Warren Buffett Advice

1. Invest in Yourself First

As a star investor, Buffett knows where to find true value, and the first place he tells students to look for it is within. “Investing in yourself is the best thing you can do — anything that improves your own talents,” Buffett said in a 2009 interview on “Good Morning America.”

Investing in yourself is one of the only investments over which you can have total control and can never lose. “If you have true talent yourself, and you have maximized your talent, you have a terrific asset,” he said.

2. Develop Integrity

At a 1998 lecture at the University of Florida School of Business, he asked the students in the audience to think of someone in their class who had the makings of success, such that the audience members would want to get 10 percent of that person’s earnings for the rest of their lives. “You would probably pick the one you responded the best to, the one who has the leadership qualities, the one who is able to get other people to carry out their interests,” said Buffett. “That would be the person who is generous, honest and who gave credit to other people for their own ideas,” — in short, the person who exhibited integrity.

3. Break Bad Habits While You’re Young

Buffett said bad habits often hold people back: “I see people with these self-destructive behavior patterns at my age or even 20 years younger, and they really are entrapped by them.”

For those who are young, however, it is still relatively easy to identify those poor qualities and work to improve them, Buffett told the students at University of Florida: “You can get rid of it a lot easier at your age than at my age, because most behaviors are habitual. The chains of habit are too light to be felt until they are too heavy to be broken.” Everyday habits can help successful people push harder and get further than others.

4. Know Your Strengths and Capitalize on Them

Buffett told Georgia State students in 2001 that it’s important to know your limits and not stray too far from them. In fact, Buffett’s investment philosophy is centered on putting his money where his knowledge is.

“You don’t have to be an expert on everything, but knowing where the perimeter of that circle of what you know and what you don’t know is, and staying inside of it is all important,” he said. “Tom Watson Sr., who started IBM, said in his book, he said, ‘I’m no genius. But I’m smart in spots, and I stay around those spots.’ And, you know that is the key. So if I understand a few things and stick in that arena, I’ll do OK.”

5. Don’t Risk What You Have and Need for What You Don’t

Buffett told University of Florida students that in his decades as an investor he has sometimes seen businesses put themselves at risk to chase after bigger and bigger profits, and has seen people do that at the individual level as well. “If you risk something that is important to you for something that is unimportant to you, it just doesn’t make sense,” he said. “I don’t care if the odds you succeed are 99 to 1 or 1,000 to 1 that you succeed.”

6. Work at a Job You Love

“I get to work in a job that I love, but I have always worked at a job that I loved,” Buffett said of his investing career. It isn’t just about the money for him, either: “I loved it just as much when I thought it was a big deal to make $1,000.”

“You really should take a job that if you were independently wealthy that would be the job you would take,” Buffett told University of Florida students. “You will learn something, you will be excited about, and you will jump out of bed. You can’t miss. … When you get out of here take a job you love, not a job you think will look good on your resume. You ought to find something you like.”

7. Be a Nice Person

“Be a nice person,” Buffett once advised a young MBA student. “It’s so simple that it’s almost too obvious to notice. Look around at the people you like. Isn’t it a logical assumption that if you like traits in other people, then other people would like you if you developed those same traits?”

8. Take Care of Your Body and Mind

Buffett often shared this fable, as quoted in his biography, “The Snowball: Warren Buffett and the Business of Life,” asking students to imagine if a genie came to him at 16 and offered him the car of his dreams, but the catch was that it would also be the last car Buffett could ever own. The car would have to last a lifetime, and to make sure that happened, he said, “I would read the manual about five times. I would always keep it garaged. If there was the least little dent or scratch, I’d have it fixed right away because I wouldn’t want it rusting. I would baby that car, because it would have to last a lifetime.”

Then Buffett related the fable back to the students: “That’s exactly the position you are in concerning your mind and body. You only get one mind and one body. And it’s got to last a lifetime. Now, it’s very easy to let them ride for many years. But if you don’t take care of that mind and that body, they’ll be a wreck 40 years later, just like the car would be.

