A Brief Reminder From Warren Buffett On Chinese TechnologyMay 10, 2005 | Print | Comments | Category: Commentary
By Perry Wu
The site was Omaha, Nebraska, in the heartland of America, as the faithful made their annual pilgrimage to their version of Mecca.
I am referring, of course, to Warren Buffett's insurance company holding its annual stockholders meeting at the beginning of this month. Over the course of the last thirty years, Buffett has used the insurance funds from his company, Berkshire Hathaway, to make the shrewdest purchases of stocks and other investments in the annals of investing history. He has established himself as one of the world's most successful and richest investors.
Now, some of you might be asking: what does this have to do with Chinese tech stocks? More than you think. With all the "noise" surrounding Chinese tech stocks like Sina (SINA), Linktone (LTON) and others, it helps stop and to think about some insights that have helped make Buffett successful.
First, Buffett has long recognized Benjamin Graham, a British-born Jewish finance academic, as the foremost authority on investing. Buffett in particular has cited one quote from Graham that Buffett considers to be the most important idea in investing: "Investing is most intelligent when it is most businesslike".
That should be the guiding philosophy for investors, their eternal John 3:16. What exactly does it mean? It means that analyzing a stock is no different than analyzing a business. The same criteria that you use to evaluate the business of your local ice-cream shop should also be used to evaluate the stock of any publicly-traded company, including Chinese Internet companies.
So when you analyze, say, Sohu (SOHU) stock, you should not be asking: what is the 52 week high or low? What is the trading volume? How has the stock traded in the last few weeks?
These are the wrong questions because they have no relationship to Sohu's business. What you should be asking is: how many page-views does Sohu's site get? What kind of advertisers does Sohu have? Who are Sohu's major competitors?
Once you are able to answer these "business-like" questions, you can then start to have a vague sense of the value of the company. You compare this value to what the stock market is saying the company is worth. And as we know with Chinese tech stocks, the difference between reasonable value and market price is often wildly out of sync.
Take Netease (NTES) for example. Netease, listed on the New York Stock Exchange, was one of the earliest successful Chinese portals. Without getting into the operational details of this company, I want to direct your attention to only one thing: the stock market is currently valuing Netease at US$1.6 Billion. Do you honestly think, that when you analyze this company, from a business perspective, that it is worth $1.6 Billion?
About the author:
Perry Wu is a writer and correspondent for ChinaTechNews.com and can be reached here at the site. Perry Wu does not hold any positions, long or short, on any of the Chinese or American company securities mentioned in this article.
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