What I Learned About Investing from Darwin Quotes

“We rely exclusively on honest signals from businesses that, as in the natural world, are costly to produce. These include past operating and financial performance and scuttlebutt signals from suppliers, customers, competitors, ex-employees, and industry experts.”
― Pulak Prasad, What I Learned About Investing from Darwin

“A green frog mimicking the low-pitched croak of its larger rival is a dishonest signal, whereas the conspicuous coloration of a male guppy is an honest indicator of its health and virility.”
― Pulak Prasad, What I Learned About Investing from Darwin

“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?”
― Pulak Prasad, What I Learned About Investing from Darwin

“The business ‘grapevine’ is a remarkable thing. It is amazing what an accurate picture of the relative points of strength and weakness of each company in an industry can be obtained from a representative cross-section of the opinions of those who in one way or another are concerned with any particular company.” Truer words have rarely been uttered.”
― Pulak Prasad, What I Learned About Investing from Darwin

“An honest signal is not “our margin will be 15 percent next year” but “our average margin was 12 percent over the last ten years”; an honest signal is not “we will have robust free cash flows starting two years from now” but “we generated free cash flow only one year in the last decade”; an honest signal is not “we will launch six new products next year” but “in our recent history, we have launched an average of one product every two years.” No stories, no projections, just facts about the past.”
― Pulak Prasad, What I Learned About Investing from Darwin

“Jamie Dimon of JPMorgan, Mark Zuckerberg of Facebook, Jack Dorsey formerly of Twitter, Tim Cook of Apple, Elon Musk of Tesla—all these business leaders regularly attend their companies’ quarterly calls. Let’s take a concrete example. Chevron, one of the world’s largest oil companies, had revenues of about $140 billion and a market value of about $190 billion in 2019. The management held a conference call for investors and analysts on January 31, 2020, to highlight its performance.20 The analysts and investors asked twenty-nine questions. What percentage of these do you think were about the future? More than 70 percent.”
― Pulak Prasad, What I Learned About Investing from Darwin

“Why were so many experienced investors blind to the problems that Munger had highlighted publicly? Why could Munger correctly predict Valeant’s demise without meeting Mike Pearson when many of Valeant’s board members and investors continued to be passionate supporters? My hypothesis is this: Mike Pearson was a fantastic salesperson. Correction. He was probably one of the best salespeople to have enamored Wall Street. The smartest people lost their sense of judgment when faced with Mike Pearson’s persuasive skills. Valeant’s honest signals of its myriad problems remained undetected or ignored in the light of the dishonest signals emitted by Mike Pearson in face-to-face meetings, which by definition were cheap to produce.”
― Pulak Prasad, What I Learned About Investing from Darwin

“I am not suggesting that all of GE’s problems resulted from its guidance culture, but I think it played a significant role. When business managers are hyper-focused on meeting quarterly numbers, their long-term orientation takes a back seat; when a company is desperate to make an acquisition just to meet its earnings, it can overpay for a bad asset; when a manager is unable to speak the truth about accounting obfuscations, they pile up over time.”
― Pulak Prasad, What I Learned About Investing from Darwin

“Road shows are a scaled-down version of these conferences during which the company management typically visits investors at their offices. Since most investors have offices in large cities like New York, San Francisco, London, and Tokyo, a company can usually meet six to eight investors in a single day. What do you think most company managers want when they meet investors? They want the investors to buy their stock so that the share price moves up. Are they likely to present a balanced view of their business? It would be easier to believe in Santa Claus.”
― Pulak Prasad, What I Learned About Investing from Darwin

“Excellence is rare in this world, including the business world. You just won’t know it if you are relying on management interviews. I am not saying I don’t read (or listen to or watch) interviews of business leaders. I do. But I read them for the same reason I read articles on Brexit, running, films, and the latest Trump tantrum: to gossip with friends, to pass the time on a Sunday afternoon, and for general interest in our fascinating world. Not for investing.”
― Pulak Prasad, What I Learned About Investing from Darwin

“Have you ever read management interviews that claim they aren’t innovative, don’t have the best business leaders, aren’t “leveraging” technology, aren’t customer focused, don’t treat their employees well, don’t listen to shareholders, make bad capital allocations, and ignore the value of making “sustainable” investments? I haven’t.”
― Pulak Prasad, What I Learned About Investing from Darwin

“Plants are masters of deception. Since they can’t run or hide, many of their survival strategies involve deceiving other plants or animals. Some of the best examples—or worst, if you happen to be a wasp—are certain species of Australian orchids.4 Australia has about 1,400 species of orchids, and around 250 of these have adopted the same strategy of deceiving male wasps to enable pollination.”
― Pulak Prasad, What I Learned About Investing from Darwin

