December 5, 2008

Overseas investing

I was recently chatting with sandesh and he asked me a question – Why don’t you invest in US based companies? Is it due to the fact that you consider them outside your circle of competence or some other reason ?

My response was – As an indian resident, I cannot invest out of india and that is the main reason for not looking at US companies.

So much for due diligence ! It seems one can invest abroad through ICICI direct and this facility has been available for some time. I do not know if there are some restrictions on the type of stocks one can buy and so would appreciate if some one can leave a comment on it.

I have been following a few companies in the US, mainly out of curiosity and as a learning experience. The one company I would like to own is Berkshire hathaway. This company is run by warren buffett and as most of the readers of this blog would know, I am a Buffett fan.

Warren buffett has been the chairman and CEO of this company since 1967 or 68 (don’t have the exact date). The company stock price and intrsinic value has grown by 20%+ since he took over the management of the company (you do the math of what 1000$ invested then would be worth now after almost 40 years of compounding at 20%+ per annum).

The core business of the company is insurance. In addition Buffett has invested capital by accquiring a collection of good companies or by investing in stocks. The company is a major shareholder in companies such as Cocacola, Amex, washington post etc and a 100% owner of companies such as See’s candies, DQ, GIECO etc.

It is diffcult to analyse the company in a short post and I will do a detailed post later if I can confirm that an Indian investor can invest in this company. However irrespective of the outcome, I would recommend everyone to read Buffett’s letter to shareholders (download
here) and analyse the company. I have read these letters multiple times and I can tell you from personal experience that these letters are the best education in economics, finance and investing.

I have analysed the company to understand the economics of an insurance business and also to see the disclosure a shareholder friendly management (Buffett is known for his shareholder orientation and ‘really’ considers them as partners).

I am uploading the valuation of the company (BRK valuation.xls) in google groups (see
here). The company is undervalued from my perspective. I would encourage you to download the annual report and read through it. It is a big report and takes effort to understand it, but it is worth it.

Caution: The company is undervalued, but the stock is not cheap. The ‘A’ stock is worth around 100000 usd (50 lacs per share) and the ‘B’ stock (which is 1/30 of A stock) is worth around 3200 usd (1.6-1.7 lacs per share). The reason for this high price is that buffett has not split the stock for the last 40 years (read the owners manual in the Annual report for the reason).

6 comments:

Anonymous said...

You can invest in US equities through ICICI Direct by paying INR 900 as fees. The minimum brokerage is $9=INR 450.

Rohit Chauhan said...

hi anonymous
is there a restriction or list of securities one can invest in ?

regards
rohit

Ninad Kunder said...

Hi Rohit

I think the restriction is in terms of value of foreign assets that a individual can hold and not the type of asset. So u could buy US equities or real estate in Dubai

Also I dont think u need to route it thru ICICI Direct. U can open a account in Etrade etc subject to US laws allowing u to do it.

Cheers

Ninad

Rohit Chauhan said...

hi ninad
i am not sure if can you open an account with e-trade or any other brokerage as they require you address proof, social security # etc.

but does it mean i can buy any US stock ?

regards
rohit

Ninad Kunder said...

Hi Rohit

http://inhome.rediff.com/money/2007/oct/25invest.htm

http://www.ibef.org/artdisplay.aspx?cat_id=60&art_id=16787

From my understanding and the links above u can buy any US stock.

Cheers

Ninad

Praveen said...

HI Rohit,
You can buy any (most ) of the US listed securities through ICICIDirect. Personally, I use it and hold BRK.B.
The only irritant I feel is to deposit the money, you have to submit the form manually. You can not do it on the net. The brokerage as mentioned above is correct.The max limit you can invest in one year is $200,000. It is way beyond most of our budget.The account is held with Penson Financial Services at US. Hope this helps.
Praveen