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Pulak Prasad

lines on the record: 63
first: 2024-01-02
most recent: 2024-01-02
sittings or episodes: 1
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“Worked incredibly well for Nolanda and its partners. If you enjoyed this episode of this book and enjoy discussing great investment books with other passionate value investors, you're going to love TIP's mastermind community. You can find out more about it at the investorspodcast.com slash mastermind. If you want to learn more about Pulak Prasad, check out his book, What I Learn About Investing from Darwin, and his fun site at www.nalandacapital.com.”
2024-01-02 · We Study Billionaires · TIP597: Darwin's Investing Lessons w/ Kyle Grieve · IDENTIFIED FROM THE TRANSCRIPT
“And adapt. Once he deems a business as exceptional and eliminates significant risks, the next step is to acquire at fair prices. Here, his job is to take advantage of the price fluctuations that the market offers. For him, that means getting about a 30% discount to the Sensex Index. He's looking for a price-or-earnings ratio of around 15. This is a very fair price. He also stated that he will sometimes go up to the high teens or even the low 20s if it makes sense. The last step might be the hardest, owning your businesses forever. If you do the right work in step one and don't overpay in step two, then step three should theoretically be the easiest step to execute. But easy isn't a word that many investors would use to describe what they are doing. Since nature tends to be in stasis, Pulak prefers to echo his sentiments into the investing world, monitor the fundamentals of the business to make sure it's continuing to be exceptional and do as little as possible. So far, this strategy has”
2024-01-02 · We Study Billionaires · TIP597: Darwin's Investing Lessons w/ Kyle Grieve · IDENTIFIED FROM THE TRANSCRIPT
“Pulak's main goal is to own a business forever. Throughout the book, he shows that he truly searches for these types of businesses. He knows he will be wrong, which is why he does have to sometimes sell. However, his primary goal is to use many of the lessons from Darwin to help identify exceptional business that he doesn't have to sell. My favorite lesson in this book in regards to identifying seller businesses that reduce risk was looking for a single metric that gives you several favorable qualities along with it. In his case, he uses returns on capital employed. I've always used this single metric I used ROIC personally. I've always thought that this single metric is the most important metric to use. Pulak's book helped explain why this capital efficiency metric is so important and why we should use it as a starting point for all future investments. This one metric does so much in terms of showing us information on the quality of management, their capital allocation skills, their competitive advantages, and their abilities to innovate.”
2024-01-02 · We Study Billionaires · TIP597: Darwin's Investing Lessons w/ Kyle Grieve · IDENTIFIED FROM THE TRANSCRIPT
“The number of years he's held in investment and his multiple uninvested capital up to june thirtieth of twenty twenty two. Mine tree nine point six years held eight point two times WNS thirteen years held ten point six times Supreme eleven point six years held thirteen point six times Ratnamani eleven point seven years held sixteen point two times Burger thirteen point three years held thirty two point two times and page thirteen point seven years held eighty two point two times. I'm not sure I've seen a portfolio with this many multi-baggers in one place. I thoroughly enjoy learning all the lessons he took from Darwin in biology and how he's applied them to investing. His three-step strategy is both simple and repeatable. One, eliminate significant risks. Two, invest only in seller businesses at fair prices, and three, own them for free.”
2024-01-02 · We Study Billionaires · TIP597: Darwin's Investing Lessons w/ Kyle Grieve · IDENTIFIED FROM THE TRANSCRIPT
“Want to partake in these manias. But in the end, his ability to not confuse stock price fluctuations with business punctuation is one of his biggest strengths that he's consistently shown over the decades. The third principle really ties into the first one, which is that we should take advantage of rare stock price punctuations to create a new species. In this case, a new species is just a new stock that we put into our portfolio. Pulak shows some excellent data on how much capital he's invested during these massive punctuations. For instance, during COVID-19, Nolanda invested 22% of its total capital during only two percent of its existence. This means that they rarely invest, and when they do, they invest big. What I learned about investing from Darwin is a good look in the Pulak Prasad's investing process. His track record is very good. A table from the book shows data for six names in his portrait.”
