The investment profession is in a state of crisis. The vast majority of equity fund managers are unable to beat the market over the long term, which has led to massive outflows from active funds to passive funds. Where should investors turn in search of a new approach?
Pulak Prasad offers a philosophy of patient long-term investing based on an unexpected evolutionary biology. He draws key lessons from core Darwinian concepts, mixing vivid examples from the natural world with compelling stories of good and bad investing decisions—including his own. How can bumblebees’ survival strategies help us accept that we might miss out on Tesla? What does an experiment in breeding tame foxes reveal about the traits of successful businesses? Why might a small frog’s mimicry of the croak of a larger rival shed light on the signs of corporate dishonesty?
Informed by successful evolutionary strategies, Prasad outlines his counterintuitive principles for long-term gain. He provides three mantras of Avoid big risks; buy high quality at a fair price; and don’t be lazy—be very lazy. Prasad makes a persuasive case for a strategy that rules out the vast majority of investment opportunities and advocates permanently owning high-quality businesses.
Combining punchy prose and practical insight, What I Learned About Investing from Darwin reveals why evolutionary biology can help fund managers become better at their craft.
In the chatty, lively, and engaging book "What I Learned About Investing from Darwin," author Pulak Prasad takes readers on an illuminating journey through the world of investing. With wit and charm, Prasad weaves his own experiences and insights with the lessons he has learned following his two gurus, Charles Darwin and Warren Buffett.
Prasad, a relatively unknown for those unfamiliar with the Indian equities industry, is an investment legend with a track record comparable to the best worldwide over the last fifteen years. His audacious investment style is deserving of study. This is not just because of the performance but also because of how logical, almost irrefutable, its tenets sound as he explains them, deploying the similes and examples from evolutionary sciences. While his approach may not be the only path to financial success, it is undoubtedly effective and provides readers with plenty of food for thought.
To this reviewer, investors should first and foremost adopt a disciplined, logically sound style that suits their personality and access. Pulak has done this perfectly with a discipline rarely observed among the best professionals. One may have heard Darwin and Buffett's theories countless times before, but he is able to breathe life into well-trodden concepts in every section through the novel connections he makes between the fields. When dotted with real-life examples of his investments, they do not remain pure theories in the book!
Throughout the book, readers are treated to an array of thought-provoking ideas, such as the importance of avoiding forecasts, the benefits of being an investor who focuses more on rejections, the wisdom of minimum versus optimum debt in corporate books, and summary rejection of things that obsess regular investors like quarterly results, daily stock prices, models like DCF, etc. The book reads like a guide on everything unconventional, and yet the logic is presented with such clarity and conviction that one begins to doubt one's sanity for ever believing in anything different!
Overall, a must-read for anyone interested in the world of investing. Its refreshing take on investment strategies and unparalleled depth of wisdom makes it a far superior choice to many of the more popular books on the subject.
I wish I could rate this book over 5 stars . I’ve rarely been blown away by an investment book , because the bulk of them are plain and simple boring . Most investors come across as dry and joyless, unidimensional people . People who change the world have range - they are able to dive deep into multiple disciplines and synthesise these unique cocktails in their brains to come up with radical approaches to change the world . Jobs was right . Boring people don’t build great businesses . Pulak’s mastery of evolution and his genius in marrying its lessons with investing is unputdownable. It’s not a wonder that Nalanda is unique . What I love more is that he seems to have a life, has a philosophy to investing that doesn’t hinge on esoteric spreadsheets but a hunger to read and know , that only people who change the world do . And the courage of conviction in his process that those in the business know , is the hardest to hold on to with the daily barrage of information. For investors , there is a very fine line between courage of conviction and hubris , and many of the best stumble towards hubris . In that context the underlying humility of Nalanda ( we know very little , we will take no risks , we do the best we can ) is laudable . I have worked with some great investors in the public markets business , and I picked up the book with the deepest scepticism , but I put it down a believer .
Lessons
1. Minimise the risk of committing type I errors (commission ) to curtail risk injury or death and learn to live with type II errors ( omission ) or foregone benefits. Like in the case of deer in the wild , type I errors could be fatal . Improving performance in type II errors doesn’t materially improve an investment track record but is dramatically improved when errors of making bad investments is reduced . Risk is not deviation from benchmark . Risk is about losing money . Think first about not losing money . Not return . Hence the Nalanda approach is to focus on industries where losers and winners have been largely sorted out and the rules of the game are apparent to everyone .
