Vijayanagara: Built To Last

This is a blog post that has been a long time in making. Not because I did not have enough material. Unfortunately, I need a hard push and plenty of time on hand to write something. As I'm stuck at home now due to a gout flare-up, what better time to write than now!

I've been very fascinated by history, not just Indian, but anything that I can get my hands on. Reading biographies and history books is like second nature and my wife feels that I continue to buy books just to taunt her, as many are unread.

I had planned to take my family to visit Hampi - both as a religious retreat and also as a learning tour to teach kids a little more about the kingdom of Vijayanagara, its art, and architecture. I continue to get their taunts that the West is where all great things are made, and I continue to shrug a little at that. At least to give a historical grounding - I thought this was the right trip to make at the right time. Great things can be built/created/made anywhere in the world.

Also, the timing was right as summer was off and it's a good time of the year to visit the arid regions (called "Bayaluseeme" in Kannada, the local language) of Hospet, the large town adjoining the ruined city of Hampi. The visit was made in September, already 3 months back!

This is likely to be a long blog post. But, I'll try to stitch the various pieces together. Interestingly, there are works of wonder that still exists from the Vijayanagara days. There are still remnants of their contribution that we still use every day. At least, I eat it every day. 

Historical background (Medieval South India):

The ruins of Hampi, though beautiful, are reminders of the last great local Indian empire. There have been quite a few empires before them that were more powerful and more spread out. Like the Cholas, Pandyas, Cheras, Chalukyas, Gangas, and Gajapatis (most of these kingdoms were local kingdoms that were not yet conquered by the Turks/Sultanates). 

To give a summarized view (that is my view) of medieval to pre-modern non-Turkish Indian history, the last great time period where Indians really had a big technological edge was during the times of the Cholas. Post 11th - 12th centuries, there was a gradual inward-looking mentality (preservation more than expansion) that developed. Northern India was firmly under the control of the Turks. Knowledge makes people explorers, whereas the destruction of knowledge makes people inward-looking. 

Some of the greatest learning centers in the world during the medieval times were: Nalanda (present-day Bihar which operated as an institute of higher education from 400 AD to 1200 AD), Vikramshila (again, present-day Bihar which was built as a secondary school to give some competition to Nalanda from 800 AD to 1200 AD) and prior to that, Takshashila (present-day Punjab of Pakistan from 1000 BC to 400 AD). Many of the great inventors, linguists, educators, poets, and medical experts traveled to these institutes to learn. 

It is no coincidence that higher education institutions moved from Takhsashila to Nalanda sometime during 400 AD when the white hun (pre-Islamic invaders) onslaught had started. The education mechanism during those times likely involved reading books/parchment papers/medical treatises, etc by becoming a resident student for multiple years at these universities. Chinese scholars spent multiple decades copying some of the texts, translating them into Chinese to take back to their cities, so they can build similar learning centers. It is only through their stories, that we come to know about the details of these places. Oriental scholarship, therefore, was very confined to very few centers. 

The destruction of these universities takes back learning by many decades or even hundreds of years. The learnings of Greeks and Romans were lost to the world until around the 1300s/1400s when they started becoming more popular with universities in Britain, France, Germany, and more importantly Italy teaching students.

Until the Gutenberg printing press was invented in 1440, the way you mass-published books was by sitting painstakingly to copy entire texts by hand. The task usually extended to multiple decades if you wanted to copy whole treatises. It's kind of funny that many of the older Sanskrit hymns, and lessons are very expressive with very few words (many are even written as summary poems - so they can be learned faster). It was like the Twitter of the old :-)

Anyway, I am digressing. So, let's get back to a summarized background story. One clear indication of power centers is knowing how religions spread, and their origins. Four of the top ten religions today in the world have origins in India - Hinduism, Jainism, Buddhism, and Sikhism. 

The destruction of Nalanda and Vikramshila by the Khalji's in 1200 AD was like the passing of the baton, so to speak. The new centers of learning - the Universities of Oxford/Cambridge/Bologna came to be founded around the 11th - 12th centuries. Just as we Indians were turning inward-looking, spurred by new universities and the printing press (which magically reduced the time-to-market of books), the west started galloping ahead. 

Printed books vastly improved the knowledge consciousness of the Europeans and ushered in the era of Renaissance in the mid-1400s/1500s. The old learnings of Greeks and Romans were becoming more popular with books being translated and published in local European languages.

It's also a magical reminder that humankind can do wonderful things and forget many of the wonderful things it has done if there is no proper teaching (or passing-on) mechanism. 