2024-01-02 · We Study Billionaires · TIP597: Darwin's Investing Lessons w/ Kyle Grieve · IDENTIFIED FROM THE TRANSCRIPT
“The share price from the underlying fundamentals of the business. Sure, you may have some pain when you look at the share price, but over the long run, price tracks value and you will be rewarded for holding on. Another important point that Mr. Prasad points out here is that investors will apply positive business punctuations to a business that doesn't deserve it. This is most apparent during speculative manias. Investors flock to a given industry or stock because the stock price fluctuations are going upward. They will mistakenly attribute this to a strengthening business punctuation when in reality one does not exist. Look at Yahoo during the tech bubble. It traded at a price of sales multiple of up to one hundred five times. I assume many investors thought this growth and the story of the business would be sustained over a long period of time. They assumed a positive business punctuation. Unfortunately, that mistake would have cost them a hell of a lot of money. Investors like Buffett had to be the butt of jokes saying that he was done because he didn't”
2024-01-02 · We Study Billionaires · TIP597: Darwin's Investing Lessons w/ Kyle Grieve · IDENTIFIED FROM THE TRANSCRIPT
“The most important and least understood by the market. Stock price fluctuations Easy to confuse the two. And even if you understand this very well, many investors who own a stock that just won't move or the price value gap just won't close will end up mistakenly selling because they confuse price fluctuation with business punctuation. A great example of this today is one of my holdings, Evolution AB. The stock in the past six months has gone down 23% as of November 20th, 2023. However, the fundamentals of this business have improved at 25% or higher each quarter on a year-over-year basis in terms of revenues, net income, earnings per share, and free cash flow. It's important not to sell just because the stock price is being punished. A far higher degree of importance should be placed on looking at whether or not the business is still in a good place. That piece of information alone is what $99% of your focus should be on if you are a long-term oriented investor. When you look at a business through this light, you're able to disassociate”
2024-01-02 · We Study Billionaires · TIP597: Darwin's Investing Lessons w/ Kyle Grieve · IDENTIFIED FROM THE TRANSCRIPT
“Businesses could not succeed over sixty years. Stasis is the default. The point here is that good businesses are probably more likely to remain good and average and below average businesses are more likely to remain average or below average. In 2018, Henrik Bessaminder published an article called Do Stocks Outperform Treasury Bills. His research focused on twenty-six thousand stocks from various U.S. stock exchanges between nineteen twenty six and 2016. 51% of these stocks lost their value over that time period. But how about the good ones? A full 31% of the sample or about 8,000 stocks beat the market during this time. This is a lot higher than I would have thought. This shows how powerful stasis is in the market. Below average businesses tend to stay below average or disappear altogether. Great businesses tend to stay great for long periods of time. The second principle is probably”
2024-01-02 · We Study Billionaires · TIP597: Darwin's Investing Lessons w/ Kyle Grieve · IDENTIFIED FROM THE TRANSCRIPT
“There until 2015. Pulak does a great job looking through the research and his own conclusions were that 40 to 45 percent was a more likely number. He points out that the author missed a few businesses and many drop businesses were eliminated because they were acquired and yet are still fully functional subsidiaries of its parent company. And many dropped out of the Fortune 500 but are still fully functional businesses as of 2015. With this said, 55 to 60% of businesses did fail. Pulak then goes on to explain how hard it is to make it into the Fortune 500. He says, quote, Of these 10,000 in 1955 that could have made it into the 2015 Fortune 500 list, only 300 did. An apparent 3% success rate. The actual number is probably closer to 1 to 2% or even lower. Thus, 97 to 99% of the not so”
2024-01-02 · We Study Billionaires · TIP597: Darwin's Investing Lessons w/ Kyle Grieve · IDENTIFIED FROM THE TRANSCRIPT
“There are only three months of time where they could buy these businesses at prices they deemed worthy. This comes out to only one to two percent of the time period. I think many of the great investors follow this strategy of understanding a business very well, but rarely taking action. During the times of major market depression, you can get access to these businesses at mouth watering prices. But it's only when the market is truly depressed, fearful, and gloomy that the business will be sold off enough to offer cheap prices for high-quality businesses. Usually these periods only make up a short period of time, so you must act quickly before the market comes back to its senses and sees that the sell-off did not make any sense. A great example would be the tech bubble, the great financial crisis, and the onset of the COVID pandemic. Critics of the great business's stay great concept will cite research such as the Fortune 500 article published in 2015, stating that only 12% of businesses in the Fortune 500 in nineteen fifty five”
2024-01-02 · We Study Billionaires · TIP597: Darwin's Investing Lessons w/ Kyle Grieve · IDENTIFIED FROM THE TRANSCRIPT
“Into the future. A great example of this is how infrequent great buying opportunities occur. Pulak uses the example of a business he has firsthand knowledge of, Unilever. It was his first job. And when he started, he could see the business was truly exceptional. He discusses how he went out with a sales manager one day and was in awe of how much respect this sales manager had from customers. The product was so in demand that Unilever had to ration his orders to different clients. His point is that exceptional business have a way of staying exceptional for a long time. So when the opportunity comes to acquire one at a great price, you need to be highly active. But in those periods in between, your default activity should be to do as little as humanly possible. A great example I noted of punctuated equilibrium in real life was how infrequently Nalanda buys stocks. Page, Havel's, and TTK prestige are three exceptional businesses that Nalanda holds. Pulak notes that since 2016,”
2024-01-02 · We Study Billionaires · TIP597: Darwin's Investing Lessons w/ Kyle Grieve · IDENTIFIED FROM THE TRANSCRIPT
“Are interrupted periodically by punctuations in this stasis. So when paleontologists found larger changes in the morphology of a species, they should assume these changes happened rather suddenly rather than slowly over time. Prasad came up with this framework for investing from the concept of punctuated equilibrium, one business stasis is the default, so why be active? 2. Stock price fluctuation is not business punctuation. And three, take advantage of the rare stock price punctuation to create a new species. Let's dive into these three frameworks in some detail to find out how we can use them to be better investors. If we assume that most businesses are in stasis by default, it means that what has happened in the past should largely stay intact into the future. If this is true, then simply finding wonderful businesses with a long history of excellence means that they should continue being wonderful.”
