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What I Learned About Investing from Darwin
The investment profession is in a state of crisis. The vast majority of equity fund managers are unable to beat the market over the long term, which has led to massive outflows from active funds to passive funds. Where should investors turn in search of a new approach?
Pulak Prasad offers a philosophy of patient long-term investing based on an unexpected source: evolutionary biology. He draws key lessons from core Darwinian concepts, mixing vivid examples from the natural world with compelling stories of good and bad investing decisions―including his own. How can bumblebees� survival strategies help us accept that we might miss out on Tesla? What does an experiment in breeding tame foxes reveal about the traits of successful businesses? Why might a small frog’s mimicry of the croak of a larger rival shed light on the signs of corporate dishonesty?
Informed by successful evolutionary strategies, Prasad outlines his counterintuitive principles for long-term gain. He provides three mantras of investing: Avoid big risks; buy high quality at a fair price; and don’t be lazy―be very lazy. Prasad makes a persuasive case for a strategy that rules out the vast majority of investment opportunities and advocates permanently owning high-quality businesses.
Combining punchy prose and practical insight, What I Learned About Investing from Darwin reveals why evolutionary biology can help fund managers become better at their craft.
Pulak Prasad offers a philosophy of patient long-term investing based on an unexpected source: evolutionary biology. He draws key lessons from core Darwinian concepts, mixing vivid examples from the natural world with compelling stories of good and bad investing decisions―including his own. How can bumblebees� survival strategies help us accept that we might miss out on Tesla? What does an experiment in breeding tame foxes reveal about the traits of successful businesses? Why might a small frog’s mimicry of the croak of a larger rival shed light on the signs of corporate dishonesty?
Informed by successful evolutionary strategies, Prasad outlines his counterintuitive principles for long-term gain. He provides three mantras of investing: Avoid big risks; buy high quality at a fair price; and don’t be lazy―be very lazy. Prasad makes a persuasive case for a strategy that rules out the vast majority of investment opportunities and advocates permanently owning high-quality businesses.
Combining punchy prose and practical insight, What I Learned About Investing from Darwin reveals why evolutionary biology can help fund managers become better at their craft.
328 pages, Hardcover
Published May 23, 2023
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July 30, 2023
I wish I could rate this book over 5 stars . I’ve rarely been blown away by an investment book , because the bulk of them are plain and simple boring . Most investors come across as dry and joyless, unidimensional people . People who change the world have range - they are able to dive deep into multiple disciplines and synthesise these unique cocktails in their brains to come up with radical approaches to change the world . Jobs was right . Boring people don’t build great businesses .
Pulak’s mastery of evolution and his genius in marrying its lessons with investing is unputdownable. It’s not a wonder that Nalanda is unique . What I love more is that he seems to have a life, has a philosophy to investing that doesn’t hinge on esoteric spreadsheets but a hunger to read and know , that only people who change the world do . And the courage of conviction in his process that those in the business know , is the hardest to hold on to with the daily barrage of information. For investors , there is a very fine line between courage of conviction and hubris , and many of the best stumble towards hubris . In that context the underlying humility of Nalanda ( we know very little , we will take no risks , we do the best we can ) is laudable . I have worked with some great investors in the public markets business , and I picked up the book with the deepest scepticism , but I put it down a believer .
Lessons
1. Minimise the risk of committing type I errors (commission ) to curtail risk injury or death and learn to live with type II errors ( omission ) or foregone benefits. Like in the case of deer in the wild , type I errors could be fatal . Improving performance in type II errors doesn’t materially improve an investment track record but is dramatically improved when errors of making bad investments is reduced . Risk is not deviation from benchmark . Risk is about losing money . Think first about not losing money . Not return . Hence the Nalanda approach is to focus on industries where losers and winners have been largely sorted out and the rules of the game are apparent to everyone .
2. Selecting for just tame ness got Dmitri and Lyudmila transformations in body structure , tail wagging and piebald fur in silver foxes since behaviour and physiology of animals is intimately connected . Similarly focusing on ROCE is measurable , rejects businesses of poor quality and selects most high quality businesses
4. living things are highly resistant to internal and external changes while simultaneously having the ability to evolve , aka robustness . It is a delicate balance . When genes mutate , they continue to perform their primary functions but may develop secondary functions that can be used for a completely new use , making the genetic code robust as well as permitting evolution for free !businesses are robust if they have high past roce , fragmented customer and supplier bases , no debt and excess cash , competitive barriers , stable management team and a slow changing industry. Such companies can take calculated risks , equivalent to neutral mutations in nature to grow and evolve
5. Proximate causes explain immediate influences on a trait while ultimate cause explains the organisms ultimate success or failure . Proximate causes of share price changes coming from macro economy , markets , events should largely be ignored to focus on business fundamentals
6. Darwin proposed natural selection ( random variation in an organism with favourable ones being preserved and heritable which gave the organism a better chance to succeed ) , sexual selection ( trait which helps an animal to produce more offspring ) and common ancestor ( descent with modification ) . Like Darwin , Nalanda interpret the past of companies only in the context of history and do not believe in forecasting the future through spreadsheets .
7. Convergence ( unrelated organisms developing the same solutions to similar problems ) in nature and businesses symbolises that there is a pattern to success and failure .a popular question to ask while evaluating a business is , where else has this worked ( Infoedge resembled the network effect of the yellow pages ) , and taking the outside view of an industry ( airline retailing telecom and commodity chemicals have never made any money ) ala Kahneman . Also a reason to avoid new industries , as convergence only kicks in once the pace of change has declined . There will be an odd case where it doesn’t work - like Amazon , a conglomerate succeeding .
8. Lend credence to only those signals from companies that are honest I.e costly to produce ( a finch being brightly coloured helps it reproduce but endangers it to predators ) . Don’t trust management speak , interviews or earnings guidance , trust only their historical performance and their reputation in their ecosystem ( both expensive to produce )
9. Stasis is normal in nature with sudden evolutionary change ( punctuated equilibrium where new species emerge ) . Similarly The daily , weekly change in great businesses seems much greater than changes over decades . But it matters little to the long term trajectory of the business and is noise . Great businesses remain great bad businesses remain bad . Stock price fluctuations don’t mean business fluctuations. Hence inevitable fluctuations due to short term events should be exploited to buy ( create new portfolio species) not sell high quality businesses . Selling should only happen because of governance issues , capital allocation gone wrong and irreparable damage to the business .
10. Compounding is not understood , because its impact stays hidden in the initial period for long periods of time ( 4 rabbits let loose in Australia led to 10 bn ). Biggest surprise is that they were under a million in 1895 but went to 10 bb in 1920 . Nothing happened for a long time initially . Investors underperform because they sell early thinking they have made enough and tire of slow progress . The richest lists are all dominated by people who didn’t sell , that’s just the law of compounding . A handful of compounders in the portfolio growing a little more than the rest similarly will overwhelm the rest of the portfolio given time ( as a favourable trait given time overwhelms the entire population ) .
