Friday, August 28, 2020

When Nature Inspires

We have a symbiotic relationship with nature. Not only does it provide for us but also inspires us. People find answers when they are in the lap of nature. Creative people swear by it. Apart from the indirect inspiration by being in nature, there are many examples where we have taken direct inspiration from animals around us. After all, nature has been solving problems for millions of years and only the best ideas thrive in the natural world. Let us look at some of them.

Woodpeckers inspired better black boxes that survive mechanical shocks that come with airplane crashes

Kingfisher inspired scientists in Japan when they were struggling to deal with the sonic boom (which leads to noise pollution) caused by the high speed of the bullet train

Mosquitoes are inspiring us to make pain free (almost) injections

Camouflage techniques

Termite colonies on efficient heat distribution and ventilation in dense populations

The fins of humpback whales helped us design efficient turbines and pumps

Velcro was inspired by tiny hooks on the burrs surface that latch on to any surface

Bird safe glass that was inspired from the spider’s web

Fireflies inspired brighter LED bulbs

The ability of mussels to attach themselves on wet surfaces inspired a better adhesive

Humming Birds are inspiring better helicopter technology

Butterfly wings are inspiring anti counterfeit technology which is better than holograms

Camel toes are inspiring better tyres for use in sand and on Mars  

The shark skin and its ability to stay clean inspired better ships

The most popular story has been how birds have always fascinated us and inspired us to take flight.

There is a very good podcast from BBC – 30 animals that made us smarter with many more amazing examples like these.

It is said that if you want a better answer, you need to ask a better question. We should also add that we need to look around us, not only for inspiration but for the solutions to our problems as well.

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Friday, August 14, 2020

The Gospel Of Wealth

 This is the amazing story of Andrew Carnegie (1835 – 1919), one of the four “robber barons” of the USA and the richest man in the world at that time. His autobiography was written over a century ago but makes for a fascinating read even today as the basic principles on which he built his business are even more relevant now.

He lived the classic American dream – a poor immigrant who went on to become an industrialist with passion, hard work and risk taking. His empire was in steel, railroads and construction. By education he only went to school for a couple of years but he rode the waves of modern technologies of his times – telegraph, mining (coal and oil), construction (railroads and bridges) and iron and steel.

Its fascinating to read about Carnegie’s journey. Most of his ventures were partnerships with like minded people who were forward looking, experimental in their approach and were specialists in their fields. They were the first ones to back the modern Bessemer furnaces from England (which only a century ago was the Industrial capital of the world). They had modern book keeping in their factories that allowed them to keep a track of the cost of goods being produced on an (almost) real time basis. Till then most of the steel industry did not know the status of their P&L till the books got tallies at the end of the year. They had a system where workers were rewarded for suggestions in process improvement and some of them rose to the level of partners and plant managers. Most importantly, they developed a process of determining the level of ferrous content in the ore using chemistry and began paying mine owners accordingly. As things were, some mines who had a very high iron content did not produce good results if treated normally and hence found no takers. Carnegie steel works was able to modify their process in such a way that they could use this better ore and pay a lesser price for it as no other mill would buy the ore (thinking it was inferior) and produce the best steel in the world at the lowest cost. The sellers were thankful to them for being the only buyers of their ore and the Carnegie mills enjoyed this arbitrage for a long time. They were backward integrated by owing the coal mines, railroads and ships from transportation of their goods.

Most importantly was his fixation for a solid balance sheet and staying away from projects where the margin of safety was low. The economic and stock market cycles were vicious a century ago (central banks were yet to discover their true power) and the reason Carnegie always had funding available was his fixation on the solidity of their balance sheet. There is a mention in a couple of places in their following the “spirit of the law” and not just “letter of the law” and avoid “cuteness” so that the business had a rock solid reputation. Because of his reputation he also underwrote a number of public issues of stocks and bonds as capital was getting raised to establish large industries.

The best part – The Gospel Of Wealth. He exited the business at the age of 65 (to a JP Morgan controlled entity, another “robber baron”) and focussed the rest of his life in giving away all his wealth. Libraries (2800 approx) and public places were the favourite subjects of their attention along with universities (Carnegie Mellon). Many trusts were also established – the one to support teachers post retirement was close to his heart. What stood out for me was the “heroes fund” that he set up with an objective of helping the families of people who lose their lives in a heroic act that they could have chosen to be a bystander in. Marvellous isin’t it?

He travelled the world and had a great equation with his workers, although he is also infamous for one of the big strikes that took place in one of their plants. He had a big social circle and also was an advisor to politicians on matters of foreign affairs. The book also details the role that parents can play in shaping their children and how his life was shaped by the people around him.

If you are looking for some inspiration you will definitely find it in the life of Andrew Carnegie beautifully captured in his autobiography and Gospel of Wealth. He was the original “Man Of Steel”  (sorry Superman).

Saturday, August 1, 2020

Circle Of Competence

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.

Walter Kotschnig

When facts change I change my mind. What do you do sir?

John Maynard Keynes

Let’s start 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.

Buffett is 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 competence -    


UltraTech for Birla

HDFC group successfully seeding and then building several large businesses

WIPRO would still be in the vanaspati business if it had not transformed itself into a software powerhouse

Ajay Piramal from Textiles to Pharma to Financial Services

Reliance from petrochemicals to telecom

Berkershire itself was originally a textile company

Google from search to android to maps to autonomous vehicles to AI

Edelweiss from 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.

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