Investing Lessons From Darwin Kyle Grieve Tip597

TITLE: Investing Lessons From Darwin | What I Learned About Investing From Darwin w/ Kyle Grieve (TIP597) CHANNEL: The Investor’s Podcast DATE: 2024-01-01 ---TRANSCRIPT--- (00:00) I’m not sure I’ve seen a portfolio with  this many multi-baggers in one place I thoroughly   enjoyed learning all the lessons he took from  Darwin and biology and how he’s applied them   to investing his threep strategy is both simple  and repeatable one eliminate significant risks   two invest only in seller businesses at fair  prices and three own them forever welcome to   the investors podcast I’m your host St brers  and today I’m joined by my new co-host Kyle   grieve uh Kyle I couldn’t be more excited here (00:34) today I mean having a new host join the   show is that’s always something very special  and Kyle perhaps many of listeners don’t know   you but you’re actually also the host of other  show uh Millennial investing uh that you’ll be   hosting every other week and then every other  week you’ll also be hosting here on W study   billionaires um could you please introduce  yourself to our listeners absolutely so I’m   Kyle I’ve been the host of uh the millennial  investing podcast since uh the beginning  (01:02) of August um I’ve been investing myself  since 2017 I made it made all the mistakes that   you could possibly make back then um basically  I was speculating on crypto and you know doing   everything that you could possibly do wrong  you know whether that’s uh shorting using   leverage looking at charts all day you know  not knowing what you own I did all that and   unfortunately it uh I did really well for a Time  thought I was a genius and then uh everything   crashed and I I lost a large percentage of  my money and I basically learned a lot from  (01:34) that and I took a huge break I just  uh it was it was a painful experience for me   and back and then in 2020 uh covid arrived  and I looked at the newspaper saw a massive   drop in prices and that kind of just got me  interested and luckily for me when I got back   in I learned value investing and so um since  2020 I basically been down this gigantic Rabbit   Hole just learning as much as I possibly can  and just consuming information and then also   obviously using that information to manage  uh me and my wife’s portfolio so um now I’m  (02:05) just in stocks I’m I’m long only  and I’ll talk a little bit more about uh   my investing process in a bit but um yeah I’m  purely self-taught and um I I love investing   very much and it’s something that consumes a lot  of my time and energy you know KY I think that   uh I don’t only speak for myself but also for  many of the listeners that whenever they meet   fellow investors you know they they talk about  what they have in their portfolio and I I think   that’s quite interesting and of course it’s it’s (02:34) always nice to get a a a really good stock   idea but it’s also I think it’s kind of like  a way of putting a person into a box you know   it’s almost like tell me your story you know it’s  like tell me what you show me your portfolio and   because you know there’s something to be said  about um you know you meet up with an investor   who says he just bought Tesla and there’s  going to be ears call tomorrow and then he   wants to sell afterwards whatever like I’m not  saying there’s anything wrong with that but you  (03:00) you know it takes a certain type of  Personality with a certain type of investment   strategy to to do investing like that uh and  then you also have other people uh you meet   and then have this obscure micro cap stock  from whatever and they hold you been holding   on for that for I don’t know two decades and and  whatever you know so you sort of like put people   into different boxes you know consciously or  subconsciously I guess but all of that my my   disclaimer I don’t know if if the audience  or going to put you in a box here because I  (03:31) wanted to to learn a bit more about uh  your positions and and your investment strategy   yeah uh I completely agree with that Stig you  definitely learn a lot so um I think what you can   learn the most from is someone’s largest position  so I’ll just tell you my my top three to five   largest positions right now are uh Evolution which  is 20% of my portfolio Tech neon uh 15% topicus is   12% and then thermal energy International  and arit are 10% so these are names that   I think um I guess depending on how deep people (04:02) go are kind of obscure you know I’m not   someone who invests in Amazon and Microsoft  or or well-known names and I actually prefer   names that uh aren’t well well known or aren’t  talked about extensively so those are kind of   some of the names that I own and then you  know just a little bit about my investment   strategy I I really got a lot out of Chris  Mayer and his twin engines of earnings and   multiple expansion over long time periods and  I am willing to forego a little bit of that   multiple expansion just looking for high quality (04:30) businesses if I can find a business that   has durability and its earnings power so  businesses such as like topicus techon and   Dino pulska I think are good examples of this  and now I’ve been looking uh for where I can   find businesses that I think have a lot more  potential both in earnings power but also in   multiple uh expansion as well so I do look a  lot at micro cap and nanocap world because I   think that there are an in insanely high amount  of mispricings and um I want to take advantage   of that so yes they are smaller businesses yes (05:03) they are earlier in their growth cycle   but the margin of safety that you get  from investing in these like little   known businesses is is very high because  you just simply can buy them for a very   cheap price and there’s actually quite a bit  of quality there um and then back