Pulak’s mastery of evolution and his genius in marrying its lessons with investing is unputdownable. It’s not a wonder that Nalanda is unique . What I love more is that he seems to have a life, has a philosophy to investing that doesn’t hinge on esoteric spreadsheets but a hunger to read and know , that only people who change the world do . And the courage of conviction in his process that those in the business know , is the hardest to hold on to with the daily barrage of information. For investors , there is a very fine line between courage of conviction and hubris , and many of the best stumble towards hubris . In that context the underlying humility of Nalanda ( we know very little , we will take no risks , we do the best we can ) is laudable . I have worked with some great investors in the public markets business , and I picked up the book with the deepest scepticism , but I put it down a believer .
Lessons
1. Minimise the risk of committing type I errors (commission ) to curtail risk injury or death and learn to live with type II errors ( omission ) or foregone benefits. Like in the case of deer in the wild , type I errors could be fatal . Improving performance in type II errors doesn’t materially improve an investment track record but is dramatically improved when errors of making bad investments is reduced . Risk is not deviation from benchmark . Risk is about losing money . Think first about not losing money . Not return . Hence the Nalanda approach is to focus on industries where losers and winners have been largely sorted out and the rules of the game are apparent to everyone .
2. Selecting for just tame ness got Dmitri and Lyudmila transformations in body structure , tail wagging and piebald fur in silver foxes since behaviour and physiology of animals is intimately connected . Similarly focusing on ROCE is measurable , rejects businesses of poor quality and selects most high quality businesses
4. living things are highly resistant to internal and external changes while simultaneously having the ability to evolve , aka robustness . It is a delicate balance . When genes mutate , they continue to perform their primary functions but may develop secondary functions that can be used for a completely new use , making the genetic code robust as well as permitting evolution for free !businesses are robust if they have high past roce , fragmented customer and supplier bases , no debt and excess cash , competitive barriers , stable management team and a slow changing industry. Such companies can take calculated risks , equivalent to neutral mutations in nature to grow and evolve
5. Proximate causes explain immediate influences on a trait while ultimate cause explains the organisms ultimate success or failure . Proximate causes of share price changes coming from macro economy , markets , events should largely be ignored to focus on business fundamentals
6. Darwin proposed natural selection ( random variation in an organism with favourable ones being preserved and heritable which gave the organism a better chance to succeed ) , sexual selection ( trait which helps an animal to produce more offspring ) and common ancestor ( descent with modification ) . Like Darwin , Nalanda interpret the past of companies only in the context of history and do not believe in forecasting the future through spreadsheets .
7. Convergence ( unrelated organisms developing the same solutions to similar problems ) in nature and businesses symbolises that there is a pattern to success and failure .a popular question to ask while evaluating a business is , where else has this worked ( Infoedge resembled the network effect of the yellow pages ) , and taking the outside view of an industry ( airline retailing telecom and commodity chemicals have never made any money ) ala Kahneman . Also a reason to avoid new industries , as convergence only kicks in once the pace of change has declined . There will be an odd case where it doesn’t work - like Amazon , a conglomerate succeeding .
8. Lend credence to only those signals from companies that are honest I.e costly to produce ( a finch being brightly coloured helps it reproduce but endangers it to predators ) . Don’t trust management speak , interviews or earnings guidance , trust only their historical performance and their reputation in their ecosystem ( both expensive to produce )
9. Stasis is normal in nature with sudden evolutionary change ( punctuated equilibrium where new species emerge ) . Similarly The daily , weekly change in great businesses seems much greater than changes over decades . But it matters little to the long term trajectory of the business and is noise . Great businesses remain great bad businesses remain bad . Stock price fluctuations don’t mean business fluctuations. Hence inevitable fluctuations due to short term events should be exploited to buy ( create new portfolio species) not sell high quality businesses . Selling should only happen because of governance issues , capital allocation gone wrong and irreparable damage to the business .
10. Compounding is not understood , because its impact stays hidden in the initial period for long periods of time ( 4 rabbits let loose in Australia led to 10 bn ). Biggest surprise is that they were under a million in 1895 but went to 10 bb in 1920 . Nothing happened for a long time initially . Investors underperform because they sell early thinking they have made enough and tire of slow progress . The richest lists are all dominated by people who didn’t sell , that’s just the law of compounding . A handful of compounders in the portfolio growing a little more than the rest similarly will overwhelm the rest of the portfolio given time ( as a favourable trait given time overwhelms the entire population ) .
May 4, 2023
In the chatty, lively, and engaging book "What I Learned About Investing from Darwin," author Pulak Prasad takes readers on an illuminating journey through the world of investing. With wit and charm, Prasad weaves his own experiences and insights with the lessons he has learned following his two gurus, Charles Darwin and Warren Buffett.
Prasad, a relatively unknown for those unfamiliar with the Indian equities industry, is an investment legend with a track record comparable to the best worldwide over the last fifteen years. His audacious investment style is deserving of study. This is not just because of the performance but also because of how logical, almost irrefutable, its tenets sound as he explains them, deploying the similes and examples from evolutionary sciences. While his approach may not be the only path to financial success, it is undoubtedly effective and provides readers with plenty of food for thought.
To this reviewer, investors should first and foremost adopt a disciplined, logically sound style that suits their personality and access. Pulak has done this perfectly with a discipline rarely observed among the best professionals. One may have heard Darwin and Buffett's theories countless times before, but he is able to breathe life into well-trodden concepts in every section through the novel connections he makes between the fields. When dotted with real-life examples of his investments, they do not remain pure theories in the book!
Throughout the book, readers are treated to an array of thought-provoking ideas, such as the importance of avoiding forecasts, the benefits of being an investor who focuses more on rejections, the wisdom of minimum versus optimum debt in corporate books, and summary rejection of things that obsess regular investors like quarterly results, daily stock prices, models like DCF, etc. The book reads like a guide on everything unconventional, and yet the logic is presented with such clarity and conviction that one begins to doubt one's sanity for ever believing in anything different!
Overall, a must-read for anyone interested in the world of investing. Its refreshing take on investment strategies and unparalleled depth of wisdom makes it a far superior choice to many of the more popular books on the subject.
Prasad, a relatively unknown for those unfamiliar with the Indian equities industry, is an investment legend with a track record comparable to the best worldwide over the last fifteen years. His audacious investment style is deserving of study. This is not just because of the performance but also because of how logical, almost irrefutable, its tenets sound as he explains them, deploying the similes and examples from evolutionary sciences. While his approach may not be the only path to financial success, it is undoubtedly effective and provides readers with plenty of food for thought.
To this reviewer, investors should first and foremost adopt a disciplined, logically sound style that suits their personality and access. Pulak has done this perfectly with a discipline rarely observed among the best professionals. One may have heard Darwin and Buffett's theories countless times before, but he is able to breathe life into well-trodden concepts in every section through the novel connections he makes between the fields. When dotted with real-life examples of his investments, they do not remain pure theories in the book!
Throughout the book, readers are treated to an array of thought-provoking ideas, such as the importance of avoiding forecasts, the benefits of being an investor who focuses more on rejections, the wisdom of minimum versus optimum debt in corporate books, and summary rejection of things that obsess regular investors like quarterly results, daily stock prices, models like DCF, etc. The book reads like a guide on everything unconventional, and yet the logic is presented with such clarity and conviction that one begins to doubt one's sanity for ever believing in anything different!
Overall, a must-read for anyone interested in the world of investing. Its refreshing take on investment strategies and unparalleled depth of wisdom makes it a far superior choice to many of the more popular books on the subject.
