What I Learned About Investing from Darwin

by Pulak Prasad

When we started Nalanda in 2007, there was a lot of buzz around a company called Eicher Motors led by a young, dynamic guy called Siddhartha Lal. Lal had inherited a hodgepodge of poor-quality businesses from his father in 2004. They manufactured motorcycles, footwear, garments, tractors, trucks, auto components, and a few other products, and none was an industry leader. In a remarkably bold strategic move, Lal decided to divest thirteen of the fifteen businesses to focus on just two products: trucks and motorcycles.30 Almost every analyst was gung ho about the future of Eicher; they were all taken in by its dynamic leader who was aggressively culling businesses, something that Indian firms rarely did. However, in 2007, this was a turnaround story with no empirical evidence of success. The company’s biggest hit, the Enfield Classic motorcycle, was launched only in 2010. We decided not to invest in the business. By the 2010s, the company’s motorcycles had taken on cult status in the Indian consumer’s mind. Sales exploded from just 52,000 units in 2009 to 822,000 units in 2019: a sixteen-fold growth. If you had listened to what we had to say about the business, you would not have invested. Your opportunity loss? Seventy times your money from 2007 until 2021. Tesla and Eicher Motors are the kinds of type II error we will inevitably commit because we reject highly indebted businesses, rapidly evolving industry landscapes, and turnarounds.