“If you are as ardent a fan of the National Geographic channel as I am, some of or all the following scenes should be familiar to you. A male lion roaring to assert his dominance over a pride; female baboons with their bright sexual swelling indicating their readiness to mate; bees performing their waggle dance to show the direction and distance of flowers; a female elephant caressing her calf to soothe him; a deep-sea squid emitting light to attract prey; and a meerkat squealing to warn her family of a predatory eagle. All these are examples of signals, and no textbook on evolutionary theory is complete without a lengthy discussion on them.1 Signals emitted by a “sender” have explicitly evolved to alter the behavior of the “receiver” and are used to communicate with and influence the behavior of prey, predators, mates, competitors, friends, and family.”
― Pulak Prasad, What I Learned About Investing from Darwin

“Fechheimer is exactly the sort of business we like to buy. Its economic record is superb. . . . You may be amused to know that neither Charlie nor I have been to Cincinnati, headquarters for Fechheimer, to see their operation. . . . If our success were to depend upon insights we developed through plant inspections, Berkshire would be in big trouble. Rather, in considering an acquisition, we attempt to evaluate the economic characteristics of the business—its competitive strengths and weaknesses—and the quality of people we will be joining. Warren Buffett, annual letter to shareholders, 1985”
― Pulak Prasad, What I Learned About Investing from Darwin

“6. However, applying the principle of convergence is tricky because we humans can see patterns where none exist. We can also miss out on one-off opportunities like Amazon that seem to defy the convergent notion that focus is the key to success.”
― Pulak Prasad, What I Learned About Investing from Darwin

“In our profession, getting the correct answer is easy. But, unfortunately, asking the right question is not.”
― Pulak Prasad, What I Learned About Investing from Darwin

“In 2017, Warren Buffett admitted on CNBC’s Squawk Box that he should have invested in Amazon. I have no such qualms. I know that I would have missed Amazon in the past, and I will miss an Amazon-like business in the future. So be it. The only saving grace of this failure? I doubt I will see another Bezos in my lifetime.”
― Pulak Prasad, What I Learned About Investing from Darwin

“I don’t know about the rest of the world, but in India, a married person inherits their spouse’s family. Whether they like it or not. The likelihood of getting along with your spouse over the long term is relatively low if you don’t like your spouse’s first, second, and occasionally, even third cousins. For the record, my in-laws are the best. Investing in companies is no different. Buying into a business means also buying into the industry of that business. For example, while I may think I am investing in a company that makes and sells sanitaryware, I am inheriting all the good and the bad of the sanitaryware industry. No company is an island. We can never ignore the kinds of businesses that surround it.”
― Pulak Prasad, What I Learned About Investing from Darwin

“Given a choice between applying their intellectual horsepower to a single business by making a ten-year projection of profits or stepping back and asking if any of it even makes sense, brilliant folks often choose the former. As I was transitioning from consulting in my early investing days, I was the biggest believer in the myth that more work produces better answers for investors. It doesn’t.”
― Pulak Prasad, What I Learned About Investing from Darwin

“Daniel Kahneman is one such individual. His masterpiece Thinking, Fast and Slow should be compulsory reading for all investing 101 classes. If you are already an investor, there is no more valuable chapter to read (and re-read) than chapter 23, “The Outside View.”
― Pulak Prasad, What I Learned About Investing from Darwin

“The questions I should have asked but did not were as follows: “Sure, credit card penetration is low in India, but so is penetration for every consumer product. What other consumer products in India have seen these growth rates over the long term? Do you have examples of other countries where we have seen such rapid credit card growth? If so, was their stage of development similar to India’s today?” I should have demanded a convergent template, but I didn’t.”
― Pulak Prasad, What I Learned About Investing from Darwin

“Charlie and I have many reasons to be thankful for our association with Chuck and See’s. The obvious ones are that we’ve earned exceptional returns and had a good time in the process. Equally important, ownership of See’s has taught us much about the evaluation of franchises. We’ve made significant money in certain common stocks because of the lessons we learned at See’s. Warren Buffett, annual letter to shareholders, 1991”
― Pulak Prasad, What I Learned About Investing from Darwin

“Convergence in nature symbolizes a profound fact: There is a pattern to success and failure. What can the Caribbean anole, the crest-tailed marsupial mouse, and caffeine teach us about investing? Convergence in business symbolizes a profound fact: There is a pattern to success and failure.”
― Pulak Prasad, What I Learned About Investing from Darwin

