is about much more than money. So as your wealth grows, I hope you will also come to realize that the money is largely irrelevant. And what you will want to do with the bulk of your wealth is give it back to society.
—Guy Spier, Founder, Aquamarine Fund
From the global leaders:
“Why India Inc is better placed among emerging markets”: The Hindu
“Most Americans I know with money want to invest in India”: Zerodha CEO Nithin Kamath
“Move aside, China. India will drive Asia’s growth in the next few years”: S&P Global
Economic Indicators Overview:
The Indian economy exhibits promising signs with elevated levels of Goods and Services Tax (GST) collections, a surge in festive season demand, stable retail inflation, subdued input inflation, expanding core sector outputs, and heightened credit growth.
Manufacturing PMI: The Manufacturing Purchasing Managers’ Index (PMI) for November 2023 stood at 56, marking an improvement from the 8-month low of 55.5 recorded in October 2023. This indicates the sector’s sustained expansion for the 29th consecutive month, driven by reduced price pressures and increased demand from clients.
Core Sector Production: In October 2023, the index of eight core sector industries, including Natural Gas, Coal, Refinery Products, Crude Oil, Cement, Electricity, Steel, and Fertilizers, experienced a robust growth of 12.1%. This follows an 8.1% jump in September 2023.
Services PMI: India’s service sector activity expanded at its lowest pace in November, falling to 56.9 as compared to 58.4 in October.
GST Collection: November 2023 saw GST collections amounting to INR 1.68 trillion, indicating a significant YoY increase of 15%. This marked the twenty-first consecutive month of collections surpassing the INR 1.4 trillion mark, following the record collections of INR 1.87 trillion in April 2023. Collections for 6 out of 8 months in this fiscal year crossed INR 1.6 trillion.
Inflation: October 2023 witnessed a drop in the Consumer Price Index (CPI) inflation rate to a four-month low, settling at 4.87%, down from 5.02% in August 2023. The deceleration in the CPI rate was attributed to a slowdown in price rises for housing, clothing, and footwear. Meanwhile, food inflation remained elevated and unchanged, registering at 6.61%.
Foreign Exchange Reserves: India’s foreign exchange reserves continued to remain high for the straight third week and rose to more than a four-month high of $604.04 billion as of December 1.
Equity Market Overview:
In November, India’s NIFTY index concluded on a positive note, recording a month-on-month growth of 5.5%.
Outperforming the large-cap index, the BSE Mid-cap and Small-cap indices displayed robust performances, registering gains of 9.6% and 9.4%, respectively.
Sector-wise, the top performers for the month were Realty, Oil & Gas, Healthcare, and Power indices, posting impressive returns of +18.9%, +12.7%, +11.4%, and +11.0%, respectively. Notably, all 13 of BSE’s sectoral indices closed the month in positive territory.
Foreign Institutional Investors (FIIs) displayed a positive trend in equity flows for November, with a net influx of +$1.1 billion, rebounding from the -$2.9 billion recorded in October 2023. Meanwhile, Domestic Institutional Investors (DIIs) continued to be net buyers of Indian equities, contributing +$1.5 billion compared to the -$3.4 billion in the previous month. Year-to-date figures indicate that Foreign Portfolio Investment (FPI) net buying stands at US$14.2 billion, while DIIs have invested US$20.5 billion in stocks.
In a remarkable achievement, Mutual Funds’ Systematic Investment Plans (SIPs) reached an unprecedented milestone, reaching Rs. 17,073 crore for the first time.
Fixed Income:
During the early December policy, the Reserve Bank of India (RBI) maintained the status quo on the policy rate and left the monetary stance unchanged, aligning with consensus expectations. While emphasizing the gradual decline in the inflation outlook and a soft core inflation print, the RBI expressed caution regarding the potential impact of recurring food shocks on headline inflation prints. The RBI revised the economic growth projection for FY24 upward to 7% (from the previous estimate of 6.5%) while maintaining the FY24 inflation projections at 5.4%.
The 10-year Government Securities (G-sec) yield, which fluctuated between 7.35% and 7.39% in October, opened the month at 7.36% but gradually decreased to the range of 7.24-7.28% during the month. The 10-year G-sec closed the month at 7.28% (compared to 7.35% in Oct 2023 and 7.21% at the end of Sep 2023).
In November 2023, core liquidity (comprising system liquidity and Government balances) declined from 3.3 trillion in October 2023 to 2.5 trillion by the end of November, attributed to festive season demand and credit uptake.
Way ahead:
Market sentiment in the equity space improved as risk aversion decreased, supported by positive news globally and locally. Factors such as the deceleration in US inflationary expectations and declining oil prices, despite production cuts and geopolitical tensions, contributed to the positive sentiment.
On the domestic front, activity indicators remained buoyant, and the corporate results season witnessed growth in profitability driven by lower costs. While overall revenue growth remained relatively muted, expectations are for improvement in the coming quarters. Businesses dependent on rural areas experienced ongoing stress. The Reserve Bank of India raised concerns about retail unsecured credit and increased capital requirements for banks and non-banking financial companies (NBFCs).
Looking ahead, the sentiment appears positive, supported by election results in a few states, instilling expectations of political continuity in the upcoming general elections. However, valuations remain elevated compared to long-term averages, and geopolitical challenges persist, potentially impacting the growth trajectory.
We believe that Large Cap-oriented strategies across Large Cap and Flexi/Multi Cap categories seem well-positioned, while asset allocation products can aid in managing downside risks.
