What I learned about investing from Darwin. 2023. Plak Prasad. Columbia University Press.
Investment professionals know that there is no substitute for hours and hours of rigorous study of textbooks combined with the equivalent of hands-on experience. However, self-taught investors can develop the critical knowledge and skill sets for successful investing without formal professional titles or relevant college degrees. A third group of investors may be less interested in investment theory and practice and stick to basic concepts such as risk and return, the benefits of compounding interest, and tax implications. These three groups of his are often supplied with expensive textbooks, detailed investment guides, and retirement planning guides, respectively. Founder of Nalanda Capital, a star asset management firm based in Singapore. Plak Prasad has written a timely and actionable guide for the middle class, a powerful reminder to investment professionals that all technical skills in the world are no substitute for good perspective and strategy. There is also a thing.
Singapore-based Prasad follows the well-worn trail of former (perhaps better known in North America) star investors like Peter Lynch. One up on Wall Street We instructed our readers to invest in companies they know, especially those with abundant compound growth potential. Prasad draws on Lynch’s well-supported wisdom with the example of India-focused funds, but pays far more attention to his investment theory and analytical techniques.
This level of detail may overwhelm an investor who lacks a strong foundation in theory and practice, but too many professional analysts ask the basic question, “Is this company good for the long haul?” is essential to Mr. Prasad’s claim that he relies on false accuracy to provide irrelevant answers. – Term investment? Prasad does not reject the analytical tool, but rather its unrestricted use as a hindrance to analysts’ ability to identify companies that offer good compound growth and downside protection. This gives him an essential reminder for chronically underperforming active managers.
Prasad does not shy away from detailed explanations of his analytical methods, but in a Warren Buffett-like style, he translates each issue into real-world examples, often from his own portfolio at Nalanda Capital. I relate to the example. It makes the story flow better and is much better than many textbooks. This is another reason investment professionals pick up this book.
Prasad emphasizes his point through handpicked examples from evolutionary biology, including but not limited to the writings of Charles Darwin. Each chapter begins with carefully selected quotes from Darwin and Buffett (also well referenced in the chapter text) and ends with a summary of the main points. Prasad’s ability to draw parallels between evolutionary and investment theories highlights the concepts most likely to lead to long-term success and market outperformance.
For example, in Chapter 2, Prasad cites an evolutionary biology experiment in Siberia. In this experiment, wild foxes were bred for a “gentle” gene that makes them more like domestic dogs than wild foxes. Experiments began in 1959, and by 1963 a friendly fox was born. But the genetic modification not only shortened the reproductive cycle, but also caused other pet-like changes, such as “droopy ears, mottled coloration and short noses.” Prasad draws parallels between the scientists’ focus on a single desired characteristic and his own preferred investment metric, return on capital employed (ROCE). He explained that ROCE is likely associated with other favorable corporate attributes such as good management, good capital allocation, strong competitive advantages and the ability to innovate and grow the company. increase. Choosing the most descriptive primary metric can make the related secondary metric (floppy years or good management) attractive. Most analysts erroneously use earnings before interest and tax (EBIT) or the related measure EBITDA (which includes depreciation and amortization). Because these metrics can obscure other financial issues. Prasad’s focus on ROCE is the first screen around which he systematically builds his claims with additional financial and evolutionary theories in the next chapter, each illustrated with colorful examples.
By the conclusion of this book, Prasad reminded us that the detailed knowledge and sophisticated techniques we acquire through study are not ends in themselves, but means to ends. . His perspective is grounded in experience and proven success and should be emulated by investors. It is also a perspective that may become even more valuable in the future as algorithms and artificial intelligence are used to achieve economic objectives. (More and faster spreadsheets don’t help if you’re not focused on the best metrics.)
The book is clearly written and well edited, with only occasional small mistakes. Examples include Prasad’s assertion that bankruptcy investments return 0% (negative 100% returns instead of 0%), and suggesting that younger readers may not know what a bookstore is. Such as his awkward attempts at humor. Also, some of Prasad’s advice seems to lack context. For example, he “hates”[s] Although companies have “debt” on their balance sheets, publicly traded companies that have no debt (or less debt than they can afford) and do not have a dual-class voting structure are the main players in leveraged buyouts. could be a good candidate. While this strategy could be a good exit for many active managers, it seems to contradict the author’s “buy and hold forever” strategy.
But these quibbles are small. This book refocuses the quest for long-term investment success for amateur and professional investors alike from a focus on the tools we have to a focus on the results we seek. building.
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All posts are the opinion of the author. As such, they should not be construed as investment advice, and the opinions expressed do not necessarily reflect those of the CFA Institute or the author’s employer.
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