Scared ? Worried ?

Oil down 50%+, Ruble crashing. Rupee on its way down and maybe  the stock market too !

Worried about your stocks ?

Take a deep breath and ask these questions (I ask some of them and a lot of times the answers I get make me see my mistake)

Are you retiring next year ? If yes, why the hell is that money in the stock market!

Do you understand the business and have confidence in the long term performance of the company ? If not, why did you invest in the first place?

Do you lose sleep from the volatility and quotational loss of your portfolio ? If yes, why are you not in just fixed deposits?

Do you have good health, another source of income and don’t need the money in the next few years ?  If yes, then stop watching the financial news and go back to some more productive activities?

As I said in the previous post, I have a consulting service to provide a list of very productive activities to people who watch too much Financial news !  Call me for a free consultation :)

If you think this is new - read this, this and this. This is almost an annual or a once in two year affair. For the some of you who were wishing for bad times, be careful what you wish for! you may finally get it, so better be ready for it.

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Stocks discussed in this post are for educational purpose only and not recommendations to buy or sell. Please contact a certified investment adviser for your investment decisions. Please read disclaimer towards the end of blog.

Analysing ICICI bank – from a depositor’s perspective

The major events over the last few weeks created a small scare for some of the Indian banks. The fear was the level of exposure to the Lehman Brothers bankruptcy and the ongoing credit crisis.

Considering that a lot of us including my family and me have our savings with ICICI bank, I decided to have a look at the Annual report of the bank in detail. Following is the analysis of the bank from a depositor’s perspective (and not an investor’s perspective).

Some positives
The bank raised 20000 Crs in 2007. As a result of the issue, the CAR (capital adequacy ratio) now stands at around 14%. The bank has an annual profit of around 4150 Crs and a consolidated profit (including subsidiaries) of around 3100 Crs.

ICICI has several subsidiaries. In aggregate the subsidiaries are making losses, mainly due to the insurance sub. Due to the insurance accounting (expensing the policy expenses in the current year), the insurance subsidiary has been showing increasing losses as it grows. However the subsidiary has value, which is growing. In all, my personal estimate for the valuation of subsidiaries is around 23000 Crs, which is around 30% of market cap and almost 50% of book value

Negatives
The bank has been in the limelight due to the losses incurred by the collapse of Lehman brothers. This has been a case of availability bias. The market has been focused on the dramatic instead of the important (as usual).

The derivative related losses (dramatic) incurred by the bank have been to the tune of around 887 Crs which have been charged to the P&L statement (marked to market) and around 203 Crs, which have been charged to reserves.

AS 30 accounting requires mark to market accounting (and P&L pass-through) for certain derivatives and reserves adjustment for others (read AS30 to understand the details).

At the same time there has been a rise in the Gross NPA from 4850 Crs to 8350 crs. This increase is more important for the bank and its valuation as retail assets account for around 60% of the bank’s assets. However the market did not react strongly to this important change as it is hidden in the Balance sheet. The NPA have increased further in the current quarter. In addition the provision are around 55% of Gross NPA. So there is still an exposure of around 3500 Crs, which could hit the P&L in the future.

accounting is pretty complex
Bank accounting and especially derivative accounting is complex. It is very difficult to make out whether the bank is making or losing money on its entire derivatives exposure at any point of time. The bank discloses the total notional exposure which is atleast 1000 times or more of the net exposure. The profit or loss is a multiple of the net exposure. So it is difficult to figure out the profit or loss on the derivative book based on the bank disclosures alone.

In addition mark to market accounting is also misleading. It is equivalent to drawing your personal profit or loss based on change in share prices. If you think a stock is worth 100 rs, and you bought it for 50 rs and the price dropped to 30, how will you account for it ?

Mark to market accounting says, report a loss of 20 now. If the price jump to 70 in the next quarter then reverse this loss and report an ‘income’ of 40. However you may choose to ignore these swings and say I intend to hold the share for next 3 years and believe the market is mispricing the stock in the interim.

So what is the truth ? frankly there is no objective truth. It depends on the specific instrument and circumstances. Accounting requires being conservative and hence the loss of 20 in the current quarter.

This is the kind of complexity we are dealing with derivatives. The bank may very well have losses on the portfolio or they may right in saying that these are only notional losses as the underlying credits are still intact.

are there solvency issues ?
I think there are no solvency issues for the bank based on the current losses and statements from the bank. The bank has reduced the credit derivatives by almost 800 Mn usd. This does not mean that the bank will not have losses in the future due to derivatives. There is a huge derivatives exposure (notional) on the banks balance sheet.