2. Selecting for just tame ness got Dmitri and Lyudmila transformations in body structure , tail wagging and piebald fur in silver foxes since behaviour and physiology of animals is intimately connected . Similarly focusing on ROCE is measurable , rejects businesses of poor quality and selects most high quality businesses
4. living things are highly resistant to internal and external changes while simultaneously having the ability to evolve , aka robustness . It is a delicate balance . When genes mutate , they continue to perform their primary functions but may develop secondary functions that can be used for a completely new use , making the genetic code robust as well as permitting evolution for free !businesses are robust if they have high past roce , fragmented customer and supplier bases , no debt and excess cash , competitive barriers , stable management team and a slow changing industry. Such companies can take calculated risks , equivalent to neutral mutations in nature to grow and evolve
5. Proximate causes explain immediate influences on a trait while ultimate cause explains the organisms ultimate success or failure . Proximate causes of share price changes coming from macro economy , markets , events should largely be ignored to focus on business fundamentals
6. Darwin proposed natural selection ( random variation in an organism with favourable ones being preserved and heritable which gave the organism a better chance to succeed ) , sexual selection ( trait which helps an animal to produce more offspring ) and common ancestor ( descent with modification ) . Like Darwin , Nalanda interpret the past of companies only in the context of history and do not believe in forecasting the future through spreadsheets .
7. Convergence ( unrelated organisms developing the same solutions to similar problems ) in nature and businesses symbolises that there is a pattern to success and failure .a popular question to ask while evaluating a business is , where else has this worked ( Infoedge resembled the network effect of the yellow pages ) , and taking the outside view of an industry ( airline retailing telecom and commodity chemicals have never made any money ) ala Kahneman . Also a reason to avoid new industries , as convergence only kicks in once the pace of change has declined . There will be an odd case where it doesn’t work - like Amazon , a conglomerate succeeding .
8. Lend credence to only those signals from companies that are honest I.e costly to produce ( a finch being brightly coloured helps it reproduce but endangers it to predators ) . Don’t trust management speak , interviews or earnings guidance , trust only their historical performance and their reputation in their ecosystem ( both expensive to produce )
9. Stasis is normal in nature with sudden evolutionary change ( punctuated equilibrium where new species emerge ) . Similarly The daily , weekly change in great businesses seems much greater than changes over decades . But it matters little to the long term trajectory of the business and is noise . Great businesses remain great bad businesses remain bad . Stock price fluctuations don’t mean business fluctuations. Hence inevitable fluctuations due to short term events should be exploited to buy ( create new portfolio species) not sell high quality businesses . Selling should only happen because of governance issues , capital allocation gone wrong and irreparable damage to the business .
10. Compounding is not understood , because its impact stays hidden in the initial period for long periods of time ( 4 rabbits let loose in Australia led to 10 bn ). Biggest surprise is that they were under a million in 1895 but went to 10 bb in 1920 . Nothing happened for a long time initially . Investors underperform because they sell early thinking they have made enough and tire of slow progress . The richest lists are all dominated by people who didn’t sell , that’s just the law of compounding . A handful of compounders in the portfolio growing a little more than the rest similarly will overwhelm the rest of the portfolio given time ( as a favourable trait given time overwhelms the entire population ) .
"The first and probably most important step in reimagining investing is to learn how not to invest."
Pulak Prasad and team Nalanda have simple tenets that they adhere to while investing. Work to eliminate mistakes that would wipe you out, dont worry about mistakes of omission, find companies with high return on capital and understand why this is so, pay a reasonable price and then wait. Rinse-Repeat
I liked the construct of a permanent owner mindset, loved the book. It is a practitioners book on investing and a highly recommended one.
Thank you Pulak for writing the book and Anand for sharing these principles through your blog.
My first non-fiction of the year was Pulak Prasad's (of Nalada Capital fame) What I Learned About Investing From Darwin. I have mixed feelings about this book.
Let's start with the negatives. First off, there was a tremendous amount of mathematical masturbation through the book. Prasad takes into account so many hypotheses and probabilities that he can prove almost any point he wants to make. Second, his attempts at humour to make the book a better read were, let's just say, underwhelming (eg., "Almost everyone - and I say "almost" because this statement does not apply to my wife - makes mistakes"). It induced more eye-rolls than laughter. On many occasions I found the business case study style narrative more interesting than the investing advice (Walmart, Page Industries, Toys "R" Us, (what to do, and more importantly what not to do)). And lastly, and my biggest issue was that the whole connection with Darwin and evolution was, for the most part, tenuous at best. Similar to last year's Desperately Seeking Shah Rukh, the overlay was not needed at all. It might have been cool if a biologist took their learnings and became an expert investor - but not an ex-McKinsey, ex-Warburg and current top-notch investor forcing evolution theories onto investment strategy for the sake of writing a book with a 'hook'.