“Let’s move on to plants. Most of us have had coffee, tea, and chocolate (derived from cacao). The Brazilians among us will be familiar with the drink Guaraná Antarctica, made from the guaraná plant in the Amazon rainforest. All four plants produce the same chemical desired by humans: a purine alkaloid called 1,3,7-trimethylpurine-2,6-dione—in short, caffeine.9 These four plants may seem to be closely related, but they aren’t. The common ancestor of tea and coffee dates back a hundred million years. Cacao is more closely related to maple and eucalyptus trees than to tea and coffee. Bizarrely, the ancestor of coffee gave rise to potatoes and tomatoes but not tea! Plants have many defense mechanisms against predators, and it appears that some have converged toward the same solution: producing caffeine. Many plants rely on birds to pollinate their flowers. So if a plant depends on hummingbirds for pollination, what should it do? Develop red flowers because red is attractive to hummingbirds. Consequently, eighteen types of plants that hummingbirds pollinate have evolved bright red flowers.”
― Pulak Prasad, What I Learned About Investing from Darwin

“And just as agriculture helped us become the dominant species on this planet, leafcutter ants have become the dominant herbivores of the New World: They consume close to one-sixth of all leaves produced in tropical forests. Humans and leafcutter ants have solved their food problems by converging toward a similar solution, crossing time and species boundaries.”
― Pulak Prasad, What I Learned About Investing from Darwin

“Convergence is ubiquitous and not limited just to the external appearance or morphology of animals. It is also widely observed and documented in animal behavior and in plants, fungi, and even bacteria. Let’s start with behavior. What do you think these four species—a cobra, a stickleback fish, an octopus, and a spider—share? There is no convergence in body form here, unlike the Caribbean anoles. But a behavior has converged among them that has led to the success of each of their species: the females of the species guard their eggs. One of the best examples of convergent behavior is observed in humans and—hold your breath—ants! And I have witnessed this convergence with my own eyes. When I was on a family vacation in the stunningly beautiful Peruvian Amazon, I stumbled upon the tiny creatures that had beaten our human ancestors to the discovery of agriculture by many millions of years: the leafcutter ants. I had waited years to witness the miracle, and there it was in its full linear glory. A long single column of thousands of large green leaves appeared to be miraculously moving in perfect synchrony of their own volition on the forest floor. Each large leaf was being carried by a single tiny ant, who purposefully disappeared underground to pass on the booty to her specialist sisters. These ants chew the leaves to grow a fungus garden used for food for the entire colony. Not unlike human farmers, these ants produce fertilizers (amino acids and enzymes) to aid the fungal growth, remove contaminants that can hinder the agricultural output, are highly selective in what they grow, and continuously tend to their enormous gardens.8”
― Pulak Prasad, What I Learned About Investing from Darwin

“We want our businesses to mimic the robustness of the living world: to survive and prosper in a dynamic external environment, withstand internal strategic and organizational upheavals, and evolve by taking calculated risks. 5. Hence, we choose to invest only in businesses that are robust at multiple levels. A robust business has high ROCE, minimal or zero debt, a strong competitive advantage, fragmented customer and supplier bases, a stable management team, and is in a slow-changing industry. 6. Just because a business is robust today does not mean it will continue to be so. Our only protection against the loss of robustness of a business is to be price sensitive. We do not invest unless the market offers us an attractive valuation, which happens rarely.”
― Pulak Prasad, What I Learned About Investing from Darwin

“We do the best we can to choose businesses based on their current and potential degree of robustness. But bad things will happen—we just don’t know what, when, or how. And so we turn to the one aspect of investing that is entirely within our control: the price we pay.”
― Pulak Prasad, What I Learned About Investing from Darwin

“The chapter is titled “ ‘Margin of Safety’ as the Central Concept of Investment.” Graham knew that the corporate world is highly uncertain and that the best protection offered to an investor is the price they pay for a business.”
― Pulak Prasad, What I Learned About Investing from Darwin

“Dinosaurs, a diverse group of more than a thousand reptilian species, dominated our planet for 180 million years.17 As a matter of comparison, we Homo sapiens have been around for less than 0.2 million years. Dinosaurs couldn’t have survived and thrived for so long unless they were highly robust and adaptable. Molecular evidence has shown that many modern mammalian orders—Carnivora, Primata, Proboscidea—coexisted with dinosaurs for at least 30 million years during the Cretaceous period (145 to 66 million years ago), and maybe even earlier. The mammals during the era of dinosaurs were small, squirrel sized, and probably insectivores. If aliens had landed on our planet 65 million years ago, they never could have predicted that a small offshoot of the insignificant mammalians would reign supreme one day.”
― Pulak Prasad, What I Learned About Investing from Darwin