Wednesday, May 1, 2024

What I Learned About Investing From Darwin

What I Learned About Investing from Darwin is a terrific book that made me think deeply about my portfolio, particularly when it comes to selling.

Author Pulak Prasad runs a fund and follows Buffett's principles seemingly to a T, but in India. He buys terrific Indian companies (as measured by ROIC) when they go on sale, and then never sells them as long as the business remains strong.

In the book, he goes through a great deal of market and business lessons through the lens of Darwin's theory of natural selection.

The question of when to sell is a difficult one for value investors, including myself, to grapple with. But it isn't for Prasad, who never sells a great company no matter how generous a valuation the market gives it.

But I struggle with this point of view. Logically, I don't see how it doesn't make more sense to sell even an outstanding company at a ridiculously high P/E in order to buy a different outstanding company at a much more acceptable P/E. But at the same time, KVF's portfolio would have done much better had I held on to some cheaply acquired shares of Apple (2016) and Microsoft (2012) rather than sell them when they crossed some hypothetical estimate of intrinsic value.

I'm much more liable to hold on to great companies now than I was before, but that may just lead to more round trips going forward (i.e. stocks that rise, and then fall back down without my having sold).

The never-ending "when to sell" thought-process continues...

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