For many years now, I have had the good fortune of learning from a lot of good friends, who are giants in their own spheres. More recently,these discussions have become the fulcrum of long evening walks in the bylanes around my house. One such recent conversation with C, which got me thinking, is the discussion around Business Operator vs Investor. Whats interesting is, while C and I are both capitalists at heart with similar educational and socio-economic backgrounds, C went on to become business manager of a reasonably large-sized team, while I took to the financial investor route, trained primarily through first hand investing experience and surrogate learning by reading great investors. Following picture depicts the attitudes we have developed due to our differing career paths.
C being a business operator was stressing on 1) opening one's mind to exponential growth 2) being agnostic to nature of the business product/service and 3) optimism to drive investing. It is interesting to see Infosys's case study in that context:
Infosys was founded in 81 and after the first 10 years they reached a turnover of INR 8 Crores - For an investor sitting in 92, it could have meant two things: 1) IT services space is not scalable or 2) the company could not grow because of external factors. C would have written off the company based on their inability to scale in a decade of existence.
Come March 1992, Founders were set on the path of listing the company after a decade of its existence. It is interesting to see that they set a target of reaching $ 100 MM (INR 250 crores) in revenue by 2000. This is 30 times the growth they achieved in the previous decade - It would have been tough for C or me to believe the growth expectations given the company's track record. In 1993, the company showed first signs of growth acceleration with revenues showing over 50% growth but nothing to ride home given the small base. On expected lines, it was tough to see the IPO sail thru primarily because it was a new industry and possibly because growth expectations were too rosy despite pricing at the issue at a TTM P/E of 13 x. This is where my investor hat might have helped, given that the company was priced moderately for the growth it was demonstrating including some confidence in mgmt's execution abilities, not their forecasting abilities. What they delivered over the next 8 years would have debunked both C's and my wildest forecasts.
Here's a case (and mostly in almost all other cases) where India's best ever company was in the making and I would have completely missed the bus if I'd used the business operator's lenses. It appears that growth at reasonable prices and fear of the unknown are investor's good friends. No wonder, business owners often miss predicting cycle changes because they have to be optimistic and gun for the jugular in all conditions. Same thing cannot be said about an investor, it perhaps pays to be cautious and follow Munger's maxim - " Tell me where I'm going to die and I won't go there"
C being a business operator was stressing on 1) opening one's mind to exponential growth 2) being agnostic to nature of the business product/service and 3) optimism to drive investing. It is interesting to see Infosys's case study in that context:
Infosys was founded in 81 and after the first 10 years they reached a turnover of INR 8 Crores - For an investor sitting in 92, it could have meant two things: 1) IT services space is not scalable or 2) the company could not grow because of external factors. C would have written off the company based on their inability to scale in a decade of existence.
Come March 1992, Founders were set on the path of listing the company after a decade of its existence. It is interesting to see that they set a target of reaching $ 100 MM (INR 250 crores) in revenue by 2000. This is 30 times the growth they achieved in the previous decade - It would have been tough for C or me to believe the growth expectations given the company's track record. In 1993, the company showed first signs of growth acceleration with revenues showing over 50% growth but nothing to ride home given the small base. On expected lines, it was tough to see the IPO sail thru primarily because it was a new industry and possibly because growth expectations were too rosy despite pricing at the issue at a TTM P/E of 13 x. This is where my investor hat might have helped, given that the company was priced moderately for the growth it was demonstrating including some confidence in mgmt's execution abilities, not their forecasting abilities. What they delivered over the next 8 years would have debunked both C's and my wildest forecasts.
Here's a case (and mostly in almost all other cases) where India's best ever company was in the making and I would have completely missed the bus if I'd used the business operator's lenses. It appears that growth at reasonable prices and fear of the unknown are investor's good friends. No wonder, business owners often miss predicting cycle changes because they have to be optimistic and gun for the jugular in all conditions. Same thing cannot be said about an investor, it perhaps pays to be cautious and follow Munger's maxim - " Tell me where I'm going to die and I won't go there"
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