As of March 2008, the fair value for the derivatives was positive and for interest swap is midly negative (page 116) , so the bank is not losing money on those derivatives (as of march 2008) . However this value may turn negative in the future.

However the point to remember that the bank is making around almost 1000 crs per quarter on a standalone basis. In addition it has a high capital cushion and assets in the form of subsidiaries. So there is a decent amount of capital cushion to absorb any of these losses. There is always a risk of unknown losses hiding in the balance sheet in the derivative books due to black swan events. I frankly cannot evaluate and estimate those losses from publicly available documents.

Finally the trump card for the bank is the concept of ‘Too big to fail’. Do you think the Indian government would risk allowing the bank to fail (second largest bank in the country) and jeopardize the financial system?

valuation based on book value ?
I am amazed at the simplistic valuations done by a lot of people and analysts. For ex: ICICI is selling at X times book value and hence it is a buy !! If you read the Annual report, you will realise the complexity of this company. It would be silly to value the bank based on book value alone
The bank has assets (subsidiaries) and risk (derivative exposure) which are quite difficult to estimate (atleast for me). A simple book value based valuation is a foolish way to value this bank.
The minimum analysis to arrive at the final valuation is to value the bank and its subsidiaries. The derivative exposure and other liabilities need to valued separately and the net value should be derived from the difference. Luckily, investing in stocks is not like exams where I will get flunked for not answering a question. I can always pass on the stock.

Credit crisis – Impact on us

The crisis is now full blown. I have not seen panic at this scale personally. I have read about it, but not seen it personally. It almost feels as if companies are being targeted one at a time. Lehman went into bankruptcy and AIG just survived through government help, though equity holders have been wiped out (almost). Now it seems the market has moved on to Morgan Stanley, Goldman Sachs and Washington mutual. It almost feels as if the market is killing one company at a time. Scary!

How does it impact us in India?
I think, the impact would initially be limited to companies with Global businesses. So IT companies with revenues in this space could get hit in the short term. However I think it should work out for these companies in the medium to long term as they find new clients, geographies and start growing again. The business model for IT companies is not under threat. However in the short run, IT companies are and could keep getting hit. However I would be worried about small IT companies with high exposure to the Financial and associated sector.

The next in line to get hit could be banks like ICICI bank and others, which have foreign operations and derivatives on their balance sheets. I am currently analyzing ICICI bank and I can tell you that complexity for most banks have gone up. As I wrote earlier, I exited banks quite some time back when I realized that I could not evaluate the risks correctly. That said, I think none of the Indian banks are under serious solvency threat. The profits could get hit, but most of the Indian banks do not have massive exposure of derivatives. I am analyzing ICICI and other banks from a depositor’s point of view and not from an equity investment point of view. So I am looking at these banks from a safety point of view.

Other than the above two sectors, I cannot think of any broad sectors, which could get hit hard by this crisis.

Second order and higher order effects
What is missed out in most analysis, is the second and higher order effects of an event. Indian companies may not get hit directly, but a recession in developed countries and lack of liquidity and risk aversion is bound to affect us in the medium term.

For the last, 3-4 years almost every asset class in India has gone up. There were all kinds of reasons given for this rise, but rarely was liquidity mentioned as one of the key reasons. Now with the liquidity drying up, I don’t think we will be seeing such double-digit growths in Real estate and other markets.

What am I doing?
I don’t get worried about drops in stock prices. Such drops are a part of the game. When I invest in equity, my main worry is permanent loss of capital and not temporary losses due to volatility.
Personally, I had put my buying on hold for the last couple of months. For some reason, I felt that the markets could go south in the medium term. As a result I stopped buying some time back. However I did not back this hunch by going short, as I may very well may have been wrong. I did buy some puts, but did not build a decent position as I was not sure. I think I should start trusting my gut more.

I am still standing pat and not planning major activity for some time. I personally don’t expect these issues to get worked out in a few weeks and feel that I could be getting better bargains in the near future.

I have a question and would appreciate if some could answer, as I have not been able to figure it out – If the bank/ DP fails, what happens to my shares. Is it similar to a savings account where you can lose your savings or are the shares held by NSDL or someone else and hence I am safe?

