Stock Market Correction: What will Warren Buffet buy today?

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If you are a long term investor then ongoing correction is more of an opportunity rather than disaster. Currently, we are in a phase where there are plentiful opportunities. If you have the right process & patience then in the next couple of years, some of these small caps will touch a new high and in the process shatter previous all time high records. Coming back to process, we can take a clue from legendary investment gurus and apply their investment process to unearth such hidden gems.

@ AI post, we are writing a series of posts in which we publish stock watchlist of famous investors by applying their filters on Indian small cap stocks. Last week, we had Benjamin Graham (click here to read) and today we have Warren Buffet. We are keeping the language simple and contents precise.

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About Warren Buffet

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He is one of the most famous investors world-wide. If you are into equities, most probably you know about him. Let’s know more about not so well known details of “Oracle of Omaha”.

Mr. Buffet grew up during an era of great depression. He was born in 1930 just when great depression occurred in 1929 and lasted for several years. It made him to value money and savings. He was frugal as he lived in YMCA hostel while doing his MBA from New York. At the age of 13, he used to deliver newspapers, morning & evening. He also used to sell stamps, coca cola bottles & magazines door to door.

By the age of 15, he amassed $2000 to buy a 40 acre farmland in Nebraska. Using his farming income, he applied for Harvard but was rejected. Life had other plans for him as he went to study in Columbia University and met the professor, Benjamin Graham. From there, history was written as he built $84 billions empire on his own. Currently he is the 3rd richest person in the world behind Bill Gates & Amazon’s Jeff Bezos.

All this started in 1956 when he quit his full time job to start Buffet Partnership Limited which later matured into Berkshire Hathaway, a textile company he purchased in 1964. His investments grew at phenomenal pace and attracted many new investors to his firm. He purchased 7% stakes in Coca Cola back in 1988 and still holds those shares.

He is also one of the biggest philanthropist. In 2006, he pledged to gradually give away a mammoth donation of $36 billions to Bill & Melinda Gates Foundation. By 2017, he had already donated $ 27 billions for charity.

Investment Philosophy

Warren Buffet started his career as investment banker but was not fully satisfied as many stocks he suggested, dropped and caused losses to his clients. He quit his job to join Benjamin Graham’s firm and later formed his own investment firm to have full autonomy over operations. The losses made during early career matured Mr Buffet and he was quite successful with his own venture. This again proves that market is a great teacher indeed!

Being a follower of Graham, his investment style is very similar to Graham’s. In his own words, his style resembles 80% of Graham’s style.

Warren Buffet himself never wrote any book to fully describe his principle but his principles are derived based on annual letters written to Berkshire Hathaway shareholders.

The basic principle of Warren Buffet can be summarized as below:

  • Treat shares as a fraction ownership of the underlying business.
  • Invest within your circle of competence. Buy stocks whose business you can understand very well.
  • Always insist on margin of safety. Buy stocks which are trading below intrinsic value.
  • Never sell at a loss. This is because Mr Buffet himself buys at deep discount leaving very little chance for making losses on his investment.
  • Buy stocks for life (long-term). He advocated holding stocks forever.
  • Buy stocks with moat (companies having significant edge over competitors).
  • If a business does well, stock price will eventually follow. Don’t pay attention to short term noise.

Warren Buffet on occasions have defied his own investment principles. For example, recently he purchased airline stocks while he had been a long term critic of airlines business models. So, when following his principles, we must apply another hidden principle which is:

  • None of the principle stays forever, they need to keep on evolving over time.


Stock Watch-List

Based on Warren Buffet’s principles and our own set of filters, we arrive at below sets of stocks which pass the criteria at current valuations.

Please take a note that this is not an investment advice as analysis is done purely on numbers and not on qualitative aspects. Further, if a stock has performed poorly in the past but is poised for a turn-around, it will be unable to clear the filters since they are based on past performance.

We have selected stocks with a market capital of above ₹ 100 Cr but less than ₹ 1000 Cr which means that large cap & mid-caps are excluded from this list.

  • Oceanaa Biotek Industries Ltd. (Market Cap: ₹ 149 Cr)
  • Lakshmi Electrical Control Systems Ltd. (Market Cap: ₹ 153 Cr)
  • Aspinwall & Co. Ltd. (Market Cap: ₹ 209 Cr)
  • Samkrg Pistons & Rings Ltd. (Market Cap: ₹ 211 Cr)
  • Stovec Industries Ltd. (Market Cap: ₹ 540 Cr)
  • Ultramarine & Pigments Ltd. (Market Cap: ₹ 742 Cr)
  • Balmer Lawrie Investments Ltd. (Market Cap: ₹ 925 Cr)
  • Oriental Carbon & Chemicals Ltd. (Market Cap: ₹ 1000 Cr)

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