to what you   were talking about when you look at someone’s  portfolio and they tell you you know they own   50 names well that’s different than if you  if you know someone owns five names so for   me I I right now I own 11 stocks um I try to (05:29) stick basically to around 10 stocks and   I basically want to find and invest in ideas  that I can put you know 10% of my portfolio   into um and so yeah a little a couple other um  specific attributes that I look for in businesses   growing businesses I want businesses that are  you know growing top and bottom lines and free   cash flows at um you know hopefully around 50%  or higher um I want higher Insider ownership   hopefully 10% or higher um great management  teams you know that’s all qualitative but you   know Talent Integrity all the things that (05:59) Buffet always talks about high and   sustainable Returns on invested Capital um you  know I want businesses that can hopefully have   also High reinvestment rates so that they can  reinvest that Capital at high rates of return yeah   and I should also say uh for the listeners that  you and I Cal we talked about doing U like a stock   checklist uh episode here uh hopefully before too  long um we still sort of like figuring out how to   do that I don’t know about your stock checklist  but like I kind of like feel if we have to go  (06:29) through through all the points like tell  a story for each point it would be like a season   in itself but um I’m really happy that you put  some numbers on um on on what you talked about   before and I I look forward to having a perhaps  a slightly diff different format where we are   specifically talking about like uh this is on our  checklist and this because we lost so much money   by not meeting this criteria um so yeah it should  be it should be a be a fun episode afterwards and   hopefully the listeners are still going to tune in (07:00) after the hear about all our all our   mistakes um but anyways um K so we we are  recording this episode U sometime after   um CH Monger uh passed away and Charlie had  an enormous impact on tip uh we started this   show in 2014 uh and at the time it was only  with the intention of speaking about Warren   Buffett which after a few episodes you also  realize if you want to do this like every   week forever like that it’s going to be a bit  bit Troublesome but of course whenever you you   learn about Warren Buffet you you also learn about (07:39) China manga who is just you know such an   amazing person or was as should say now I’m still  trying to get used to it and um and I would say   that even though we we bran into a lot of other  topics here on the show and it’s very core it’s   always been about buffing and monger and um I  think I think I I want to use that a segue into   asking you Kyle what Charlie Monger meant to you  yeah Charlie Munger meant a hell of a lot to me as   I’m sure he did for you and I think he did for a  lot of the investment Community for me um you know  (08:12) the only people that really come  close in terms of being what I consider a   mentor even though they don’t never knew me was  was uh Buffett and and uh and and mon PAB but   Charlie spread so much wisdom to the investing  community and not just necessarily with how to   invest well but also just how to be a really good  person and and live a really good fulfilling life   and I I think that um that means a lot because  you know there aren’t a lot of people that go   through their life of being 99 years old and not (08:39) having uh very many enemies and it seems   like that’s how he lived his life and I think  that’s really uh a rare characteristic in   business so Charlie showed me a lot and you know  obviously I could probably speak for hours about   all the things he’s he he’s taught me but I won’t  do that but one thing I think that really had the   biggest impact on me was um his mental model  of inversion that he you know imparted on us   from jacobe and that model alone has helped  me in all walks of life not just necessarily  (09:09) investing but it’s really helped me make  better decisions and pay more attention to the   risks and the downside of any of the decisions  that I make so it also helped me identify a lot   of common problems that other investors make and  that I know I make on my own and really helps you   self-reflect and um improve yourself and so  with that mental model you know I’m always   trying to poke holes in my thesis and um find  weaknesses in my thinking or Overlook cracks   in the fundamentals of the businesses that I (09:37) own and this has helped me let go of   a lot of the ideas that I’ve had that no longer  attractive but you know like Charlie Munger and   his uh psychological misjudgment say we’re we  make a lot of mistakes so I think inversion   has helped me um minimize the effects of thing  things like you know the liking tendency that   he likes to go on and talk about anchoring  bias doubt avoidance and consistency bias and   invert inverting has helped me minimize the  effects of um a lot of these misjudgments to   a certain degree obviously you can never be (10:07) perfect but um yeah I’ve learned so   much from him and and um it’s it’s too bad that  he’s gone but uh he lived a very very good life   he did and and there’s just so many things to  choose from you know when whenever I I know   also know it’s kind of like a an ungrateful  question asking you what the most important   thing was that that’s like choosing on your  your children right and and uh but I I think   for me the the most important thing that  I learned from from uh from Child Monger   is to be deserving of your relationships (10:40) you know I think it’s it’s it’s   deeply profound if you want a good spouse be a  good spouse if you want to have a good friend   be a good friend and there was something about a  very simple idea and and take that