“It’s what you do right now, today, that determines how your mind and body will operate 10, 20, and 30 years from now,” he said.

9. Find a Mentor

Buffett’s success is due in large part to his own particular set of talents, drives and knowledge. But it was the help of a mentor, Benjamin Graham, that set Buffett on the investment philosophy that he grew upon to build a multibillion-dollar empire. Buffett read Graham’s book and applied to Columbia University, where Graham taught. He developed a relationship that led to Buffett getting a job offer from Graham after graduation.

“I really had a quarter of a century of experience with a marvelous man,” Buffett said of the years spent working with his mentor. Not only did Graham guide Buffett’s career, “but the human side was just as impressive. He was a generous man,” Buffett said.

10. Work for and Surround Yourself With People You Admire

In addition to Graham, Buffett has always sought to work with talented and hard-working people. “You know, people always say, ‘Well who should I go to work for when I get out then?’ … The real thing to do is to get going for some institution or individual that you admire,” Buffett advised Georgia State students in a 2001 speech.

“It’s better to hang out with people better than you,” Buffett said on another occasion in response to a high school student’s request for advice on how to be successful. “Pick out associates whose behavior is better than yours and you’ll drift in that direction.”

11. Face Your Fears

“I used to be afraid of public speaking, and I realized that I’d have to do that someday,” Buffett told a group of MBA students, according to Business Insider. Knowing he couldn’t avoid this task forever, no matter how unsavory it might seem to him, Buffett was proactive: “I do have one diploma I display from Dale Carnegie’s public speaking course, and it only cost me $100.” Choosing to face what he was afraid of led Buffett to make a huge change, and today his speeches are listened to and quoted by millions.

12. Jealously Guard Your Time

Bill Gates said that one of the biggest lessons he’s learned from Buffett is to be careful with his time. “There are only 24 hours in everyone’s day. Warren has a keen sense of this. He doesn’t let his calendar get filled up with useless meetings,” Gates once wrote. The best part of time is that even the poorest new college graduate has as much of this resource as the world’s richest men, and how it’s used can help push you to success.

13. Avoid Credit Cards

“The biggest suggestion I have is to avoid credit cards,” Buffett said, according to CNBC. “Interest rates are very high on credit cards. Sometimes they are 18 percent. Sometimes they are 20 percent. If I borrowed money at 18 or 20 percent, I’d be broke. … So if I had one piece of advice for young people generally it would be to just avoid credit cards.”

14. Seize Opportunities While You Can

“Big opportunities in life have to be seized,” Buffett said in that Georgia State address. “We don’t do very many things, but when we get the chance to do something that’s right and big, we’ve got to do it. And even to do it in a small scale is just as big a mistake almost as not doing it at all.

“You’ve really got to grab them when they come, because you’re not going to get 500 great opportunities.”

From GobankingRates.com: Warren Buffett’s 14 Best Tips for the Class of 2015

Source:  http://www.reviewjournal.com/business/money/warren-buffett-s-14-best-tips-the-class-2015

REC – Rural Electrification Corp

REC

Annual NPAT ~ Rs 5,500 Cr
Market Cap – INR 22,000 Cr
P/E ~ 4
Book Value ~ 283
Stock Price = 223
Dividend Yld = 4.8%
ROE = 20+% for past 5 years
GNPA = 1% (my estimate ~ 2000 Cr)

Business Model
Raise money via bonds/loans and lend to companies in the Power sector. The NIM is the profit.

Risk (similar to banks)

  • Borrower defaults
  • Power sector demand for loan met by an alternate cheaper channel (dont know what?)
  • When u are lending huge sums where one leg (borrowing via bonds) is a commitment and the other (lending to clients) is on credit then the road is slippery. Unlike a brokerage the risk of borrower default sits with u, the person who lends u expects his dollar back with interest. Historical NPA can be a good guide to judge risk mgmt but its no guarantee for future. GNPA warrant close watch.