A failure a week

First it was Bear stearns, but the US treasury (similar to our Finance ministry) and the Fed (similar to our RBI) engineered a bailout. Bear stearns, an investment bank was bought out by J P morgan, a commerical bank, in March. This bailout was done to calm the markets and reduce systemic risk.

Well, next in line were Freddie Mac and Fannie Mae which were nationalized (federal takeover) for the same reason last week. Now this week it is the turn of Lehman brothers which seems to be on the verge or ready to file for bankruptcy protection. Merrill lynch, another Investment bank and brokerage, is in merger talks with Bank of america. After Lehman brothers, Merrill lynch seems to be the weakest firm and so it could come under attack.

More companies at risk
AIG, one of the largest insurers has fallen by 30% and is at risk now. So is washington mutual, another large bank. So we have a situation where the credit crisis (acutally bad investments on part of the banks and institutions) is now engulfing the financial system. Finally the S*** is hitting the fan !

We could very well see a domino effect and the US government may decide not to bail out any more companies. We could be in for some nasty times.

What does it mean for us ?
So how does it effect us ? Well if you are into medium to long term investing, not much. Actually the panic could create opportunities for us in india. I really don’t see Indian companies getting impacted (other than IT or export oriented companies due to a possible recession in the US and other economies). The impact for IT companies in the long run should not be too much. However there could a short term impact in companies with a high percentage of revenue in the BFSI segment.

All this mess, makes you wonder what kind of risk our banks and financial services firms are taking. I am repeatedly reminded of this statement by warren buffett

‘When you combine ignorance with leverage you get some pretty interesting results’

Infosys accquisition of Axon group: My view point

Infosys recently announced the accquisition of the Axon group. Most of the analysis I have seen is centred around whether the deal is EPS accretive or dilutive. I think this kind of analysis is superficial and misses the point. A deal can be EPS dilutive and still be adding value and vice versa (more on that in a later post).

In this specific case, Infosys is accquiring an ERP (SAP in this case) consulting firm with net margins of around 10%. ERP consulting is a high margin, high growth business for Infosys. The typical gross margins are sometimes in excess of 50%.

How do I know ? disclosure : I worked with infosys in their ERP practise in the past. The ERP business for Infosys has seen phenomenal growth in the last 8 years and has done exceedingly well. Their Oracle and SAP practises have done very well too (I have personally seen the practises grow in the last 6-7 years). Infosys has managed to constantly increase the offshore component of ERP projects and thus maintain high margins.

Axon has gross margins in the range of 25-30%. In addition they are based out of UK, US and Malaysia. I am not sure of how much offshoring Axon does, but any improvement in the onsite/ offshore component of their existing projects due to the backend infrastructure of Infosys will enhance their margins. This is a good deal where Infosys gain the front end part of the business ( clients, onsite consultants, relationships , Knowledge etc) and Axon (which will be now be a part of infosys) will see improvements in margins due to higher offshoring.

Is everything hunky dory then ? Not necessarily. Integration of Axon into infosys will be a challenge. Infosys has an ‘Indian’ company culture (I do not mean it in a negative way). They are very conservative on expenses and there are other typical ways of doing things. Axon (about which I do not have any special insight) must have a more European culture. Integrating two such diverse culture will be a challenge. The key asset for an consulting company are its people. If the integration is poor, then employees from Axon (or even from exisiting practise in Infosys) could leave. I think that may not be a major issue in the long term. The company will work on retaining the key employees.

So overall, there is more to this deal than just plain EPS numbers. The ERP practise (especially SAP) is doing well for the company. Addition of Axon will provide further scale to the SAP consulting business of infosys and will add value down the road.

Additional disclosure : I hold infosys stock

A question on trading

06/27

some more observations from an outsider

- i have generally noticed that the younger crowd is more attracted to trading. that does not mean older people dont trade. just that if you talk to 100 young guys who are interested in stock market, a sizeable numbers would be into trading
- A lot of my friends who are into trading have a bias for action. There is the thrill of being right and knowing that pretty soon.
- there is more sense of company. you get to discuss about it with more people. value investing is pretty lonely. you buy ugly beaten down stocks. who wants to discuss companies no one has heard of ?
- media and the environment like brokers also encourage trading. no one will recommend buying a stock and sleeping on it for 5 years.

if you are a trader, please do not take this as a criticism of trading. These are just neutral observations (maybe incorrect) of an outsider. I may have bias against trading, but not a bias against people who do trading.
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I have noticed in general that the number of people interested in trading are far more than those interested in long term investing or value investing. For ex: there are far more blogs on trading than say value investing. There could be an overlap between the two groups too. I however have no aptitude for trading and it does not fit my temprament. I have said so in the past.

