With Warren Buffett, the father of value investing, in India, it is expected that his investment styles and strategies will be discussed by the financial world. But what about the Indian mutual funds? Can they emulate Buffett's investment strategies?
The answer to that question is no, at least not in totality. The market dynamics for Indian funds are extremely hostile. Even globally, mutual funds are expected to do well continually and have been defined as an investment vehicle which should regularly defeat its benchmark. On the other hand, Warren Buffett is under no such pressure. The money that he invests in stocks is his own; he buys stocks and likes to hold onto them forever. A fund manager can't replicate this. A fund manager is a slave to his investors' actions. When investors give him money, he is expected to deploy it irrespective of the market situation. Similarly, he is expected to honour redemptions whenever an investor pulls out. Hence, today when a fund is sold on the basis of performance, a fund manager can't really follow Buffett completely.
However, Warren Buffett's wisdom can certainly come in handy. He has given the investing world a couple of approaches which are of great value. Firstly, there is value investing. To understand it, we have to first understand value. Value is when you buy something worth more at a lower price. It is said that the easiest way to make money from stocks is by buying low and selling high. To emulate Buffett's value investing principle, an investor would have to buy a stock that is out of favour, which no one else is buying. This is easier said than done. But Buffett's other approach is easier to follow. Simply stated, he says that an investor should only buy what he understands, and never buy what you don't understand.
The other aspect of following Warren Buffett is the unrestricted discretion in his style, which is not really as much of a risky proposition as you might think. The greatest risks in investing are not in terms of concentration or diversification. Warren Buffett's portfolio is also hugely concentrated, but as mentioned before, he can do it because he is investing his own money. He never gives out money in the form of stock purchases or dividends. So from that standpoint, his approach is difficult for Indian funds to follow.
That said, Indian funds as well as investors can definitely learn from his principles. Even the most industrious fund can follow his principles in a modified way.
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