March 21, 2023
"The first and probably most important step in reimagining investing is to learn how not to invest."
Pulak Prasad and team Nalanda have simple tenets that they adhere to while investing. Work to eliminate mistakes that would wipe you out, dont worry about mistakes of omission, find companies with high return on capital and understand why this is so, pay a reasonable price and then wait. Rinse-Repeat
I liked the construct of a permanent owner mindset, loved the book. It is a practitioners book on investing and a highly recommended one.
Thank you Pulak for writing the book and Anand for sharing these principles through your blog.
Pulak Prasad and team Nalanda have simple tenets that they adhere to while investing. Work to eliminate mistakes that would wipe you out, dont worry about mistakes of omission, find companies with high return on capital and understand why this is so, pay a reasonable price and then wait. Rinse-Repeat
I liked the construct of a permanent owner mindset, loved the book. It is a practitioners book on investing and a highly recommended one.
Thank you Pulak for writing the book and Anand for sharing these principles through your blog.
April 3, 2024
I think I need to stop reading value investing books for a while because you can only say “buy good stocks cheap� in so many ways before getting pretty esoteric
November 20, 2024
A decent investing book with a pretentious and misleading title. It is yet another work focused on conservative value-quality investing in the tradition of Buffett � grounded in sound principles but lacking originality. The author, an emerging market fund manager with a hobbyist's interest in biology, seems to have added lengthy biological digressions in an attempt to distinguish his book from countless others on the subject. However, these digressions fail to provide any interesting insights into the connections between biology, economics, and finance that might justify the ambitious title. Instead, the book delivers a patchwork of random facts about animals and summaries of well-known biological studies, presented as standalone essays with only the vaguest connections to the financial concepts discussed later.
Prasad claims that his firm's investment process shares "uncanny parallels with evolutionary theory", an idea he developed after reading about biology following a recommendation by Charlie Munger. Munger recommended a book by Richard Dawkins on an annual meeting, but it seems that Prasad somehow ended up reading much more of Stephen Jay Gould. The analogies presented here are superficial at best, such as comparing mating season signaling in animals to corporate management's use of dishonest signals, or using the concept of "robustness" from biology to discuss corporate balance sheets. These parallels do little to deepen the reader's understanding of finance. The sections focused on financial topics are far more lucid and compelling than the tenuous and meandering biological digressions.
It is painfully clear that Prasad did not learn anything from Darwin. He learned everything he knows from standard financial literature and his working experiences, and he put Darwin in the title only to attract attention of curious readers. He could just as easily have written a book titled What I Learned About Investing from Lana Del Rey, filled with LinkedIn-influencer-style ramblings about how songs like Young and Beautiful and Summertime Sadness supposedly offer lessons on the business lifecycle, market volatility and timing, etc. The financial theory and investment advice would remain exactly the same, but at least the essayistic detours in that version might have been far more entertaining.
Although Prasad still has much to learn from highly adapted LinkedIn-grifters, he seems to be a successful fund manager. His company name is Nalanda Capital, which you will definitely memorize because it is mentioned exactly 64 times in a book which contains about 280 pages of text. While his principles are solid � invest in simple businesses, avoid turnaround stories, steer clear of volatile or low-profit industries, prioritize high ROCE, and keep an eye on debt � they are not meaningfully tied to Darwinian or biological concepts. The book would actually be much better without the scientific digressions, but then it wouldn't have the catchy title that got me to read it � so Prasad clearly knows a thing or two about effective marketing. If you're looking to learn about investing, this book is worth reading. But if you were hoping for fresh, thought-provoking insights into the connection between biology and finance, there is not much here.
Prasad claims that his firm's investment process shares "uncanny parallels with evolutionary theory", an idea he developed after reading about biology following a recommendation by Charlie Munger. Munger recommended a book by Richard Dawkins on an annual meeting, but it seems that Prasad somehow ended up reading much more of Stephen Jay Gould. The analogies presented here are superficial at best, such as comparing mating season signaling in animals to corporate management's use of dishonest signals, or using the concept of "robustness" from biology to discuss corporate balance sheets. These parallels do little to deepen the reader's understanding of finance. The sections focused on financial topics are far more lucid and compelling than the tenuous and meandering biological digressions.
It is painfully clear that Prasad did not learn anything from Darwin. He learned everything he knows from standard financial literature and his working experiences, and he put Darwin in the title only to attract attention of curious readers. He could just as easily have written a book titled What I Learned About Investing from Lana Del Rey, filled with LinkedIn-influencer-style ramblings about how songs like Young and Beautiful and Summertime Sadness supposedly offer lessons on the business lifecycle, market volatility and timing, etc. The financial theory and investment advice would remain exactly the same, but at least the essayistic detours in that version might have been far more entertaining.
Although Prasad still has much to learn from highly adapted LinkedIn-grifters, he seems to be a successful fund manager. His company name is Nalanda Capital, which you will definitely memorize because it is mentioned exactly 64 times in a book which contains about 280 pages of text. While his principles are solid � invest in simple businesses, avoid turnaround stories, steer clear of volatile or low-profit industries, prioritize high ROCE, and keep an eye on debt � they are not meaningfully tied to Darwinian or biological concepts. The book would actually be much better without the scientific digressions, but then it wouldn't have the catchy title that got me to read it � so Prasad clearly knows a thing or two about effective marketing. If you're looking to learn about investing, this book is worth reading. But if you were hoping for fresh, thought-provoking insights into the connection between biology and finance, there is not much here.
January 7, 2024
My first non-fiction of the year was Pulak Prasad's (of Nalada Capital fame) What I Learned About Investing From Darwin. I have mixed feelings about this book.
Let's start with the negatives. First off, there was a tremendous amount of mathematical masturbation through the book. Prasad takes into account so many hypotheses and probabilities that he can prove almost any point he wants to make. Second, his attempts at humour to make the book a better read were, let's just say, underwhelming (eg., "Almost everyone - and I say "almost" because this statement does not apply to my wife - makes mistakes"). It induced more eye-rolls than laughter. On many occasions I found the business case study style narrative more interesting than the investing advice (Walmart, Page Industries, Toys "R" Us, (what to do, and more importantly what not to do)). And lastly, and my biggest issue was that the whole connection with Darwin and evolution was, for the most part, tenuous at best. Similar to last year's Desperately Seeking Shah Rukh, the overlay was not needed at all. It might have been cool if a biologist took their learnings and became an expert investor - but not an ex-McKinsey, ex-Warburg and current top-notch investor forcing evolution theories onto investment strategy for the sake of writing a book with a 'hook'.
Having said all this, there were some good investment philosophies (don't invest in government owned businesses, use historical ROCE as a mean to filter out bad businesses, etc), but it required some scouring and yes, it was ultimately worth it.
When it came to the evolution analogies - there were two I enjoyed. The first related convergence to investing (good companies/management will exhibit similar traits, no matter which industry, etc). And second compared good companies to the 'insidious' way rabbits multiply - first hidden in plain sight and then before you know, unstoppably (this was specific to an incident that took place in Australia in the 1800s). Great business with good management and strategy will take a long time to show rewards, but when they do, it will be so multifold that the wait will be rewarding, as long as you have patience.
