The Buffett effect

Berkshire Hathaway Chairman Warren Buffett, an investment guru, has visited Korea. At the groundbreaking ceremony for the second factory of TaeguTec in Daegu Monday, he said, “TaeguTec will continue to expand.” The manufacturer of tungsten cutters is a subsidiary owned by IMC, a metal processing company that Buffet acquired. Though a celebrity among global investors, Buffett does not speak much like a celebrity about scandals. “I keep investing in Korean companies including POSCO,” he said in his visit to Korea. Yet he did not mention additional investment, which raised eyebrows among domestic stock investors. “Coca Cola rather than Apple,” he said repeatedly in citing his investment principle of first investing in a company he can easily imagine what it would be like in a decade. He also does not deal with IT stocks. As if wanting to promote the company he invested in, he kept drinking Coke at the news conference room.

He was welcomed by the city of Daegu that he revisited for the first time in four years but said nothing about investing in a comprehensive cutting-edge medical complex that the city is attempting to build. As for the IAAF World Championships Daegu 2011, he said, “I will see it on TV.” Daegu residents who enthusiastically welcomed him might have been disappointed. It might be better to say things straightforward rather than inflating expectations and canceling them later, however.

The ”Buffett effect” refers to a rise in stock prices rise as a result of Buffett’s investment. His investment principle starts with “not losing money.” His secret is to invest after evaluating the internal values of a company with sustainable profit generation. If a company wants to attract Buffet’s investment, then it should meet his investment standard first.

Buffett was supposed to fly from Daegu to Fukushima Prefecture, Japan, to attend a groundbreaking ceremony of an IMC subsidiary and then visit India. Instead of going to Japan due to the radiation leaks at the Fukushima nuclear plants, he went to Seoul for a meeting with President Lee Myung-bak. More investment from Buffett as a result of the warm welcome he received in Seoul and Daegu is desirable, but he should not get the impression that Korea is begging from him too much.

Editorial Writer Hong Kwon-hee (konihong@donga.com)