Good stocks. Fair prices

Summary: Using Buffett’s ‘Great, Good and Gruesome’ labels, this cover story maps India’s listed companies and tests whether the labels held over 10 years. It finds that weak businesses lost investors the most and that price mattered more than the label. It then profiles ten Good companies that are growing and not expensive, each with its edge and its risks.

Summary: Using Buffett’s ‘Great, Good and Gruesome’ labels, this cover story maps India’s listed companies and tests whether the labels held over 10 years. It finds that weak businesses lost investors the most and that price mattered more than the label. It then profiles ten Good companies that are growing and not expensive, each with its edge and its risks. In 1972, Warren Buffett and Charlie Munger, through a company later merged into Berkshire Hathaway, paid $25 million for See’s Candies, a small California maker of boxed chocolates. Thirty-five years later, See’s was earning $82 million a year before tax. To get there, it needed just $32 million of extra capital. Of the $1.35 billion it earned before tax over those years, all but $32 million went to its owners to invest elsewhere. Buffett calls See’s Candies the prototype of a dream business. In his 2007 letter to shareholders, Buffett gave this idea a name. Businesses are ‘Great’, ‘Good’ or ‘Gruesome’. Most investors never ask which one they own. They ask whether the stock is going up. You cannot control the market, but you can control what you own and what you pay for it. Three savings accounts Buffett’s idea is easiest to grasp as three savings accounts. The ‘Great’ account pays a very high rate of interest, and the rate rises as the years pass. The ‘Good’ account pays an attractive rate on every deposit, but you must keep making deposits to earn more. The ‘Gruesome’ account pays a poor rate and still demands new deposits every year. Notice what the test is not. It is not how fast a business grows, but how much capital the growth needs. See’s candy volume rose just 2 per cent a year between 1972 and 2007. What mattered was how little cash it swallowed. What makes a business ‘Great’? Buffett sets three tests. First, an enduring moat, a lasting edge such as lowest cost or a powerful brand. Second, a stable industry, because a moat that must be rebuilt all the time ‘will eventually be no moat at all’. Third, no dependence on a star. A practice built around the town’s best brain surgeon loses its moat when the surgeon leaves. The Mayo Clinic does not. A ‘Good’ business is one you must keep feeding. Buffett’s example is FlightSafety, which trains pilots on simulators that can cost over $12 million each. Since 1996, it added $159 million to its yearly pre-tax operating earnings, but needed $509 million of extra investment. A good return, Buffett says, but far from See’s-like. The ‘Gruesome’ business grows fast, needs heavy capital and earns little. Buffett’s chosen example is airlines. Investors, he wrote, were “attracted by growth when they should have been repelled by it”. He bought US Air preferred shares in 1989 and sold them in 1998. In the decade after, the company went bankrupt twice. Indian investors know the film: Kingfisher Airlines and Jet Airways both stopped flying. Putting India on the same scale Our Stock Ratings give every eligible company four scores from 1 to 10. Quality blends return ratios, margins, debt and working-capital needs. Growth tracks past growth in sales, profit and cash flow. Valuation weighs price against earnings, book value, free cash flow and dividends, and against the company’s own history. A higher Valuation Score means cheaper. Momentum measures recent price movement against volatility. Quality is our closest match to Buffett’s test, since a company earning high returns on capital with little debt behaves like See’s. So we sorted companies by it: a Quality Score of 9-10 is Great, 4-8 is Good, and 1-3 is Gruesome. Good simply means middle-ranked. One caveat: A score cannot see a moat, only the footprints it leaves, such as years of high returns. These labels describe score bands, not Buffett’s verdict on any company. What India’s listed companies look like Of the 5,497 listed companies, 2,385 carry a Stock Rating and a market value on October 7, 2026. Sorted by Quality, 375 are Great, 1,118 are Good and 892 are Gruesome. Size changes the picture. Among companies worth more than Rs 8,000 crore, 26 per cent are Great and 23 per cent are Gruesome. Between Rs 500 crore and Rs 8,000 crore, only 11 per cent are Great and 44 per cent are Gruesome. That is where investors hunt for multibaggers, and the traps are thickest. Growth alone is no guide. In that range, 465 companies score 7 or more on Growth, yet 148 of them score 3 or below on Quality. They come closest to Buffett’s Gruesome business: fast growth, little to show for it. Ten years of evidence Does the label hold up? We took every company with a Stock Rating and a live share price on March 31, 2016, sorted them by that day’s Quality Score in our rating history, and followed them to March 31, 2026. That is 1,470 companies of all sizes. The damage sits in the bottom band. Of 675 companies with a Quality Score of 1-3, 21.6 per cent had left the market by 2026 (through closure, merger or suspension), against 5.1 per cent of the 178 in the top band. Amtek Auto, ABG Shipyard and Cox & Kings all began in that bottom band. Nearly half of the weak companies (48.7 per cent) lost money, and 38.2 per cent lost half or more. These figures count every exit as a total loss. That is harsh: some exits were takeovers, and 34 per cent of exits ended above their starting price. Valuing exits at their last traded price instead, the share that lost money was 44 per cent in the bottom band, 23 in the middle and 14 in the top. The pattern holds. Now look at the median, the typical company: half did better, half worse. Among survivors, the top and middle bands earned almost the same, 10.8 and 10.7 per cent a year. The top band stood out in avoiding losers: 19.1 per cent lost money, against 28.4 per cent in the middle band. With exits as a total loss, the typical Great company earned 10.1 per cent a year, turning Rs 100 into about Rs 262. The typical Gruesome one earned between 1.1 per cent (Rs 112) and 7.1 per cent, depending on how exits are treated. Greatness does not last by itself Buffett warns that competitors will ‘repeatedly assault’ any castle that earns high returns. Our data agrees. Only half (50.6 per cent) of the Great companies of 2016 are still Great. Another 36.5 per cent have slipped to Good and 7.9 per cent to Gruesome. Some of that is a small step: of the 65 that fell to Good, 34 landed on 8, just below the line. Scores can also swing within months, so check a label before you act on it. The bottom is stickier. Of the Gruesome companies of 2016, 53.5 per cent are still Gruesome and 21.6 per cent have left the market. Only 1.8 per cent made it to Great. Price mattered more than the label Buffett’s own checklist ends with ‘a sensible price tag’, so we tested price too. We split the same companies by their Valuation Score in March 2016: cheap (7-10), middl

This article was originally published on November 01, 2026.