Having said all this, there were some good investment philosophies (don't invest in government owned businesses, use historical ROCE as a mean to filter out bad businesses, etc), but it required some scouring and yes, it was ultimately worth it.
When it came to the evolution analogies - there were two I enjoyed. The first related convergence to investing (good companies/management will exhibit similar traits, no matter which industry, etc). And second compared good companies to the 'insidious' way rabbits multiply - first hidden in plain sight and then before you know, unstoppably (this was specific to an incident that took place in Australia in the 1800s). Great business with good management and strategy will take a long time to show rewards, but when they do, it will be so multifold that the wait will be rewarding, as long as you have patience.
I think I need to stop reading value investing books for a while because you can only say “buy good stocks cheap“ in so many ways before getting pretty esoteric
As a reader I will rate it as 7/10. If i might have been an investor in this fund, who knowns - i might have given 10/10 ! So tried to keep the review as an outsider. Also, the main reason for less stars is there is nothing new in this book.
What I liked:
1. Evolution references and some of the stories are unbelievable and are so good - Infact, I liked the book for more for this as this is one of my favourite subjects 2. Having the patience to hold cash like warren buffet & believing in the business they bought and not selling unless a strong thesis to sell - not too many fund managers does this, so hats off to that !
What I didn’t like:
1. Force fit some of the evolutionary aspects into his investment thesis - I felt this is more of backward looking rather than the framework used for investment thesis. I couldn't evaluate so going with a skeptical mindset 2. Written with survivorship bias I feel. He should have given examples of what he didn't buy and how they multiplied investors wealth - what is the ratio of identified winners / not able to identify winners through his approach - you might argue it is not what book is meant for - but no one wants to read a big handout of performed fund right :) a. Example - When he mentioned Asian paints is an amazing franchise, why didn't he pick up during the two melt downs as it qualifies all his filters ! Conflict of interest might be, not sure though 3. Compared to Howard marks / Parag parikh/ John Bogle books this looks very very specific to his fund - the statistics used are like how consulting uses statistics (don't want to elaborate further :D)
Good book to read overall - no question about it - Great book ? Time will tell !
A really fun book to read for anyone interested in investing. Pulak Prasad’s love for investing and evolution shines throughout the book. Nalanda’s track record over the years has been fantastic. Drawing analogies from evolution, Pulak does a great job of helping us understand their process.
Great returns' concoction: 1. Think like a business owner. 2. Become permanent owners of exceptional businesses with honest management in predictable/ stable industries. 3. Exceptional businesses are those which consistently earn higher returns on capital than their competitors. 4. Be extremely patient - They rarely buy. They even rarely sell. 5. And be extremely decisive when you find these exceptional businesses at the right price - Nalanda invested a lot of their capital during the 2008 financial crisis and 2020 COVID downturn. This is how they’ve been able to buy quality businesses for P/E<20 6. Experience and understand the wonders of compounding.
The evolution inferences were interesting and informative. Would love to read more on the subject.
Quotes: 1. Investing, unlike the name suggests, is all too often a euphemism for gambling in which the practitioners rarely do better than dart throwing primates. 2. Investors make confident pronouncements on spurious spreadsheets, flawed assumptions and inflated egos.
My key take aways: 1. The key to good returns is being brutal about the price at which one enters the investment. Page Industries has always been high PE but when Nalanda entered it, it entered at a PE of mid teens. 2. Even in stellar stocks, over a decade, most of the upside happens only in about 2pc of the days. If you are not "in" the investment during those days, your results would be abysmally low. 3. It is important to wait and do nothing for a long time to wait for a great situation to enter a stellar business. Nalanda bought a lot during 2008 crisis and COVID crisis situations.
An easy but informative read with unique thoughts on the applicability of concepts from evolutionary biology to investing and business (e.g. selecting for the single trait of tameness in the Siberian Silver Fox experiment led to the emergence of other coincidental pet-like traits similar to how selecting for just the single trait of high return [ROCE/ROIC] results in getting many other desirable traits [good economics, competitive advantage(s), high quality mgmt]).
