What I Learned About Investing from Darwin Quotes

“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

“In October 1988, Forbes published a list of the four hundred wealthiest Americans.1 Sam Walton was the richest with a fortune of $6.7 billion, and Buffett was ranked tenth with $2.2 billion. The list was full of familiar names, including Gates, Helmsley, Hillman, Kluge, Mars, Newhouse, Packard, Perot, Pritzker, and Redstone.”
― Pulak Prasad, What I Learned About Investing from Darwin

“Our patience for a punctuation event seems pedestrian compared to the remarkable restraint of the cicadas. They wait seventeen years for a life-changing event. We have had at least three during just fourteen years. When will we witness the next one? I have no idea. But I know this: As a species, we investors are nowhere as disciplined as the cicadas. Our community will take things to an extreme before all hell breaks loose again. We are waiting.”
― Pulak Prasad, What I Learned About Investing from Darwin

“A housefly lives for a month, a mosquito for one to three months, and a cockroach for up to six months. Unfortunately, most insects live only for a brief period. There is one notable exception, though. Three species of periodical cicadas found in the United States can live for up to seventeen years. After hatching, baby cicadas, called nymphs, spend seventeen years underground feeding on the roots of plants and trees. After that time, the adults emerge together in billions (some say even trillions) beginning in the second week of May, get into a mating frenzy, lay their eggs on trees, and are dead by the end of June. The eggs hatch in about six weeks, the nymphs drop down from the trees and burrow underground, and the seventeen-year cycle begins again. This evolutionary strategy, called prey satiation, has been supremely successful for eons because no predator can consume such a large number of cicadas in just a few weeks.20”
― Pulak Prasad, What I Learned About Investing from Darwin

“An afterthought: There is almost no business in our portfolio that we could buy at an absolute bottom, including the ones listed in table 9.3. If you are searching for an abysmal market-timer, look no further. Our 2008/09 and 2011 investments have primarily turned out well. I don’t know if our aggression in 2020 will yield fruit. But I am happy about our process, which was in our control; the outcome will be what it will be. We will know in eight to ten years if we were foolish or intelligent. Don’t you love long-term investing?”
― 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

“But we don’t buy the market; we are interested only in quality businesses. Hence, it would be nice to find out the extent of the negative punctuation in the companies we bought. We had been tracking many businesses for years, and we were well prepared when the pandemic panic struck in March 2020.”
― Pulak Prasad, What I Learned About Investing from Darwin

“I guess we can all agree that we would make a sloth envious with our rare bouts of activity. So what do we do the rest of the time? We wait. Occasionally, we have had to wait many years. For example, we invested only $34 million and $66 million in 2018 and 2019, respectively. The amount we invested in 2020 turned out to be 45 percent more than in the previous five years combined.”
― Pulak Prasad, What I Learned About Investing from Darwin

“There were 169 months from June 1, 2007, until June 30, 2021. We invested a total of $1.86 billion during this period. However, as you can see from table 9.2, the pace of investment was highly punctuated: We invested $851 million, or 46 percent of the total amount invested from 2007 to 2021, over only twenty-six months (15 percent of the total number of months)—months of severely damaging market punctuations.”
― Pulak Prasad, What I Learned About Investing from Darwin

“The valuations of private and public companies were soaring, and there seemed to be a consensus that the gold rush was beginning. Amid this infrastructure mania, Reliance Power launched an IPO in January 2008 that was oversubscribed seventy-two times! It made the company’s owner, Anil Ambani, the richest Indian. Despite having a power capacity of less than 1,000 megawatts at the time of the IPO, the company’s value was about $35 billion. Did this lead to a large number of IPOs for infrastructure businesses that investors lapped up hungrily? Does the sun rise in the east? Both private and public equity investors in the hyped-up story of Indian infrastructure forgot or chose to ignore some uncomfortable truths: Every infrastructure business is held hostage to the whims and fancies of the government; the government hates to be a paying customer—underpayment and late payment are the rule, not the exception; and even if the government behaves well, the returns on these projects are capped according to law. So why would we want to spend a single minute debating if any power business is worth investing in?”
― Pulak Prasad, What I Learned About Investing from Darwin

“My wife has a sweet tooth but is also very health conscious. Over more than two decades, she has followed a simple yet powerful way of avoiding the enticement of desserts. Our fridge just doesn’t have any. In my view, the best way to avoid investing in bad businesses is to ignore them and their stock prices. We never discuss what we consider bad companies or industries in our team meetings. Never. It doesn’t matter if an airline has declared spectacular results recently or if every analyst recommends buying airline shares. We are indifferent to a public sector bank that has hired a new CEO from the private sector and has pushed its stock price to an all-time high. We ignore an infrastructure business that has been awarded a new multibillion-dollar contract and a gold loan business that has announced 30 percent ROE in its latest quarterly result and is touted by the bulls to be the next billion-dollar opportunity. No one on our team is allowed to utter the famous last words of many investors: “This time, it’s different.” If we never discuss a business, how will we ever buy it? No sweets in the fridge: no snacking possible.”
― 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

“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

“There are a few large and successful firms in most industries. 2. These successful companies are becoming even more successful. 3. Weak companies are getting weaker. Numbers 1 and 2 are direct conclusions of the research, and number 3 is an indirect but logical outcome of 1 and 2. As I wrote earlier, our investing experience in India is not different from what research from the United States, the United Kingdom, or Europe says. Our investee companies have been gaining share over the competition over decades. Some examples are Berger in the paint industry, Supreme in plastic pipes, Voltamp in industrial transformers, Page in innerwear, Havells and V-Guard in consumer electricals, Amara Raja in batteries, Info Edge in job boards, MRF in tires, and Ratnamani in specialty steel pipes. In India, too, great businesses continue to be great, and poor businesses continue to suffer. The observation that “stasis is the default” does not respect national boundaries.”
― Pulak Prasad, What I Learned About Investing from Darwin

