Here's how you can be like Buffett

So, want to be like Warren Buffett? It is very simple. Do it like the Omaha's Oracle did it. Easier said than done isn't it, especially in the current environment. The asset class that seems to be the talk of the town is gold and other hard commodities. And to avoid the temptation of investing in them is akin to missing your favorite Tendulkar innings. But if your returns are to come anywhere close to those of Buffett's you may have to curb the instinct. For Buffett has never been a heavy investor in commodities. His disregard for gold is well known and he has never been an admirer of other commodities as well.

Instead, he has poured his entire faith in people and organizations that have turned these so called commodities into something that is perceived to be extremely valuable for mankind and then earned a fat margin in the bargain. In other words, the bluest of the blue chips. Companies that have, year after year, taken in the commodities and done something so valuable with them that their customers have had no hesitation in paying a little more for the same product every year. To sum up, if you want to handily beat inflation, commodities might prove to be a good hedge. We at Equitymaster have traditionally advocated upto 5% investment in gold. But to actually crush inflation, you've got to invest in companies with strong competitive advantages and available at reasonable valuations. And if you take these lessons to heart, ten years from now, you could well be ahead of the pack by a fat margin.

The steep rise in foodgrain prices have almost rendered them unaffordable for an average Indian middleclass household. Drought like conditions in few pockets and floods in some other areas made it all the more easy for the government to reason the steep prices. However, statistics tell a different story.

No doubt the shoddy state of affairs in India's public distribution system is to be blamed. But one wonders if there are other causes for the severe malnutrition and food shortage in remote areas of the country. Particularly in a state like Orissa that is one of India's most mineral-rich states.

As seen in today's chart, data from the Statistical Outline of India shows that the country has consistently increased its food production. Infact, even the per capita production has increased over the past six decades. There are 230 kgs of foodgrains produced a year to feed every Indian today as against a paltry 141 kgs in 1951. Despite this, much of it gets hoarded, wasted or lost in transit much before it reaches the needy. And this could also be a huge factor towards spiraling food price inflation. The government has a tough and imperative job at hand.


"The outside world's image of India now is of cutting-edge competitive companies that are going to take jobs away from the developed world." Few global experts have given such a reference to India in the past. However India's strong fundamentals and well guided crisis-management seems to have cemented its role in leading the global economic recovery. A business daily has quoted none other than the chief of the World Bank, Mr. Robert Zoellick citing his belief that the Indian economy is now a force to reckon with. Infact, the top banker sees both India and China scaling back their GDPs to account for a quarter of the world GDP, as was the case a few centuries ago. However, in the same breath he has added that the US retains a huge amount of dynamism, which is not going away anywhere.

The World Bank is keen to support India's infrastructural growth, including building rural roads. The bank has already lent around US$ 5.3 bn to India so far in FY10 for improving the power, roads, banking, rural development and water sectors. It only remains to be seen if India can make the best use of the funds and the opportunity.