There are many books and articles which ask you to invest like Warren Buffett. Well you cannot. You just cannot. He is different. You cannot invest like Mukesh Ambani. He is also different.
Let me give you an example. This is not a recent example, it is old. I will try to hide the name of the promoter and it is relevant.
One industry was not doing very well. They needed about Rs. 200 crores for their working capital. Banks were willing to offer this amount of money at 10.5% p.a. backed with guarantees by the promoter. Of course the promoter had the cash flow in liquid funds and bank deposits and was willing to give it to the corporate (listed company of course). The CFO wanted to go to the bank – it is easier to deal than deal with an angry promoter (!). However, the promoter wanted to lend money to the company.
What was the catch? he wanted 13%p.a. (fair enough, he was asking for a 2.5% fees for his guarantee). However ‘professionals’ think it is wrong and said ‘we need board approval’, we need agm approval…..etc. I remember the discussion with the promoter. He was insisting that he wants to lend. So he did the next best thing. His private company started a bill discounting for all the suppliers – so Rs.200 crores was pumped into the company at a cost of 13% p.a. It was structured as bill discounting, factoring, and even some vehicle lease. So the promoter had his way, and made about Rs. 50 crores – and had a depreciation set off to save income tax. Of course the CFO did not resign, the auditor didn’t find out (big 4, yes), the promoter had his way.
Why this story? Just to tell you that WB does not have to say “Omg Sun pharma is down to 370…lemme buy it today”. That is for you and me. Mukesh Ambani, Piramal, Warren Buffett, Soros….get deals that are amazing to participate.
If WB thinks SP is in some kinda trouble (like he reached out to Goldman Sachs) and makes them an offer. He offers to buy say 1 crore shares from the management at Rs. 330 (hey he gets a discount right?), so he buys the share. He then asks for a stock option (say naked warrant) to buy another 1 crore shares at Rs. 500 – say within 5 years from now. And he offers a loan of Rs. 300 crores at 11% p.a.
Good deal? sure. Why can’t you and I also do such deals? Well for starters we do not have that kinda surplus to invest. More importantly WB can talk up the share in a week. All he has to do is to say ‘I bought it’ and the price goes up. Can you do that?
Go do a soul search…why am i doing this article now?
One such deal happened recently.
All the names – WB, Sun, etc. should be substituted by an Indian name, Sun by another Indian corporate….go Google.
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