Traditional Investment Theory

• Traditional theory analysis the individual securities under the

constraint of risk and return.
• This theory assumes that the selection of securities should be on the
basis of lowest risk as measured by its standard deviation from the
mean of expected returns.
• There exists a direct relationship between the variability of returns
and risk .
• Greater is the risk, greater is the variability of returns and vice versa.
Traditional Portfolio Approaches :
Dow Jones Theory
Random Walk Theory
Formula Theory
Warren Buffet
Born in Omaha , Nebraska in 1930
OCCUPATION: Chairman & CEO , Berkshire Hathaway
NET WORTH: $ 86 Billion
Early Life and Education
• Age 6 :Peddled Coke
• Age 9:carrying golf clubs for $3 per day
• Age 11:Bought his first stock at $38 for Cities Services
• Age 13:Paperboy for Washington Post
• Age 14:Bought 40 acres of farmland and leased it out
• Age 19:Graduated from Unversity of Nebraska
• Later he applied for Havard Business School and was rejected,
instead went to Columbia where Benjamin Grahim and David
Dodd taught.
• Early Influencers: Benjamin Graham and Philip Fisher
Buffet as a Businessman
• In 1956, Buffett started an investment partnership
• Raised $105,000 from family and friends
• Results: Earned more than 30% annually from 1956 to 1969,when
general market earned only 8% annually.
• In 1969,he dissolved the partnership.
• Charlie Munger : Buffett’s partner and ‘right hand man’ in
Berkshire Hathaway
• Currently, ranked by Forbes as the second richest human on Earth
Buffet as a Contributor
• Buffett pledged to give away 85% of his fortune worth US$ 31
billion to the Gates Foundation
• “More than 99% of my wealth will go to philanthropy during my
lifetime or at death.”- Warren Buffett
 Berkshire Hathaway
A multinational conglomerate, that owns more than 60 businesses.
• NET WORTH: $ 618.1 billion(2017)
• Originally was a textile manufacturing company
• Made the first investment in 1965 and eventually bought the
whole company in 1967
• Early investments included National Indemnity Insurance, See’s
Candy , Washington Post, Capital Cities-ABC and GEICO
• Most expensive publicly traded stock of all the time , trading at
$305,000 per share
 Buffettology
1. Buffett: ‘We want the business to be one
• That we can understand
• With favorable long term prospects
• Operated by honest and competent people
• Available at a very attractive price’
2. Don’t worry about the economy . Buy a business that has the
opportunity to profit in any economy.
3. Buy a business, not a stock. Research on the business and industry
you are about to invest.
4. Manage a portfolio of businesses. Don’t diversify for
diversification’s sake.
5. Management of the business is rational.Focus on ROE rather than
on EPS.
6. Invest in ways to minimize Taxes.
 Rakesh Jhunjhunwala
• Born on: 5th July 1960
• Profession: Investor and trader
• Qualifications: Chartered
Accountant (ICAI)

• Own portfolio (as a partner): Rare Enterprises (Asset Management

Firm)
• Net Worth: $ 2.7 Billion ( as of February 24th 2019)
• Known as: "pin-up boy of the current bull run”(India Today
magazine)
 Rakesh Jhunjhunwala : His life and Education
• After graduating, Rakesh Jhunjhunwala plunged into full-time
investing soon.
• Started his career in 1985 when the BSE Sensex was at 150.
• Made his first big profit of Rs 0.5 million in 1986 when he sold
5,000 shares of Tata Tea at a price of Rs 143 which he had
purchased for Rs 43 a share just 3 months prior.
• Between 1986 and 1989 he earned Rs 20-25 lakhs.
• First major successful bet was iron mining company Sesa Goa.
• Influencers: Radha Kishan Damani (His guru)
• His stock picking strategy is influenced by George Soros’
trading strategies and Marc Faber's analysis of economic
history.
 Rakesh Jhunjhunwala’s Diversified Portfolio
His Portfolio Includes shares from different sectors:
 Rakesh Jhunjhunwala’s investment strategy
• His investment philosophy says "Buy right and hold tight".
• Don’t Look for Profits; Look For Sources Of Profits.
• Forget ’Large Cap, Small Cap’ – Look For Scalability of
Operations.
• Invest in a business that you can understand.
• Don’t get carried away by short-term aberrations.
• Don’t worry about the macro stuff like fiscal deficit,
inflation etc which are unknowable. Focus on what is
knowable.
• Don’t Try To Time The Market.
• Don’t buy stocks that have a fixed return.