I can understand why there are more folks interested in trading. Trading does have an element of excitement. You get to do something quite often, whereas value investing or long term investing is as exciting as watching grass grow or paint dry. So this is my question – What are the average non – leveraged returns experienced by traders over a multi year period ..say 5-6 years (including a bull or bear market) ?

I agree there are several trading strategies and so to lump all of them under ‘trading’ is not smart. But at the risk of sounding dumb (which I am in terms of trading), I was curious to know what kind of returns do most people get ?

Inflation and debt

I have been reviewing the results of some companies and a few points are standing out

- raw material cost, over heads and labor costs are now increasing faster than sales
- Net margins are stable or coming down. Profit growth has slowed
- Debt may start getting repriced soon. As a result interest costs could start increasing

Maybe this is not news. However the above has the following implications

- valuations for the market and several companies is still based on the low inflation, high growth and high ROE environment of 2002-2007. If we have stagflation (high inflation and low growth), we could see prices drop sharply.
- Some companies in response to high growth, have taken on large amounts of debt. If we have stagflation, these companies could get hit very badly. The stock price for such companies could plunge sharply.
- In contrast companies with strong competitive advantage and low debt can maintain margins due to pricing power of their products and low interest costs. Such companies may see lower impact to their stock price.

I am not predicting a long period of high inflation and low growth and cannot be sure if we will see drop in stock prices. History (mid 1990’s) gives us a clue. During mid 90’s in response to high inflation, RBI hiked the interest rates to around 15% and we had a period of low growth from 1997-1999. Stock market returns were also poor during this period.

Does it mean that we should sell our stocks and wait for the clouds to clear. I would say no. The future is never crystal clear. It never was and never will be. What we can, however be sure is that good companies, with strong sustianable competitive advantage, will do well in inflationary and recessionary times.

What such times gives us is low prices due to the pesimissm. These low prices can be used to invest in good companies at attractive prices to build a good portfolio. However this is not easy and not for the faint hearted. If the inflation drops and the growth picks up quickly , then the returns could be good in the short term. However if economic situation takes time to turnaround, then be prepared to wait for a long time for the returns to materialize.

Change of Wind

US is in recession, Rupee is going to appreciate, wage cost is increasing, IT industry is doomed over,gone ..ok I am exaggerating. This was roughly the view just 1 month back.

I was running a few filters around that time and a lot of IT midcaps came up in the list. Some of these companies were 500 Crs+ companies selling at 2-3 times PE and 3-4 year lows. I listed a few ideas here. Since then there has been a complete change in the outlook.

The initial runup in the stocks seemed to be a correction of over-reaction in the prices. However as soon as Infosys and other results started coming out, there seems to be panic buying happening. Stocks like NIIT tech have gone up from 90 to 135, patni from 200 to around 280. So most of the IT midcaps have seen a 30-40% runup.

So whats the point, you may ask. Well I have always had a dilemma. Once I figure out that a sector or stock is undervalued, how fast should I react in building up a position ?

Based on this episode with IT midcaps, a big position,quickly would make sense. However that is a retrospective approach based on after the fact. Most of my picks go into a coma for quite some time and I typically analyse the stock further in detail for months together and build my position over the course of a few months. This approach helps as I am able to average down my cost, get a better understanding and build a decent position.

However this approach fails me in sudden runups. However in view of my overall time constraints and my need to do a detailed analysis, I prefer to take my time and build my positions. I would rather lose a few quick gains than compromise on my approach and repent later for the sloppy analysis.

In case you are wondering, I did build a position in NIIT tech and Patni computers around the major lows. This was however pure luck. It is quite possible that the opinion may change again and the prices may drop back again and i may get an opportunity to add to these positions or build new ones. Unfortunately I have no abilities to predict the future and do not follow an approach based on one. The downside to the run-up is that these stocks are no longer compelling no-brainers at current prices.

As an aside, I am seeing articles popping up saying capital goods and real estate sectors are overpriced and IT seems to be undervalued. Now you tell me !!