Let's start with the negatives. First off, there was a tremendous amount of mathematical masturbation through the book. Prasad takes into account so many hypotheses and probabilities that he can prove almost any point he wants to make. Second, his attempts at humour to make the book a better read were, let's just say, underwhelming (eg., "Almost everyone - and I say "almost" because this statement does not apply to my wife - makes mistakes"). It induced more eye-rolls than laughter. On many occasions I found the business case study style narrative more interesting than the investing advice (Walmart, Page Industries, Toys "R" Us, (what to do, and more importantly what not to do)). And lastly, and my biggest issue was that the whole connection with Darwin and evolution was, for the most part, tenuous at best. Similar to last year's Desperately Seeking Shah Rukh, the overlay was not needed at all. It might have been cool if a biologist took their learnings and became an expert investor - but not an ex-McKinsey, ex-Warburg and current top-notch investor forcing evolution theories onto investment strategy for the sake of writing a book with a 'hook'.
Having said all this, there were some good investment philosophies (don't invest in government owned businesses, use historical ROCE as a mean to filter out bad businesses, etc), but it required some scouring and yes, it was ultimately worth it.
When it came to the evolution analogies - there were two I enjoyed. The first related convergence to investing (good companies/management will exhibit similar traits, no matter which industry, etc). And second compared good companies to the 'insidious' way rabbits multiply - first hidden in plain sight and then before you know, unstoppably (this was specific to an incident that took place in Australia in the 1800s). Great business with good management and strategy will take a long time to show rewards, but when they do, it will be so multifold that the wait will be rewarding, as long as you have patience.
March 8, 2024
As a reader I will rate it as 7/10. If i might have been an investor in this fund, who knowns - i might have given 10/10 ! So tried to keep the review as an outsider. Also, the main reason for less stars is there is nothing new in this book.
What I liked:
1. Evolution references and some of the stories are unbelievable and are so good - Infact, I liked the book for more for this as this is one of my favourite subjects
2. Having the patience to hold cash like warren buffet & believing in the business they bought and not selling unless a strong thesis to sell - not too many fund managers does this, so hats off to that !
What I didn’t like:
1. Force fit some of the evolutionary aspects into his investment thesis - I felt this is more of backward looking rather than the framework used for investment thesis. I couldn't evaluate so going with a skeptical mindset
2. Written with survivorship bias I feel. He should have given examples of what he didn't buy and how they multiplied investors wealth - what is the ratio of identified winners / not able to identify winners through his approach - you might argue it is not what book is meant for - but no one wants to read a big handout of performed fund right :)
a. Example - When he mentioned Asian paints is an amazing franchise, why didn't he pick up during the two melt downs as it qualifies all his filters ! Conflict of interest might be, not sure though
3. Compared to Howard marks / Parag parikh/ John Bogle books this looks very very specific to his fund - the statistics used are like how consulting uses statistics (don't want to elaborate further :D)
Good book to read overall - no question about it - Great book ? Time will tell !
What I liked:
1. Evolution references and some of the stories are unbelievable and are so good - Infact, I liked the book for more for this as this is one of my favourite subjects
2. Having the patience to hold cash like warren buffet & believing in the business they bought and not selling unless a strong thesis to sell - not too many fund managers does this, so hats off to that !
What I didn’t like:
1. Force fit some of the evolutionary aspects into his investment thesis - I felt this is more of backward looking rather than the framework used for investment thesis. I couldn't evaluate so going with a skeptical mindset
2. Written with survivorship bias I feel. He should have given examples of what he didn't buy and how they multiplied investors wealth - what is the ratio of identified winners / not able to identify winners through his approach - you might argue it is not what book is meant for - but no one wants to read a big handout of performed fund right :)
a. Example - When he mentioned Asian paints is an amazing franchise, why didn't he pick up during the two melt downs as it qualifies all his filters ! Conflict of interest might be, not sure though
3. Compared to Howard marks / Parag parikh/ John Bogle books this looks very very specific to his fund - the statistics used are like how consulting uses statistics (don't want to elaborate further :D)
Good book to read overall - no question about it - Great book ? Time will tell !
January 11, 2024
Like drinking from the firehose :)
January 7, 2025
As the title suggests, this books has two themes. One, a discussion of Charles Darwin’s evolutionary theories and two, the translation of those theories to good investment tips. These are two areas that Prasad has expertise in. Accordingly, he prefaces each chapter with a quote from Darwins’s Origin of Species and and one from Warren Buffett’s many letters to his shareholders.
Let’s start with the first theme. Prasad is a seasoned investor in Indian equities with an impressive track record. His firm, Nalanda, achieved a 20% annualized return on its first fund over 15 years, compared to 11% for the benchmark index. This means $1 invested in the fund grew to $14, versus just $4 in the index—a remarkable feat. However, I found some of his views debatable. For instance, Prasad argues that businesses in conglomerates don’t make good investments, yet examples like TCS and Trent from the Tata group tell a different story � they are up 10 times and 21 times in the same period and Trent is up a further 5 times since then. There is also some inconsistency in his approach; while he avoids buying stocks at high valuations based solely on future prospects, he justifies holding existing ones with the same rationale. His strategy is also largely Buffett-inspired so there may be nothing new for readers familiar with Buffett’s style. Despite these critiques, his proven success make his insights worth exploring.
The book’s second theme, evolutionary theory, is less compelling. Although the blurb claims it influenced Prasad’s investment style, the connections often feel forced—such as the stretched analogy between sea urchins, McKinsey, and robust businesses. Prasad is clearly well-versed on the subject and it almost feels that he has simply used it as a “hook� to distinguish this book from many other similar books on investing. That said, some examples, like honeybees� nesting sites in the final chapter, are intriguing.
At 275 pages, the book is concise, and Prasad’s writing is accessible. However, his frequent repetition of favoorite themes � such as buying great businesses, never selling them, and focusing on Return on Capital Employed � can feel redundant. Despite these flaws, the book offers valuable insights for young investors. Learning from a successful investor like Prasad is always a worthwhile experience.
Pros: An insight into Prasad’s excellent investment record
Cons: Largely “Buffett-isms�, stretched comparisons between evolution and investing
PS: Please visit for other book reviews
Let’s start with the first theme. Prasad is a seasoned investor in Indian equities with an impressive track record. His firm, Nalanda, achieved a 20% annualized return on its first fund over 15 years, compared to 11% for the benchmark index. This means $1 invested in the fund grew to $14, versus just $4 in the index—a remarkable feat. However, I found some of his views debatable. For instance, Prasad argues that businesses in conglomerates don’t make good investments, yet examples like TCS and Trent from the Tata group tell a different story � they are up 10 times and 21 times in the same period and Trent is up a further 5 times since then. There is also some inconsistency in his approach; while he avoids buying stocks at high valuations based solely on future prospects, he justifies holding existing ones with the same rationale. His strategy is also largely Buffett-inspired so there may be nothing new for readers familiar with Buffett’s style. Despite these critiques, his proven success make his insights worth exploring.
The book’s second theme, evolutionary theory, is less compelling. Although the blurb claims it influenced Prasad’s investment style, the connections often feel forced—such as the stretched analogy between sea urchins, McKinsey, and robust businesses. Prasad is clearly well-versed on the subject and it almost feels that he has simply used it as a “hook� to distinguish this book from many other similar books on investing. That said, some examples, like honeybees� nesting sites in the final chapter, are intriguing.
