Lessons for investors in India from Warren Buffett’s annual letter

Lessons for investors in India from Warren Buffett’s annual letter

 Top 5 points from buffet’s 2016 letter that are relevant in the Indian context One of the most-awaited events in the global financial world is Warren Buffett’s annual letter to Berkshire Hathaway shareholders. Buffett typically provides interesting investment insights and there is much investor can learn from his perceptive thinking. Though his letter is for a largely American audience, there are numerous takeaways for investors around the world. Here are 5 points from Buffett’s 2016 letter that are relevant in the Indian context. 1. DON’T PAY TOO MUCH FOR GOODWILL What he said “As is the case in marriage, business acquisitions often deliver surprises after the “I do’s.” I’ve made some dumb purchases, paying far too much for the economic goodwill of companies we acquired. That later led to goodwill writeoffs and to consequent reductions in Berkshire’s book value.”  Lesson for Indian investors In addition to tangible assets like land, office building, factory, etc. intangible assets like brand, reputation and the like are also considered while valuing a company at the time of acquisition. These intangibles are accounted as goodwill. Existing goodwill is good because the acquirer does not have to allocate additional financial resources to build goodwill. But as Buffett says, it will be foolish to pay a very high price for goodwill. Due to this goodwill impact, companies with good brands usually trade at higher multiples and investors need to be wary. Paying too much, even for a great branded company, might not be a good investment. 2. TAKE ADVANTAGE OF MOVEMENTS What he said “Charlie and I have no magic plan to add earnings except to dream...