Even if you don’t agree with the investment philosophy espouse by the author, I think you would appreciate the writing style of the book. It’s a great combination among theories, investing philosophy and practical examples. And oh, I think he presents one of the best argument from never selling an investment, regardless of valuation! And of course, it is very interesting to learn about the evolutionary theories presented in the book!
If you are an individual investor in stock market and building an philosophy for your investment then there are more than 100 reasons to read this book. I had an perception western authors are better in written good books but this is one of them who surprised me. He has kept the theme as fusion of Darwin and Buffet philosophy and the style and flow of the book is good. A lot of great analogies , stories and examples. The best part is everything he mentioned in this book is not just theory but he proved it with his investments.
I enjoyed this book - not your typical “how to beat the market” type investing book, but rather one that recognises cognitive human shortcomings and instead employs a rational patient approach in-order to compound returns over time. You should consider launching the strategy in UCITS.
Cheekily written and glad that this makes Nalanda more of a discovered gem
Fairly comprehensive and methodical primer to their style of investing, although a few Darwin parallels didn't seem to fully align with the point to be made. Coming from early stage private market investing, refreshing to see the reverence for management quality and the good old "scuttlebutt" also finding place in public market investing. Hoping to pen this contrast down sometime
Un gran libro que recomiendo a todo el que le interese la inversión. Todas las analogías son "estimables" y generalizables, pero la que utiliza en este caso es deliciosa por lo interesante que es y lo que te aproxima al conocimiento de las teorías de Darwin. Lo importante en cualquier caso es lo bien que describe el proceso inversor que utiliza el autor y además, cómo los resultados, siendo el objetivo, a veces son un mal aliado si los utilizamos como input directo para nuestras decisiones.
Before I get into the review of this book, I must confess that this book took me longer to read than i first envisioned and it was driven by my own challenges rather than Author's skill to keep the readers engaged.
I ignored the saying "don't judge the book by its cover" as I bought this book because of the catchy title and my own interests in finance and darwin's evolutionary theory.
Pulak Prasad’s "What I Learned About Investing from Darwin" is a fascinating exploration of the intersection between natural selection principles and investment strategies. Drawing on the work of Charles Darwin, Prasad offers a unique perspective on how evolutionary theories can be applied to the financial markets. This book stands out for its innovative approach, depth of insight, and practical applications.
Concept and Approach Prasad's central thesis is that the principles of evolution—survival of the fittest, adaptability, and natural selection—can be applied to investment practices. He argues that the financial markets are a form of ecosystem where only the strongest and most adaptable investment strategies thrive. This analogy is both compelling and intuitive, providing a fresh lens through which investors can view market dynamics.
Structure and Content The book is well-organized into several chapters, each focusing on different aspects of Darwinian principles and their relevance to investing. Prasad begins with an introduction to Darwin’s theories, ensuring that even readers with a limited background in biology can grasp the concepts. He then systematically applies these principles to various facets of investing, such as stock selection, and market behavior.
Key Lessons
This philosophy can be summarized in three sequential, straightforward steps.
Avoid big risks: This is one the key topics of the book and it is explained by leveraging stats Type 1 and 2 error.
Type 1 Error – When you bet on something which is a bad investment by mistaking it for a good one. Type 2 Error – When you don’t make a bet on a good investment by wrongly believing it to be a bad one.
Prasad’s insights into the Indian market, the pitfalls of debt, and the skepticism towards mergers and acquisitions are not just observations but lessons derived from a keen understanding of market dynamics and human behavior. His critique of chasing trends and the candid examination of investment failures are both sobering and invaluable.
Buy high quality at a fair price: delves into the methodology behind selecting high-quality companies. The discussion on return of capital employed (ROCE) and its significance in evaluating a company’s performance is a highlight, offering clear, actionable advice on identifying businesses with a sustainable competitive advantage.
Don’t be lazy – be very lazy: Buy high quality businesses and do not sell. Prasad argues that evolutionary success is measured over long periods, and the same is true for investing. He advises against short-term speculation and highlights the benefits of a long-term investment horizon.
After reading this book, 3 pieces of advice for potential readers: 1.Buy this book. 2.Read this book, and 3.Re-Read this book at least once a year.