2024-01-02 · We Study Billionaires · TIP597: Darwin's Investing Lessons w/ Kyle Grieve · IDENTIFIED FROM THE TRANSCRIPT
“Biggest problems that Darwin came upon was outlined in chapter six of the Origin of Species. Pulak wrote, he argues that since natural selection gradually eliminates minor well adapted forms, extinction and natural selection must operate simultaneously. Hence, logic dictates that innumerable transitional forms that were unable to adapt to their surroundings should have existed. But as Darwin himself points out, transitional fossils have rarely been found. He admits that the incomplete fossil record poses a significant hurdle to anyone trying to prove that species evolved gradually, unquote. But two scientists, Niels Eldridge and Stephen Jay Gould, came up with the idea of punctuated equilibria that seemed to make sense of Darwin's original thesis by looking at the problem in a different way. The simple definition of punctuated equilibrium is that most species stay in stasis for long durations”
2024-01-02 · We Study Billionaires · TIP597: Darwin's Investing Lessons w/ Kyle Grieve · IDENTIFIED FROM THE TRANSCRIPT
“Operating results of my businesses, not their changes in stock prices. If you follow the GKPI, you hopefully won't have to sell very often, but you will still need to sell at some point. Prasage shows the data for how often Nolanda has sold over the years. Since 2007, they've sold 10 businesses, which is an average of exiting every 1.5 years. A final point on Selling that he discusses is a primary reason for selling. They remind me a lot of one of Thomas Felt's axioms from one hundred to one in the stock market. Any sale should be seen as a confession of error. You should strive to make as few of these errors as possible. Pulak has a few very important quotes. We never sell on valuation, and we have sold only when there had been an egregiously bad capital allocation or irreparable damage to a business. Very lazy indeed. The final chapter of the book deals with the power of stasis in nature and investing.”
2024-01-02 · We Study Billionaires · TIP597: Darwin's Investing Lessons w/ Kyle Grieve · IDENTIFIED FROM THE TRANSCRIPT
“Qualities over time, we should use the short term ups and downs in their fundamental performance to buy instead of sell. The GKPI If you hold these types of businesses, you can withstand the inevitable fluctuation in the business operation because in the long term, the business will remain high quality and continue to outperform. Pulak says GKPI is their religion. It has a major influence on how they do their work and what information they allow into their workspace. For instance, they don't have a TV, just a screen for conferencing. They keep their Bloomberg terminal off to the side in the office in the office pantry. They don't discuss recent company news or share prices at team meetings, and they have never bought or sold based on Newsflow. This brings me to a big area of focus that I've tried to create for my own investing environment. I try to keep things that make me think short-term as far away from myself as possible. This means I don't check my portfolio value every day. I don't need to stay up to the minute with news releases for my businesses. I rarely read analyst reports. I don't compare my results with others, and I judge my performance based on an improving”
2024-01-02 · We Study Billionaires · TIP597: Darwin's Investing Lessons w/ Kyle Grieve · IDENTIFIED FROM THE TRANSCRIPT
“Changes on a year to year basis, the changes were actually much faster than the longer measuring periods. Pulak writes, quote, There is a lovely fractal-like property to this phenomenon. It does not seem to matter if the measurement period is a thousand years with the bears or just a few decades with the finches. The pace of evolution speeds up over shorter periods and slows down over extended periods. When we look at the wide world of investing, it's easy to get caught up in the short-term events that are happening from the macroeconomic perspective all the way down to individual businesses. What this mental shows us is that over a long period of time, things don't change much, but over shorter periods, they give the appearance of changing very fast. From his research on Curtin and the Grants, he came up with the Grant Curtain principle of investing GKPI, which is, if we identify top-notch businesses that maintain their core”
2024-01-02 · We Study Billionaires · TIP597: Darwin's Investing Lessons w/ Kyle Grieve · IDENTIFIED FROM THE TRANSCRIPT
“Which is one of the islands that makes up the Galapagos. The reason for this, the grants realize this island undergoes severe climate change very regularly and would therefore be in a great place to witness evolution in a short period of time. They tagged 20,000 birds between 1973 and 2012 and researched them very closely. Due to changes in the climate, some very interesting things happened in a very short period of time. In the first four years of the study, the climate was pretty average, but after that, the island experienced a large drought that killed much of the island's greenery. As a result of this, many species of birds died. But a small amount survived. The species with larger beaks that could open certain seeds survived, the ones with medium and small sized beaks died. When the Grants looked at the research over the decades they were there, they noticed that over a ten year time period not much change in terms of the beak size of these finches. But when they looked at the change,”
2024-01-02 · We Study Billionaires · TIP597: Darwin's Investing Lessons w/ Kyle Grieve · IDENTIFIED FROM THE TRANSCRIPT
“We think of long, slow changes that happen gradually over long periods of time. But this notion was thrown on its head in nineteen fifty nine by a finish scientist named Bjorn Curtin. For his experiment, he looked at brown bears and the size of their teeth. He looked at samples dating back between two point six million and twelve thousand years ago. Using the assumptions above, we would think that over long measurement periods, the rates of change would be higher. But the opposite was the case. Over shorter periods, the rates of change were much higher than over longer periods of time. What this means is that evolution moves slowly over longer measurement periods and more quickly in shorter measurement periods. In another example of the quickening pace of natural selection over shorter timing periods, we can look at an example from Peter and Rosemary Grant. This couple spent six months out of each year for a total of forty consecutive years living on Daphne Major.”
