Share on TwitterShare on LinkedIn

Couple of days back, I was listening to Warren Buffet’s interview on CNBC. He talks about how he loves to read about companies and research them and how that guides him in his investment decision.

That brought to mind one of my MBA lessons that has stuck with me. What our lecturer then pointed out was that, using a dart board to make decisions on investments will give the same results as decisions based on extensive research. Many simulations and games where people have been given a pool of money to make investment decisions. Outcomes of such exercises invariably support our Lecturer’s hypothesis – success and failure on a portfolio has little correlation to research effort, education, experience or other skills of the participants.

So, should I be debunking Warren Buffet ? Much as I believe I have had reasonable success following my Lecturer’s advice, it would be presumptuous of me to debunk Buffet’s statement.

And I don’t think I have to. The two views can be reconciled.

For a small time investment, the law of averages work out. So the Dart board method works pretty well. But I use the Dart board to get me a pool of companies from which I then choose the ones to buy. I have realised that I  have subconsciously been doing what Buffet alludes to – research to find the undervalued companies. But I  just let the market do the work for me. Basically, I generally buy on the downswing.  i.e. those that the market has driven down the value.

Obviously, this does not work when you are buying companies – you are the market and there are no shortcuts to good research.

Well, guess I’ll be no Warren Buffet :-)

Share on TwitterShare on LinkedIn