Inflation, Rupee-dollar rate and impact on stocks

I generally avoid a macro view on stocks. It is quite difficult (for me) to analyse a macro event and then come to a stock specific conclusion.

However there seems to be broad trend of dollar depreciation (that not news :) ) due to variety of reasons – subprime, US current account deficit etc etc. A drop in the dollar does not always translate into a rise in the rupee as ours is a managed currency. However inflation and its impact on elections is a powerful motivation for the government to appreciate the currency (imports such as oil become cheaper).

Recently inflation hit 6%+ and it is quite likely that one of policy decision could be to allow the rupee to appreciate. Sudden or slow appreciation? I don’t know. However an appreciating rupee impacts my stock strategy as follows

- IT stocks could get hit further. I doesn’t matter that some are selling at 2-3 time PE and are being priced for bankruptcy. The market is not rational always. If IT stocks could sell for 100 times earnings, they could drop further.
- Oil companies could benefit ..the key word is could. For all you know, the government could drop the prices and pass the benefit of the rupee appreciation to the consumer.
- Export based industry such as textiles etc could be in for a tough time. Makes sense to find the strongest players and invest only in those companies which can pass some of the currency impact to the customers.

I am not changing my stock specific plan drastically. No moving out of export dependent companies and moving into import driven companies and all that. It is quite diffcult for me to figure out the exact impact of such macro factors in the long run.

I am not a contrarian by nature, but going against convential wisdom has been very profitable for me. So as it becomes an accepted wisdom that IT companies or other export driven companies and their stocks are doomed forever, I plan to look more closely at them (and buy if I find them attractive and oversold). and I will not blame you if you feel I am out of my mind to think of IT or export driven companies. I am now very used to that feedback :)

ICICI bank news - some comments

Deepak has posted on the current news around ICICI.

See - ICICI's Disclosure See-Saws: Openly Making Fools Of Us

Following is my comment . You can read the discussion and all the comments on his blog

Deepak - Although it would be good to have more disclosure, it may be risky for a bank to do so also.

In addition the changes in the loss estimates seem to be consistent with what is happening in the market. For derivatives, accounting requires that the losses of mark to market are passed through the P&L even if the contracts are held to maturity (see this year's berkshire hathaway AR for some discussion on this)

So as the markets are deteriorating, the mark to market losses could increase and the bank will have to recognize them. This is also consistent with the banks claims that these are held to maturity and may not have losses (similar to a goverment bond portfolio where you may have mark to losses, but if you hold the bonds to maturity there may be no losses).

I am not saying that is case with icici, but it may be possible. Also icici may be communicating only required information, but i really doubt they can fudge the data without a serious consequence.

Regarding the solvency, the bank has a networth of almost 12bn USD. Even if they lose 50% of their derivatives portfolio, you are looking at a drop in the CAR from 15% to somewhere around 13-14%. Not good for the stock, but definitely not a solvency issue. In addition the bank has a lot of assets on the books at book value like their insurance subs, icici direct etc. so they do have some hidden assets too.

disclosure - i am neither long nor short this stock

Additional points

The above discussion does not mean that I think ICICI is a good investment or otherwise. A 250 Mn USD loss is still less than 1% of the asset base of the bank. The bank has a 1.47% Net NPA on its books. I am not sure if a 1% increase in NPA would have created such a hysteria.
On the contrary the bigger risk for the bank is the retail portfolio and NPA’s which can develop in the future or other hidden liabilities on the balance sheet.

Financial institutions and risk

update: 09-Nov - A great post on the valuation of financial firms and the diffculty of doing so ...see here

I have written on banking earlier. You can find my analysis of allahabad bank here. Most of you must be aware of the subprime crisis. I discussed it briefly here.

Banks and financial instutions by their very nature are highly leveraged organizations. So the risk of bankruptcy and losses is higher with banks. Citibank is one of the largest bank in the world and has seen its stock drop by 35% this year. The CEO has just resigned. You can read all about the crisis here.

So what does citibank and the subprime crisis have to do with banking in india. Well a lot … Let me digress and tell you a short story.

The year is 1996 or maybe 1997. I was starting to invest and saw an article on IFCI (I guess you must have already got the hint or must be thinking ….what a Bozo !). Well, the article said that IFCI is a good opportunity as it was near its 52 week low and had a dividend yield of almost 5-6 % (don’t remember the numbers exactly). So thinking that I had found a good opportunity I promptly bought some stock.

