
What I Learned About Investing From Darwin

At Nalanda, here is what we begin with while short-listing businesses: historical return on capital employed (ROCE).
Pulak Prasad • What I Learned About Investing From Darwin
Avoid big risks. Don’t make type I errors. Don’t commit to an investment in which the probability of losing money is higher than the probability of making money. Think about risk first, not return.
Pulak Prasad • What I Learned About Investing From Darwin
A Consistently High-ROCE Business Allows Companies to Take Business Risk Without Taking Financial Risk, Which Increases the Chance of Business Success
Pulak Prasad • What I Learned About Investing From Darwin
All long-term investors, mentored by more than five decades of Buffett’s letters and annual meetings, demand that companies have a “sustainable competitive advantage” (SCA). But how does one go about assessing whether a company has an SCA? If you peruse business and investment books, the sources of SCA turn out to be the usual suspects: brand,
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Nalanda’s approach to investing comprises three straightforward, sequential steps: 1. Avoid big risks. 2. Buy high quality at a fair price. 3. Don’t be lazy—be very lazy.
Pulak Prasad • What I Learned About Investing From Darwin
Some fund managers may have figured out a way to invest successfully in government-owned businesses, but we will not invest in a government-owned enterprise at any price. The government wants to achieve multiple objectives with their businesses, some of which may have nothing to do with enhancing value and profits.
Pulak Prasad • What I Learned About Investing From Darwin
One alternative would be to use a two-step process that we use at Nalanda. In the first step, we use one selection criterion that filters out low-quality or average-quality businesses and yields a preliminary list of high-quality companies. In the second step, we do more work on this preliminary list to further whittle it down to a final list.
Pulak Prasad • What I Learned About Investing From Darwin
A Consistently High-ROCE Business Is Likely to Have a Strong Competitive Advantage
Pulak Prasad • What I Learned About Investing From Darwin
Committing a type I error can be and has been deadlier than the loss of a single animal—it can lead to the extinction of an entire species.