Sir Isaac Newton, the famous English scientist, once said, “If I have seen further, it is by standing on the shoulders of giants.” Of course, Newton wasn’t literally standing on the shoulders of giants. Newton was explaining that his ideas didn’t come from him alone. He relied on the ideas of those who came before him. When Newton used the word giant, he meant people who were giants in the scientific community. 

The problem in medieval India was, that it had lost wholesale the works of all the previous giants when the universities of Nalanda and Vikramshila burned down. Supposedly, it is said, it took over 3 months to burn those vast libraries down. 

It's kind of interesting to imagine the possibilities of having some of these really old institutions like Nalanda/Vikramshila to survive, right? Who knows what they had in store.

So, after the Cholas - who were the last great Eastern ship-builders exploring the Indian Ocean, the Indian nation-state was basically getting insulated. Preservation became more important than growth. Even to this date - most elderly people talk about not losing (instead of growing). Gold, today is the most preferred form of investment for most Indians - because it is ingrained in the psyche that anyone can steal, even the government.

Anyway, medieval India was still a pretty rich place to be. The exports had always been more than imports for India until the late 18th century. Industrialization basically tilted the scale so to speak. The advent of oil tilted the export-import balance even more so. 

Before the technology age, labor arbitrage was the principal arbitrage known to man. Now, in today's world - it is (1) labor, (2) capital, and (3) knowledge (or technology), in ascending order of hierarchy. 

Since labor arbitrage was well known to the Indian kings - they employed that to their advantage with great building works. They had basically lost the technological advantage they previously held for many centuries which had prevented people from conquering their lands and ruling them much before. 

The slowly winding down pre-modern kingdoms of India were now becoming the students from being the teachers of before. Though they had a significant export surplus, they were learning the art of war from the early gun-powder empires (Ottoman Turks, Safavid Persians, and Delhi Sultanates) and the use of fast cavalry and arquebus/muskets from Europeans.

One such kingdom that learned fast was Vijayanagara. This kingdom was built on the ruins of three main kingdoms which had succumbed to the Delhi Sultanate's onslaughts - Hoysalas, Kakatiyas, and the Pandyas. It is a shame that even today a well-written book about the genesis and demise of these pre-modern empires does not exist. 

Vijayanagara Empire:

The "Karnata" kingdom (today called "Vijayanagara Empire" due to the ruins of their famous capital city, Vijayanagara) was started in 1300s by two generals - Hakka and Bukka Raya of Kakatiya kings who were captured, converted to Islam, and sent to rule present-day Hampi/Anegundi. Their kingdom stood rock solid for 300 odd years (actually close to 500 years if you consider their splinter weaker kings post 1600s); in comparison, British empire in India spanned little over 200 years.

A learned sage Vidyaranya reconverted the brothers to Hinduism and laid the foundation stone for the new empire. Their successors were capable individuals who quickly reclaimed most of the territories that were lost to the Sultanates of the north. The wily South Indians were always able to snub the Delhi Sultanates for over three centuries (until Vijayanagara fell apart: that's a long story for another day).

They came to rule over all of today's South India (states of Karnataka, Goa, Kerala, Tamil Nadu, Andhra, Telangana, and parts of Orissa and Maharashtra). Their cultural and trade influences often extended to Srilanka, Malaysia, the Philippines, and Thailand. Much of the East Asian Hindu influence is either from this period (Bali, etc) or from the previous Chola periods. 

The Vijayanagara kings were great patrons of arts, culture, agri-sciences, and other pursuits that helped their subjects. Unfortunately, the last major scientific pursuits of Indians were all done before 1200 AD. Post destruction of Nalanda, it is rare to see an Indian scientific/medical achievement. It is not possible to note what they had done scientifically. Most work, if any is long gone.

However, the actual engineering works built during those times were still excellent. Indians of the 14th and 15th centuries were probably the best civil engineers, architects, hydraulic engineers, and metal workers of their time.

Cultural Renaissance:

Just like there was a European Rennaissance that was mainly started in the field of art and culture which then translated to scientific re-awakening, there was one that happened during the Vijayanagara times. Same time period - late 14th century, early 15th century.

The best-known art forms - Carnatic art & music, Dasa Sahitya, Nritya, and Naatya (dance forms) were created during those times. They were basically the heady times when new ideas seemed to have taken root - just like they did in Europe.

Also, the ports of Musiri (present-day Cochin) and Karwar-Goa (Present day Goa) became very significant after the capture of Constantinople in 1453. Reason - the land route for trade, called the silk road was now closed (or at least became impractical due to the huge trade tariffs imposed by the Turks). 

