Monday, October 5, 2009

Irony of Buffett

If someone wants to buy $20 of your stuff with only $10, will you sell it? Probably not unless you don't feel it is worth $20, or you need the money urgently.

Yet that is how Warren Buffett, a rich person, earn his money. How?

He does it by buying company that are undervalued or discount. He is well-known for fact so when he wants to buy a stake in your company, he is probably buying it at a cheap rate. He also buy them but does not manage them at all. So why will someone sell something he knows is more valuable to someone at a discount? Furthermore, the buyer don't even 'care' or manage the company then.

So why will a owner of a company offer his company to Buffett then? Probably, they are desperate for huge amount cash or financing that banks are not going to give. Buffett should have a hoard of cash available for opportunity.

Another reason is that the owner wish to sell or spark his stock price. People will be aware when Buffett buys a company and will wish to buy a stake too. This may spark the price and the owner can sell it then.

Just feel that it is an irony that with his huge reputation, he can still pick cheap companies.

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Anonymous said...

This is call smart strategy. A person that take the risk/challenge and know how to make good value and great changes of his investment. Ever heard how orchard road grow. Partly of the land was for graveyards or cementary, no value at all. But later years that place had developed into how orchard Road be like now.

Another example like a wasted land which were filthy, not comfortable, not beautiful, consider worthless can be converted into a beautiful place or shape to perfect/worthy development.

Hoon Thien Rong said...

Yes, but your examples all requires changes to be made to the investment. However, for Buffett, he do not do anything at all. He does not meddle with the company and let the same management team handle the company.

Therefore, it is an irony why someone sell to him to do nothing, knowing he is likely to profit from it.

Anonymous said...

People like Warren Buffett always analyzing company's fundamentals such as annual reports, corporate statement, stocks of companies were well managed or not, product could and should prosper/grow as investments, capability in making sure of investing the right kind of people or leader before embarking an investment that pay off. As he possessed a well establishment in his system and in return his investors placed great faith in him . He trusted and assuring the company could grow and profit.Thus letting the same management team to handle the company..

Those example are just referring the skill in accurately determining the intrinsic value of a investment plan/product and the profit in the long term basis.

Hoon Thien Rong said...

Yes I understand the point of view from Buffett and investors, I agreed Buffett is skillfully in determining the intrinsic value of a plan/product/company. Therefore, I am surprised and raised the irony of why will owners of companies sell shares of their company to him and let him profit from their shares.

If he wants a share in your company, you know he is skillful and your company is probably undervalued. Buffett is trying to profit and of course not giving you money for charity.

Therefore, if you know he can profit from your shares since your shares is undervalued, why will you even sell to him and let him earn your share of money without doing anything.

Anonymous said...

Yup, to buy and forget. don’t require him to do anything, let the same guy handle everything and have a track record of earning money/gain profit. Not many can follow Buffet's league. He has the mean and a risk management system to do so.

The owner must be in a very desperate situation to let buffet get what he aim for and it grow over time and ahead. This concept has served him well and investor was passionate enough to learn Mr.Buffett’s strategy/way.

Btw, Thanks for your interesting Buffet's blog posting.


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