Commanding Heights of the Economy
We are witnessing a paradigm shift in the commanding heights of the economy into the government’s hands.
Buffett notes that it is easier to borrow money at a cheaper rate if you are affiliated to the government regardless of your financial strength. This is a sign of the shift in commanding heights control.
However, this comes at a price, the affiliated companies must do the government’s bidding and refrain from flamboyant lifestyle. No wonder, sound companies are willing to wrest back control of their companies.
What will this mean for investors? For those pseudo-nationalised companies, you will get a low cost of capital but you are also allowed a low return of capital because of onerous regulation. For others, expect a higher cost of capital, so only those companies with a wide,deep competitive moat will earn a return of capital that is well in excess of the higher cost of capital.
Thus,stock selection will be critical to the performance of your portfolio.
Entry filed under: Investing.