A new dimension of survival of the fittest doctrine in the world of investing
The world of investments has enamoured countless individuals and produced the most competent and intelligent investors worldwide. Though this profession is sought after for its incredible returns, perks, glitz and glamour as portrayed in popular media, in reality individuals fail to reckon the countless hours of study, analysis, deliberation, debates and discussions involved in final investments decisions. Pure fundamental investments are where real wealth is created and this has been time and again proved by the performance and wisdom of successful investors like Warren Buffet, Benjamin Graham, Charlie Munger, Philip Fisher, Peter Lynch and many more. A little word on the contributions of these master investors. Benjamin Graham has been a mentor to Warren Buffet. He has made immense contribution to the world of investment with his books, most notably the ‘Intelligent Investor’ that is considered as a bible to investing. He is a proponent of value investing and quantitative fundamental analysis. He stresses on the concept of margin of safety when buying stocks. This essentially means buying a stock at a discount from its intrinsic value hence reducing the chances of major losses in case the stock doesn’t perform well. Furthermore Graham advocated diversification of a portfolio within and across asset classes. He proposed to take advantage of market volatility to get best value eg: buy during market downturn and sell at good times. Warren Buffet the oracle of Omaha has been a highly reputable figure in the world of investing and is a disciple of Benjamin Graham. Buffet is known for his nuggets of wisdom like adopting an owners mindset whilst investing in a company and the concept of investing in a business that has a strong moat or competitive advantage. His idea of adhering to your circle of competence i.e. invest in businesses that are easy and comfortable to grasp and understand, is a critical step to contemplate whilst studying companies. He is a proponent of the phenomenon of compounding that is the ultimate recipe of creating long term wealth if invested in a good quality business. Buffet’s business partner and friend Charlie Munger has played a pivotal role in refining Buffet’s investment practices by introducing him to take a look at businesses from a qualitative lens (i.e. quality of management, quality of business) than just scrutinising a businesses based on its quantitative aspects. Munger promoted the idea of buying wonderful businesses at a fair price and giving up buying fair businesses at wonderful price. He emphasised the idea of independent thinking and decision making (carrying out your own study) and avoiding herd mentality. He has been an advocate of life long learning and having the ability to constantly learn and acknowledge personal biases whilst making investing decisions. Philip Fisher has created a mark in the investing world by introducing the term ‘scuttlebutt’ i.e. collect data about a business from all its stakeholders ( competitors, customers, suppliers, employees, research analysts or industry experts) to analyse and scrutinise a business, an innovative form of due diligence apart from the usual quantitative due diligence. He also advocated a buy and hold strategy for good quality businesses. In his book Common Stocks and Uncommon Profits he shares his 15 stage strategy to identify star businesses. He lays emphasis on the qualitative factors of a business for instance studying its industry, its competitors, its right to win, management team, it products or services, it ability to invest in R&D (to constantly innovate), its organisational structure and much more. Peter Lynch is another celebrated name in the investment world and has made his contributions. He was also a proponent of the PEG ratio to value businesses. He promoted the idea of writing down a thesis for your investment so you don’t get clouded by your own psychology biases and judgements of others or event that occurs in the external environment. He stresses on investing in high growth niche companies. In the world of business, innumerable businesses are at war with one another. At the end the businesses that survive the test of time are the ones that innovate, are flexible and adapt to the changing competitive landscape, consumer behaviour, technological innovations, the economic and geopolitical scenario. These businesses that survive for decades or centuries are clear examples of the survival of the fittest in Darwin’s theory of evolution. The theory of survival of the fittest plays a humongous role in many different fields and investments is one of them as well. The investor has to be adept to respond to the changes in the external environment and refine his investment portfolio accordingly to survive the uncertain business environment. One Indian investor has gained fame for his intellectual contribution to the world of Indian equities. Pulak Prasad has studied and taken a holistic view of how investments work and married the concepts with Darwin’s theory of evolution. He has created a customised concoction of investment strategies to invest in the Indian markets using the investment theories of legendary investors mentioned above and the theory of Darwin. ‘What I learnt about investing from Darwin’ is an exceptional repository of teachings to invest in the stock market for the long term fundamental business investor. Pulak Prasad enlists and discusses about how he and his team at Nalanda have conceptualised a chronological framework via which they filter out companies and take a deep dive into evaluating companies that are worth to invest in. This enticing book can be synonymous to being called the bible to invest in the Indian Stock Market. It is an absolute delight to read the book and every reader will not only learn about investing but also learn interesting facts about biology and the parallels drawn between the two fields. Prasad enlists a series of quantitative and qualitative factors that can be applied to drill down on the most deserving companies. Let’s have a look at some of these interesting concepts. Prasad firmly states that he and his team judge a companies quality by studying its past performance eg: 10 year