At 275 pages, the book is concise, and Prasad’s writing is accessible. However, his frequent repetition of favoorite themes � such as buying great businesses, never selling them, and focusing on Return on Capital Employed � can feel redundant. Despite these flaws, the book offers valuable insights for young investors. Learning from a successful investor like Prasad is always a worthwhile experience.
Pros: An insight into Prasad’s excellent investment record
Cons: Largely “Buffett-isms�, stretched comparisons between evolution and investing
PS: Please visit for other book reviews
December 9, 2024
As much as it sounds crazy, it takes at least half a decade of investing to understand that it boils down to two simple principles that mark successful investing: (1) the market is equivalent to a pendulum swinging between greed and fear, and (2) do I have enough information to decide whether stock A or stock B deserves more capital at this moment? To simplify, (a) the market cycle and (b) capital allocation. Understanding these two components of the framework took me eight years of active participation and reading at least a couple of hundred books on investing.
While the framework sounds simple, it's extremely boring. It's tedious to sit and do nothing throughout the year, and it's unexciting to invest quickly in just two or three stocks and then wait patiently while others are making quick profits. Good investing is often boring. However, good investing can also be exciting for someone who is constantly learning or curious about the world. Can evolutionary biology teach us about investing?
In a breeding experiment in Siberia, wild foxes were selectively bred for a gene associated with tameness, making them behave more like domestic dogs. The experiment started in 1959, and by 1963, it resulted in the development of a tamer fox. However, this genetic selection also led to other domesticated traits, such as floppy ears, piebald coloration, shorter snouts, and a reduced reproductive cycle. Prasad likens the scientists� emphasis on a single desirable trait to his preferred investment metric: return on capital employed (ROCE). He suggests that ROCE is likely connected to other positive corporate attributes, including excellent management, effective capital allocation, strong competitive advantages, and the ability to innovate and grow. By selecting a primary metric with significant explanatory power, the associated secondary metrics (like floppy ears or exceptional management) are likely to be appealing as well.
In the red deer world, males (stags) compete for mating with females (hinds). They face a choice between two strategies:
1. Type 1 error: Fight frequently, risking injury but gaining more mating opportunities.
2. Type 2 error: Avoid fights to prevent injury, which limits mating chances.
Stags prefer to avoid actual fights by using displays of strength, such as roaring and intimidating gestures. This often leads one stag to back down without a duel, which may have been winnable. This behavior emphasizes survival over mating success. Similarly, investors should prioritize avoiding high-risk decisions (Type 1 errors) to ensure long-term stability.
Investing teaches us to look for opportunities amidst landslides. It teaches us to adapt, to learn, and to be patient. Investing imparts many lessons, but most importantly, it teaches us to maintain our survival instincts.
While the framework sounds simple, it's extremely boring. It's tedious to sit and do nothing throughout the year, and it's unexciting to invest quickly in just two or three stocks and then wait patiently while others are making quick profits. Good investing is often boring. However, good investing can also be exciting for someone who is constantly learning or curious about the world. Can evolutionary biology teach us about investing?
In a breeding experiment in Siberia, wild foxes were selectively bred for a gene associated with tameness, making them behave more like domestic dogs. The experiment started in 1959, and by 1963, it resulted in the development of a tamer fox. However, this genetic selection also led to other domesticated traits, such as floppy ears, piebald coloration, shorter snouts, and a reduced reproductive cycle. Prasad likens the scientists� emphasis on a single desirable trait to his preferred investment metric: return on capital employed (ROCE). He suggests that ROCE is likely connected to other positive corporate attributes, including excellent management, effective capital allocation, strong competitive advantages, and the ability to innovate and grow. By selecting a primary metric with significant explanatory power, the associated secondary metrics (like floppy ears or exceptional management) are likely to be appealing as well.
In the red deer world, males (stags) compete for mating with females (hinds). They face a choice between two strategies:
1. Type 1 error: Fight frequently, risking injury but gaining more mating opportunities.
2. Type 2 error: Avoid fights to prevent injury, which limits mating chances.
Stags prefer to avoid actual fights by using displays of strength, such as roaring and intimidating gestures. This often leads one stag to back down without a duel, which may have been winnable. This behavior emphasizes survival over mating success. Similarly, investors should prioritize avoiding high-risk decisions (Type 1 errors) to ensure long-term stability.
Investing teaches us to look for opportunities amidst landslides. It teaches us to adapt, to learn, and to be patient. Investing imparts many lessons, but most importantly, it teaches us to maintain our survival instincts.
Want to read
February 4, 2024CFA review
“It was a joy to read. I read it twice. Could not put it down.� @MohnishPabrai
“It was a joy to read. I read it twice. Could not put it down.� @MohnishPabrai
September 19, 2023
A really fun book to read for anyone interested in investing. Pulak Prasad’s love for investing and evolution shines throughout the book. Nalanda’s track record over the years has been fantastic. Drawing analogies from evolution, Pulak does a great job of helping us understand their process.
Great returns' concoction:
1. Think like a business owner.
2. Become permanent owners of exceptional businesses with honest management in predictable/ stable industries.
3. Exceptional businesses are those which consistently earn higher returns on capital than their competitors.
4. Be extremely patient - They rarely buy. They even rarely sell.
5. And be extremely decisive when you find these exceptional businesses at the right price - Nalanda invested a lot of their capital during the 2008 financial crisis and 2020 COVID downturn. This is how they’ve been able to buy quality businesses for P/E<20
6. Experience and understand the wonders of compounding.
The evolution inferences were interesting and informative. Would love to read more on the subject.
Quotes:
1. Investing, unlike the name suggests, is all too often a euphemism for gambling in which the practitioners rarely do better than dart throwing primates.
2. Investors make confident pronouncements on spurious spreadsheets, flawed assumptions and inflated egos.
Great returns' concoction:
1. Think like a business owner.
2. Become permanent owners of exceptional businesses with honest management in predictable/ stable industries.
3. Exceptional businesses are those which consistently earn higher returns on capital than their competitors.
4. Be extremely patient - They rarely buy. They even rarely sell.
5. And be extremely decisive when you find these exceptional businesses at the right price - Nalanda invested a lot of their capital during the 2008 financial crisis and 2020 COVID downturn. This is how they’ve been able to buy quality businesses for P/E<20
6. Experience and understand the wonders of compounding.
The evolution inferences were interesting and informative. Would love to read more on the subject.
Quotes:
1. Investing, unlike the name suggests, is all too often a euphemism for gambling in which the practitioners rarely do better than dart throwing primates.
2. Investors make confident pronouncements on spurious spreadsheets, flawed assumptions and inflated egos.
November 26, 2024
One of the best books I've read till date. Have generally avoided pure finance books in recent years however this one just stands out for following reasons.