“Since great businesses remain great for an eternity, everyone knows about them. Investors bid their prices up, and rightly so. The ten-year average price/earnings (PE) multiples of some of the leading consumer businesses in India are astronomical. For example, Asian Paints, 56; Colgate India, 43; Dabur, 44; Hindustan Unilever, 51; and Page Industries, 65. As price-sensitive investors, we should not buy these businesses since their valuations would almost always be too high for us. And we don’t. From the list provided two paragraphs earlier, the only companies we have been able to buy since 2007 are Page, Havells, and TTK Prestige. Our window of opportunity for buying these three was only two to three months over almost fifteen years—a punctuation event that lasted just 1 to 2 percent of this period. There are very few great businesses, and they are almost always unbuyable. Hence, we buy very rarely, and when we do, we buy a lot.”
― Pulak Prasad, What I Learned About Investing from Darwin

“Since great businesses remain great for an eternity, everyone knows about them. Investors bid their prices up, and rightly so. The ten-year average price/earnings (PE) multiples of some of the leading consumer businesses in India are astronomical. For example, Asian Paints, 56; Colgate India, 43; Dabur, 44; Hindustan Unilever, 51; and Page Industries, 65. As price-sensitive investors, we should not buy these businesses since their valuations would almost always be too high for us. And we don’t. From the list provided two paragraphs earlier, the only companies we have been able to buy since 2007 are Page, Havells, and TTK Prestige. Our window of opportunity for buying these three was only two to three months over almost fifteen years—a punctuation event that lasted just 1 to 2 percent of this period. There are very few great businesses, and they are almost always unbuyable.”
― 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

“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

“A bizarre unintended consequence of the brouhaha among biologists was that the creationists crashed their party!12 Creationists have always used the lack of intermediate forms in the fossil record as evidence that Darwin’s theory is wrong. The idea of punctuated equilibrium seemed to substantiate their claim when Gould and Eldredge emphasized that “stasis is data.” Creationists believe that animals and plants emerge suddenly in the fossil record because they were created instantaneously by God; thus, they took refuge in the theory of punctuated equilibrium, which seemed to affirm the sudden emergence of species.”
― 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

“If Darwin was right about gradualism, paleontologists should witness a gradual change in the fossil records over millions of years. But this is not what they find. Instead, before and since Darwin, a large number of paleontologists have found that the majority of species appear suddenly in the fossil record and then persist unchanged until they go extinct.”
― Pulak Prasad, What I Learned About Investing from Darwin

“If this is accurate, we should find intermediate forms of species in the fossil record providing evidence of phyletic gradualism. Let’s take the example of whales, which evolved about fifty million years ago from a four-legged, land-dwelling vertebrate called Pakicetus.1 Figure 9.1 lists some descendants of Pakicetus, including Ambulocetus, Remingtoncetus, Protocetus, and Dorudon, which ultimately evolved into current-day whales and dolphins.”
― Pulak Prasad, What I Learned About Investing from Darwin

“We have capitalized on the inevitable short-term fluctuations in high-quality businesses to invest at attractive valuations. However, since these opportunities arise infrequently, we rarely ever buy. We are lazy. 5. After investing, we ignore near-term fluctuations because the fundamental characteristics of stellar businesses remain stable over the long term. We never sell on valuation—we are very lazy.”
― Pulak Prasad, What I Learned About Investing from Darwin

“We sell under the following three conditions (the numbers in parentheses indicate the number of businesses sold): 1. A decline in governance standards (0) 2. Egregiously wrong capital allocation (3) 3. Irreparable damage to the business (6) We have sold ten businesses since 2007 (the nine listed here plus the mistake). I am excluding three businesses that strategic buyers acquired. This translates to one exit every one and a half years. How’s that for laziness? As you can see, six of our nine exits occurred because we believed the business had been damaged beyond repair. And how did we come to that conclusion? An example can clarify.”
― Pulak Prasad, What I Learned About Investing from Darwin

“GKPI is our religion. And it reflects in all kinds of big and small ways in the way we work. Our office doesn’t have a TV screen playing CNBC or any other news; our lone TV screen is used only for video conferencing. The only Bloomberg terminal we have is in the corner of our office pantry; it remains unused and unwatched probably 99 percent of the time. We never discuss recent company news or share prices in our team meetings. I mainly read physical newspapers, in which the information is always one day late. We have never bought or sold a single business based on news flow and never will.”
― Pulak Prasad, What I Learned About Investing from Darwin

“We are highly demanding. We want a company to be run by an honest management team, and show solid operating and financial track records over many years. It needs to stay ahead of the competition and be debt free, and we also want it to keep taking calculated risks while not unduly burdening the business. And, as if all these demands were not enough, we dare to insist on a fair price for these rare gems! How is this even possible? The market should almost never offer us an attractive price for such a business, and it doesn’t.”
― 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

“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

“The Grants published the results of their long-term study of the evolution of the two species of finches—fortis and scandens—in Science in April 2002 under the title “Unpredictable Evolution in a 30-Year Study of Darwin’s Finches.”8 Before starting their research, they had hypothesized that the body traits of the finches would vary within a narrow band over the period of the study. But as they say at the beginning of the article, “The data do not support the expectation of no change.”
― Pulak Prasad, What I Learned About Investing from Darwin

“They cooked their meals in a small cave protected from the harsh sun by a sheet of cloth. Once settled, they would spend the next six months measuring the body size, beak size, and beak shape of every finch on the island. They would also extract blood to do a genetic analysis. Why would anyone in their right mind spend time on such an island? Because it offered many advantages that few other places could.”
― Pulak Prasad, What I Learned About Investing from Darwin