The Profound Truth

The human brain is a wondrous organ that is always evolving – making new synaptic connections and pruning older, less used ones every day. Our capacity to learn and grow is not limited to our early years, as was once believed, and human brains continue to generate new connections, even very late in one’s life. This is a respite for someone like me who only got to regular reading as a habit in my 30s. Hence, I hold my aspirations of someday becoming a polymath.

“Taking a long-term lens and playing a game with

a different time horizon than others, and with

patience, is a competitive advantage”

Speaking of polymaths and wisdom derived by making connections from reading widely, I recently read Hermann Hesse’s Siddhartha – a masterpiece in its own right – a book packed with wisdom, which I found relevant to not just life but also to the business of investing. I dutifully presented my learning to my team and felt it was worth sharing with a wider audience. Whether it is investing or entrepreneurship, the core lessons from one of the statements made by the protagonist Siddhartha is a great piece of advice and has become my favourite one-liner.

Siddhartha is the story of a young man, the son of a devout Brahmin, who goes on a physical and spiritual journey in search of wisdom and self-discovery. The name Siddhartha (Siddha + artha) incidentally stands for “He who has found meaning or achieved his goals”. We can identify ourselves with Siddhartha in some way as we are all on our own journeys of self-discovery and wanting to achieve our goals. We are on a quest to become a Siddhartha!

“I can think, I can wait, I can fast.”

When Siddhartha meets young Kamala, a courtesan who later becomes his lover, she asks him what capabilities he has and Siddhartha says, “I can think, I can wait, I can fast”. And, Kamala wonders what the use of those skills are. Siddhartha offers the same response to his merchant partner and employer Kamaswami who also wonders what use these have. But Siddartha knew thinking, waiting, and fasting can allow him to do practically anything. These words stand true in the investment business I operate in and there lies the beauty of fundamental truths – they are transportable across domains!

"I can THINK"

Ability to think, to apply oneself to a situation and be able to sift through facts to make a good judgement, is core to good decision-making. Good decision-making involves being able to absorb, reflect, reject, and zone in on the right way ahead. It involves being aware of the biases and planning for them in how we make decisions. In the investing business, we also talk about having a “prepared mind” – one that does not start the decision-making process after intersecting with the opportunity, but is ready for the opportunity to lock into an existing informed view of the world (a mental map) and hence creates a harmony that seems to show up as an intuition or a gut feel.

Thinking needs time, focus, and energy. The ability to think clearly leads us to being able to act with conviction. Thinking clearly is easier when you have a prepared mind.

"I can WAIT"

I have written another blog post about “Playing the long game” and in that I have discussed how the world we live in today is all about short-term measurements. Taking a long-term lens and playing a game with a different time horizon than others, and with patience, is a competitive advantage. In that context, the ability to wait and let compounding work is a key component of making outsized returns. Some of the biggest mistakes one can make is selling winners early. We have been repeatedly surprised by how much bigger the best companies seem to become by continuing to compound and deliver value. It is often easier to say make the next $100 Million in profits through the power of compounding a $100 Million position in a winner than to find another investment that makes a $5 Million investment into a $100 Million position. We should constantly remind ourselves of the patience needed to compound profits in our winners.

Waiting also means a willingness to be patient for the world to discover the truth that you had always believed in. Outsized returns are seldom made when there is a consensus view of the future – that is too easy and visible to all, and returns get arbitraged. Outsized returns come when your view of the world is not yet well understood or is unpopular and you turn out to be right. You should have the conviction to stay with your investments – have the patience to wait for the world to converge to your view. In investing, when used well, patience is a virtue.

"I can FAST"

We very often measure our sense of self-worth and utility to this world with how busy we are. Just like we rush in to fill silence with words, we fill our days with meetings. We are uncomfortable with inaction and often act out of FOMO. But inaction (not buying) in investing is also a decisive action and a type of action that can contribute to good performance. Keeping the bar high and not giving in to short-term temptations, waiting until the right opportunity intersects the prepared mind to create the harmony, which creates a compelling reason to act is something we all should learn.

“Outsized returns come when your view of the

world is not yet well understood or is

unpopular and you turn out to be right”

I am reminded of an interview Charlie Rose had with Bill Gates and Warren Buffet, where Gates points to the fact that Buffet’s calendar hardly has a few entries each week and talks about the importance of keeping time to think. In the investing world, power law prevails and a few investments are going to deliver most of the profits made. It’s an investor’s job to find those few companies that are outliers. Learning to say “no” many times until you get to the “hell yeah” opportunity is what “I can fast” stands for. The ability to patiently keep saying “no” without feeling the FOMO until you truly want to say “yes” is a super power.

This also applies to founders and managers. We are all making resource allocation decisions – some people are making capital allocation decisions, others are making decisions on how to spend their time, or allocating their people’s time, or hiring the right people (work allocation). In all of these situations, you can quickly see how the principles of “I can think, I can fast, I can wait” fits. By being deliberate about your actions, being patient, and not taking the path of convenience, and being focussed on the long-term will allow us to make the highest quality decisions; that leads to improving the probability of the best possible outcomes of the things we can control. Siddhartha’s skills – “I can think, I can fast, I can wait” is now something I use in my life – it provides a very simple way to understand what we need to do to attain success. I hope you benefit from learning how to follow this as well!

Do write in at saurabh@anantyacapital.com if you found the blog interesting or if any of my interests intersect with yours!