very serious   and and I also think it work Works in all uh  walks of life um not just in in business um   China Monger said that the world doesn’t  run on money but an Envy uh that might be   true um but I I think what makes you happiest  and and saddest um that’s often the quality   of your relationships and now I I can’t say that (11:23) I’m always successful In the Heat of the   Moment um but whenever I incur problems in any of  my relationships I always consider whether or not   I deserve what just H happened and and and often I  am and of course I’m I’m terribly biased whenever   I’m evaluating myself in my relationships but I  I think that zooming out has be tremendously uh   helpful um you know just the idea of if you don’t  feel that you get repay and kind whenever you   extend trust to other people you know you should  probably seriously consider whether or not you  (11:58) should walk away from that relationship  and you to to your point before uh Kyle about   uh invert always invert which is what a lot of  people associate uh Monga with um you know if   I can use that framework it’s very much that  it can be difficult to identify what makes you   happy um you know happiness is often fleeting um  but perhaps you should start with what makes you   sad and then avoid that so that’s a way to to use  that mental model and whenever I think of some of   the best in Investments I made in my portfolio um (12:36) you know that there’s definitely been an   element of luck uh whenever I think of the best  business decision I made you for example whenever   we hire the first employee uh bianc alera here  in the company uh and who she’s still with us   like it’s it was so lucky like I I’ll probably  tell that story another day but like there was   so many uh it was such a fortunate event and  and and luck by definition is outside of your   control so instead of chasing luck I focused  a lot on limiting my bad investment and and  (13:07) business decisions and um and that’s  probably an entire Series in itself talking   about those mistakes so we probably won’t go  there today but I think I want to say all of   this to use that as a segue into into saying  to the to the listeners that they will be very   much in safe hands with you and um Kyle uh I’ve  been very impressed by your skill as an investor   I’ve seen already seen that multiple times and you  have a great track record uh but also the quality   of episodes that you already hosted on our (13:37) show Millennial investing um I’ll   make sure to link to episodes with Robert  hexom and Lawrence Cunningham and they’re   already already among my favorite um episodes  of Millennium investing um but Kyle I know   that you carefully handpicked your very first  episode that we’re going to play here very soon   um especially because this episode will be  published January 1st and chonger would have   you know he would have celebrated his 100th  uh birthday today so I want to throw that   over to you now uh Kyle thank you STI yeah so my (14:09) first episode on we study billionaires   will be an episode on a book that has impacted  me the most in 2023 uh the book is called what   I learned about investing from Darwin by pulak  Prasad I think this is a fitting episode as it   talks about one of Charlie’s biggest influences  Charles Darwin who helped Charlie Monger learn   things about investing like ecosystems  adaptability survivability dominance and   challenging your own cherished beliefs my  colleagues at the investors podcast have   done some incredible tributes to Charlie merer (14:36) already so William green did a wonderful   episode discussing a number of his favorite Munger  moments and lessons on rich or wise are happier   episode 37 additionally he shared some of his best  insights from Charlie that investors like monish   PAB Tom Gainer Joel green blap and Chris Davis  have shared with him on his show clay will be   having an episode in the next few days where he’ll  be discussing his main takeaways from Charlie   Munger as well so a few of my upcoming guests  for we study billionaires podcasts are include  (15:03) Hamilton Helmer the author of seven Powers  one of my favorite books on Moes and he’s also the   chief investment officer of strategy capital  and D aisan the chief investment officer of   Jenga investment partnership and author of global  o performers which is an incredible research paper   that looks at the best performing stocks between  2012 and 2022 so I I just want to want to quickly   say about the book uh that you’re going to to talk  about here short it’s a it’s a it’s a great book   um and um I won’t go through by obviously I (15:36) won’t go through all my points here I   kind of feel that would defeat the purpose but  I really like what he whenever he talked about   uh the most important key ratio which is sort of  like I don’t know if there is such a thing as the   most important key ratio but I kind of feel like  mentally there there’s something exciting about   talking about which one it would be if you had  to choose one you know you you sort of like go   in or at least I went into to the world of Stock  Investing uh more than a decade ago and and and  (16:04) thought like there must be some kind of  equation I can type up or you know there must   be some kind of number I can look up so I know  that’s investment then you sort of like realize   that if that was the case you wouldn’t be able  to make any return because everyone would know   that number too uh but but I think there is  something to be said about if you really had   to focus on one key ratio which one it would be  so um I’m I’m not going to tell anyone what key   ratio that would be I’m sure you’re going to cover (16:30) that um later in the episode but then uh   the author also talks about this concept of no  snacking and I absolutely love that point uh and   so whenever