Peter Thiel is right!

This blog emanates from the most recent thing on my mind- Peter Thiel’s 2014 talk at Stanford titled Competition is for losers. I got introduced to him through Mohnish Pabrai when he mentioned how great companies behave when they’re monopolies. Here’s a link

Though the crux of the talk was that the monopolies hide their competitive edge so as to not invite extra supervision while mediocre companies try everything to pretend to be a monopoly. He explained using the analogy of a restaurant vis a vis let’s say a Google. Even though Google is a monopoly in every sense, it tries very hard to not be caught like one. This is a very interesting talk and I believe all of you should watch it.

The bigger moment for me was when Thiel described how he quit his law firm after getting through Stanford law school. This is like someone resigning from IAS after IIT-IIM education to start investing. Now what he described was that after getting into such high demand companies, you get in such a big rat race that all you want to fight for is another inch of position, power and promotion that you stop thinking at all. You stop having a vision for your life and then, get disillusioned all through your working life and retire a frustrated man.

Now I asked myself a question- what can one do in order to become a monopoly, or be someone without competition. This mean, what can one do so that in his business, there is no competition so that the only person who can defeat him is he himself. In this case, let’s say we take the biggest businesses of India.

Let’s ask ourselves- who can potentially defeat DMART? Or maybe an Asian paints. Well, hypothetically, another company with better margins and bigger pockets can take them down. However, let’s ask ourselves- who can defeat a Jhunjhunwala or Buffet? The answer is, only they can destroy what they’ve if hypothetically they lose everything on a bet gone wrong. Other than that, nobody! So this means, if someone is an individual investor, the only person who can defeat him is he himself.

I’m of the firm belief that this is the biggest strength of being an individual investor. You’re answerable to none, can invest and hold any stock you like for however long you like at a price you like. This means when Nick Sleep was asked to reduce his erstwhile fund’s exposure to Amazon down, he must have realised what we are talking- best to shut the fund and invest my own money in a way I wish. That’s exactly he did and in what magnificent way. Thanks to his large exposure to Amazon, he has practically outperformed everybody for the past 7 Years.

The road ahead for an individual investor starting out with small sums of money is arduous. You can’t take big bets, you’ve too little to make and too much to lose. However, compounding is one’s biggest friend. All of you must have watched Ramesh Damani’s famous 10l to 1000crore video. If one can be patient for the first five ten years and sit down with good stocks, the small capital can be a big one pretty soon.

Also, as you’re on your own, learning quickly what not to do is extremely important. You can’t trust these jokers on CNBC to tell you what to do as everyone who’s working for someone else is an employee. And an employee can never think big. So his only goal is to look smart in the short term to save his job- he’s in exactly the same rat race Thiel described. So get away with anyone who’s not independent. This may also mean you’re left with not many, if not none people in your life. Well, this is too small a price to pay for potential outsized gains.

Now when you’re alone trying to figure out what to do with a stock, you must independently calculate it’s worth. Nobody is going to do it for you. Also, you can’t think small. Thinking small is a sin in investing or in life. Unless you think way beyond your wildest imagination, none of it is ever going to be true. I find it funny when people want to be another Buffet but nobody wants to read 500 pages a day!

This blog is not about investing. This is about how to approach the whole idea of being an investor. It’s more to myself than to anyone else because on days like today, when you’re down 4%, you need to remain very sure of all the things which you’ve thought through before holding on to a stock. And as far as I’m concerned, this is another of bull market correction which are sharp, sudden and brutal. Thanks to Paytm, a lot of dirt in the IPO market will subside and some sanity will return.