Warrent Buffet’s protege wants to invest only in small businesses.
Big businesses are over-valued even when they are underperforming. India’s best businesses have not been able to keep pace with the 13% nominal growth rate of GDP. Smaller firms such as Relaxo are outperforming.
As per Business Standard: Top 27 quality stocks such as HUL, Nestle India and Pidilite are trading at a trailing P/E multiple of over 65 times. In the last nine years they have delivered on an average a top line and EBIDTA growth of only 12 per cent, and net profit growth of 11 per cent. These numbers are below nominal GDP growth of 13 per cent (over the same period).Only Titan has a profit growth rate of 20%.
Warren Buffet’s protege Tracy Brit Cool is leaving Berkshire Hathway to focus on small businesses. She said in an interview, “There are companies that I think there’s a lot of value in helping them get to the next level, but they’re too small for Berkshire.”
Tracy will be applying the principles of Warrant Buffet, which is good for independent businesses. Seven key characteristics are building a consumer monopoly, consistent earnings over long term, a healthy return on investment, retained earnings, low debt levels, ability to increase prices, and healthy net and gross margins.