Investing Lessons From Darwin
Evolution, boiled down to three investing mantras: avoid big risk, buy high quality at a fair price, and be very lazy.
Evolution has already solved the investor’s problem: how to survive, and thrive, in a world nobody can predict.
The whole lesson fits in three mantras.
1. Avoid big risk
In nature there are two kinds of mistake. Running from a rustle that turns out to be the wind costs a little energy. Ignoring a rustle that turns out to be a lion costs your life. Animals that survive are wired to avoid the second kind, even if it means making the first kind often.
Investing works the same way. Missing a winner is cheap. Owning a disaster is not. So steer clear of the obvious killers: heavy debt, untrustworthy management, and industries that change too fast to predict.
2. Buy high quality at a fair price
Nature doesn’t care about promises, only about what survives. Apply the same test to businesses: not the story, but the record. A company that has earned high returns on capital for many years, through good times and bad, has already proven it is fit.
Then pay a fair price. Not a bargain for a weak business, and not any price for a great one.
3. Don’t be lazy, be very lazy
Most of the time, evolution is remarkably still. Species stay largely the same for very long stretches. Great businesses do too: their essentials change slowly.
So once you own one, do almost nothing. Ignore the daily news, the forecasts and the price swings. Patience, not cleverness, is what does the work.
- Could this investment seriously hurt me if I am wrong?
- Has this business proven its quality over many years, not just promised it?
- Am I happy to hold it and do nothing for a decade?
Survive first. Own the fittest. Then let time do the rest.
Inspired by What I Learned About Investing from Darwin.
Disclaimer. Educational content only. Not investment, legal, tax or financial advice, and not a recommendation to buy or sell any security. All investments involve risk, including possible loss of principal.