2024-01-02 · We Study Billionaires · TIP597: Darwin's Investing Lessons w/ Kyle Grieve · IDENTIFIED FROM THE TRANSCRIPT
“Compared to honest signals. But I think this is why honest signals are so important. The honest signals do not hide the facts. If a business has a history of business excellence, that will show up on their financial statements. If a business has a positive culture and fosters good relationships with employees, customers and suppliers, they will all tell you how much they enjoy engaging with the business. The dishonest signals from one business can easily signal that everything is good while the honest signals by the same business might be telling a completely different story. Nalanda Capital takes being lazy to a whole new level. Their strategy reminds me of a Warren Buffett quote many of you will probably be familiar with. Inactivity strikes us as intelligent behavior. as far as possible to help us understand why being very lazy is such a key to his strategy, we need to understand a less intuitive part of evolution. When we think of evolution,”
2024-01-02 · We Study Billionaires · TIP597: Darwin's Investing Lessons w/ Kyle Grieve · IDENTIFIED FROM THE TRANSCRIPT
“Our job as investors is to filter the fluff pieces and make sure we triage information and prioritize only the most important pieces of data we can access, which tends to be the honest signals. Pulak gives numerous examples of dishonest and honest signals in investing. His dishonest signals include press releases, management interviews in the media, investor conferences and roadshows, earnings guidance, and face-to-face meetings with management. He makes a point that a dishonest signal does not mean the business is dishonest. Just that the signal it's displaying may not be communicating what it's supposed to be. Honest signals do communicate what they are intended to. These signals include past operating and financial performance and a positive reputation with employees, both past and present, customers, and suppliers. An observation I had here was that there are many more dishonest signals that businesses give off than”
2024-01-02 · We Study Billionaires · TIP597: Darwin's Investing Lessons w/ Kyle Grieve · IDENTIFIED FROM THE TRANSCRIPT
“And that it should move elsewhere or risk having to fight a losing fight. As a response, smaller green frogs have developed the ability to create this low frequency croak to trick other males in the area into moving elsewhere to find a mate. An honest signal would be one from a guppy. Females prefer to mate with guppies that have the brightest possible red coloring with the greatest concentration of carotenoids. So male guppies that can flaunt their colors to females the easiest also get the right to mate with females. This is an honest signal as a signaling that the male guppies are displaying signals of both health and virility. Unfortunately, this honest signal comes at a big price to these attractive males. The fact they are more colorful means they become easier to identify by prey. Signaling is huge in the world of investing. All public businesses are constantly giving off signals to display their strengths and hide their weaknesses.”
2024-01-02 · We Study Billionaires · TIP597: Darwin's Investing Lessons w/ Kyle Grieve · IDENTIFIED FROM THE TRANSCRIPT
“Businesses that have characteristics from its history that would show it's a far superior business to the market. Yet he wants the business to be priced similarly to market multiples. If history is taught us anything, it's that a business that is higher quality than the market usually is valued above market multiples given enough time. Now, what do green frogs and guppies have in common? They both give off signals. The difference is that the green frog signal can be seen as a dishonest signal, while the guppy signal is an honest signal. Are you confused? Pulak says in nature there are creatures that give off dishonest and honest signals. In this example, the green frog can mimic the low frequency croak of a larger rival. They do this for a simple reason. Access to mates. The low frequency croak that a green frog makes is generally associated with the size of a green frog. A green frog that hears a low frequency croak will be signaled that a larger rival is nearby.”
2024-01-02 · We Study Billionaires · TIP597: Darwin's Investing Lessons w/ Kyle Grieve · IDENTIFIED FROM THE TRANSCRIPT
“You must understand why this is happening. You can compare it to industry peers or examine the different expenses on the income statement. Doing this analysis will help you determine if a business can get back to its historical norms or if the fundamentals are in a secular decline. So if he doesn't use a discounted cash flow, then how does he know what to buy a business at, you're asking? Here is his preferred method for valuing non-cyclical businesses growing at a moderate pace. Quote, We pay a multiple at or below the market for an exceptional business with a high ROCE, a wide moat, and a low business and financial risk. Occasionally, we stretch a bit by paying a trailing multiple in the high teens or low twenties for a truly unique business, but these occasions are few and far between. The median trailing PE multiple for our portfolio when we bought companies is 14.9, unquote. So he's looking for”
2024-01-02 · We Study Billionaires · TIP597: Darwin's Investing Lessons w/ Kyle Grieve · IDENTIFIED FROM THE TRANSCRIPT
“Pulak's other great point about forecasting is that it's usually wrong. Analysts are wrong, economists are wrong, management is wrong, portfolio managers are wrong, everyone investing is wrong much of the time. So what makes you think that you'd be any different? Instead of predicting the future, Pulak spends time looking at two historical analysis, absolute and relative. If a business you are researching is going through a headwind where its net income has gone down to 10% growth versus”
2024-01-02 · We Study Billionaires · TIP597: Darwin's Investing Lessons w/ Kyle Grieve · IDENTIFIED FROM THE TRANSCRIPT
“Is that evolutionary biology does not make predictions? Quote, rather than answering the question, what will happen to humans, it ponders over the conundrum, how did bipedal humans evolve from ancestral quadruped apes? Let's bring that back into the investing realm now. Prasad is looking at businesses from the perspective of what has already happened in the past. This means he doesn't have to have faith that a business will go through some epic turnaround in order to become great. It probably already is. When you know the history of the business, there is a very good chance, but never a 100% chance, that excellence will continue into the future. It's important here to point out that investing this way does have downsides. Pulak points out two of them. One, there is no guarantee that a historically successful business will continue being successful in the future. And two, a historically unsuccessful business may not continue to be unsuccessful in the future.”