he talks about snacking it was it was  like the snacking of investing which uh if you’re   uh as much of a nerd as as me whenever it comes  to Stock Investing you love you love investing   snacking and so you know you and I car we we  like to say and we also invest accordingly to   to you the Compounders high quality companies  and then sometimes something fantastic comes  (17:04) along you know a special situation uh turn  around the spin-off probably something with you   know a lot of De or something but something that  looks like really really cheap and there’s like   a really great Catalyst behind it and you really  really want to snack because it’s so interesting   and you just see something there and you know the  author he talks about no no no no no don’t do that   no I and keep your head down do your homework  only invest in the highest quality companies   and you know ironically if you love the world of (17:38) investing and can’t get enough of 10 q’s   and 10ks you know it’s it’s so hard not to not  to snack and really stick with your strategy so   that was just something that really resonated  with me and you know I I can say for example   I’m looking here at a local company here uh in in  Denmark and it’s a it’s a not so well-run company   to be Frank and and it was it was it was uh  the company is called North North media and   it was my very first employer you know when I  was 13 years old and I was a paper boy and so I  (18:08) I want to say that I have a bit of  a history with with the company note pretty   well and and um I won’t go through this stock  Theses here but like it’s really really cheap   but it’s also a bit of a Dying business and not  that well-run like it’s not BS hadway like 1965   but I’m inclining to like compare it to like  something that’s really really cheap it has   really valuable assets but it’s s in Decline  and and it’s just hard not to snack you know   so anyways uh with all of that said uh Kyle (18:39) uh please take it from here your very   first episode as a host of we study billiona  thanks for the great introduction S I hope you   enjoy my first episode of we study billionaires  discussing my key takeaways from what I learned   about investing from Darwin I’m your host  Kyle grieve and on today’s show there is no   guest I’ll be discussing one of the best  investing books I’ve read this year what   I learned about investing from Darwin by  pulock Prasad if you follow the investing   greats long enough you’ll notice many of (19:09) them have striking similarities in   how they think one of these similarities is the  use of multiple mental models Charlie Munger says   You must know the Big Ideas in the big disciplines  and use them routinely all of them not just a few   most of them are trained in one model economics  for example and try to solve all the problems in   one way you know the old saying to a man with a  hammer the world looks like a nail this is a dumb   way of handling problems unquote in this episode  I want to discuss a book that dives into the  (19:40) mental models of one of the greatest  Minds in history Charles Darwin an investor   named pulak prad who helps run Nanda Capital  out of India wrote the book the question you   might be asking is why should I listen to this  investor that I’ve never heard of about a subject   that is completely unrelated to investing the  answer to that question is track record Nanda   Capital turned one rupe in June 2007 into 13. (20:07) 8 rupees as of September 2022 a 19.1%   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 hulak 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 (20:40) 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 US   in a 2021 SNP report called SPI Iva us scorecard  the result is clear the funds are doing terribly   whether you look at 5 10 or 20 years samples 75  to 90% of us domestic funds underperformed the   market hulac goes on to say that these funds are  run by some of the most intelligent people from   the best schools with trillions of dollars (21:19) in funding to draw from and yet they   still can’t beat the market pulock Nanda 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 we  discuss these three Core Concepts in a lot more   detail to kick off the first chapter pulock  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  (21:56) investors to be a lot more picky with with  what they allow into their portfolios I know would   force me to be even pickier than I already am  from 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 may do this   for a while before finally making up their (22:24) mind 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  (22:52) continue for a long time into the future  you would probably want to business with a mode   of some kind so competitive s 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 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 (23:21) business that is very hard to destroy   note how we didn’t highlight looking for a  business that would be a 100 times in the   next 2 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  pulock 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 (23:57) there are two kinds of errors that they’ve   named type one errors and type two errors the  simple way to think about this is that type one   errors are errors of Comission whereas type two  errors are errors of omission a simple example   will easily show the distinction between the two  errors during the tech bubble of the late 1990s   and 2000 investors thought they could make  money by piling into dotom businesses that   were exploding in price often with no Revenue  to speak of then when the bubble burst many   investors lost their life fortunes this (24:30) is a type one 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 (25:02) depressed levels fast forward   today and you kick yourself for not seeing how  