Case for investment?
History shows the company is profitable from ROE and GNPA levels. Its a PSU so that s*cks for the price action. Its a boring but a very profitable company. Because its constantly profitable its book value keeps climbing and becomes a natural pusher of price upwards. (A similar company, SJVN , has the same book value dynamics. It took 5yrs before the company went up 50% in 1 yr while paying 5% div yld thru the years to finally catch up with its book value).Even if GNPA doubles (or quadruples) , one year profit can take care of the expense. The firm has the ability to take multiple hits. Its so big and with a clear mandate that it will be the lender of choice for clients. I think its better to place some lazy money that will give u decent 5% yld and upside if and when investors start investing in this company. Patience should give good payoff.

 

 

India – Politics

In response to someone who asked whats my view on a particular political event. Best to avoid listening or tracking politics … like markets it will self correct. Just avoid getting entangled in it else u will have to experience its emotional ride. Build a moat for your future.

Noida Toll Bridge Company Limited – In the center of political storm

Owns a toll bridge with little capex requirement and a growing stream of revenue from toll collections. The locals outraged about why a company is earning profit when it could cut prices and make life easier for the public. Political sentiments are high so farmers, local RWA and politicians jump in to make matters murky. The case is now in the courts and Delhi government is to opine on it too. All this mess aside, we care about the business.

Can the toll collection be impacted for next few years (5yrs)?

Doesn’t seems so till 2031 but then rates revision may not be close to 6% annually.

Will the dividends be impacted?

Doubt it as the firm has little use of it. The bridge is its only real asset and its complete.

Can they change the agreement?

Dont have specifics but I seriously doubt you can change the legal language without both parties agreeing to it. One has to seriously arm-twist ILFS (indirect owner … 26% share) to change the terms. Why would they lessen their profit.

Can the strike be indefinite or frequent?

Very unlikely, people use it to go to office and earn bread.

What has changed?

Not very much unless ILFS gives in or political pressures are such that some CAG like audit happens and they find discrepancies in cost calcs involved in building the bridge which can change the discussion to tax fraud etc..

My Play?

Stay long and watch.

Disclaimer: Long

ILFS Investment Managers – IVC – Short term Dividend Play?

The Firm

ILFS Investment Manager Chart

The Business

Has $1.6bn AUM that earns a carry and performance fees. Performance fees can only be positive but for conservative assumptions lets assume it remains zero. Carry or the management fees that IVC gets is independent of performance and it translates to about 200cr ($31mm … about 2% of AUM) carry out of which about 30% i.e. 60cr is left as profits. Profits don’t have a reason to stay with the firm so they are in most cases distributed as dividends. It has about 31cr shares so we are looking at about Rs 2/share of div payout before taxes. The company could give out about 83% of it in div post taxes …i.e. up to 1.66. Infact, it has given out Rs 1.3 in the past and this year too it has promised to pay Rs 1.3 on 5th Aug 2015.

On a stock trading at 22 that is about 5.9% of income. Ideally, the stock should fall by Rs 1.3 on the day of the the bonus record date but it usually is off by a bit.

If you do buy the stock here u are effectively buying the stock @ 22-1.3 = 20.7

If the AUM does not fall u are looking at earning Rs 2/sh in the future too and this is without including the upside of performance fees. The downside clearly is if

(1) AUM actually reduces. However, there is a $1bn infra fund in the pipeline that should pay 75-100bps as fees.

(2) Rupee tanks and GPs are forced to liquidate the funds for the LP at fire-sale prices even though underlying biz may not be bad. All this to protect $ denominated returns.

(3) Change in mgmt for the worse.

My Play

Given the source of income and its steadiness for the short term (1-2yrs), the dividend payout in a weeks’ time is attractive and worth a thought. Liquidity is horrible though so limits the size one can do. Buy for dividend -> if price falls a lot (near 18) then load up -> if price steady then sell and get on the side.

Disclaimer: I am long so assume the obvious in my comments above.

