What I Learned About Investing from Darwin

by Pulak Prasad

There is almost never a clear winner in the arms race between the senders and receivers of signals in the natural world. You may have heard of cuckoos leaving their eggs in the nests of other bird species so that someone else can rear their chicks. The signals here are the size, shape, and color of the cuckoo egg, which match those of the eggs of some other bird species. However, scientists have found that some of the parasitized bird species have not allowed themselves to be exploited—they have evolved to produce eggs that are distinctly different, even compared to eggs of their own species.24 As a result, they recognize cuckoo eggs as interlopers. They have evolved a way to detect the dishonest signal from cuckoos. This race has no winner, and there will probably never be one. In sharp contrast, in the business world, the senders of signals—the companies—are clearly winning over the receivers—us, the gullible investors. No wonder our community performs poorly compared to the broader market. What should we long-term investors do?