🎯 The Book in 3 Sentences 1️⃣ Avoid big risks by avoiding businesses tied to fraud, turnarounds, excessive leverage, and high-risk M&A deals. 2️⃣ Buy high-quality businesses with a strong historical ROCE and focus on long-term value. 3️⃣ Be patient, exploit short-term fluctuations, and hold onto investments to benefit from compounding and the wealth-creating potential of select companies.
💡 Key Takeaways ➤ Avoid big risks: Stay away from fraudsters and highly leveraged businesses. ➤ Buy high quality: Focus on historical Return on Capital Employed (ROCE). ➤ Seek robustness: Look for strong competitive advantage, minimal debt, and stable management. ➤ Ignore short-term fluctuations: Focus on long-term success, and seize opportunities during market panics. ➤ Study historical data: Assess a business’s strategy, competitive position, and market share. ➤ Follow convergent patterns: Consider industry data and proven investment patterns. ➤ Be cautious of misleading signals: Press releases and management interviews can deceive. ➤ Be patient and hold: Long-term ownership and compounding yield better results.
✏ Top Quotes ➤ We can be better investors only if we are better “rejectors.” ➤ About 40 to 45 percent of the Fortune 500 businesses of 1955 continued to be successful for the next sixty years.
📝 Summary + Notes
SECTION I. AVOID BIG RISKS 1. Oh, to Be a Bumblebee ➤ An essential prerequisite for making money is the ability not to lose money. ➤ Investors make two types of mistakes: committing self-harm (type I error) or rejecting good opportunities (type II error). ➤ Warren Buffett’s investment philosophy emphasizes avoiding big risks and minimizing the probability of losing money. ➤ How to avoid big risks. ➤ People don’t change. Avoid investing in businesses owned or run by individuals who have a history of defrauding customers, suppliers, employees, or shareholders. ➤ Avoid turnarounds. Investing in businesses that have underperformed for a long time and are promising a turnaround is risky. ➤ Leverage. Stay as far away from leverage as possible. ➤ Detesting debt. Prioritize strong balance sheets, and focus on long-term value creation. ➤ Ignoring M&A (company mergers and acquisitions) junkies. There is a high failure rate and opportunity cost associated with such deals. ➤ Not predicting where the puck will be. Investing in rapidly evolving industries, such as railways in the 19th century and dot-coms in the 20th century, can be highly risky and prone to value destruction. ➤ Not aligning with unaligned owners. Avoid investing in government-owned businesses and listed subsidiaries of global giants.
SECTION II. BUY HIGH QUALITY AT A FAIR PRICE 2. The Siberian Solution ➤ Assessing a company’s quality requires more than just management, revenue growth, or margins as criteria. ➤ When selecting businesses for investment, focus on historical Return on Capital Employed (ROCE) rather than future projections or other financial measures. ➤ High ROCE indicates a business's ability to generate significant returns on its investments, reflecting effective capital utilization. ➤ Consistently high ROCE is likely an indicator of an excellent management team, strong competitive advantage, and effective capital allocation in a business. ➤ However, not all businesses with high historical ROCE will necessarily continue to be considered good businesses. There are no guarantees in investing.
3. The Paradox of McKinsey and Sea Urchins ➤ In order for a species or a company to evolve, it needs to be strong and adaptable. ➤ Robustness across factors like ROCE, customer base, leverage, and competitive advantage is crucial for permanent ownership. ➤ A robust business has high ROCE, minimal or zero debt, a strong competitive advantage, fragmented customer and supplier bases, a stable management team, and is in a slow-changing industry. ➤ Calculated risks, akin to neutral mutations in biology, enable business evolution.
4. The Perils of a Pavlovian ➤ Focusing on proximate causes, such as macroeconomic factors, when analyzing investments can be misleading and unhelpful. ➤ Thematic investing and market speculation often lead to overvalued stocks. ➤ Focus on long-term success, ignore short-term fluctuations and seize opportunities during market panics.
5. Darwin Ate My DCF ➤ Investing as a historical discipline involves studying a business’s historical financials and performance, assessing its strategies and competitive position, and assigning value based on historical data rather than trying to forecast the future. ➤ Assessing a business’s strategy involves evaluating its historical actions, target customers, differentiation from competitors, capital allocation, capital structure, risk, and quality. ➤ The competitive position is determined by consistently outperforming competitors in terms of measurable parameters like ROCE, market share, free cash flow, and financial consistency. ➤ Market share is a crucial indicator of competitive advantage, and long-term trends should be considered over short-term fluctuations.
