Sunday, 28 November, 2010

Lesson from Bill Gates

Lesson from Bill Gates

The other day, I was reading a biography of Bill Gates.

While there are several lessons that one could learn from him, I would like to emphasise one key lesson here:
By and large, he never mixed business and charity.

As a businessman, he was a toughie. Ask many of the folks in the industry who actually hate him. There have been enough allegations about his anti-competitive behaviour.

As a philanthropist, he is generosity personified. He has chosen his preferred "causes". He has given tons of money - both his own and from his friends.

I like the above distinction for a very practical reason. Microsoft is a listed entity. Bill Gates is, at best, a part-owner. Charity, if any, should be done from one's own money. If Microsoft were to do charity, that would imply "imposing" the views of a limited few on the vast majority of other shareholders.

Not on. And Bill Gates recognised that.

Hence, what is the lesson for lesser mortals like you and me in the world of investing?

Here are a few thoughts (not for the big fish who invest zillions of dollars, but for ordinary mortals - retail investors like you and me who invest in a few thousands or a couple of lakhs at a time):
  • First, don't confuse investing and personal belief systems.
  • When you're investing in a company, you are doing so SOLELY for making money. For instance, it doesn't matter if you happen to be a non-smoker, it is OK to invest in ITC if you feel that it would increase your wealth. Once you acquire wealth using money generated from investments in ITC, nothing prevents you from using such money to actually contribute to an anti-tobacco campaign
  • Learn to distinguish ethical standards of a company and whether it is "investment-worthy". There are ethical companies which have gone bust. There are unscrupulous companies who have swindled investors funds. There are ethical companies who have lasted for a century. And unethical companies which flourish for decades. So far as your investment decisions are concerned, you should restrict your thoughts to the price that you are paying and the likely value of the company. As long as the price is less than the value according to you, you can go ahead and invest. For instance, when Satyam went from a couple of hundreds to sub-30 levels, the price on the ticker was visibly less than the intrinsic value according to many experts. And those who took the plunge, flourished. On the other hand, Infosys, known to be a highly ethical company, in the peak of the 2000 IT boom, was quoting at a PE ratio of over 100. Anyone who invested in Infosys then is probably still nursing his wounds. Again, several unethical companies use every boom to come out with IPOs at huge valuations, only to disappear with the investors money in due course.

The above points are especially useful to keep in mind in these scam-ridden times.

While I don't wish to take names, some companies which are obviously ethical and "high-performance" ones have been named in one or more of the recent scams.
Obviously, they have fallen like a pack of cards.

You just need to identify the gems among them and put in lots of money in these times of fear. As Warren Buffett would say, now that there's a lot of fear about these companies, it is time for you to be GREEDY about precisely the very same companies.

I've started doing precisely that with some of my surplus funds.


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