2024-01-02 · We Study Billionaires · TIP597: Darwin's Investing Lessons w/ Kyle Grieve · IDENTIFIED FROM THE TRANSCRIPT
“His theory of natural selection. He outlines the three key ingredients of natural selection. One, random variation among the progeny of an organism, two, differential fitness between the variants of an organism so that the poor variations will be rejected and favorable variations will be preserved for future generations. And three, the favorable traits must be able to be passed on to the next generation. The key lesson here is that natural selection like investing is a historical discipline. Natural selection does not require the ability to look into the future in order to understand that some sort of life will be alive in that future. Pulak takes three lessons from how Darwin utilized history to develop his hypothesis. Like Darwin, we interpret the present only in the context of history, we see the same set of historical facts as everyone else, and we have no interest in forecasting the future, unquote.”
2024-01-02 · We Study Billionaires · TIP597: Darwin's Investing Lessons w/ Kyle Grieve · IDENTIFIED FROM THE TRANSCRIPT
“Next idea in this book I want to discuss is how Pulak thinks about forecasting the future. In brief, he places a much bigger emphasis on the past than he does on the future. Quote, The investment world is obsessed with the future, studying history has taken a back seat to making bold forecasts. Instead of attempting to predict an unknowable future, Pulak takes, quote, a leaf out of evolutionary biology. We focus exclusively on widely and openly available historical information to analyze businesses. We spend no time building projections and forecasts, unquote. That's right, no time for projections and forecasts. Nalanda Capital does not do discounted cash flow analysis and never will. But before we get into what he does instead, let's go over some of Darwin's key lessons that can justify why Pulak has had such good success without ever running a discounted cash flow analysis. Pulak believes that Darwin's crowning achievement was”
2024-01-02 · We Study Billionaires · TIP597: Darwin's Investing Lessons w/ Kyle Grieve · IDENTIFIED FROM THE TRANSCRIPT
“Robustness, he noted the following ROCE of 63%, debt free, highly fragmented customer supplier base, a deep and wide moat and brand and distribution that has been built over 25 years, the same owner since 1995, and it's in an industry that's changing at very, very slow rates. The interesting thing about robustness is that it's never guaranteed into the future indefinitely. Hulak's weapon to protect himself from this fact is in the price he pays for the investment. If you aren't overpaying and are buying a wonderful business, chances are you won't lose everything when you are wrong. He notes in this chapter that the median trailing 12-month entry price to earnings ratio for Nolanda between 2005 and 2020 was $14.9. During this time, India's primary index sensex had a PE of nineteen point seven, while the mid-cap index was 23.8. This means he is paying a 25% or so discount for exceptional businesses.”
2024-01-02 · We Study Billionaires · TIP597: Darwin's Investing Lessons w/ Kyle Grieve · IDENTIFIED FROM THE TRANSCRIPT
“Business is robust. We have to see if we can come up with some form of method for analyzing its evolvability. After all, the business environment is constantly changing, and being left behind usually means very bad things if you are an owner of equity. And this is where evolvability comes into play. Pulak says, quote, in a robust business, just as in a living organism, evolvability comes free, unquote. This is a powerful statement. It means that if we find a robust business, their ability to evolve with the changing economic landscapes becomes a strength of the business. Mr. Prasad had a wonderful example of this in action. A business in the landa owns, called Page Industries. The business is an innerware business with only three other competitors. During the onset of COVID-19, Paige was able to evolve to the situation and took its market share from sixty six percent in twenty eighteen all the way up to seventy percent by the end of 2020. When Pulak looked at this business through the areas of”
2024-01-02 · We Study Billionaires · TIP597: Darwin's Investing Lessons w/ Kyle Grieve · IDENTIFIED FROM THE TRANSCRIPT
“Example I'd like to discuss after talking with a lot of other great portfolio manners and analysts on millennial investing is the role of debt in the robustness of a business. A business might tick off many boxes of reading robust. It might have a high ROCE, a fragmented customer and supplier base, a durable competitive advantage, and be in a slow changing industry. However, the debt and cash situation might force me to pause my bullishness on an investment. Many analysts and managers think this way, and it doesn't mean a company is done for. Far from it. What a lot of professionals would do in a situation like this is to monitor the business's debt and cash situation in the upcoming quarters. Yes, some businesses may never become safe enough to own due to excessive amounts of leverage. And that's perfectly fine. But you will find some businesses, especially ones that do have many of the robust categories we listed, will be able to get into a situation where debt load is no longer as big of a concern for you. Now that we know the”
2024-01-02 · We Study Billionaires · TIP597: Darwin's Investing Lessons w/ Kyle Grieve · IDENTIFIED FROM THE TRANSCRIPT
“Prefers to contrast the characteristics of a robust business with the characteristics of a non-robust business. A robust business has the following characteristics. It has delivered a high historical ROCE over time, has a fragmented customer base, has no debt, and has excess cash, has built a high competitive barriers, has a fragmented supplier base, has a stable management team, and is in an industry that is slowly changing. Now a non-robust business has the following characteristics. Has made operating losses for most or all of its history. It is highly dependent on very few customers, it is highly leveraged, has been unable to keep competition away, it is dependent on very few suppliers. Management turnover is high, and the industry is evolving very fast. You can use this table to weigh certain characteristics higher or lower depending on your preferences.”