6. Bacteria and Business Replay the Tape ➤ Convergent patterns are recurring patterns observed across different companies and industries. ➤ Investment strategy should focus on convergent patterns across industries. ➤ Considering the outside view and industry data is crucial for informed investment decisions. ➤ When investing in a company, it’s important to consider the industry it operates in and the convergent outcomes of other businesses in that industry. ➤ While it's generally a good idea to invest in businesses that align with proven patterns, it’s also important to be open to the possibility of exceptional companies that deviate from those norms.
7. Don’t Confuse a Green Frog for a Guppy ➤ Press releases and management interviews can be misleading signals in business evaluations and should be approached with caution. ➤ Investor conferences & road shows can be marketing events. ➤ Focus on long-term factors, not short-term forecasts. ➤ Face-to-face meetings with management can be deceptive as they often provide cheap signals. Past performance and scuttlebutt signals are more reliable indicators for investors.
SECTION III. DON’T BE LAZY—BE VERY LAZY 8. Birds and Bears Bare an Aberration ➤ Being lazy in the sense of not reacting impulsively to every news item can be a more effective approach for long-term investors. ➤ The Grant-Kurten principle of investing (GKPI): Buy high-quality businesses, exploit short-term market fluctuations, and sell only if governance declines or irreparable damage occurs. ➤ Lazy investing, successful outcomes.
9. Eldredge and Gould Dredge Up Investing Gold ➤ Economic conditions can change rapidly, and it is crucial to be prepared to adjust your financial plans and strategies accordingly. ➤ Be patient: Avoid frequent buying and selling. Patience and holding onto investments for extended periods can yield better results. ➤ Approach every investment with the mindset of being a permanent owner of the business. ➤ By focusing on long-term commitments and avoiding short-term speculations, investors can gain a competitive advantage.
10. Where Are the Rabbits? ➤ Compounding takes time to reveal its impact and many investors sell too soon. ➤ The wealthiest individuals in the world are those who never sold their businesses. ➤ Empirical evidence also shows that a select few companies create the majority of wealth, and holding businesses for long periods increases the chances of generating incredible returns. ➤ The only way to benefit from compounding is to remain invested. ➤ Investors often get tempted to sell their holdings when they see a sudden rise in stock prices. They may believe that they have made a quick profit and want to cash in. However, by doing so, they may miss out on the long-term growth potential of the business.
Every now and then a writer comes along who has utter mastery over his subject. Seldom does a writer come along who has mastery over two subjects. And, infrequently, do you find a writer who has mastery over two subjects and also has the sublime gift of the written word. So what then do you say about a writer who is a master of two subjects, has the gift of the written word AND as if that weren't enough, the incredible ability to treat his reader on par with him without appearing patronising in the least. Of Prasad's prowess in his chosen profession of investing there can be no doubt and of his expertise in his passion of evolutionary biology there is no question. And yet what stands out even taller than these two already monumental things is his ability as a writer to engage with the reader as an equal. He is at once engaged with you and invested in you, in what appears to be as thoughtful, considered and deep a way as he engages with the fundamental principles that govern his investment decisions which have resulted in his incredible track record.
Whether you are a finance professional or someone who has an interest in evolutionary biology or someone who lies in the intersection set of the two or someone who has not much knowledge of either - you will come away the richer for reading this book. Prasad's unique ability to draw cogent parallels between the two worlds he knows and loves is why this book is a masterpiece. Plus his ability to keep those parallels relatable and enthralling is what is the icing on the cake. He takes you on a journey with his writing which reflects clarity of thought, transparency of communication and integrity of purpose. His writing style is light and lucid and simultaneously absorbing and penetrating.
Some books become collectors’ items. This is such a book. It is beyond unique and incredibly well informed and yet easy to get your head around and absorb. The author appears to be engagingly not taking himself or his prowess too seriously and there is a core of humility running right through the book which is so very pleasant to see. Much to learn from the book and much to just sit back and simply enjoy. Wishing for a sequel to this.
It is easily one of the best books on investing one can read. I would rate it along with "Common stocks and uncommon profit" and "The intelligent investor". The book is on investment philosophy and mechanics followed by Nalanda which in my opinion is very close to Buffett-Munger style of investing.
