The genius of Warren Buffett

Everyone was surprised a year ago, when Buffett bought US$ 5 bn of Goldman Sachs preferred stock. This is after Lehman Brothers had just collapsed and Wall Street was yet to recover from the shocks. Moreover, Buffett's past involvement with bankers like Salomon Brothers had turned out to be time consuming affair.

But then, he rarely misses on a good deal, even if there is a tsunami of bad news all around! The next day Buffett had said, "The price was right, the terms were right, and the people were right." He also secured a margin of safety from the terms of contract - a 10% dividend and also the right to buy US$ 5 bn of common stock at a strike price of US$ 115 per share.

A year later, his decision has turned out be correct! Investment in Goldman has made Buffett's Berkshire Hathaway richer by US$ 3 bn in twelve months! Given the current share price of Goldman Sachs at US$ 183, the warrants alone are worth US$ 3 bn ((US$ 183 - US$115)*45 m warrants). Of course, the warrants were not available to the ordinary investor in the US. But then, all he needed to do was buy the common stock to comfortably outperform the broader market. Easier said than done! Don't you wish that there is a Buffett in everyone of us?

Everyone wants that extra source of INCOME, but...

The usual brainstorming over coffee inspired me to write this post, hence I dedicate it to my colleagues Aadith and Gurminder!

Who does not want that extra source of income? Now if you think that you don’t want to indulge in this ‘game' of extra source, then you might be joking to yourself! In India, masses has this trend to try and copy what others do. When we come to know that our colleagues at work are generating that extra bit of income, and that too, by investing in Stock Market, we also want to go that way! The thirst keeps on building when our colleague tells us more and more about how much he/she gained from today’s trade. We think that’s it- I don’t want to be left behind and that’s when Tsunami says Hi!

The disaster:

I will call this a rippling effect. Interestingly, while the numbers remained near to the ground throughout the last few years, it has been noticed that the share of households’ money that go into stock markets tend to mount just before a bubble is about to reach its peak (now this is what is the I call the nastiest part)

Source: RBI

The moral: While investing in Stock Market, don’t just go with the wave. Use your own Datacenter to judge or should I say “Dimag ke batti jalao, Apni akal lagao”???