Pulak Prasad > Quotes

“Nalanda’s approach to investing comprises three straightforward, sequential steps: 1. Avoid big risks. 2. Buy high quality at a fair price. 3. Don’t be lazy—be very lazy.”
― Pulak Prasad, What I Learned About Investing from Darwin

“However, on rare occasions, investors who don’t subscribe to GKPI succumb to the pressure of temporary macro, industry, or company issues, and we can then swoop in to buy a piece of an exceptional company. It doesn’t—and shouldn’t—happen often, but when it does, we go all in.”
― Pulak Prasad, What I Learned About Investing from Darwin

“We define our unit of analysis clearly as the company. Not the economy, not the market, not a theme. We care about the fundamentals of the company—nothing else. We have never invested in a theme and never will.”
― Pulak Prasad, What I Learned About Investing from Darwin

“While I call myself an investor, an evolutionary biologist would not be remiss in branding me a “signal decoder.” The only things investors can rely on to assess a company are the signals emitted by it—some direct and others indirect, some comprehensible and others bizarre, some ongoing and others delayed, and some quantitative and others qualitative.”
― Pulak Prasad, What I Learned About Investing from Darwin

“Why should not Nature have taken a leap from structure to structure? On the theory of natural selection, we can clearly understand why she should not; for natural selection can act only by taking advantage of slight successive variations; she can never take a leap, but must advance by the shortest slowest steps. Charles Darwin, On the Origin of Species, chapter 6, “Difficulties of the Theory”
― Pulak Prasad, What I Learned About Investing from Darwin

“When I first read about the theory many years ago, my first thought was that life was all about not just biological life but life. No wonder a two-hour movie can capture—or seem to capture—the entire life of Mahatma Gandhi, Frida Kahlo, Muhammad Ali, or Coco Chanel. Moviemakers use punctuated equilibria to eliminate the stasis from the lives of heroes and celebrities, highlighting only the punctuations. History books apply the same technique to chronicle the life of an entire civilization over thousands of years by compressing narratives into a few hundred pages. On my desk lies a copy of Duff McDonald’s book The Firm: The Story of McKinsey and Its Secret Influence on American Business, which compresses almost a century of the consulting firm’s existence into a mere four hundred pages. Now that I have seen the theory, I can no longer unsee it; it seems to apply everywhere I look. But let me not get carried away.”
― Pulak Prasad, What I Learned About Investing from Darwin

“On July 29, 1828, the nineteen-year-old Charles Darwin wrote a letter to his close friend and second cousin, William Darwin Fox. He started with a complaint and then rued his lack of mathematical prowess: “What excuse have you to offer for not having answered my letter long before this? I hope it is nothing worse than idleness; or what would be still better, I hope it arises from your being ten fathoms deep in the Mathematics, and if you are God help you, for so am I, only with this difference I stick fast in the mud at the bottom and there I shall remain in status quo.”
― Pulak Prasad, What I Learned About Investing from Darwin

“After many years of investing, I realized that I needed to focus as much, if not more, on the company’s balance sheet. Receivables, inventory, payables, fixed assets. And most important of all, debt. Corporate finance theory has a thing for leverage. For those of you who are not familiar with it, finance academics claim that companies need to have an “optimal” level of leverage to improve returns.18 If a company can borrow money to purchase assets, its return on equity and earnings per share should improve. Mathematically, this is undoubtedly true. Realistically, this is undoubtedly dangerous.”
― Pulak Prasad, What I Learned About Investing from Darwin

“There is a lovely fractal-like property to this phenomenon. It does not seem to matter if the measurement period is thousands of years (bears) or just a few decades (finches). The pace of evolution speeds up over shorter periods and slows down over more extended periods.”
― Pulak Prasad, What I Learned About Investing from Darwin

“have seen too many people make a profit of 50 to 100 percent on an investment in a great company and then press the exit button. We investors take pride in being math savvy. Mention the word “compounding” to us, and you will get knowing smiles. Unfortunately, most of those knowing smiles do not seem to know that what they know about compounding—that it can lead to big numbers over time—hides two great unknowns. The first is that compounding does not lead to significant numbers for a very long time. The second is that investing would be easy if companies could compound predictably. But, alas, they don’t. The real world is quite messy, and the path to long-term success is treacherous, unpredictable, and full of disappointments. What is needed to become a successful investor is not intellect, a commodity, but patience, which is not.”
― Pulak Prasad, What I Learned About Investing from Darwin