obvious Amazon was to buy back then that’s a   type two 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 one error destroys your capital A type   two error just causes you to shake your head and  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 (25:33) than us the reason all this life has   managed to stick around for so long is that  natural selection minimize type one errors   and is willing to live with type two 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  (26:07) 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 deadly defense mechanisms a   type one error would be to chase the prey  sure it could get a meal out of it but it   could also mean the 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 two 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  (26:38) for investing rule number one don’t  lose money and Rule Number Two don’t forget   rule number one hulak discusses his interpretation  of the 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 hulac summarizes it as quote  think about risk first not return unquote I   think this is a great approach to investing  and risk Mr Prasad goes through multiple  (27:14) 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  kulak employs a method that most retail investors   do not have access to employing a forensic (27:50) 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 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 if you 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  (28:19) avoid pulak gives examples of three types  of owners they refuse to invest in one government   run businesses two the list 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 (28:53) straightforward if you invest in   Industries with high exposure to changes  you run 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 downside 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 (29:25) talented at creating the illusion   that a turn around 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 hulak says quote if  I were to list the 20 biggest bank ancies   in the United States you would notice that (30:00) all with Leman at the top and lionelle   basil at number 20 were heavily indebted  unquote staying away from bankruptcy risk   is an intelligent decision I think any  investor can decide on which businesses   and characteristics will burn them the most  and then do everything to stay away from   them as much as possible 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   play because they avoid businesses with these (30:32) characteristics they are highly aware   that many great opportunities will be missed  but like nature they are willing to live with   committing type two errors rather than making  the mistake of type one errors next we discuss   buying highquality businesses at fair prices  prad’s first example is looking at decad long   experiment that uses foxes to get a better  understanding of genetics the founder of the   study Dimitri BF wanted to answer two primary  questions one how did domestication start for   animals and two why did domesticated animals share (31:07) 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 doglike creatures that could be kept as   pets in any of our homes these foxes were  very do stle competed for human attention   and formed deep emotional bonds with their  handlers it had become hard to distinguish   their behavior from that of dogs liod Mila  Demitri’s assistant and her team had erased   their wildness almost completely unquote (31:44) here’s where things get interesting   Demitri 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 ball patterns black and  white spots on an animal skin which is similar   to domesticated cows pigs sheep and horses  they got floppy ears rolled Tails developed   guard doglike behavior and baby-like (32:17) appearances let’s connect this   back to the world of investing pulock 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 rce rce is   earnings before interest in taxes 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 (32:51) that number in the denominator will   unnecessarily punish the rocce and make a lower  number whatever you use here just make sure you   are consistent pulak mentions that a consistently  High rocce 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  (33:23) 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 return on invested  Capital which are net operating profits after tax   divided by the sum of total shareholders equity  and liabilities I to will remove cash from the   denominator to better represent this number I’ve  come to the exact same conclusion that pulat came   across through convergence nearly all wonderful (33:51) businesses seem to have a high rce 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  bagger 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 (34:24) their competitive advantages   and their consistently High margins with  current gross profit margins of 97% and   net profit margins of 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’ve   clearly allocated Capital very well given their  High Returns on invested capital and have used   excess cash to provide further value to (34:56) shareholders via dividend and   BuyBacks business uses debt conservatively with  a 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 deep into the   future now that we’ve discussed the importance  of rce let’s move to some of the other tradit   pulock looks for in business but first Pulu  asks another very good question he says too   many Business Leaders and investors spend too (35:28) much time asking the wrong question the   question they are asking is quote how can we  change faster better and easier unquote Kula   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 (36:01) 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 quote an accidental  change in the DNA sequence does not