How Nature Improves Your Investing - Pulak Prasad
How Antelopes, Silver Foxes and Frogs help you succeed in investing. Prasad's go-to KPI, and six investing mistakes to avoid.
Hi, I am Trung. I deep-dive into market leaders that passed my sleep-well checklist. I thoroughly follow up on their performance with my Thesis Tracker, and when the right price comes, I buy them for the Sleep Well Portfolio, which I am building for my daughters to redeem in 2037. I disclose my reasoning for all BUY and SELL (ideally never). Access all content here.
Hi, fellow sleep well investors,
I hope you are enjoying Sleep Well’s outperformance with a 47% average time-weighted return per pick (35% money-weighted) since October 2023.
Sleep Well Investments was initially built on the ideas of three wise investors:
Anti-fragility borrowed from Nassim Taleb,
Irreplaceability from Anthony Deden,
Mundanity from Matthew McLennan.
Today, I want to highlight lessons from Pulak Prasad's book — What I Learned about Investing from Darwin.
Pulak Prasad, the founder of Nalanda Capital, blends evolutionary biology with investment philosophy, making the book easy and enjoyable. Prasad outlines key learnings from Charles Darwin’s theories that have shaped his successful long-term investing approach. Below are the core takeaways based on his work:
Survival instincts and nature’s slow evolution help build a successful investment strategy
1) Avoid significant risks - survival instinct
2) Hold for long-term - allows for slow evolution
The first rule—avoid significant risks—resonates strongly with sleep-well investments. This mirrors survival instincts in nature, where prey animals prioritize avoiding fatal mistakes over chasing every opportunity.
Prasad insists on minimizing "errors of commission" (investing in bad businesses) over "errors of omission" (missing out on good ones). He parallels animals like antelopes, which avoid risky waterholes to survive predators, suggesting investors should avoid speculative or volatile opportunities, even if it means missing potential gains like Tesla.
At Sleep Well Investments, I only follow a few of the best under-followed businesses whose survivability is the most crucial aspect of my investment decision. It’s the key reason the portfolio has overperformed and has only one loser (so far).
The second rule is — holding for a long time, inspired by evolution's slow, compounding nature, where he promotes a "lazy" strategy of indefinitely holding high-quality investments.
He argues that frequent trading undermines compounding, like how species evolve gradually over millennia. Nalanda Capital rarely sells unless fundamentals deteriorate irreparably (e.g., poor capital allocation), not just because of high valuations. This patience leverages time as an advantage, allowing returns to grow exponentially, even if it requires enduring short-term stagnation.
I also love what Pulak Prasad said.
“not selling makes us better buyers”.
It creates a high bar for every new buy as it has to improve the existing portfolio of companies. I’d add that holding for the long term trains us to think like owners and show us what matters most to the business.
At Sleep Well, we often have to sell to buy a new company, so we must ensure we are correct twice. This is a really high bar to meet, given that to be successful in investing, you need to be correct six out of ten times. But so far, so good. We have pushed our luck to 18 correct decisions out of 22 (including 4 sell decisions).
One KPI - silver fox experiment
In the 1950s, Soviet scientist Dmitri Belyaev conducted an experiment in Siberia to domesticate silver foxes, aiming to understand how wolves evolved into dogs. He selectively bred foxes based on a single trait: tameness (friendliness toward humans). Over generations, this process produced calmer foxes and unexpectedly yielded other positive traits—floppy ears, wagging tails, and even changes in coat color—mimicking domesticated dogs. Belyaev’s insight was that selecting one core characteristic could unlock a cascade of beneficial outcomes without needing to predict or engineer every detail.
And that’s what Prasad did.
Return on Capital Employed (ROCE) is his most important KPI. He only invests in companies with high returns on capital.
To him, high ROCE indicates good management quality, efficient capital allocation, building a solid competitive advantage, and balancing good growth with profitability.
Six things Pulak Prasad avoids
turnaround cases,
high-debt companies,
government-owned companies,
fast-changing technology industries,
companies always looking for M&A for growth,
dodgy management/poor corporate governance.
Prasad uses examples from nature to reinforce his philosophy, particularly the last one. A small frog mimicking a larger rival’s croak highlights the need to detect corporate deceit, urging investors to look beyond surface-level metrics. The analogy underscores adaptability, survival, and discipline—traits essential for species and investors.
I agree with most of the above six but can’t entirely agree with the fifth one, as some very successful serial acquirers use M&A as a primary engine of growth—Constellations Software and Addtech—from my favorite 10, or some use M&A to complement growth, such as Wisetech or this naval engineering company acquiring companies to leverage core competency.
Credit to Pulak, he also concedes that avoiding serial acquirers has a downside: one can miss out on genuinely good companies where change occurs.
The book is a perfect refresher on proven investing principles and would help refine your investing process. If you are new to investing, it complements Peter Lynch’s books; I have reviewed one (One Up on Wall Street) here.
I love learning from smarter investors; in case you missed it, I shared recently:
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Thanks for highlighting this book and giving us your key takeaways. I plan to read it soon too.