2024-01-02 · We Study Billionaires · TIP597: Darwin's Investing Lessons w/ Kyle Grieve · IDENTIFIED FROM THE TRANSCRIPT
“An accidental change in the DNA sequence does not affect which amino acids are made. A change in the amino acids or their sequence does not impact the synthesis of proteins. And a change in proteins does not affect the body plan of an organism. What he's saying here is that living things have neutral mutations which allow for, quote, new function and adaptations to arise without disrupting current functioning, unquote. Now let's tie this back to the world of investing in business. If nature can show that an organism can stay robust all while being exposed to a multitude of external and internal shocks, then a business should be able to do the same. We already started our filtering of great businesses by using ROCE. Now we must look at robustness. Pulak admits that robustness is not objective. A lot of subjectivity goes into coming to a conclusion of the robustness of a business.”
2024-01-02 · We Study Billionaires · TIP597: Darwin's Investing Lessons w/ Kyle Grieve · IDENTIFIED FROM THE TRANSCRIPT
“The wrong question. The question they are asking is how can we change faster, better, and easier, unquote? Pulak thinks the correct question, the same people should ask is, quote, how do you change without changing, unquote? Why does he pose a question this way? Because he believes that biological environments are analogous to the world of business. Organisms from plants to algae have thrived for hundreds of millions of years, and in the case of bacteria, billions of years. This means that nature is incredibly robust, even in the face of changing external environments. When you look internally, living things are also going through turbulence via constant mutations. So yes, nature is very robust and has thrived through the years to create all the living things we see today. The robustness shows itself in multiple ways. One, the genetic code, two, proteins, and three, our bodies. Here is a quick breakdown of how this robustness works.”
2024-01-02 · We Study Billionaires · TIP597: Darwin's Investing Lessons w/ Kyle Grieve · IDENTIFIED FROM THE TRANSCRIPT
“A 53% and free cash flow margins of 60%. The sustainably high ROIC has highlighted their competitive advantage in their consistently high margins. With current gross profit margins of 97%, net profit margins of 53% and free cash flow margins of 60%. They have clearly allocated capital very well, given their high returns on invested capital and have used excess cash to provide further value to shareholders via dividends and buybacks. The business uses debt conservatively within near one times free cash flow to debt ratio. If you make sure every business you buy has a consistently high and sustainable ROCE, ROIC, or ROE return on equity, I think you will do very well with your investments to deep into the future. Now that we've discussed the importance of ROCE, let's move to some of the other traits Pulak looks for in business. But first, Pulak asks another very good question. He says too many business leaders and investors spend too much time asking”
2024-01-02 · We Study Billionaires · TIP597: Darwin's Investing Lessons w/ Kyle Grieve · IDENTIFIED FROM THE TRANSCRIPT
“Return on invested capital, which our net operating profits after tax divided by the sum of total shareholders equity and liabilities. I too will remove cash from the denominator to better represent this number. I've come to the exact same conclusion that Pula came across through convergence. Nearly all wonderful businesses seem to have a high ROCE or ROIC, and when you find a business with that high and sustainable number, you'll often see a number of great attributes that come along with it. A good example of this that most would be familiar with is Visa. This business has consistently had an ROC in the mid-20s to early 30s in the past decade. It has been a five beggar over the past decade, compounding around 19% excluding dividends, showing that management has been adept at creating shareholder value. The sustainably high ROIC has highlighted their competitive advantages in their consistently high margins, with current gross profit margins of 97% and net profit margins.”
2024-01-02 · We Study Billionaires · TIP597: Darwin's Investing Lessons w/ Kyle Grieve · IDENTIFIED FROM THE TRANSCRIPT
“Divided by the sum of networking capital and net fixed assets. He prefers to remove cash from the networking capital number, as he prefers high cash flow generating businesses, including that number in the denominator will unnecessarily punish the ROCE and make a lower number. Whatever you use here, just make sure you are consistent. Pulak mentions that a consistently high ROCE business will offer a few additional benefits. One, it's likely to be run by great management. Two, it's likely to have a strong competitive advantage. Three, it likely allocates capital well. And four, it allows a business to take calculated risks without risking financial risk. Notice how he uses the word likely here. This shows that although there is a good chance that these businesses are of high quality, there is no guarantee in investing. Investors will have their own capital efficiency metrics they like to use. I personally prefer”
2024-01-02 · We Study Billionaires · TIP597: Darwin's Investing Lessons w/ Kyle Grieve · IDENTIFIED FROM THE TRANSCRIPT
“Their wildness almost completely. Here's where things get interesting Demetri and his team selected for a single trait, the tameness of foxes. They didn't select for any other quality other than that. And yet, selecting for this one behavior triggered a number of physical changes in the animals over many generations. Their coat started changing colors to pie balls, patterns, black and white spots on an animal's skin, which is similar to domesticated cows, pigs, sheep, and horses. They got floppy ears, rolled tails, developed guard dog-like behavior, and baby-like appearances. Let's connect this back to the world of investing. Pulak poses a question, if we can search for a single trait in a business that will offer additional benefits for free, would that interest you? I think the answer to that is a resounding yes. His metric of choice is returns on capital employed, ROCE.”
