HERD MENTALITY - FOLLOW NONE BUT MAYBE BUFFETT?

By Ruma Dubey

We are at a time when markets are showing a mind of their mind. But at the same time, there is real palpable fear that investors and gullible traders, who merely follow the herd, could get trapped, with no exit route. While we advice everyone to stop following this herd mentality, there is one person whom we all follow blindly – Warren Buffett. Though Buffett does not invest in Indian stocks, there are many investors who take cues from his investing patterns abroad and ‘localise’ it to the Indian markets. There are many who devour his quotes and make them their mantra for investing and for good living too.

Why this fascination for Warren Buffett? Well, he is undoubtedly the most successful and richest investor in the world. And he got rich by investing wisely in equity. But more importantly, his logic in investing in equities is so simple that any person irrespective of his/her education or qualifications finds it so easy to follow.  

His formulas are very simple – do not invest in complex instruments, do not invest in companies whose revenue models you do not understand, buy when others are selling, avoid compulsive buying and selling of stocks, live a modest life, avoid lavish spending, buy undervalued stocks, use your own method to evaluate stocks, buy stocks and hold it for life, buy stocks of companies which have a monopoly.

These are just a few of his famous quotes which sound simple but extremely difficult to follow. But the logical question to ask, based on what Buffett himself preaches is whether it is prudent to just blindly follow? Shouldn’t one conduct one’s own evaluation?

What we have to learn here is that like every individual is different, his investment needs and strategies should also necessarily be different. What works for Buffett need not work for you. Buffett is like a lion on the prowl in the jungle; when he moves, the entire jungle knows but can a monkey eat the lion’s hunt; it is only the hyena or the vulture, both scavengers who eat the leftovers after the lion has eaten. Is it a good idea to be a scavenger? Best to be a hunter but one can take lessons from the best. Yet again, what an elephant eats is different from what a leopard eats. The basic purpose, to eat, is the same but methods and requirements are different. That’s the same logic when it comes to following Buffett. You can take lessons from the king of the investing jungle but it defeats his teachings if you only follow him blindly.

The basic investment tenets remain the same :

• Invest only in fundamentally sound stocks
• Accumulate the stock at every dip for the long term
• Invest only if you have yourself evaluated the financials of the company & are convinced about it
• Read up as many reports and analysis
• Investing in the stock means you should read up on the prospects of the industry too
• Keep a diverse portfolio
• Allocate your money across many asset classes. Though Buffett does not believe in gold, it is best to have some money in gold too.
• Real estate is one asset which stays abreast of inflation
• If you have the knowledge, invest in the markets yourself, no need to depend on mutual funds.

Remember, Buffett made millions by staying invested for a long term. He is not a day trader. And that is probably something we all should follow him blindly for. Invest wisely using your own mind and intellect and maybe, you could emerge as the new Buffett of India.