1) Beautifully articulated the investment thesis of Nalanda Capital which manages USD 5bn. Fund has returned ~13x since inception (in 2007) till ~2022 (I guess), Sensex (Indian index) returned 4x for same period which just tells the theory is backed by tangible results
2) All his investment principles are inspired by evolution (written by Darwin largely) and it's a pure delight how he has merged the essence of two disciplines (evolutionary biology and finance)
Strong recommendation for anyone who is even mildly interested in finance. Wish I could give it a 6 star
1) Beautifully articulated the investment thesis of Nalanda Capital which manages USD 5bn. Fund has returned ~13x since inception (in 2007) till ~2022 (I guess), Sensex (Indian index) returned 4x for same period which just tells the theory is backed by tangible results
2) All his investment principles are inspired by evolution (written by Darwin largely) and it's a pure delight how he has merged the essence of two disciplines (evolutionary biology and finance)
Strong recommendation for anyone who is even mildly interested in finance. Wish I could give it a 6 star
July 13, 2023
Great analogies between evolution and investing
My key take aways:
1. The key to good returns is being brutal about the price at which one enters the investment. Page Industries has always been high PE but when Nalanda entered it, it entered at a PE of mid teens.
2. Even in stellar stocks, over a decade, most of the upside happens only in about 2pc of the days. If you are not "in" the investment during those days, your results would be abysmally low.
3. It is important to wait and do nothing for a long time to wait for a great situation to enter a stellar business. Nalanda bought a lot during 2008 crisis and COVID crisis situations.
My key take aways:
1. The key to good returns is being brutal about the price at which one enters the investment. Page Industries has always been high PE but when Nalanda entered it, it entered at a PE of mid teens.
2. Even in stellar stocks, over a decade, most of the upside happens only in about 2pc of the days. If you are not "in" the investment during those days, your results would be abysmally low.
3. It is important to wait and do nothing for a long time to wait for a great situation to enter a stellar business. Nalanda bought a lot during 2008 crisis and COVID crisis situations.
December 29, 2024
A good book on investing that draws from evolutionary biology. I have been interested in investing for a while, but I am also interested in evolutionary biology after reading this book. One essential skill to develop - be very lazy in your investing life. Buy great businesses for a good price, and hold on to them till kingdom come.
What I learned: Search for expensive signals. Signals that take time to build. Don't search for cheap and gimmicky signals that are easy to talk about. An expensive signal is a historical track record. A cheap signal is what people say they will do in the future.
What I learned: Search for expensive signals. Signals that take time to build. Don't search for cheap and gimmicky signals that are easy to talk about. An expensive signal is a historical track record. A cheap signal is what people say they will do in the future.
February 4, 2025
There's some sound knowledge about evolutionary theory in this book - the author is clearly abreast with the past and present scientific literature on the subject. The advice on investing is also sensible and well-justified but the connection between them is somewhat forced if you pay close attention.
Also, a lay investor cannot really practice the investing strategy advocated in this book because the formal procedure of evaluating whether a business is 'good' requires information that is generally not in the public domain or at least not easily accessible.
So, this is not a DIY investing book and its core audience is probably other fund managers. But we, lay people, can still learn something about evolution (fast vs slow) as well as other tactics used by different species to survive over long periods even under adverse conditions.
Also, a lay investor cannot really practice the investing strategy advocated in this book because the formal procedure of evaluating whether a business is 'good' requires information that is generally not in the public domain or at least not easily accessible.
So, this is not a DIY investing book and its core audience is probably other fund managers. But we, lay people, can still learn something about evolution (fast vs slow) as well as other tactics used by different species to survive over long periods even under adverse conditions.
February 4, 2024
An easy but informative read with unique thoughts on the applicability of concepts from evolutionary biology to investing and business (e.g. selecting for the single trait of tameness in the Siberian Silver Fox experiment led to the emergence of other coincidental pet-like traits similar to how selecting for just the single trait of high return [ROCE/ROIC] results in getting many other desirable traits [good economics, competitive advantage(s), high quality mgmt]).
June 6, 2023
fantastic
Even if you don’t agree with the investment philosophy espouse by the author, I think you would appreciate the writing style of the book. It’s a great combination among theories, investing philosophy and practical examples. And oh, I think he presents one of the best argument from never selling an investment, regardless of valuation! And of course, it is very interesting to learn about the evolutionary theories presented in the book!
Even if you don’t agree with the investment philosophy espouse by the author, I think you would appreciate the writing style of the book. It’s a great combination among theories, investing philosophy and practical examples. And oh, I think he presents one of the best argument from never selling an investment, regardless of valuation! And of course, it is very interesting to learn about the evolutionary theories presented in the book!
June 16, 2023
If you are an individual investor in stock market and building an philosophy for your investment then there are more than 100 reasons to read this book. I had an perception western authors are better in written good books but this is one of them who surprised me. He has kept the theme as fusion of Darwin and Buffet philosophy and the style and flow of the book is good. A lot of great analogies , stories and examples. The best part is everything he mentioned in this book is not just theory but he proved it with his investments.
September 8, 2024
Nu știu cât de mult o pot recomanda și cui, dar eu sigur am citit-o la momentul potrivit.
September 16, 2024
Stop whatever you’re doing, including reading reviews, and start reading this book. Highly recommended.
February 11, 2025
Putting aside the question of ultimate origins—I don’t share the author’s worldview—this book was highly original. I always love reading multidisciplinary books. The author uses his knowledge of how organisms survive and thrive in nature to derive principles for successful investment in organizations trying to do the same.
Notably, the conclusions aren’t necessarily original, but the mental models that lead to them are.
This is the first great investing book I’ve read in a while.
Notably, the conclusions aren’t necessarily original, but the mental models that lead to them are.
This is the first great investing book I’ve read in a while.
April 18, 2025
Highly recommend!
April 2, 2024
This was a fantastic read. After weeks of not able to move forward on any book, this was so good that I finished reading it in 4 days.
Loved how Pulak gives anecdotes from evolutionary history to adhere to his investment principles.
I wish this book was more famous. It will alter my view about investing the same way Morgan Housel’s Psychology of Money did.
Highly recommend it to everyone who invests in the market.
Loved how Pulak gives anecdotes from evolutionary history to adhere to his investment principles.
I wish this book was more famous. It will alter my view about investing the same way Morgan Housel’s Psychology of Money did.
Highly recommend it to everyone who invests in the market.
March 20, 2024
Really cool. Great read, sound advice. Don't leave fish to find fish.
May 4, 2024
I enjoyed this book - not your typical “how to beat the market� type investing book, but rather one that recognises cognitive human shortcomings and instead employs a rational patient approach in-order to compound returns over time. You should consider launching the strategy in UCITS.
April 11, 2025
This is a fascinating book, especially if you have any interest in evolution or biology. It is well-written and entertaining. But, for an investing treatise, it suffers from a fatal flaw. And that fatal flaw is highlighted by the entire last third of the book, where Prasad repeatedly emphasizes the "never sell" part of his philosophy.
If you look at Nalanda's track record and returns from inception, they are indeed very good. And that is because Prasad purchased a variety of excellent businesses at extremely attractive valuations around the time of the GFC, and then held them for a very long period of time. This should be lauded and applauded. But a "very long period of time" should never be confused with "indefinite".
