Investing Truth That Finds Few Takers ft. Prof Sanjay Bakshi(@fundooprofessor) | Smart Sync Services
Investing Truth That Finds Few Takers ft. Prof Sanjay Bakshi: Summary
Short Summary:
The video discusses the importance of considering base rates and the dangers of "buy at any price" (BAAP) mentality in investing. Prof. Bakshi emphasizes that while paying up for quality companies can be a sound strategy, it's crucial to avoid overpaying, especially for mature businesses. He highlights the importance of understanding the historical performance of similar investments (base rates) and the potential consequences of being wrong. The video also touches upon the concept of saying "no" to most investment opportunities, focusing on a select few that meet specific quality criteria.
Detailed Summary:
Section 1: Paying Up for Quality
- Prof. Bakshi reiterates his belief in paying up for quality companies, a philosophy he has held since 2014.
- He distinguishes between high-quality businesses with competitive advantages and ordinary businesses with no such advantages.
- He warns against the "buy at any price" (BAAP) mentality, arguing it's mathematically foolish and ignores the importance of entry multiples in determining returns.
- He emphasizes that even high-quality businesses have limits on how much you should pay for them.
Section 2: The Importance of Base Rates
- Prof. Bakshi defines base rates as historical data on similar investments, such as IPOs, high P/E multiple stocks, or businesses with weak balance sheets.
- He acknowledges that base rates often show poor average returns, but emphasizes that this doesn't mean all investments in those categories will fail.
- He uses the example of venture capitalists who accept high failure rates in exchange for the potential for massive returns from a few successful investments.
- He highlights the importance of Bayesian reasoning, which combines base rates with specific information about the current investment opportunity.
Section 3: Applying Base Rates to Investing
- Prof. Bakshi argues that investors often focus too much on the unique characteristics of a specific investment and ignore the base rates.
- He encourages investors to ask themselves why a particular investment should be different from the historical average and what the consequences of being wrong would be.
- He stresses the importance of comparing the current investment opportunity to similar situations in the past to moderate enthusiasm and avoid overconfidence.
Section 4: The Value of Saying "No"
- Prof. Bakshi discusses the quote "The difference between successful people and very successful people is that very successful people say no to almost everything."
- He acknowledges that the quote is not universally applicable, but emphasizes its relevance in allocating time and investing in high-quality businesses.
- He argues that saying "no" to most investment opportunities is essential for focusing on a select few that meet specific quality criteria.
- He uses the example of the BSE 500 index, which represents 93% of India's market cap, as an example of saying "yes" to almost everything.
Notable Quotes:
- "Paying up doesn't mean that there is no limit of the price that you will pay for an asset."
- "The more you pay, the less the return that you will make."
- "The real meaning of 'don't ignore base rates' is better understood when you think about the idea of Bayesian reasoning."
- "You have to think about base rates, you have to think about the evidence specific to the situation that you are studying."
- "Don't ignore base rates, moderate your enthusiasm about something."