Raamdeo Agrawal | Investment Advice: Raamdeo Agrawal on price, value and how Buffett’s Berkshire Hathaway could end up with a net worth of $10-20 trillion

Motilal Oswal’s new ad campaign is brilliant. You’re right there in the ad.
Raamdeo Agrawal: Yes, we have tried to put some salt into the research. Nobody said, “Sir, if you want some credibility on a research-based campaign, come here.”

SEBI Chairperson Ms Buch said in a public forum that in terms of stock recall, Motilal Oswal has a great brand. I think it was an endorsement of the fact that Motilal Oswal has managed to become a company based on sound research.
Raamdeo Agrawal: Our marketing guys have done a good job.

No, but what matters is the substance.
Raamdeo Agrawal: I am a big believer in understanding value. You have to see that there is price and there is value. Buffett’s first quote is “price is what you pay, value is what you get.” So it is important to understand the difference between price and value. Unless you do your research, you cannot understand value. Everybody knows price. There is no advantage in knowing price. There is only an advantage if you know value. And underlying value is what happens when you hit value, you are way ahead of the crowd. And then you look for confirmation. Am I doing the right thing by buying because nobody else knows the kind of deep value that you can see?

That’s why it’s important to know the difference between price and value. You can only know what value is if you do your research. Unfortunately, the market is booming in terms of size, depth and participation. There are a lot of innocent people out there who need a lot of research and a lot of advice.

These are people who are coming to the market for the first time. It’s like someone going into the swimming pool for the first time. They need a lot of help. That’s why we have decided to double our efforts in research. And in the next one or two years you will see the research at Motilal Oswal expand.We were talking to you when Warren Buffett He was celebrating his birthday. What a coincidence!
Raamdeo Agrawal: Yes, it is just a coincidence. He was waiting for it to reach a trillion dollar market cap and it came as a birthday present for him. And for him, billions don’t matter either. So now it is at a trillion dollars. If you see the capitalization, it was worth one lakh dollars in 1962. Just one lakh, I think 1 lakh 12 thousand or something like that was his net worth in 1962. Today he is worth 140 billion dollars because he owns 40% of this trillion dollar machine. A little more than 50% he has already donated. So if you add, since the day after he took over, he has accumulated 20%. But if you take the donation part also, then it is more like 25% or something. So, it is not easy and quick money. It came at a pace and it is very well planned. In 1963, in his letter he said, I want to earn 10% more than the S&P is earning. S&P has had 10% growth over the last 60-65 years and he has had 10% plus 10% growth, or 20%. That’s the power of goal setting and the path he’s taken over the last 65-70 years.

He was founded in 1930, but his activity began in 1956, when he started managing Buffett Partnerships and in 1968-69 he closed it. In 1966 he had started with Berkshire at about $7.50 per share, which is now $650,000 per share.

There’s baby stock and then there’s Berkshire stock.
Raamdeo Agrawal: Yeah, so those are the derivatives, but the main class A is about 650,000. So it’s a million, a million times.

One trillion dollars for Berkshire Hathaway It’s a fantastic achievement and it still counts.
Raamdeo Agrawal: Buffett is 94 years old. So if he lived to be 104 or 110, every five years he would double his net worth. So in the next five years, a trillion would become 2 trillion, and in the next five years, it would go from 2 trillion to 4 trillion. So, I don’t know, he would end up being a 10 trillion or 20 trillion dollar guy.

It is not possible to say that Berkshire Hathaway has outperformed over the past 10 years.
Raamdeo Agrawal: That doesn’t matter. Even if you gain 10%, 12%, the market has gained, say, 15%. In the current year, the market has gained, say, maybe 20% or 18% in the US, while he has gained 28%. The market has its way of rewarding; there is an internal scorecard and an external scorecard. The external scorecard is what the market is doing. The internal scorecard is what he is doing. So, he is doing very well. Someday the market will realize what he is doing. And so, in a year, you might see a doubling or something.

Do you think the story of Berkshire Hathaway is very different largely because they are in the… insurance businessSo that’s how he started getting a lot of money in circulation? In India, that’s not the case. So Warren Buffett was at the right time, in the right place, with the right investments, but a lot of money came only because of the business he was in.
Raamdeo Agrawal: Yes, because he was an investor. Frankly, he was an investor and he tried to acquire Berkshire Hathaway, which was a textile company. It was a mistake. He himself admitted it was a mistake. So, over the next 15 or 20 years, he closed the last factory sometime in 1985. He’s not an operational guy. So, he ran into this insurance thing that he learned about on a Saturday and he learned all this stuff with Geico.

He also started to get serious about the insurance business and he put a lot of money into the insurance business. But it’s all about insurance, that money in circulation, and so he started investing. Of course, it’s his insurance business, but that was with the money in circulation. So how he invested the money in circulation in, for example, American Express, Coca-Cola and all kinds of things that he did. It’s a combination of operations and investments. It wasn’t just about operations or investments.

In India, there are all kinds of businesses going on. Anyone can go into this kind of business if he or she is passionate about trading and also investing. It is very rare to find such dual-minded people who can run a business and also invest.

Lately, Buffett has invested in Japan. Before that, he had invested in China. He has invested in different geographies.
Raamdeo Agrawal: Not much. It’s predominantly in the United States. I would say over 90%. Even today, if you look at the Japanese distribution, I don’t think it’s even close to 10% of their net worth. Now, the net worth itself is about $650 to $700 billion, so it won’t be more than $50 to $60 billion.

He has never come to India, although we say that India is a good market.
Raamdeo Agrawal: No, he came, but he never invested in India.

Exactly. You have visited India once, but you have never invested in that country. That is something I always regret. I would like to ask you why you have avoided going to India.
Raamdeo Agrawal: No, he invested in Indians rather than India. He has Ajit on his side. He believes that is his greatest find at Berkshire Hathaway.

By the way, their fund managers invested in Online payment At some point, but that was not an investment by Buffett, but by Todd or Ted, one of his fund managers.
Raamdeo Agrawal: But the amount of money that Ajit has made for himself is astounding. No country could have made as much as an Indian, Ajit, has made for him. So that was his connection with India. But as far as Indian companies are concerned, I think the sizes are small. The ownership patents are a bit strict. In insurance, he wanted to go into Bajaj Allianz. But they couldn’t have been allowed 51%. They said if we build the business, we need to have 51%. Now, there have been changes and they can be owners. But I don’t know if they want to come here. But the exposure to India has been very limited.

One number we always look at is the amount of cash Buffett has on hand. Cash has only increased tenfold since he sold Apple. If Buffett has cash, is that an indication of how he feels about the market or should we not be misled?
Raamdeo Agrawal: No, we shouldn’t. The first thing is that the macroeconomic predictions are terrible. He’s seen it firsthand. In 2008, on the eve of the global financial crisis, he said there was a good amount of employment there and all the new housing would be taken up and everything would be fine. This was in May, and by September the whole world collapsed. So his macroeconomic predictions have not been too good. So don’t worry too much about what he thinks about the market. You should act on what you feel about the market.

He has almost a third of the balance sheet in cash. What is his decision? He wants to make profits from Apple, that’s very clear. But where does he want to take that mountain of cash? Suddenly you’ll find him gobbling up some huge company like Coca-Cola or some other company he likes. So I wouldn’t put too much stock in the cash he has in him.