Summary of the talk: Never underestimate luck and randomness in life & investing. Never assume what worked once will work again. Also Never assume your way is the only & best way to achieve success. The opposite method can be equally rewarding.
Please Find Introduction to Mr. Sanjay Bakshi here
Key Pointers from above video
Power of Extreme Focus - High quality work produced = time spent x intensity of focus
In order to achieve perfection and mastery we need to focus deep and hard on one thing at a time. Gave examples ranging from Arjun & Dhronacharya Fish eye story to excerpts from a fantastic book (one of our personal favourites too) Deep work to explain power of deep focus.
Compares power of focus with businesses that are overly diversified/unrelated diversification Vs businesses that have developed their niche. stark difference in valuations given by markets.
Quoted Peter Lynch who once said diversification is mostly "Diworsification"
Market Values companies which focus on key strengths and returns surplus money to shareholders rather than throwing money in unrelated businesses
He then talks about even distraction has power - a lot of discoveries have been because the scientist were looking somewhere else. Luck/serendipity plays an important factor too.
Quotes lot of examples like laser was initially designed to be used in only radar, chemotherapy was discovered as a side effect of mustard gas in warfare, Viagara was initially designed to cure high blood pressure, Internet was considered as a military network etc
Quoted Jeff Bezos in explaining loss aversion Vs Risk Aversion. A person should be risk averse but not loss averse. As Bezos said "Failure is not opposite of success. It is part of success. You need to try inventing and invention is messy you will fail. Invention requires lots of iterations. But you need to take bets which provide 100x payoff even if you fail in 9 out of 10, the math works out in your favor. Everyone wants to invent but no one wants to fail."
Contradictory ideas can be great ideas - Quotes Rory Sutherland (who has written a fantastic book called Alchemy) that in order to sell a product both psychology model works - Scarcity Premium - Only few people own it so it must be good and Social Proof - Lot of people owns it so it must be good. This is where he explains the problem of human behavior. Humans have feelings and hence humans don't react rationally. Quotes Andrew Lo (Famous Quant Trader - read this description here) " In physics it take 3 laws to explain 99% of the behavior, in finance it take 88 laws to explain 3% of the behavior"
Social Proof Example - Amazon using reviews, Scarcity example - Ferrari which sells approx just 10,000 cars a year Vs Toyota which sells approx 30,000 just in a month
We all should try and do something that goes against the conventional wisdom - May be we will get lucky as life is full of randomness. What may have succeeded a decade earlier might completely fail this decade. Cites the beautiful example of Music Lab case study on Justin Timberlake where people are randomly distributed in 9 different groups. Each group contains few songs and participants need to rank the songs from 1 to 10 based on their likeness 1 being most favorite. What happened was group 2 to group 8 all had some previous data on downloads of songs so as people entered that group they were biased by looking at which is most downloaded songs. The fascinating part was every group has different number 1 songs whereas all the participants were of same background. Group 1 had no pre-stored information regarding downloads hence the preferences in group 1 was completely scattered - No major favorite. This illustrated the power of randomness and social proof.
Few examples of Contradictory ideas where both ideas have worked at different points of time
12. In Q&A part being moderated by a well respected investor Neeraj Marathe (Find his description here). A very important point was discussed that value investing had no definition even Phillip Fischer is value investor who mainly invested in growing companies and even Benjamin Graham was value investor. In this era value in not seen in profits it's lot of times in today's tech world is valued in terms of brands. intellectual property etc hence they looks growth/momentum investing but it "New Normal" of value definition. Now this period can last for long time and when this new generation of investor would have forgotten the old method then this "new" method might end. Now how long will this new method last is a matter of question.
13. In the end its cash flow - even so looking loss making tech companies have huge surplus cash flows. So to identify value we should look at all the parameters that matter.
14. Buying at any value does not seem logically correct. Low valuation has different perspective. For a Benjamin graham investors having a corporate governance issue is acceptable if the value is sufficiently low whereas for a Fischer approach oriented investor no price is right for a company having management issues. So even Low Value has different context. Sanjay Bakshi believes everything is good at a reasonable price only.
15. He believes in mean reversion, cites examples of lot of companies which were once upon a time darlings of index/markets are not even existence today. Suggest to read book"Dead Companies Walking" written by a short seller. Physics teaches that we destruct ourselves - same thing happens to companies. So Momentum also works but in long run he believes Mean reversion has better probability to occur.
16. Investing as a profession gives back feedback after a long period of time. As for any strategy to prove you need 7-10 years of time frame. Hence considering experiments in investing is not possible like science where feedback is immediate so that scientist can iterate and improve quickly. In investing that's why luck matters a lot - we are lucky if what we tried and believed in (any strategy) became successful.
17. You can attract luck. People are not fixated on just one idea who experiments sometimes figures out something that can provide them tremendous growth.
18. Venture Capital investor uses the above approach by investing 2% positions in 50 companies (One company if it turns out Facebook creates tremendous wealth for that VC company) rather than having just 10-20 stocks like public market investor.