Fast forward: 1998-1999. IFCI is a government controlled institution. Politicians look at it as their piggy bank. So if you are a well connected businessman, launch a project, get funding from IFCI, take your money out and refer the company to BIFR. So by 1999, I think IFCI had more than 12% NPA and was bankrupt. There was hardly any dividend and the stock had tanked by more than 70%.

So the moral is …..

1. Don’t base your investments on someone else’s analysis
2. Investing based only on dividend yields is not a good idea. Investing in financial institution based only on dividend yields is a very bad idea unless the financial institution is sound and can maintain the dividend.

So what has happened with citibank is possible with Indian banks too. Banks have a lot of leeway in hiding bad loans. Indian public sector banks due to political interference can end up with even more and these bad loans or assets come out only later. It is difficult to judge asset quality just from the balance sheet

Added note: I have an NRI friend who had invested in citibank based on the dividend yield. Just out of curiosity I downloaded the AR of the bank and my head started spining. It is more than 100 pages, very complex and very difficult to understand (especially for me and may be the CEO too who got fired for not understanding or maybe underestimating the risks).

Indian Corporates going global

The list of Indian companies going global is expanding rapidly. I am not referring to the IT services /BPO companies which had a global model to start with. I am referring to companies like asian paints, Tata motors, Auto component industries, Pharma companies like Ranbaxy and banks like ICICI  etc.

Clearly the factors for success in the global market would be different from those in India (more in some industries than other). It is difficult to come up with some unifying logic on the factors as each company, its market and strategy is different.

A company like asian paints is expanding in countries like Singapore, Thailand etc but avoiding the developed markets. It is leveraging its capabilities in distribution, channel management, sourcing but not extending its brands. On the other hand ICICI targeting the developed countries, but specifically Indians. It is leveraging its brands, technology etc to expand in these markets.

The common thread I have been able to see among these early globalisers is that these are successful Indian companies who are leveraging their existing capabilities into these global markets. However these companies appear to be defining their strategy clearly by identifying a niche in the global markets and attacking that niche with the distinct capabilities they already have.

For example, Ranbaxy has used its reverse engineering skills and low cost production base to attack the generics market (although some of these pharma companies are getting into drug discovery too).

Auto component companies are using the low cost and engineering talent to become the sole / preferred suppliers for Global auto companies. Another interesting point I noted was that most of Auto component companies have their own niches within the product groups.

I personally think understanding and evaluating the strategy of these companies for these Global markets would be very critical to come up with a proper valuation and a buy/ pass decision.

Any hasty / overly optimistic assumption would mean that one would end up paying for the likely growth potential with no margin of safety if the market also believes in the same thing

Microsoft's nightmare inches closer to reality

Read this article on cnet.com. The article talks of the challenge which google is posing to Microsoft.

Found the following comment interesting. Interesting to see how established business models are getting disrupted constantly , for ex in Telecom, in the desktop space (where Microsoft had a complete monopoly).


Microsoft, it seems, is faced with a classic "innovator's dilemma," as author Clayton Christensen put it in his groundbreaking book that defined why tech giants usually miss the next wave of innovation. Microsoft execs made what looked like the right decisions at the time. As a result, the cash came in. The core product, Windows, became bigger and more complicated, and getting updated versions became harder to get out the door.
Plotting the counter-offensiveThe burden of that success, as the theory in the book goes, makes it harder to respond to the next generation of tech innovators. Years ago, Microsoft and Apple rattled IBM. Now Google, some believe, has a chance to rattle Microsoft by providing a cheaper, easier-to-use alternative. "Every other time Microsoft was attacking from below," said one former executive. "Now (Microsoft) is being attacked from below and they don't know how to deal with it."


Can’t think of an equivalent scenario in India. But models which are undergoing a lot of change are retail, the auto industry – auto parts, Pharma industry (we seem to be playing a role in impacting the global industry ). Good to realize that in most of these sectors, Indian companies are acting as the disrupters or would be disrupters.

BRK buys Annhieser Busch (BUD)

Looks like a typical buffett move. A company with strong brands such as Budwieser, oligopolistic industry , very high Return on equity for the company, strong distribution, a product / business model which will not change (who is going to stop drinking beer ??) and hence predicable.

seems the only disadvantage is the mcap of the company is small so BRK cannot take a very big position