The problem was, that renaissance thinking just got cut in the early 16th century with the fall of the Vijayanagara empire. It is one of the "ifs" we will never know.. Could the same renaissance thinking not have propelled India to similar heights as Europe? 

The inherent stability just disappeared, I believe. "PEACE" is the ultimate lesson of all the oriental religions - Hinduism, Buddhism, Jaininsm, Sikhism (even though it was formed out of war) and influenced religions (borrowed heavily from Buddhism) - Confusionism, Taoism and Zenism.

Peace and stability are the bed rocks of progress, scientific mind set and growth mindedness. It leads to innovation. Instability leads to chaos, confusion, stupidity, status games, one upmanship and more importantly to intolerance. India has been a land of tolerance for its inbred stability of minds. The cultural heritage is one of peace with nature, that's how 1000s of years of progress was built upon. 

Some remnants of that thought still remains in our lizard brains. Hopefully, that leads us to reawaken and grow again after a thousand years of decline and decay. 

Anyway, I'm again digressing. Back to the medieval South India. 

Trade and Conflict:

There were principally few players in the trade game of the early 1400s. Persians, South Indians, and Chinese. During this time, all of Persia had basically become Islamic in nature. 

The last of the Parsis (old Zoroastrian followers - merchants and traders had moved into Indian coasts - around Maharashtra and Gujarat around this time). Some of the most iconic companies in India today are founded by this select group of Parsis - Tatas, Wadias, Pallonjis, etc.. What a mistake to throw them away Middle East??

Anyway, the sea trade was now open in Persia in mid 1400s to early 1500s. It was soon monopolized by Arabic traders and pushed out local South Indian settlements which seemed to have been there for hundreds of years (if not for more than a millennia). The East sea routes were still open, and none seemed to have a monopoly.

With one leg of sea trade - Persia/Egypt to India (Musiri/Goa) under Arabic domination - Europeans were now forced to pay punitive taxes. They were the affected party! The India-to-China sea trade had no new players. But, essentially, it became a game of punishing taxes for Europeans to trade with India. 

Essentially, the Indian states (read: Vijayanagara) on one side had nothing to lose. Instead of getting taxes from South Indian traders and Arab traders, now they were getting taxes from Arabs alone (who had now a monopoly on the Persian coasts with Arabic government support). They were anyway used to a trade surplus and except for the sulking Indian traders, they did not have to pacify other citizens much. 

Just imagine if the Vijayanagara kings of those times were able to think centuries ahead. They could have just demanded that traders be allowed to trade with no favoritism on the Persian coast side!

Just imagine in the present day, where American superiority is being challenged by wily Chinese who are buying up all the rare earth mines Lithium, Permanent magnets, etc. 50 years from now, American kids will learn that they gave up their superiority for simple reason that Chinese created a monopoly on all key renewable material supply and increased prices on them 10x! Phew...

Anyway, these things did not happen in 1500s, Indian Vijayanagara kings never really thought along those lines. The Portuguese discovery of India with a new sea route happened. Vasco da Gama reaches India in 1498. Well within 50 years of the Arab conquest of Constantinople.

Out of the two key ports - Musiri and Goa, one of the ports -- Goa was conquered by Adil Shah of Bijapur (from Vijayanagara kings in the late 1470s). The other was under the command of Zamorin of Kerala who was a vassal state of Vijayanagara.

It seems that the kings of Vijayanagara, though good at administration, decent at war-making, and patron of arts; were not so great at strategic long-term thinking. "Strategy" in the very long time horizon is the no. 1 weapon. Long-term games can only be played by very few people. Very very few. 

The Zenith - 1509 to 1529:

Krishnadeva Raya (the greatest king of Vijayanagara) came to power in 1509. He was probably the last great Hindu king of India. He is still revered across South India. He was the principal reason Hampi grew to the size it did (and the remains that we still see today are of monuments he had commissioned to be built). He was a great administrator and a brilliant tactical commander. 

He won back territory his grandfather had lost to both the Bijapur Sultanates of the North and Gajapati's of the East. 

Some of the tact with which he won the wars are worth studying. He basically created a learning culture. He used Portuguese help during the siege of the Raichur fort to defeat the Bijapur sultan to claim back lost territory. He was mystified by the long range of muskets the Portuguese had, and asked his engineers to copy that as he had excellent ironworkers. His mini-war industry started making better muskets during that time which was critical in his war efforts.

But, before all of his victories, he actually helped the Portuguese conquer the port of Goa from Adil Shah of Bijapur. His key advisor, Thimmarasu had supposedly told him to control the ports of his empire (and wisely so). He seemed to have ignored him.