affect   which amino acids are made a change in the amino (36:33) acids or their sequence does not impact   the synthesis of proteins and a change in  proteins does not affect the body plant of   an organism unquote how do you get started with  Stock Investing I’ve put together a course to   teach you everything I wish I knew when I first  started investing in stocks let’s start at the   beginning and ask what is a stock let’s zoom  on in into what it’s actually like to buy a   stock a few options are Charles Schwab TD amera  trade Ally E Trade fortunately you won’t have to  (37:05) necessarily calculate all of these taxes  yourself I’ll outline a few main ones to be aware   of throughout your lifetime investing Journey  as Warren Buffett says your best investment is   yourself there’s nothing that compares to  it by the end you’ll be savier about Stock   Investing in personal finance than the vast  majority of people even if you’re not a total   beginner I’m confident you’ll get a lot out of  the principles and strategies I outline which   we’ll build on throughout link to the course is (37:34) available in the description below see   you there 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 (38:08) look at robustness hulak admits that   robustness is not objective a lot of subjectivity  goes into coming to a conclusion of the robustness   of a business he prefers to contrast the  characteristics of a robust business with   the characteristics of a non-robust business a  robust business has the following characteristics   has delivered a high historical rocce over time  has a fragmented customer base has no debt and   has excess cash has built high competitive  barriers has a fragmented supplier base has   a stable management team and is in an industry (38:45) that is slowly changing now a non-rust   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 one example I’d like to discuss   after talking with a lot of other great (39:19) portfolio manners and analysts   on millennial investing is a role of debt in  the robustness of a business a business might   kick off many boxes of being robust it might  have a high rocce a fragmented customer and   supplier base a durable competitive advantage  and being 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 (39:49) 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   business is robust we have to see if we can come  up with some form of method for analyzing its  (40:19) evolvability after all the business  environment is constantly changing and being   left behind usually means very bad things  if fewer and owner of equity and this is   where evolvability comes into play kulak 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 become the   strength of the business Mr pad had a wonderful  example of this in Action a business Nanda owns  (40:52) called page Industries the business  is an inware business with only three other   competitors during the onset of covid-19 paig  was able to evolve to the situation and took   its market share from 66% in 2018 all the way up  to 70% by the end of 2020 when pulock looked at   this business through the areas of robustness he  noted the following rocce of 63% debt-free highly   fragmented customer supplier base a deep and wide  m in brand and distribution that has been built   over 25 years the same owner since 1995 and it’s (41:28) in an industry that’s changing at very   very slow rates the interesting thing about  robustness is that is never guaranteed into   the future indefinitely who lacks 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 Nanda between 2005 and   2020 was 14.9 during this time India’s primary (42:00) index sensex had a PE of 19.7 while the   midcap index was 23.8 this means he is paying  a 25% or so discount for exceptional businesses   the next idea in this book I want to discuss is  how pulak thinks about forecast in 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 backseat to making   bold forecasts unquote instead of attempting  to predict an unknowable future kulak takes   quote a leaf out of evolutionary biology we (42:38) 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 forecast Nanda does not   even do a DCF analysis and quote and never will  unquote that’s right no time for projections and   forecasts Nanda Capital does not do discounted  Cashflow 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  (43:12) why pulock has had such good success  without ever running a discounted cash flow   analysis pulock believes that Darwin’s  crowning achievement was his theory of   natural selection he outlines the three key  ingredients of natural selection one random   VAR variation among the progeny of an organism  two differential Fitness between the variant   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  (43:41) 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 quote 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  (44:15) future unquote his point here is that  evolutionary biology does not make predictions   quote rather than answering the question what will  happen to humans it P with the conundrum how did   bipedal humans evolve from ancestral quadrad Apes  unquote 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 (44:50) you know the history of the business there   is a very good chance but never a 100% chance  that Excellence will Contin continue into the   future it’s important here to point out that  investing this way does have downsides pulock   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  pak’s other great point about forecasting is   that it’s usually wrong analysts are (45:19) wrong economists are wrong   management is wrong portfolio managers are  wrong everyone investing is wrong but of   the time so what makes you think that you’d be  any different instead of predicting the future   kulak 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 