While people like Warren Buffett are prolific writers themselves, their audience is usually a much wider audience. They do not write for investment professionals. While they lay down the general philosophy beautifully, it is difficult to figure out how exactly to go about doing it and why exactly the philosophy works. Most of the other books written about Buffett-Munger style of investing either go down into too many details of his specific investments & personal life or have peddled their own investment style in garb of Buffett-Munger style of investing.
Pulak goes down in detail regarding his investment philosophy and lays down extremely logical & convincing arguments on why it works drawing parallels from the field of evolution. He covers several extremely important topics like importance of reducing Type 1 errors (i.e. ability to reject nearly all bad investments), importance of ROCE and of robustness (along with some experimentation). The other important points relate to why we should ignore market news, issues with future projections. importance of convergent thinking, finding repeatable patterns, observing the right signals, being patient and inactive with sudden bursts of activities etc.
Most investment professionals would have come across many of these ideas. However Pulak adds value on account of three aspects: (i) He adds many new insights to these concepts (a feat given how much has been written about these), (ii) He proves why they work in a logical & convincing manner and (iii) He weaves them into a coherent investment approach. If you were ever impressed with Buffett-Munger investment philosophy but uncertain about implementability and underlying logic, this is the book to read.
The only issue with the book is that it often goes deep in theory of evolution. This might be an issue for people who are not familiar with the concept.
I completed the book over 3 months as there is a lot of great advice and parallels with science to unpack.
the author draws parallels between Charles Darwin's theory of evolution and the investing world. The key takeaways include:
Adaptation is Key: Darwin's theory emphasized the importance of adaptation to survive and thrive in changing environments. Similarly, successful investors must adapt to evolving market conditions and adjust their strategies accordingly.
Diversification: Darwin observed that diversity in a species enhances its resilience. Investors can apply this concept by diversifying their portfolios to spread risk and increase the chances of long-term success.
Survival of the Fittest: In nature, the fittest organisms survive and reproduce. In investing, companies with strong fundamentals and the ability to adapt will likely thrive over time. Investors should focus on quality investments.
Patience and Long-Term Thinking: Darwin's work took years of patient observation. Similarly, investors should be patient and adopt a long-term perspective, allowing their investments to grow and adapt over time.
Continuous Learning: Darwin's willingness to adapt his theories based on new evidence is a valuable lesson for investors. Stay open to new information and adjust your investment strategy as needed.
Risk Management: Like species that face various threats, investors should assess and manage risks in their portfolios. Diversification and careful research can help mitigate potential losses.
Selective Decision-Making: Darwin's theory of natural selection reminds us that not all species survive. Similarly, not all investments will succeed. Investors should make selective decisions based on research and analysis.
I also enjoyed reading about the investing pitfalls made by Pulak earlier in his career and also learning more about Indian promoters, as Pulak's investing experience across WP and Nalanda exposed him to the full spectrum of Indian business owners in the small & mid cap space.
Prasad finely weaves parallels between the evolutionary change and his investing approach. Though I do not agree with all of his conclusions, I think the author did an excellent job of stating his case, and he most definitely convinced me to alter some of my thoughts on investing. This is one of the rare investing books that is both a pleasure to read and informs with substance. It is certainly one of the very few I will be going back to for its wisdom.
I appreciate Prasad's strategy to avoid messing with junkier businesses since the probability of being wrong is higher there. In general, his focus on base rates and historical analysis is quite compelling. Forecasting is a fool's errand, indeed. I do not fully get his total avoidance of leverage, however, since there are plenty of exceptional businesses running at reasonable leverage levels whose flexibility would not have been hindered in challenging times. The insight that rate of change in the short term is higher than the rate of change over the long run both in evolution and in business is quite extraordinary. I am on board paying a fair price for exceptional businesses but still struggle with the idea of never selling them on valuation alone, though I have to admit, it seems like it had worked both for him and for Warren Buffet. From personal experience, I can also confirm that a few long-term winners pay for the losers many times over, especially if one allows them to compound over time, without selling down the investment.
These couple of quotes capture the book's essence for me: "Stasis is the default in the natural world, except when punctuations arise to create a new species. Stasis is the default in the business world, too. Great businesses generally stay great, and bad businesses generally remain bad... We avoid investing in bad businesses when their stock prices are on an upswing by focusing on the (bad) quality of the business and asking ourselves if we want to own it forever." "The answer to the objection 'Why should I hold on to 60 PE?' is straightforward. Because, on average, over the long run, great businesses have a way of making us more prosperous than we ever thought possible."
