We all know Warren Buffett is considered the best in selecting and investing in companies (both public and private ownerships).
If we read about his investing style and the types of companies he likes to invest in has the following characteristics:
- Durable competitive advantage / a moat is huge and in the business for atleast a couple of decades
- Strong entry barrier for competition – better if a monopoly, duopoly or oligopoly
- Does not need high capital requirements regularly
- Does not compete only on price
- Has a strong brand recall and has strong pricing power
- Low cost operations / Low cost producer in their sector
- Management with high Ethics, Capital allocation efficiency, and Shareholder friendly
- Financial parameters such as consistently high ROCE, ROE and Earnings – atleast for the past decade
- Little or No Debt
Given the above characteristics, If you look at his holdings over decades, mostly they fall under the following sectors/categories
- Banking
- Financial Services
- Insurance
- Consumer Durables
- Consumer Non Durable
- Retail
- Food / FMCG – Restaurants, Fast food, Snacks, Chocolates etc.,
- House hold items – Construction materials, Furniture, etc.,
- Services – Healthcare, Media, Advertising, Billboards, Rental / Leasing, Record Mgmt, Tolls etc.,
Out of these he might have held stocks in other sectors like Engineering, Pharma, Construction etc., and that would be only if they have a niche in their domain, and may not be a huge chunk of his portfolio.
In India, we dont have as many publicly traded companies as in the US (15000+ approx in US and 8000+ in India), and not many companies in the sectors above are listed in India.
Because of the characteristics mentioned above, most owners would like to keep it privately held and rarely have the necessity to come to stock market to raise capital for expansions.
Even if we look at the FMCG, Consumer Durables/Non-Durables sector of listed companies in India, we could see several multinationals like P&G, GSK, Colgate etc.,
Given the duration of our stock markets’ reach for today’s retail investors it is hard to find many Indian companies satisfying all the above characteristics.
So, all of us will be essentially competing only for the same group of companies which I think drives their valuations to crazy levels of at least 25+ PE ratio and 5+ PBV ratios, and they rarely provide an opportunity by falling down to lower valuations (like during late 2008 to early 2009), and that happens may be once or twice in a decade.
Investing in privately held companies was possible for Berkshire because of the big ticket investments that could be made, and in India for retail investors, that is not an option for most of us.
So, coming to my original question. Can the retail stock investor in India follow Warren Buffett style of investing?
May be.
We retail investors can take the lessons from the Oracle of Omaha and try to do the best we can from within available opportunities.
Whomever can invest across the border can try to reach US or any other markets for opportunities with above characteristics.