2024-01-02 · We Study Billionaires · TIP597: Darwin's Investing Lessons w/ Kyle Grieve · IDENTIFIED FROM THE TRANSCRIPT
“Next, we discuss buying high quality businesses at fair prices. Prasad's first example is looking at decades-long experiment that uses foxes to get a better understanding of genetics. The founder of the study, Dmitry Bellif, wanted to answer two primary questions. One, how did domestication start for animals? And two, why did domesticated animals share similar features? Floppy ears, curled tails, babyish faces, etc. After only four decades, quote, Dimitri's experiment had essentially converted a population of wild foxes who avoided humans into dog-like creatures that could be kept as pets in any of our homes. It had become hard to distinguish their behavior from that of dogs. Lyud Mila, Dimitri's assistant, and her team had a race”
2024-01-02 · We Study Billionaires · TIP597: Darwin's Investing Lessons w/ Kyle Grieve · IDENTIFIED FROM THE TRANSCRIPT
“Staying away from bankruptcy risk is an intelligent decision. I think any investor can decide I have no problem investing in a serial choir with the right track record, but I can see how another investor might want to stay away from this area like the plague. Because they avoid businesses with these characteristics, they are highly aware that many great opportunities will be missed. But like nature, they are willing to live with committing type 2 errors rather than making the mistake of type 1 errors.”
2024-01-02 · We Study Billionaires · TIP597: Darwin's Investing Lessons w/ Kyle Grieve · IDENTIFIED FROM THE TRANSCRIPT
“More than investing in the next big thing that is yet to be validated by the market. Avoiding turnarounds is a simple rule that will keep you from being swayed by professional salespeople. Like Buffett says, turnarounds seldom turn around. While salesperson may be highly talented at creating the illusion that a turnaround has some power behind it, the business's poor operating history paints a much different and more accurate picture. Detesting debt is one of my favorite things to avoid. Debt in the right hands is like rocket fuel that can help fuel the returns of a business. But it must be used conservatively. All things being equal, I take a business that can get similar returns with zero use of debt. Pulak says, quote, if I were to list the 20 biggest bankruptcies in the United States, you would notice that all with Lehman at the top and Lionel Basil at number twenty were heavily indebted.”
2024-01-02 · We Study Billionaires · TIP597: Darwin's Investing Lessons w/ Kyle Grieve · IDENTIFIED FROM THE TRANSCRIPT
“Catch wind of something that doesn't smell right, then skip the investment. It's that simple. Not aligning with unaligned owners is another great attribute to avoid. Pulak gives examples of three types of owners they refuse to invest in. One, government-run businesses. Two, the listed subsidiaries of global giants. And three, Indian conglomerates. A few of these are more geographically specific. You will need to determine if you think owning businesses like this will ensure that management is misaligned with shareholders. To be fair, I think most government-run businesses are a bad idea and I have zero interest in investing in them myself. Avoiding fast-changing industries is pretty straightforward. If you invest in industries with high exposure to changes, you run the risk that your business will run the risk of obsolescence. Simple, boring, predictable industries that sell products that everyone must have for the future will protect your down”
2024-01-02 · We Study Billionaires · TIP597: Darwin's Investing Lessons w/ Kyle Grieve · IDENTIFIED FROM THE TRANSCRIPT
“Go through multiple ways, he tries to avoid big mistakes. They are Be wary of criminals, crooks, and cheats, no aligning with unaligned owners, avoid fast changing industries, ignore M&A junkies, avoid turnarounds, and detest debt. Let's go over each of these in a little more detail. In order to stay clear of criminals, crooks and cheats, you must do the correct work to ensure that you aren't trusting your money to the wrong types of people. Pulaq employs a method that most retail investors do not have access to, employing a forensic, diligence expert to assess the past of management. I think this is a great idea, and if I had the funds available, I'd probably do the exact same thing. However, as a retail investor with constrained resources, I don't have access to this. I think the best way to approach this is to try and actively find any negative buzz around the business.”
2024-01-02 · We Study Billionaires · TIP597: Darwin's Investing Lessons w/ Kyle Grieve · IDENTIFIED FROM THE TRANSCRIPT
“Deadly defense mechanisms. A type 1 error would be to chase the prey. Sure, it could get a meal out of it, but it could also mean that Cheetah loses its life in pursuit of the prey. If the cheetah ignores the prey because they realize it's too much work, this is a type 2 error. It doesn't get to eat, but it can go out tomorrow and try its luck again. Warren Buffett has said he has two rules for investing. Rule number one, don't lose money, and rule number two, don't forget rule number one. Pulak discusses his interpretation of this statement in a little more detail. He thinks that these rules do a perfect job of explaining what types of errors we should expect to make. By emphasizing the not losing money point, he is saying to minimize the type one errors that investors make. Pulak summarizes it as quote think about risk first, not return. I think this is a great approach to investing and risk.”
