What makes Parag Parikh a great investor "Nobody should be buying a stock at a rate higher than its intrinsic (actual) value, because then you are looking at the greater fool theory to come into play -- that someone would buy it again from you enabling you to make a profit."At the Morningstar Investment Conference 2014, Parag Parikh, Founder & Chairman, PPFAS AMC Pvt. Ltd, shared his views in a panel discussion on value investing. Parikh is an expert on behavioural finance, a stock market veteran and an author. Here is an excerpt of his views. What type of value investing works in India? The Warren Buffett way of value investing would really work in India where you maintain a margin of safety when you buy. It is difficult for the Benjamin Graham style of cigar butt investing to work because we don't have corporate raiders here who can unlock value. We have courts of law, but no courts of justice. So if someone attempts to do something, it will take years and years before value is unlocked. So, in this sort of a system I think Warren Buffett philosophy would work very well.
You have often stated that your basic investing philosophy is based on the "law of the farm". Can you explain that in the context of value investing? When investing, you must understand that you are buying a business and not a piece of paper which will tomorrow go up or down depending on market sentiment. When you are buying a business, it is very important that you understand how the system works. There are certain laws which are made by men. They change and are manipulative in nature. For example, you short and you make money (sell first and buy later at a price lower than your selling price), you buy futures and options and you make money. You give him an upfront commission and you get more clients. These are all short-term manipulative practices. On the other hand, there are laws made by God -- the universal principals. One of them is the 'law of the farm'. You cannot sow something today...