Bear with me as I try to explain Prasad's fundamental misunderstanding here: in his book, he repeatedly outlines the incredible importance of being super-disciplined in his entry valuations. He runs Nalanda with a capital-call model, and only buys when valuations are really low (2008, 2011, 2020, etc.). But he has a huge blind spot in that he doesn't recognize that he is effectively re-buying his portfolio every single day as a public-market investor. He says he won't buy anything new -- with fresh capital -- at 60x earnings, but he is perfectly happy to continue to hold the same investments at 60x earnings that he purchased at 10x earnings a long time ago. And this can surely work for a very long while still, especially in a market where valuation multiples are ever-expanding. But, ultimately, the implied forward returns will be much, much lower at 60, or 70, or 80x earnings than they were at 10x earnings. And Prasad simply glosses over this fact with platitudes like, "great companies will surprise you", or "I love the managers we invest in, why should I sever the relationship". He really does not seem to consider or understand that any new investor coming into his fund is buying in at the CURRENT valuations of his portfolio companies, and not at the valuations he paid in 2008 or 2011. And so if he never adjusts his portfolio for CURRENT overvaluation, eventually his portfolio will go stale and his returns will suffer.
And Nalanda's returns are already suffering. As the fund does not change its portfolio much, it is easy to backsolve into the fund's returns over time. These are rough numbers, but they are directionally correct. As I noted above, Nalanda's returns have been excellent since inception. I estimate that, since 9/30/2008, Nalanda has returned roughly 930% on a cumulative basis. Over this same time frame, the BSE Small Cap index has returned 453%. So far, so good. Nalanda bought its initial portfolio at low valuations and was handsomely rewarded over a long period of time.
However, Nalanda's portfolio valuations did not stay low as the Indian market boomed. By early 2015, for example, portfolio valuations had increased rather dramatically. But because of Prasad's "never sell, never rotate, never adjust for overvaluation" philosophy, a philosophy he acknowledges as "extreme laziness", Nalanda has made no adjustments. It just held the same stocks at much more expensive valuations. How has Nalanda's performance been over the last 10 years then, from early 2015 to early 2025? Well, an investor who invested in early 2015, a full decade ago, would have done significantly worse than the BSE Small Cap index. Indeed, Nalanda's back-solved returns based on public filings from 2015 through today are roughly 135% (all figures are before fees), compared to 193% for the BSE Small Cap index. So in the last 10 years, this "never sell" approach has resulted in a little more than a doubling of an investor's capital... or about a 8.9% gross annualized return. A single-digit return during a roaring bull market that significantly trailed the passive Indian index... before fees.
Now let's look at the last five years, from April of 2020 to April of 2025. Prasad talks repeatedly in his book about how he was an aggressive buyer during the COVID drawdown. However, he omits to mention that, alongside his new purchases, he was already holding a portfolio of extremely expensive stocks, which of course dilutes the effectiveness of these incremental purchases. From the bottom in April of 2020 to today, the Nalanda portfolio has returned 118%. However, the BSE Small Cap index returned 179%. A passive index of 979 companies has massively outperformed a carefully chosen concentrated portfolio of the very best businesses. This same passive index has also outperformed Nalanda since at least 2015. The question is -- why? The answer I would suggest is because the manager pays no attention to the CURRENT valuation of his portfolio. He assumes that a good entry valuation from many years ago solves everything. It does not. Current valuations also matter.
The only time that Nalanda cared about the "current" valuation of its portfolio was in the early years of the fund. This explains the attractive returns since inception. However, for at least the last decade, if not a bit longer, any new investor in Nalanda would have generated fairly mediocre returns that significantly lagged the BSE Small Cap index after fees. For a fund that has been around for a little over 17 years, to have only outperformed for the first 5 years or so and to have then underperformed for 11 or 12 years... I certainly wouldn't be as confident in the "never sell" portion of my investment philosophy as Prasad has been. My guess is that the capital-weighted returns for Nalanda investors are nowhere near the time-weighted returns, and unless Prasad changes his approach to be more dynamic in adjusting the portfolio when valuations get too high, I expect his future returns will continue to pale in comparison to his returns from the 2008-2013 time frame.
To be fair to Prasad, holding for a very long time makes a lot of sense. After all, Charlie Munger of all people said you never want to unnecessarily interrupt compounding, and that most of the money is made sitting on your ass. Where it makes no sense, however, is when you take the philosophy to the extreme and simply never sell or adjust at any valuation. Even permanent business owners of private companies will sell if a buyer offers a crazy price... because the proceeds can then be invested in higher return opportunities elsewhere.
Prasad references Buffett continuously throughout his book. It would serve him well to remember that Buffett regretted not selling Coca-Cola in 1998 when it hit 52x earnings after an incredible 11-year run. Coca-Cola's stock was then a zero return (0%!!!) for the next EIGHTEEN years. There were many such stocks in that late-1990s "buy quality for any price" bubble era, whereby the subsequent returns after the extreme valuations were reached were mediocre for up to two decades thereafter. CSCO, MSFT, WMT, etc., come to mind. Perhaps to Prasad, two lost decades is worth the wait.
Buffett of course recently sold down Apple massively, which... is interesting based on the Nalanda philosophy. Of course, we are all a byproduct of the backdrop and macroeconomic environment we invest in. India has been a booming economy with strong underlying secular growth for so long that basically all growth investors there think that these companies can grow out of any valuation. They've been conditioned to believe this and it has been reinforced by market performance. And so they buy and hold forever. Let's hope for their sake that it remains true and doesn't change. Because buying Page Industries today at 60x earnings is an extremely different proposition than buying it at 20x or less in 2007. And that is perhaps why Page Industries' stock is essentially flat from the peak in August of 2018 to today. An almost seven-year period of zero return -- not quite Coca-Cola in 1998 yet! In case you are wondering, over the last decade, Page Industries' stock has also significantly underperformed the BSE Small Cap index, and it has also significantly underperformed the S&P 500 in rupees. Is it any coincidence that Page Industries' valuation first went absolutely astronomical in 2015? Of course, Page may well eventually be the exception... all I know is, it isn't so easy to continue to handily beat a passive index after fees when your portfolio gets to be super-expensive and you don't do anything about it. Perhaps investors have not noticed Nalanda's poor performance over the last decade given the great numbers since inception.
Though this is a critical review, the materials in the book on Darwin, evolution, and biology were all excellent. Prasad is clearly a smart and thoughtful guy. He just has a big blind spot conditioned by his early returns and the long-run Indian market tailwinds. It will be very interesting to see if his recent returns continue to suffer as a byproduct of completely ignorning the current valuations of his portfolio -- the portfolio that he is effectively re-buying every single day.
If you look at Nalanda's track record and returns from inception, they are indeed very good. And that is because Prasad purchased a variety of excellent businesses at extremely attractive valuations around the time of the GFC, and then held them for a very long period of time. This should be lauded and applauded. But a "very long period of time" should never be confused with "indefinite".
Bear with me as I try to explain Prasad's fundamental misunderstanding here: in his book, he repeatedly outlines the incredible importance of being super-disciplined in his entry valuations. He runs Nalanda with a capital-call model, and only buys when valuations are really low (2008, 2011, 2020, etc.). But he has a huge blind spot in that he doesn't recognize that he is effectively re-buying his portfolio every single day as a public-market investor. He says he won't buy anything new -- with fresh capital -- at 60x earnings, but he is perfectly happy to continue to hold the same investments at 60x earnings that he purchased at 10x earnings a long time ago. And this can surely work for a very long while still, especially in a market where valuation multiples are ever-expanding. But, ultimately, the implied forward returns will be much, much lower at 60, or 70, or 80x earnings than they were at 10x earnings. And Prasad simply glosses over this fact with platitudes like, "great companies will surprise you", or "I love the managers we invest in, why should I sever the relationship". He really does not seem to consider or understand that any new investor coming into his fund is buying in at the CURRENT valuations of his portfolio companies, and not at the valuations he paid in 2008 or 2011. And so if he never adjusts his portfolio for CURRENT overvaluation, eventually his portfolio will go stale and his returns will suffer.
