“Buffetology” and “Soroslogy”

Buffet and Soros have entered the 'car' race. Automologist, LILY, thinks that they must be on to something. Warren Buffet and...


Buffet and Soros have entered the 'car' race. Automologist, LILY, thinks that they must be on to something.

Warren Buffet and George Soros are public figures that are known especially in the field of investments. Both have different strategies: Warren invests for the long-term while Soros buys and sells at high frequency. Nevertheless, there are many overlaps on how they evaluate industries and companies, which is why both of them invested in the same stocks, such as Walmart, Direct TV, Johnson & Johnson, etc.

Buffet outlines two criteria in his book Buffetology, which are the intrinsic value of the investment and whether the company has the competitive advantage. Intrinsic value considers the future growth of the company regardless of the current state and competitive advantages is an “economic moat”, as Buffet puts it, which refers to a characteristic that is hard to duplicate; thus, he stays away from commodities such as oil and gas, and products with short lifecycle, which depend very much on the brains of only a few; once those few “brains” leave, it might be the end of the company.

Buffet has two rules in investment: Rule 1 - never lose money; Rule 2 - never forget Rule 1; funny, but wise.

If Buffet or Soros invested in your company, everyone will know that your company is a great one. If these two big guys invested in your competitor, there are two implications: “Oh no! My competitor is better than me” or “Oh, this is an industry with a bright future”. Well, Buffet made a major investment in the automotive industry in October 2014 and now it seems that Soros might follow in his footsteps.

Berkshire Hathway Inc., owned by Buffet, purchased the largest private-owned auto dealership in the US, the Van Tuyl group. Van Tuyl has 75 auto dealerships and sold 130,447 vehicles in 2013. We see a consolidation of dealerships happening in the past few years. The fact is, as Tim Lamb, the president of Timb Lamb Group LLC, puts it, “Fewer guys are going to have more rooftops”. According to Alan Haig, President of Haig Partners LLC, the key to the success of this business model is to run high-volume and large stores in populated markets – eg. the Sun Belt - that makes returns on large volume.

Recently, news emerged that Soros Fund Management wants to embark on the same route to buy an auto dealership group. Research started some seven months ago but Vipul Tandon from Soros Fund declined to provide more information. Back in 2006, Soros had already entered the automotive industry with an investment in Ford Motor Co. and with US$200 million poured into Chery Automobile Co. in China to import their cars into the US.

No doubt that competition has increased in the industry, but remember that there are always two sides to a coin.

image: investopedia.com

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