Let us keep our minds
open, by all means, as long as that means keeping our sense of perspective and
seeking an understanding of the forces which mould the world. But don’t keep your
minds so open that your brains fall out! There are still things in this world
which are true and things which are false; acts which are right and acts which
are wrong, even if there are statesmen who hide their designs under the cloak
of high-sounding phrases.
with the most successful investor of our times - Warren Buffett. He is a
legendary value investor, an icon and role model for his wisdom, philanthropy
and simple lifestyle. He owns Berkshire Hathway which is the holding company
for all his investments. Since 2002 the S&P 500 has outperformed Berkshire
stock by 2% annualised, in spite of him being very active in the 2008 financial
crisis and in spite of 20% of his portfolio being Apple which was bought only 4
years ago (stock is more than 3X in last 4 years). One thing explains the
underperformance to a large extent – the absence of technology stocks in the
portfolio. Warren became legendary by avoiding tech stocks leading to the dot
com crash of 2000 He has continued to avoid technology as the tech giants
became more and more ingrained into our daily lives over the last twenty years.
There is a link in the sources below for a brilliant article on the subject.
public about technology being a hole in his “circle of competence” What makes
this even more striking is that Bill Gates is one of Buffetts close buddies.
Let us see some successful examples of managements expanding their circle of
TCS for TATA
successfully seeding and then building several large businesses
still be in the vanaspati business if it had not transformed itself into a
from Textiles to Pharma to Financial Services
petrochemicals to telecom
itself was originally a textile company
search to android to maps to autonomous vehicles to AI
Investment Bank to Broking to NBFC to ARC to Wealth and Asset Management
To be fair,
there are numerous examples of disastrous diversifications and conglomerates
becoming too big and unwieldly to manage, but that does not take anything away
from the fact that one of the best ways to successfully manage atrophy is to
continuously expand your circle of competence.
We start with
some basic ideas and a limited world view. With time if the view does not
expand enough to challenge the prevailing conventional wisdom, we have done
disservice to ourselves. How can one expand the circle of competence –
organically through lifelong learning or inorganically by hiring and empowering
competent people. The distinction between the “hype around the shiny new thing”
and a new mega trend is indeed difficult to make.
It is certain
that the world will be very different in the next 10, 20, 50, 100 years. The
longer the time period the greater the change. However in day to day the world
seems the same with minor changes year on year. That is why it becomes
important to keep the core principles intact and be flexible about most things.
The core principles should not become the excuse not to change. The other
certainty is that only those who are able to constantly able to expand their
circle of competence will thrive.