Let me clarify – I have not spoken to RJ in over a decade, and not seriously over 3 decades. This post has nothing to do with his portfolio picks that I know by speaking to him, but only from the press.

I track Mr. Warren Buffett far more than I track RJ – I like seeing him talking to the media, and how useless it is for me if I am a serious investor.

Not very long ago WB was asked about one of his favorite ratios – GDP to Market Cap and we are (it has worsened) and we are at its highest. And he said “I am buying stocks”.

How useful is it for you to know what WB or RJ is buying? Is it inspiring? Ok, is it useful?

I do not know. Now assume I am a Value fund manager doing an NFO, and I think the market is overvalued (OMG, I am going against WB, I must be crazy). Let us see 2 news items – RJ buying S and RJ buying D. Both these shares had/have taken a beating recently, and hence the purchase.

Now do some research and read about the WB deal with Goldman Sachs in 2008/9.

Now suppose I am an Indian promoter of companies S (or D). I go to RJ and say “Please buy shares of my company it is a great value buy”. RJ does not respond. I then approach him with a deal.

Sir my share was quoting at Rs. 435, it has now fallen to 231. Please buy say x number of shares I will sweeten it by giving you x numbers of warrants at the current price for free. I will also BORROW money from your sister concern – I will issue bonds with a 12% coupon with a 3 year maturity.

So RJ buys the shares. He gets the warrants and he does a structured, secured lending to the promoter. Good deal?

Value investing? well. When you read only a part of the story, how do you derive value – in the same share or in the news item. The other thing you have no clue about is portfolio weighting. If RJ puts 1% of his portfolio in S and 10% in D, end of the year his return will be different from mine. I put 10% in S and 1% in D!

More importantly if you had FMCG and Pharma you missed the 2003-7 boom and in 2007/8 if you did not get rid of Technology, you again missed the boom. Infy was quoting at a pe of 206 (now it is 16 I think).

So for a Value Investor there is no market to worry about – largely we are driven by valuation. Hence investing in a value fund is easier. We conveniently assume that the FM is doing the rigor in stock picking in his portfolio and he is getting the sector, stock, weightage, right…

The problem with most of these investors (no I am not witch hunting WB) when they say “Would you like to own a business that is growing at 20% p.a. has a 45% market share …or invest in a bond that will give you 9.3%”

Brilliant question. Honestly the answer is “It depends on Valuation”. Rarely does this come out!

So when you are asked this question by WB and I am a cub reporter aged 27…I headline the story as “WB is bullish, he is buying stocks – high growth stocks”. Sir, I thought you were a value investor and this company is in airline business, has no pricing power, and is currently terribly over-priced. Well I dare not say that. And I do not know about sweeteners in his deal which is not available to me who is buying 5000 shares vs his 5,00,000 shares.

How do I ask him “As a value investor should I be thrilled about his RoE of 17% over last 3 years, or be worried about his dividend yield of 0.9% p.a. with a payout of 48%”?? How do I ask RJ or WB this question? Or should I assume that there is a sweetener which I cannot see? After all sugar the great sweetener mixes in the tea and we cannot see it. We can taste the sugar, but cannot see it. Oops.

Apart from this, I am also worried about my ability to predict the cyclical nature of returns in certain industries. I don’t know whether it is a good time to be investing in pharma, infra, airlines or should I just index my money? As a value investor I cannot see much value in BFSI. Accepting that profits and returns on capital are healthy and perhaps growing is not the same as recommending shares as being attractively priced for investing. I have shares of Hdfc and Hdfc bank – I have no clue whether the same growth can be sustained in the future. HOWEVER, I have skeptical about these siblings – and suffered for selling it at various stages (and sometimes not buying back). I have no clue whether these stocks are attractively priced. Are the prices, and if profits and returns on capital are unsustainable or near peak levels.

all names, initials, company names are used only for academic purposes and perhaps a part of my portfolio. Incident is of course fictional.