a historical 15% you must understand why  this is happening you can compare it to Industry   peers or examine the different expenses on the (45:50) 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 rocce a wide moat and a low business   and Financial Risk occasionally we stretch a (46:25) bit by paying a trail multiple in the   High Teens or low 20s for a truly unique  business but these occasion are few and   far between the median trailing PE multiple  for our portfolio when we bought companies   is 14.9 unquote so always looking for 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 has  taught us anything it’s that a business that   is higher quality than the market usually (46:57) 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 pulock says in nature there are   creatures that give off dishonest and honest  signals in this example the green frog can   mimic the lowf frequency croak of a larger rival  they do this for a simple reason access to mates   a green frog that hears a lowfrequency croak (47:31) will be signaled that a larger rival   is nearby 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 Hest signal would   be one from a guppy females prefer to mate with  Guppies that have the brightest possible red   coloring and with the greatest concentration  of carotenoids so male guppies that can flaunt   their colors to females the easiest also get (48:04) 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 our job as investors  is to filter the fluff pieces and make sure we  (48:36) 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  Road shows 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  (49:10) 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 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  (49:42) 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 Nanda Capital takes being lazy to   a whole new level their strategy reminds me of a  war and Buffet quote many of you will probably be   familiar with inactivity strikes us as intelligent (50:13) Behavior pulak takes this Buffet tenant   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 we think   of long slow changes that happen gradually over  long periods of time but this notion was thrown   on its head in 1959 by a Finnish scientist  named Bjorn curtain for his experiment he   looked at brown bears and the size of their  teeth he looked at samples dating back between   2.6 million and 12,000 years ago using (50:49) the assumptions above we would   think that over long measurement periods  the rates of change would be higher what   this means 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 40 consecutive years living on Daphne   major which is one of the islands that makes (51:19) up the Galapagos the reason for this   the grants realize this island under goes severe  climate changes 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 throut that killed  (51:51) 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 10-year  time period not much change in terms of the beak   size of these finches but when they looked at  the changes on a year-to-year basis the changes   were actually much faster than the longer (52:19) measurement periods holak 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 unquote 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 (52:52) 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 curtain 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 qualities over time we  should use the short-term ups and downs in   their fundamental performance to buy instead of  sell the gkpi requires that you own highquality   businesses that don’t fundamentally alter their (53:25) characteristics over time 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 overperform folac   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  (53:54) they don’t discuss recent company news or  share prices at Team meetings and they have never   bought or sold based on news flow 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 shortterm 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 (54:21) and I judge my Performance Based on   improving 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   Prasad shows the data for how often Nanda has  sold over the years since 2007 they’ve sold 10   businesses which is an average of exiting every 1. (54:44) 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 100 to one in the stock market any Sal  should be seen as a confession of error you   should strive to make as few of these errors as  possible hulak 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 (55:18) and investing one of the biggest problems   that Darwin Came Upon was outlined in chapter  six of the Origin of Species hulak wrote quote   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 (55:52) significant hurdle to anyone trying to   prove that species evolve gradually unquote but  two scientists Niles Eldridge and Stephen J 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 and are   interrupted periodically by punctuations  in the stasis so when paleontologists   found larger changes in the morphology of the (56:25) species they should assume these changes   happen rather suddenly rather than slowly  over time prad came up with this framework   for investing from the concept of punctuated  equilibrium one business stasis is the default   so why be active two 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 use them to be better investors   if we assume that most businesses are in (56:59) 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 into the future  a great example of this is how infrequent   great buying opportunities occur kulak 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 (57:31) with a sales manager one day and was   in awe of how much respect the sales manager had  from customers their product was so in demand that   Unilever had