If your investing time horizon is:
1) Less than one year, you are in the wrong place to start with
2) Less than three to five years, then valuations are important, damn important
3)More than ten, twenty years then the quality of business is more important than valuations
A few had raised some concerns on (1) how could one hold a stock for ten, twenty years amidst so much disruption all around. And (2) how could one ignore valuations.
Both points are legitimate. Disruption is for real. And one should not ignore valuations. My point is quality of the business is more important along with growth, the longevity of that growth, and the initial price you would pay to acquire the business. As Buffett says “sustainability and durability of the moat” matters in the very long run. And he then adds “our favorite holding period is forever.” Warren draws inspiration from Phil Fisher. “If the job has been correctly done when a common stock is purchased,” Phil Fisher says “the time to sell is almost never.”
Let me share a real-life story.
This story may sound like “Tuesdays with Morrie.” Because whenever I would meet this guy I would try to pick his brains on how to live a simple life and how he goes about investing. Over the years I have learned a lot from him. I still do. Next to Warren Buffett, this guy is also my hero. While I don’t have ready access to Warren, I can meet this guy whenever I want to. He is open to sharing his experience without sounding like high morals and high finance.
He lives about 2-3 Kms away from where I live. He is a pensioner and 78 years old. He is partially deaf. He jokingly says it’s a God’s gift because that cuts half the noise. I know about his personal finance because I help him file his tax returns. I handle and operate his de-mat account.
He doesn’t know how to operate a computer. His mobile phone has no internet connectivity and he doesn’t know how to forward an SMS. He lives in a 400 square feet apartment. He has no TV. He cooks his own food. Sleep on the floor and a mat. His electricity bill is Rs 50 bi-monthly. He draws Rs 60,000 as a pension every month and spends less than 10,000.
The rest is all savings; he accumulates to invest. His annual dividend income runs into several lakhs. Though he retired as a GM from BSNL, he has never worn a shoe-in his life. All he owns is 5 pairs of clothes. He eats the same breakfast every day– three idlis, sharp at 9.30 am. He is a man of simple habits. He reads Times of India and keeps himself engrossed in solving crossword puzzles. He says this keeps his brain active and sharp. He walks and takes public transport.
As far as I know, I have never seen him “upgrade” his lifestyle. His portfolio is worth Crores of rupees. He picks his “companies” to invest in. He doesn’t own mutual funds.
Let me tell you what he doesn’t know. He doesn’t know how to read financial statements and has never heard of investment jargons like PE ratio, valuations, return on capital employed, market capitalization, cashflows, mental models, compounded annual growth rate (CAGR), portfolio allocation, position-sizing, diversification, quality investing, value investing, spreadsheets, systematic investment plan, averaging up or down, disruption, coffee can investing, and what have you.
He has never heard of Warren Buffett, Peter Lynch, Charlie Munger, or Ben Graham.
He never “monitors” his portfolio. Ever. He just knows what he owns. That’s all. But he doesn’t know how much “worth” it is. He doesn’t know how to calculate his CAGR. Nor does he care. He has never called me to find out what’s the stock price doing. Occasionally, instead, I would call him to inform him how much he is worth. All he would say is “Doesn’t matter. I have more than I need.” He is dispassionate about investing. All he cares about is putting his savings to good use. I have never seen him greedy or fearful.
Looking at his envious portfolio I would ask him about his “investment philosophy.” I have lost count of how many times I have asked this. His unassuming stoic reply would be the same “buy companies you would never want to sell, companies best in their fields and everyone knows about.”
Over the years, the pattern I have observed is that he would allow his savings to accumulate and would never invest during normal and good times. He had called me during demonetization as markets fell apart. He wanted me to buy the same companies he had already owned for many decades. In-between there would be many years he would nothing at all. I would call him to caution that there is too much of cash earning just 2.5%. All he would say is “why to buy when everyone wants to. Things must be costly. Wait, till I ask you to buy”.
He had called me during the beginning of the pandemic last year in February, March, and April 2020 as markets collapsed. Again, he wanted me to buy the same companies which were already there in his portfolio.
You may be curious to know what he owns. Here are the seventeen companies: Asian Paints, Berger, Bajaj Finance, Castrol, Crisil, Colgate, HDFC Bank, HDFC Ltd, HDFC AMC, HDFC Life, Hindustan Unilever, ITC, ICICI Prudential Life Insurance, Kotak Mahindra Bank, Nestle, SBI Cards and Titan.
In the last three decades or so, I have never placed a sell order in his portfolio.
The hero I am talking about is my father. The thing is he doesn’t know that he lives and invests like Warren Buffett. But I do.
Social media influencers and so-called experts can worry and debate about the next disruption and concerns about sky-high valuations and what not.
One can draw their own conclusions as to what is important and what is not. Meanwhile, I will learn my lessons from the “Next” Warren Buffett, who happens to live next door.