And Nalanda's returns are already suffering. As the fund does not change its portfolio much, it is easy to backsolve into the fund's returns over time. These are rough numbers, but they are directionally correct. As I noted above, Nalanda's returns have been excellent since inception. I estimate that, since 9/30/2008, Nalanda has returned roughly 930% on a cumulative basis. Over this same time frame, the BSE Small Cap index has returned 453%. So far, so good. Nalanda bought its initial portfolio at low valuations and was handsomely rewarded over a long period of time.
However, Nalanda's portfolio valuations did not stay low as the Indian market boomed. By early 2015, for example, portfolio valuations had increased rather dramatically. But because of Prasad's "never sell, never rotate, never adjust for overvaluation" philosophy, a philosophy he acknowledges as "extreme laziness", Nalanda has made no adjustments. It just held the same stocks at much more expensive valuations. How has Nalanda's performance been over the last 10 years then, from early 2015 to early 2025? Well, an investor who invested in early 2015, a full decade ago, would have done significantly worse than the BSE Small Cap index. Indeed, Nalanda's back-solved returns based on public filings from 2015 through today are roughly 135% (all figures are before fees), compared to 193% for the BSE Small Cap index. So in the last 10 years, this "never sell" approach has resulted in a little more than a doubling of an investor's capital... or about a 8.9% gross annualized return. A single-digit return during a roaring bull market that significantly trailed the passive Indian index... before fees.
Now let's look at the last five years, from April of 2020 to April of 2025. Prasad talks repeatedly in his book about how he was an aggressive buyer during the COVID drawdown. However, he omits to mention that, alongside his new purchases, he was already holding a portfolio of extremely expensive stocks, which of course dilutes the effectiveness of these incremental purchases. From the bottom in April of 2020 to today, the Nalanda portfolio has returned 118%. However, the BSE Small Cap index returned 179%. A passive index of 979 companies has massively outperformed a carefully chosen concentrated portfolio of the very best businesses. This same passive index has also outperformed Nalanda since at least 2015. The question is -- why? The answer I would suggest is because the manager pays no attention to the CURRENT valuation of his portfolio. He assumes that a good entry valuation from many years ago solves everything. It does not. Current valuations also matter.
The only time that Nalanda cared about the "current" valuation of its portfolio was in the early years of the fund. This explains the attractive returns since inception. However, for at least the last decade, if not a bit longer, any new investor in Nalanda would have generated fairly mediocre returns that significantly lagged the BSE Small Cap index after fees. For a fund that has been around for a little over 17 years, to have only outperformed for the first 5 years or so and to have then underperformed for 11 or 12 years... I certainly wouldn't be as confident in the "never sell" portion of my investment philosophy as Prasad has been. My guess is that the capital-weighted returns for Nalanda investors are nowhere near the time-weighted returns, and unless Prasad changes his approach to be more dynamic in adjusting the portfolio when valuations get too high, I expect his future returns will continue to pale in comparison to his returns from the 2008-2013 time frame.
To be fair to Prasad, holding for a very long time makes a lot of sense. After all, Charlie Munger of all people said you never want to unnecessarily interrupt compounding, and that most of the money is made sitting on your ass. Where it makes no sense, however, is when you take the philosophy to the extreme and simply never sell or adjust at any valuation. Even permanent business owners of private companies will sell if a buyer offers a crazy price... because the proceeds can then be invested in higher return opportunities elsewhere.
Prasad references Buffett continuously throughout his book. It would serve him well to remember that Buffett regretted not selling Coca-Cola in 1998 when it hit 52x earnings after an incredible 11-year run. Coca-Cola's stock was then a zero return (0%!!!) for the next EIGHTEEN years. There were many such stocks in that late-1990s "buy quality for any price" bubble era, whereby the subsequent returns after the extreme valuations were reached were mediocre for up to two decades thereafter. CSCO, MSFT, WMT, etc., come to mind. Perhaps to Prasad, two lost decades is worth the wait.
Buffett of course recently sold down Apple massively, which... is interesting based on the Nalanda philosophy. Of course, we are all a byproduct of the backdrop and macroeconomic environment we invest in. India has been a booming economy with strong underlying secular growth for so long that basically all growth investors there think that these companies can grow out of any valuation. They've been conditioned to believe this and it has been reinforced by market performance. And so they buy and hold forever. Let's hope for their sake that it remains true and doesn't change. Because buying Page Industries today at 60x earnings is an extremely different proposition than buying it at 20x or less in 2007. And that is perhaps why Page Industries' stock is essentially flat from the peak in August of 2018 to today. An almost seven-year period of zero return -- not quite Coca-Cola in 1998 yet! In case you are wondering, over the last decade, Page Industries' stock has also significantly underperformed the BSE Small Cap index, and it has also significantly underperformed the S&P 500 in rupees. Is it any coincidence that Page Industries' valuation first went absolutely astronomical in 2015? Of course, Page may well eventually be the exception... all I know is, it isn't so easy to continue to handily beat a passive index after fees when your portfolio gets to be super-expensive and you don't do anything about it. Perhaps investors have not noticed Nalanda's poor performance over the last decade given the great numbers since inception.
Though this is a critical review, the materials in the book on Darwin, evolution, and biology were all excellent. Prasad is clearly a smart and thoughtful guy. He just has a big blind spot conditioned by his early returns and the long-run Indian market tailwinds. It will be very interesting to see if his recent returns continue to suffer as a byproduct of completely ignorning the current valuations of his portfolio -- the portfolio that he is effectively re-buying every single day.
April 7, 2024
Very different! Fun read but not much on valuation
October 9, 2023
Cheekily written and glad that this makes Nalanda more of a discovered gem
Fairly comprehensive and methodical primer to their style of investing, although a few Darwin parallels didn't seem to fully align with the point to be made. Coming from early stage private market investing, refreshing to see the reverence for management quality and the good old "scuttlebutt" also finding place in public market investing. Hoping to pen this contrast down sometime
Fairly comprehensive and methodical primer to their style of investing, although a few Darwin parallels didn't seem to fully align with the point to be made. Coming from early stage private market investing, refreshing to see the reverence for management quality and the good old "scuttlebutt" also finding place in public market investing. Hoping to pen this contrast down sometime
October 20, 2023
Un gran libro que recomiendo a todo el que le interese la inversión. Todas las analogÃas son "estimables" y generalizables, pero la que utiliza en este caso es deliciosa por lo interesante que es y lo que te aproxima al conocimiento de las teorÃas de Darwin. Lo importante en cualquier caso es lo bien que describe el proceso inversor que utiliza el autor y además, cómo los resultados, siendo el objetivo, a veces son un mal aliado si los utilizamos como input directo para nuestras decisiones.
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