Good morning my dear readers,

I'm not saying it's Friday, but even my coffee is smiling today! 😅

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Today, we discuss a very famous quote by Warren Buffett.

Is it a Business that even a Dummy could run?

Firstly, Buffett is a genius and a legend. There is immense wisdom in everything he says.

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The sheer simplicity but deep meaning of this line is something I love.

Now, there are several reasons why this quote has stuck with me since many years.

Here goes,

1- Predictability:

Simple, easy to understand businesses often generate steady and predictable earnings and cash flows.

These are typically the FMCG types. Top quality brands, good size and strong distribution.

Years ago, I worked on a Gas & Chemical storage business. This company would put storage silos in ports where it would be difficult for a lot of new competition to come in.

Although I never ended up buying the business, I remember how easy it was for me to understand how the business model worked.

And most importantly, I thought to myself that even someone simple and basic like me could manage this business, if ever needed.

**And that is the whole point of investing. Predictability is one of the key metrics all of us as investors are trying to figure out.

Because, whoever can predict the next few years earnings trajectory the best, has the best chance to profit.

2- Fair degree of resilience:

Now, such monopolistic or steady businesses are also often not extremely cyclical. These tend to withstand economic slowdowns better.

Again, resilience is a feeder to predictability.

A resilient business is likely to have predictable earnings, even during difficult situations.

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Now, while these are really awesome businesses, these can also have some limitations.

Valuations, the biggest roadblocks:

These kind of awesome, yet simple businesses trade at expensive multiples because, lets face it, everyone loves a Colgate type business.

(Super easy to understand, trustworthy brand etc).

But, a Colgate type business will have two major issues.

First, as the headline suggests, these tend to be over valued.

Secondly, these have Limited Growth Potential.

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Conclusion:

So, 'A Business which even a Dummy could run' has pros and also cons.

So how should we look at such businesses?

Bearish markets, when most stocks go through price or time correction, are obviously the best time to look for such a business.

Or else, if you ask me, when a special situation event happens, it could work well to look at such businesses.

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By the way, the Earth observed its hottest day on July 4th, 2023.

Climate Change definitely is a thing.

Imagine, one of our biggest problems today is going to be to figure out how to Feed 9.5 Billion people by 2050.

Scary and unpredictable times ahead.

Lets live in the moment. Do our bit to save the environment.

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That is all for today my friends.

We will discuss a nice past case study next Friday.

Until then, stay safe.

My Best,

Neil Bahal

Founder

Negen Capital

Disclaimer: This newsletter is for educational purposes only. While the newsletter discusses just general market insights and past case studies, still, the stock market is a very risky place which can result in losses.

Hence, always check with your financial advisor before acting on any contents of this newsletter.

No one has paid us to write this newsletter.

Neither myself or Negen Capital has any holdings in Colgate.

No representation or warranty, implied or statutory, is made as to the accuracy, completeness or fairness of the contents and opinion contained herein. The information can be no assurance that future results or events will be consistent with this information. Any decision or action taken by the recipient based on this information shall be solely and entirely at the risk of the recipient

Negen Capital is a SEBI registered PMS & AIF.