2024-01-02 · We Study Billionaires · TIP597: Darwin's Investing Lessons w/ Kyle Grieve · IDENTIFIED FROM THE TRANSCRIPT
“Capital. A type 2 error just causes you to shake your head in disbelief at how rich you would have gotten had you not made the error. When we look at nature, we realize that many of the animals, plants, sea life, bugs, etc. have been around a lot longer than us. The reason all this life has managed to stick around for so long is that natural selection minimized type 1 errors and is willing to live with type 2 errors. Let's look at errors a cheetah might make when looking for its next meal. The cheetah has two decisions. One, try and chase a gazelle down and try to eat it. Or two, ignore the prey because this particular one looks way too fast, big or strong. In terms of survival, the cheetah needs to eat eventually. So if it is hungry, it will chase the prey down and hopefully get a meal out of it. However, it has to run around getting itself tired and draining its energy. Additionally, some of its prey have”
2024-01-02 · We Study Billionaires · TIP597: Darwin's Investing Lessons w/ Kyle Grieve · IDENTIFIED FROM THE TRANSCRIPT
“Exploding in price, often with no revenue to speak of. Then, when the bubble burst, many investors lost their life fortunes. This is a type 1 error because the investor made the investment but made mistakes in the analytical process leading them to lose their investment. Now let's look at a business everyone has heard of, Amazon. During the exact same tech bubble, investors bid up the price of Amazon, and intelligent investors sat on the sidelines. Let's say you used Amazon back in 2000 to buy some products. You also followed the market closely. You saw Amazon stock price crash by over 90%, but you just didn't understand the business well enough to buy it at depressed levels. Fast forward today and you kick yourself for not seeing how obvious Amazon was to buy back then. That's a type 2 error. You didn't do anything, and the fact that nothing was done was the error. The difference between the two is that committing a type 1 error destroys your”
2024-01-02 · We Study Billionaires · TIP597: Darwin's Investing Lessons w/ Kyle Grieve · IDENTIFIED FROM THE TRANSCRIPT
“Didn't highlight looking for a business that would be a 100 times in the next two years. No, we know that an investment like that probably has a higher probability of going to zero than going up 100-fold. We would skip that for something that is a lot more secure. We want a business that will survive and thrive. Pulak says there are two primary mistakes that investors make. Quote, we do things we are not supposed to and we don't do things we are supposed to, unquote. Statisticians point out that there are two kinds of errors that they've named type 1 errors and type 2 errors. The simple way to think about this is that type 1 errors are errors of commission, whereas type 2 errors are errors of omission. A simple example will easily show the distinction between the two errors. During the tech bubble of the late nineteen nineties and two thousand, investors thought they could make money by piling into dot com businesses that were”
2024-01-02 · We Study Billionaires · TIP597: Darwin's Investing Lessons w/ Kyle Grieve · IDENTIFIED FROM THE TRANSCRIPT
“Investors do the same things with stocks. They find one they like and buy it. And then when the price comes down, they find a reason they dislike it and they sell it. Just like picking up an apple and then putting it back after you realize it's bruised. But with this mental model, you might think of looking at investing a little bit differently. If you were willing to bet your life that an investment would succeed, what would you look for? First, you'd want a business that has profits that are very likely to continue for a long time into the future. You would probably want a business with a mode of some kind, so competitors couldn't erode their profits in the future. You might look at a business that can easily pay off interest payments. You might look for a business that doesn't require debt or minimal use of debt in order to operate. You'd look at management with a fine-tooth comb to ensure that they are honest and won't try and screw you over at some point, making your investment worthless. Basically, you look for a business that is very hard to destroy.”
2024-01-02 · We Study Billionaires · TIP597: Darwin's Investing Lessons w/ Kyle Grieve · IDENTIFIED FROM THE TRANSCRIPT
“More picky with what they allow into their portfolios. I know what forced me to be even pickier than I already am. For my observations, too many investors treat the market like they're shopping for fresh fruit and vegetables. They grab some apples, then they grab some oranges, then they find some raspberries. But as they are looking through each of these, they see small imperfections. They pick up an apple and then put it down. They”
2024-01-02 · We Study Billionaires · TIP597: Darwin's Investing Lessons w/ Kyle Grieve · IDENTIFIED FROM THE TRANSCRIPT
“The result is clear. The funds are doing terribly. Whether you look at five, ten, or twenty year samples, seventy-five to ninety percent of US domestic funds underperformed the market. Pulak goes on to say that these funds are run by some of the most intelligent people from the best schools with trillions of dollars in funding to draw from, and yet they still can't beat the market. Pulaq's Nalanda Capital has a three-step process for investing that has beat the market. One, avoid big risks. Two, buy high quality at a fair price. And three, don't be lazy. Be very lazy. The rest of this episode will discuss these three core concepts in a lot more detail. To kick off the first chapter, Pulak proposes a very good question. Quote, would you bet your life on your next investment, unquote? It's a good question and one that might cause investors to be a lot”
2024-01-02 · We Study Billionaires · TIP597: Darwin's Investing Lessons w/ Kyle Grieve · IDENTIFIED FROM THE TRANSCRIPT
“Nalanda Capital turned one rupee in June 2007 into 13.8 rupees as of september twenty twenty two, a nineteen point one percent compounded annual growth rate. Many of the concepts that Pulak uses for his investing process have been adopted from what he's learned from Darwin. He's clearly studied Darwin, biology, evolution, and a host of other related topics in a lot of detail. Pulak approaches the book as sort of a guide for investors who want to improve at investing through the use of many of Darwin's principles. But first, he discusses how evolutionary biologists have a leg up on the professional investors in terms of improving their respective industries. Evolutionary biologists continue to improve their abilities through the use of the scientific method, but investors are simply continuing to get worse. He uses the example of hedge funds in the U.S. In a 2021 S&P report called SPIVA US scorecard,”
2024-01-02 · We Study Billionaires · TIP597: Darwin's Investing Lessons w/ Kyle Grieve · IDENTIFIED FROM THE TRANSCRIPT