Conf Call

[17/Aug] So the dividend came but the stock did not bounce enough to justify taking the profit. The stock has since tanked below 18. We are looking at a predictable-cashflow & boring company that in the near term (2-3yrs) will most likely deliver Rs 1.3 dividend aka 1.3/17.65 = 7.3% yield unless a big position is monetized for profit. Positioning for good luck at these levels given I think we are nearing a yield that would attract an HNI (alternative is Govt yeild of 7.9% with no upside). Disc: Adding position near these levels.

[7 Oct 15] Ajay Piramal to buy big share (Link) in ILFS. Company going in good hands.

Curious case of Clariant Chemicals (India) Ltd. buyback @ 950

Clariant Chemicals India Ltd (BSE506390NSECLNINDIA) announced in April that they will buy their shares @ Rs 950, the shares popped up but since then they have been on their way down, trading @ 834 on 8th May 2015. Clariant can/most likely will buy back at that price so what is the market telling by pricing it so low …13.9% upside ([950-834]/834)? Announcement ————

2. The Board approved unanimously the buyback proposal for purchase by the Company upto 35,78,947 equity shares of Rs. 10 each (representing 13.42% of the total equity capital), from all the shareholders of the Company on a proportionate basis through the “Tender Offer” route as prescribed under the Securities and Exchange Board of India (Buy-Back of Securities) Regulations, 1998 (the “Buyback Regulations”) at a price of Rs. 950 per equity share (Rupees Nine Hundred Fifty only) per equity share, aggregating to approximately Rs. 340 crores in accordance with the provisions of the Companies Act, 2013 and the Buyback Regulations (the “Buyback”).

Its a tender buyback offer (not a open market offer) so the allocation will be proportionate to the tenders. Not all shares will be bought back @ 950. If all shareholders participate then we have 13.42% allocation. SEBI does not allow promoters to participate (according to my reading of the buyback regulations …see below) so does that mean 63.4% of stocks are not going to participate? If so then we have 13.42/(100-63.4) = 36.67% buyback ratio of the possible float. SEBI REGULATIONS:

Section 19(1)(e) of SEBI(Buy back of Securities) regulations, 1998 reads as under: “The company shall ensure that the promoter or the person shall not deal in the shares or other specified securities of the company in the stock exchange during the period the buy-back offer is open.” ]
[20/5] update….FINALLY! it makes sense , tender offer is made via old fashion letters not via stock exchange so promoter can participate
[22/5] However, it does not look like that the promoter will participate in the buyback as they prefer to increase their % of shareholding. In such a case we are looking at “upto” ~37% buyback ratio for non-small investors. Given price is around 810 today are we  looking at making (950-810)/810 = 17.2% on 37% shares? The average buy price goes down by 51…so we need to sell the remaining shares at 759 or higher to break even. All this before transaction costs. One can assume u pay 1% txn costs for the round trip trade.
[23/5] If you participate in buyback then u pay tax as per your tax bracket but if u make STCG then you pay 15% tax. Choose accordingly.
[28/5] We have 3 options:
(a) Participate as small investor (Rs 2Lacs aka 210 shares or less) and get higher acceptance (closer to 60-70%). Dollar payout is going to be small.
(b) Participate as ‘other’ investor (holding bigger than Rs 2lacs) and get lower acceptance but there is no limit on investment size. Dollar payout can be decent.
(c) Participate as an outsider by playing dynamics around the above …let me explain…buy stocks right now at 815 and given decent payoffs from above two there is a reason people will come in to buy stocks when the actual buyback dates are announced. After all many people will want to get free money from the promised buy back price of Rs 950. In both cases the stock should move higher than current price. How much higher is anyone’s guess but I think its not unreasonable to expect near 900 price. In that case, u flip the complete lot for a 10-12% gain and 15% tax. If u don’t see the price shoot up then you participate in the buy back. Either case you walkaway with gains. I think a combination of (c) and (b) are best if your investment size is decent.
[28/5] Disclaimer: I am long Clariant for the above reasons at low 800’s.
PS: Many thanks to Ankur J, equity special sit brains, for sharing his thots on this.