Investing Gurus

 One sees many investing gurus, being talked about in glowing terms. One of them definitely is Warren Buffet.

Many of them have been giving a CAGR of  20% or more over the last so many years and one wonder's what is it that they possess that other ordinary investor do not possess.

My personal view is as follows:

a) One is their Patience. Their immense patience to wait out their convictions. They do research, study how the market will move and the demand and supply of the products they are investing in etc. All these in hindsight seems interesting and understandable, but was it at the time when they were investing. I can understand investing in a Coke or Gillette company thinking that people will continue to drink coke and men will continue to Shave and innovation and marketing to keep the products in shelf and attract. But things need not always be like this. Imagine someone investing in Nokia thinking mobile is the in thing and nothing can displace it. It went into oblivion for some time and space taken over by Apple and Samsung. Maybe not many would have thought these two will be such a success. Apple too went into a tailspin for some time before the brilliance of Steve jobs with ipod, iphone, ipad put it back on to the limelight. But in all of these investing gurus would have continued to remain invested and possibly bought some more.

b) Position Sizing- The second most important thing is they take large positions and accumulate over time. They get some close management information on how the things are working and where the business is leading. This is something you and I will not be privy to as our position is probably 100 or 200 shares or even 1000 shares while these investors have million shares. With position, they are able to get some information which others have to wait till it is public. One recent example is paytm bank and the RBI strictures. There is a rumour that many big ticket investors quit before the news came out as they were already aware of the goings on. And now they may pick it up at a lower price and thus control the number of shares which will help in future.

c) Conviction- Because of so many discussions with management of different companies, they get an idea of where the business is growing and what are the pitfalls. Our information is only when it is published and becomes a public document.  It can work both ways. Some business may say that there is a huge potential, which actually does not materialize, some may. Investing Gurus can afford to lose a Million to gain 10 million. Their diversified portfolio and position makes them lose less and gain more. Nobody can predict the future, but some can predict the direction of the future and these do. They also fail some time, but overall they are in the money. Harshad Mehta, the story goes, said that ACC Company equivalent will require huge capital to invest and nobody has that capital to build it. Thus his investment in that stock raised the ACC stock price to an extremely high value, but now it languishes as more players, either by takeover or new green field plant has come up increasing the capacity of cement many times.

d) And finally, the first few years of making millions is difficult, but once a large amount is made, multiplying it with a reasonable safety gives it a tremendous leverage that helps them in outperforming ordinary shareholders.

e) With their volume they can move the markets up or down and can through words and thoughts make other small investors follow through with their sayings and while not all practice this, many do.

So, what is the learning. Diversify a bit, increase position sizing in good companies (where you are convinced it will exist after 10 years also) and wait out long for the market to reach euphoric levels to cash out some of the investment if required. As you do this you will also learn more about the companies and markets which will help you invest wisely. Use screeners to get past 5-10 years data and see the trends and the P/E, ROCI, general trends of business in those areas to get a foothold in the market. Rolling returns are a better way to understand ongoing business.