to ration its 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 should be to do as  little as humanly possible a great example I   noted of punctuated equilibrium in real life was (58:01) how infrequently Nanda buy stocks Paige   havl and ttk Prestige are three exceptional  businesses that Nanda holds pulak notes that   since 2007 there are only three months of  time where they could buy these businesses   at prices they deemed worthy this comes  out to only 1 to 2% 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 (58:33) it’s only when the market is truly   depressed fearful and gloomy that the business  will be sold off enough to oper 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 selloff did not   make any sense great examples would be the  tech bubble the great financial crisis and   the onset of the covid pandemic critics of the  great businesses stay great concept will site   research such as Fortune 500 article published in (59:03) 2015 stating that only 12% of businesses   in the Fortune 500 in 1955 stayed there until  2015 kulak does a great job looking through the   research and his own conclusions where that  40 to 45% was a more likely number he points   out that the author missed a few businesses  and many drought businesses were eliminated   because they were AC ired 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 (59:39) 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 the remaining   200 had stayed in the list for 60 years an  apparent 3% success rate the actual number   is probably closer to 1 to 2% or even lower  thus 97 to 99% of the Nots so crate businesses   could not succeed over 60 years stasis is  the default unquote the point here is that   good businesses are probably more likely to (1:00:18) remain good and average and below   average businesses are more likely to remain  average or below average in 2018 Henrik bessam   binder published an article called do stocks  outperform treasury bills his research focused   on 26,000 stocks from various us stock exchanges  between 1926 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 (1:00:54) 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  the most important and least understood by The   Market stock price fluctuations are not the same  as business punctuation it’s 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  (1:01:24) fluctuation with business punctuation a  great example of this today is one of my Holdings   Evolution AB the stock in the past 6 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 what whether or not the business is (1:01:56) 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 the   share price from the underlying fundamentals  of the business 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 prad points out here is that investors   will apply positive business punctuations to (1:02:24) a business that doesn’t deserve it   this is most apparent during speculative Manas  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 105 times I assume many   investors thought this growth and the story  of the business would be sustained over a   long period of time they assume assumed a (1:02:55) 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 want to partake   in these Manas 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 third   principle really ties into the first one which  is that we should take advantage of rare stock   price punctuation to create a new species in (1:03:27) this case a new species is just a   new stock that we put into our portfolio hulak  shows some excellent data on how much Capital   he’s invested during these massive punctuations  for instance during covid-19 Nanda invested 22%   of its total Capital during only 2% 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 into pulak prad investing process  his track record is very good a table from   the book shows data for six names in his (1:04:01) portfolio the number of years   he’s held an investment and his multiple  uninvested Capital up to June 30th of 2022   M tree 9.6 years held 8.2 times wns 13 years  held 10.6 times Supreme 11.6 years held 13.6   times rat nanii 11.6 7 years held 16.2 times  Burger 13.3 years held 32.2 times and Page 13.  (1:04:35) 7 years held 82.2 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   and biology and how he’s applied them to investing  his threep strategy is both simple and repeatable   one eliminate significant risks two invest only  in seller businesses at fair prices and three own   them forever hak’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 (1:05:05) 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 (1:05:35) metric is the most important metric   to use Hula’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 and and adapt   once he deems a business as exceptional  and eliminate significant risks the next   step is to acquire at fair prices here his job to (1:06:02) 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 to 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 for ever 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  (1:06:32) 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  coock prefers to Echo it 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 worked incredibly   well for Nanda and its partners if you want  to learn more about pulock prad check out his   book what I learned about investing from Darwin  and his fun site at www. Nanda capital.com the  (1:07:05) numbers to me would tell me that this  business is a very very fastrowing business and   it’s a very very high quality business if you  are evaluating it and you’re just comparing it   to other grocery stores you’ll probably never  end up buying it because you’ll look at the PE   and it’s double that of its competitors  you’ll be like what’s going on here you   have to really look under the hood at some  of the details some of the growth metrics