What makes Warren Buffett so successful? Of course there is stock picking. Make no mistake about it. However remember big investors – like WB get deals which you and me can only dream about. We may not even have the ability to execute it.

Let me tell you one such deal which I saw being done by a big industrialist. One of his companies needed Rs. 5000 crores of working capital. Obviously, he had some money in his personal capacity, and wanted to invest too. He also had a loss making company which had no tax liability.

How was the deal structured? The industrialist invested in Preference capital of the loss making company. This company structured a deal to give a ‘loan’ or ‘advance’ – they had enough transactions…and the interest was structured at 18%. The bank was lending at 12% p.a. The amount was Rs. 1000 crores structured like being on call!! So the industrialist had transferred Rs. 60 crores from a profitable company to a loss making company which was planning an IPO!!

Will you get such a deal? Even assuming you get a deal – what size of deal will you be able to execute? Will the auditor find out? will the social media find out? This deal is about 25 years old, and hence the guts to put in public domain.

Fairly obvious if you have Rs. 1000 crores you get different deals (like RJ, WB, VB, NS – go decipher!!) which common man cannot get.

What returns do big investors get on their portfolio is sheer guess work. At best about 50% of Berkshire Hathaway’s portfolio is made up of listed equity. Theory says we can duplicate this (I presume) and have the patience to hold it forever (like he says). However the other 50% consists of sweetheart deals which come to him because he is WB.

Take the Indian context. A big investor with a huge portfolio has a lot of listed equity, has a privately held company (companies honestly) and there is no way how you can know his family’s real net worth. To the best of my knowledge it exceeds Rs. 10,000 crores, but does not exceed Rs. 20,000 crores – but these are not figures from his CA, it is from a senior employee. Too embarrassing to ask somebody for an accurate figure. So let us assume that this figure is Rs.15000 crores. Honestly it does not matter.

He buys a lot of shares, earns well, and loses dramatically too. Some of his amazing losses are well hidden and only regular traders know those numbers. I remember a one transaction loss of Rs. 640 crores. Well, well. Market sizing should I say?

Such people can earn a lot of money in India. Even just saying “I am looking at that side” may be enough to set the suitors heart aflutter. Do they do such things? I will be damned if I had (have) the evidence. Frankly to me it does not matter. I do have a lot of portfolio overlap with some such investors – obviously a few digits lesser. However, such sweet deals are stunning – they even give a collar and a cap! Some deals are plain risky, and some are not so risky. They do get good deals and sweet deals which are backed by options at a much lower price. Naked transactions are almost impossible even for the ITO to smell out. More importantly these are completely independent transactions.

A few decades ago Mr. Buffett got bargains with companies whose quality ranged from  Gillette to Champion International, Salomon Brothers and USAir Group. Obviously he did not make money in all his deals, he also lost money. As he gained in status and his improved learning, he negotiates better deals. Hey all this is included in the Berkshire H’s results. Lessons are clear – you need to have a great track record, awesome media presence, fantastic SEO capabilities, ability to dramatically look much larger than life, etc. YOU NEED the ability to attract such deals, AND the ability to execute such deals. Fairly obviously I am not naming these people. would call such deals “Heads I win, Tails I win a little lesser”. No such transaction will come our way. Even Mutual funds will not be able to execute such transactions. MDA, RJ, VB, …and a few big industrialists will get such transactions…and they execute well.

These investors look like Trapeze artists. They are. However do not copy blindly. Most of them. In fact all of them, have a safety net and a huge net-worth. I refuse to risk what I have to try to earn what I do not need.

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  1. Subra Sir, Atleast, when WB was wb, he did not get those kind of deals that time; and he went on to become WB. It would be interesting to study the inspiring journey/events or stories of how many ordinary people grow into successful investors. like wb->WB. Sometimes I think, it is a string of few ‘right’ actions got them to that point in a burst of time and then they just are now in cruise mode. For eg. RJ and Tata Tea & SesaGoa shares – forward contract (F&O) story is available on web. That is how rj became RJ possibly. Something which value investors may have never approved of.

  2. Replying to SS : For every rj -> RJ that we know about there would be about 1000 rj -> pauper personalities who took the same punts but in the opposite direction that we will never get to know about. Subra is only trying to suggest that if you play like RJ , there would be about 1000:1 chance of success. But the chance can be improved significantly to even better than 50% by following the basic tenets of value investing or simply through SIPs. After all , some of us might be quite ok with a retirement corpus of 10 to 15 Crores for whom the RJ type punts are quite unnecessary. And I am sure that for most of us, Fooled by Randomness would be a more valuable read than RJs antics with Tata Tea and SesaGoa.

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