Pulak Prasad is the Founder and CEO of Nalanda Capital, a USD5bn fund that is domiciled in Singapore and focuses only on investing in listed companies in India. It has outperformed the market over a decade and a half with a CAGR of 20% since its inception in 2007 to 2023. Prasad is a McKinsey alumni and has generally kept a low profile - some even describe him as a reclusive - in spite of his success. This book is an attempt to correct that.
The three investment lessons are put up front. 1) Avoid Big Risks 2) Buy Quality at the Right Price 3) Don't be lazy. Be very lazy.
Nalanda buys low beta stocks with a robust business model that has a high Return on Capital Employed (ROCE) and that has low debt. They understand that this would mean they would miss an Amazon or a Tesla in their midst - a price they believe is worth paying to reduce risks. They usually only buy during crises when there is huge value. Their three biggest buying periods were 2008-2009 (Lehman), 2011 (Sensex down 23%), and 2020 (Covid). Lastly, they transact little. They buy rarely and sell even less. Nalanda, after all, says that it invests in companies they would like to hold forever.
The book is two for the price of one. In drawing investment lessons from nature, he describes the wonderful world of nature in some detail - how selection has shaped the behaviour and phenotypes of antelopes, silver foxes, finches, and bees. How nature sends true and false signals to mates and predators. All very fascinating.
But his main message is that there are no genuises in the world of investing. Rather, it is best to mimic nature to survive. The best quote:
"My circle of ignorance has expanded lockstep with my age. As a young Mckinsey Consultant, I felt I had all the answers. As an older investor, I have only questions. So, my only option is to internalise a process that can simplify the world's complexity in a way my intellect can't. If we are surviving and outperforming the market many years from now, it will not be because we know a lot. Instead, it is because we know we don't."
As a minimal business investor and entrepreneur coach, Pulak Prasad’s book is a godsend. His first chapter alone is worth the price: combining Buffet’s advice, with statistical inference on the types of risk and how natural selection works, you get a great idea of how Prasad evaluates opportunities. As the author says, you might miss out on an Apple or Tesla, but you will avoid hundreds, thousands of JC Penney’s (in the 21st century) and the like.
The key is minimizing calling a bad investment a good one (type I error). Mistankenly putting money into a bad company is a losing risk and the biggest hindrance to having an overall good record. Whereas most investment funds chase lots of opportunities, they underperform against the stock exchange indexes (S&P 500, DJIA e.g.) This might be in contrast to Taleb’s Black Swan strategy—because you can’t predict winners, invest some in a lot of companies and the winners will overwhelm the losing multitudes. But then Prasad gives simple advice on how to simply identify a few solid investments. For those familiar with Stern Stewart’s Economic Value Added, you’ll resonate with Prasad’s analysis.
While you think evolution is only concerned with physiological traits, the author identifies some behavioral evolution and relates this to company leadership and strategies.
I spotted one consideration worth changing on this upcoming book: Buffet’s guidelines are referred to as “diktat” but better is “dicta” since the former is considered pejorative as it refers to edicts from an external or distrusted authority.
Har du lest én bok om investeringer, har du … ikke lest alle, men de fleste. Og mange av dem faller i kategorien «se på mine resultater, se så genial jeg er, dette har null med flaks å gjøre».
Endelig noe litt annerledes. Nok en gang må det en inder til for å komme med noe nytt.
Pulak leder et indisk investeringsselskap, og har en forkjærlighet for evolusjonærbiologi. I denne boka trekker han linjer mellom dette fagfeltet og sine egne investeringsdogmer. Han sier «se på mine resultater», og han er kritisk til mye andre investorer foretar seg, men det er samtidig den mest ydmyke investeringsboka jeg har lest.
Det var isolert sett interessant i seg selv å lese litt biologi for en gangs skyld, og broene Pulak bygger over til investeringens verden er stort sett troverdige og lærerike. Han støtter seg langt på vei på Buffetts filosofi, men både utdyper og begrunner denne på en måte jeg ikke har sett før.
Oppsummert var dette både lærerik, interessant, lettlest og tidvis underholdende lesning. Kan’ke være strengere enn å smelle til med en femmer da.
NB: Han later imidlertid til å ha liten innsikt i hva som gjør datafiler store. Han kritiserer flere ganger investorer som tror de kan spå fremtiden med sine svære og kompliserte beregningsmodeller, som han refererer til som «multigigabyte spreadsheets». Kis, det er mye regneark.