• Pulak Prasad of Nalanda fund in India, managing $5 billion dollars as a true practitioner

Avoid Big Risks: would you bet your life on your next investment?

• “Which of the following investment strategies should you use: (1) making a lot of investments so as not to lose out on some good opportunities and, as a result, living with some failed investments, or (2) being highly selective to avoid making bad investments, thereby missing out on some good investments?” → a deer may miss out on the water or a mate but it means avoiding risking their life…
• Buffett’s rule Number 1: don’t lose money, rule number 2: never forget rule number 1 → 30% drawdown means you need almost a 50% gain just to get back to cost…
• a great investor is a great rejector, they only invest in businesses within their circle of competence and don’t chase the hot FOMO stocks
• What does this look like in practice?
  • Avoid companies with dishonest or cheater management, avoid turnarounds with no competitive advantage, unaligned owners with little skin in the game, and heavy debt (leverage is like a gun to your head - almost all the big bankruptcies come from leverage because you can’t control your own fate)
• During the rise of railroads, automobiles, and Internet stocks, there was always euphoria and a lot of companies going public with great run-ups, but eventually the bubble burst and they all lost money - don’t skate to where the puck is going to go, instead invest once the market dynamics are clear
• Yes, you will miss sexy winners like Tesla every now and then, but you’ll also avoid losing huge sums of money on the losers that can wipe out your fund

Buy High Quality at a Fair Price

• “An economic franchise arises from a product or service that (1) is needed or desired; (2) is thought by its customers to have no close substitute; and (3) is not subject to price regulation. The existence of all three conditions will be demonstrated by a company's ability to regularly price its product or service aggressively and thereby to earn high rates of return on capital. Moreover, franchises can tolerate mismanagement. Inept managers may diminish a franchise's profitability, but they cannot inflict mortal damage.” - Warren Buffett
• What ONE filter can you use to reject many poor businesses and filter many quality businesses? Revenue? Margin? Profit?? No, Historical ROCE (return on capital employed) → silver foxes selected for tameness led to all types of physical changes like wagging tail and floppy ears and different facial structure a la dogs, & it’s the same with businesses that earn high returns on invested capital usually means they just manage themselves better
• ROCE = EBIT / (net working capital + net fixed assets)
• If a business has been able to sustain a high ROCE for a long time without succumbing to competition, they also probably have an inherent advantage…

Robust Business Qualities