“We rarely use much debt and, when we do, we attempt to structure it on a long-term fixed basis. We will reject interesting opportunities rather than over-leverage our balance sheet. This conservatism has penalized our results but it is the only behavior that leaves us comfortable, considering our fiduciary obligations to policyholders, depositors, lenders and the many equity holders who have committed unusually large portions of their net worth to our care. Warren Buffett, annual letter to shareholders, 1983”
― Pulak Prasad, What I Learned About Investing from Darwin

“Just as it does in nature, this rare punctuation event dramatically altered the nature of our portfolio. We were able to buy companies at prices and in quantities we never thought possible. For example, in table 9.3, check out the discount at which we bought WNS, a business we have known well (since it is in our portfolio) since 2008. In February 2020, it was trading at almost $74 per share. Within a few weeks, by March 2020, the pandemic scare had crushed the stock, allowing us to deploy almost $100 million at only $46 per share! Similarly, we bought Thermax, a business we had been tracking for more than a decade, at a 45 percent discount to its previous high in early 2018.”
― Pulak Prasad, What I Learned About Investing from Darwin

“found that eleven of the seventeen species persisted unchanged for two to six million years, followed by a punctuational change over 160,000 years. Cheetham emphasized “the remarkably clear-cut evidence for a punctuated evolutionary pattern in these Metrarabdotos species.”
― Pulak Prasad, What I Learned About Investing from Darwin

“Are you as gobsmacked as I was when I first read about this process? Do you see what has happened here? The honeybees have an extraordinarily complex and challenging decision to make. Yet, they make it through a very straightforward process: Dance harder for a better site, and attach yourself randomly to a dancing sister. That’s it.”
― Pulak Prasad, What I Learned About Investing from Darwin

“The field of biology, particularly evolutionary biology, took a giant leap forward in 1953 with one of the most significant discoveries of the twentieth century: the molecular structure of DNA. This Nobel Prize–winning effort of Watson and Crick unraveled the mystery of how genetic information is encoded and transmitted through the double helix. Or did it? Even decades after this seminal event, scientists do not agree on the definition of what constitutes a gene.1 We are endowed with 22,500 genes; some scientists think that less than 2 percent are helpful, whereas others assert that more than 50 percent are. As a result, we do not know what most of our DNA—comprising more than six billion letters—does.”
― Pulak Prasad, What I Learned About Investing from Darwin

“The second major opportunity cost is a reduced focus on existing businesses because of the distraction of a bad acquisition. You can see this in Bayer’s annual reports of 2018, 2019, and 2020, in which a lot of ink was expended on justifying the acquisition and on steps being taken to mitigate the disaster. As usual, numbers tell a better story, as I will explain next.”
― Pulak Prasad, What I Learned About Investing from Darwin

“Gould was scathing in his takedown of the creationists with the following choice words: “ . . . punctuated equilibrium provides an even easier target for this form of intellectual dishonesty (or crass stupidity if a charge of dishonesty grants them too much acumen), no one should be surprised that our views have become grist for their mills and skills of distortion.”
― Pulak Prasad, What I Learned About Investing from Darwin

“The holding period of most funds is barely a few months, let alone years. If you explain this behavior to an intelligent noninvestor type (I have done so), they will find it rather odd. They say something like this: “You are telling me that it is tough to find great companies to invest in; you are also telling me that these companies can grow their profits reasonably predictably over long periods. So why would you sell such a company in a hurry after you have become fortunate enough to own it?” I haven’t had a good answer to this question except, “My community is not willing to wait for the rabbits.”
― Pulak Prasad, What I Learned About Investing from Darwin

“Many high-growth companies don’t burn equity for growth but rely on debt instead, which is even worse because debt holders need their money back with great regularity, unlike equity investors.”
― Pulak Prasad, What I Learned About Investing from Darwin

“Before we go any further, allow me a slight digression to get the definition of “risk” out of the way. The definition I use in this book is not the same as the one defined by corporate finance theorists. Finance theory claims that risk is the chance that the actual investment return will differ from the expected investment return.12 Thus, if an asset is highly volatile, it will be classified as riskier than an asset that is not as volatile. If you think about this for a moment, you will conclude that this is nonsensical. For any investor, risk should simply be the probability of incurring a capital loss.”
― Pulak Prasad, What I Learned About Investing from Darwin

“Which brings me to the second reason I detest any debt. This answer is often underappreciated and even ignored by investors and management. It is this: Debt diminishes strategic flexibility and hence long-term value creation. For a day trader or even an investor whose holding period ranges from three to five years, a reasonable amount of leverage may not matter. But for a permanent owner like Nalanda, any constraint that prevents a business from taking calculated strategic bets is undesirable.”
― Pulak Prasad, What I Learned About Investing from Darwin

“Every few minutes, he would glance at his phone and then return to our conversation. I had known him for more than a decade but had never witnessed this odd behavior before. After a few minutes, I became mildly irritated and asked him the reason for his distraction. He apologized and sheepishly remarked that two of his portfolio companies had gone public in the past two weeks. After that, he said he felt compelled to check their stock prices every few minutes. He admitted that he couldn’t help himself. My friend is an intelligent guy. He knows that the business of his listed portfolio companies is not changing by the minute. A few weeks earlier, when the companies were unlisted, he hardly ever thought about them. But now that they each had a stock exchange ticker that gyrated a few percentage points every day, he had gotten caught up in the action.”
― Pulak Prasad, What I Learned About Investing from Darwin

“In 2017, Warren Buffett admitted on CNBC’s Squawk Box that he should have invested in Amazon. I have no such qualms. I know that I would have missed Amazon in the past, and I will miss an Amazon-like business in the future. So be it. The only saving grace of this failure? I doubt I will see another Bezos in my lifetime.”
― Pulak Prasad, What I Learned About Investing from Darwin

“He analyzed the price performance of about 26,000 common stocks listed on the New York Stock Exchange, the American Stock Exchange, and the NASDAQ from 1926 to 2016. Unsurprisingly, 51 percent of these stocks lost their entire value over their lifetime. The majority of businesses should not be in business. Bessembinder’s research demonstrates that since the average common stock will lose its value over time, owning stocks can harm one’s wealth. Our default position should be not to buy. So we don’t. We are lazy. Can you guess the number of those 26,000 stocks, if purchased in 1926 and held until 2016 (or acquired or merged), that beat the market? The answer is about 8,000, or about 31 percent of the universe.17 Again, I was surprised at how high this number was.”
― Pulak Prasad, What I Learned About Investing from Darwin

“But here is the thing. We would have looked at this lost opportunity and not regretted it one bit. I know we will lose Netflix-like businesses, and I am okay with it. Our strategy of selecting only high-ROCE companies for our initial list invariably excludes some potential winners, but it also excludes hundreds of low-quality businesses that we would never want to own. Thus, on average, I believe this approach works well for us. We will not change our approach just because others have made money with a strategy that we have chosen to avoid. C’est la vie.”
― Pulak Prasad, What I Learned About Investing from Darwin

“My observations are nowhere as scientific as the Grants’ or Kurtén’s. However, I know that the daily, weekly, monthly, and quarterly rate of change in exceptional businesses appears much greater than the rate of change measured over years and decades. This realization has helped me formulate an investing principle that I call the Grant–Kurtén principle of investing (GKPI). It goes as follows: When we find high-quality businesses that do not fundamentally alter their character over the long term, we should exploit the inevitable short-term fluctuations in their businesses for buying and not selling.”
― Pulak Prasad, What I Learned About Investing from Darwin

“Fechheimer is exactly the sort of business we like to buy. Its economic record is superb. . . . You may be amused to know that neither Charlie nor I have been to Cincinnati, headquarters for Fechheimer, to see their operation. . . . If our success were to depend upon insights we developed through plant inspections, Berkshire would be in big trouble. Rather, in considering an acquisition, we attempt to evaluate the economic characteristics of the business—its competitive strengths and weaknesses—and the quality of people we will be joining. Warren Buffett, annual letter to shareholders, 1985”
― Pulak Prasad, What I Learned About Investing from Darwin

“As investors, we are supposed to have deep insights into our companies and industries. We are required to understand the business of the companies we invest in, with the implicit assumption that the individual who can comprehend a business better will become a better investor. Of course, we are also required to answer all the questions anyone might pose on the businesses we have invested in. But the problem is that if brilliant biologists are still struggling to unravel the mysteries of a lowly, discrete, organic molecule after seventy years of research, how can we think that an entity as amorphous as a company can be analyzed by investors in seventy days, or even seven hundred?”
― Pulak Prasad, What I Learned About Investing from Darwin

“Do you now see why using operating margin to filter businesses may not be the best approach? Margins do not tell us what we had to invest to get those margins. The advantage of measuring ROCE is that it accounts for the quality of P&L (in the numerator) as well as the balance sheet (in the denominator). Let’s return to Costco and Tiffany.”
― Pulak Prasad, What I Learned About Investing from Darwin

“And just as agriculture helped us become the dominant species on this planet, leafcutter ants have become the dominant herbivores of the New World: They consume close to one-sixth of all leaves produced in tropical forests. Humans and leafcutter ants have solved their food problems by converging toward a similar solution, crossing time and species boundaries.”
― Pulak Prasad, What I Learned About Investing from Darwin