He could have as well conquered it himself. He is said to have given the manpower and materials needed for the conquest. What did he get in return - horses! At exorbitant rates. He did not care about rates, or so it seems to me. 

With that one foothold, it eventually paved the way for European entry into India. It's unlikely that he could have prevented their dominance altogether, as the technical capabilities and scientific-mindedness of Europeans had surpassed Indians at that time.

However, it does seem that the cultural awakening and renaissance thinking of Indians was also getting started at that time. Immediately after their downfall - the same pattern of inward thinking re-dominated for many centuries.

A strong sustained rule of Vijayanagara might have enabled a different history for India! Who knows, if this might have happened. These are alternate histories that one can only ponder upon.

It is sad, that right after his death, the same renaissance thinking (where he developed firearms, gunpowder, etc) did not sustain, and his kingdom was overrun by Bijapur Sultanates in 1565 (35 years after his passing away).

What's their lasting impact? What did they build, that stands even today?

After his famous victories against the Bijapur Sultanates and Gajapatis of Orissa, he commissioned many engineering works: temples, buildings, waterways, canals, and man-made tanks for irrigation.

Water is of prime importance when it comes to agriculture. He seemed to have taken that to heart.

Exactly 500 years back - he constructed some of the best-in-class canals of those times - "Raya kaluve", "Basava kaluve", "hiriya kaluve" and "Thurthu kaluve". A manmade tank "Kamalapura tank", the largest holding tank still stands.

During my visit of one week, I was able to gather from locals, as to who built these canals. There were two principal architects of the canals: 1) Arya Krishna Bhatta and 2) Garalugante Tippa. We'll not get their names from God-Google.

For absolutely 500 years, they have been the main waterways of the region. A semi-arid region of Karnataka and Andhra Pradesh/Telangana, today has the highest production of Rice/Acre. All are irrigated by these canals. 

In the 1960s the Government of India built high-level canals (HLC) and low-level canals (LLC) on river Tungabhadra. This irrigation network irrigates 6.5L Acres of land in two states of India.

The main variant of rice consumed by all South Indians is "sona masoori". It is known for its unique texture and flavor. A major portion of this rice variety is native to the lands irrigated by these canals. 

The great temples of Hampi, though in ruins, are great to look at. Some of the stone carvings are works of great artists of those times and remind us that our forefathers had the capability to build wonderful, beautiful works of high caliber.

The canals though, seem to be built to last. For giving us these oftentimes forgotten waterworks, we should thank the kings of Vijayanagara! 

Ciao till next time...Harsha

Quality People - Who You Spend Time With Matters

It's been a rather busy month. I was feeling that I had time on hand before, but things have just come in on my lap that requires focused work. In spite of trying to update my blog at least once every two weeks - I've not been successful. Mainly because, I've rarely spent time at the office, travel has taken my time - all work-related.

So, this brings me to something fundamentally important. Who do you spend your time with? This is "the most important thing" that determines what you think, do, or feel. 

Improving the quality of people you deal with daily - automatically raises your bar. It's an interesting quality I've observed now. If you set a high enough bar - you'll deal with less noise, but the interactions that happen will add much more value.

Anyway, it's important to spend a lot of time - reading and thinking. Having time on hand to think is necessary. Moving away from a "corporate job" immediately afforded me this luxury. However, I found a lacuna, as my interactions with high-quality people reduced. In a corporate job - you automatically come across both high-quality and low-quality people. 

It's difficult to cut out all the crap, but you do have a portion of interactions that make you feel that you've learned something, added a new skill, or in general, developed a connection with someone who has a refreshing point of view. This network - that uplifts your spirits is very valuable. The high-quality social interaction makes you slightly wiser.

Saying "no" to things:

I started saying no to a few things in my life. I've written about this many times before and it never ceases to amuse me. Here are a few:

1) Saying no to opportunities that do not excite me, motivate me, or improve me. Saying no to something purely for money - when time is more valuable

2) Saying no to pure networking events. Business card swapping events. I had no business card until recently. Had to print some for consulting work (will write about this sometime, it's an interesting story)

3) Saying no to negativity or gossip

4) Saying no to over-working (it's an act of diminishing returns). To meetings. Do something, instead of nothing sort of work

5) Saying no to ass licking. People pleasing

The sad part is, by doing that I cut out 80-90% of my interactions socially. This dramatically reduced my ability to learn from good people. 

Saying "yes" when all reasons to say "no" are not present:

I had to rediscover social networks. Build dramatically new networks which will bring me "value" and "learning" in areas I planned to focus on.

The funny thing is, you do get some high-quality people, and high-quality ideas; though rarely, and then; the cycle of learning increases back again. 

I am in that phase currently. Some of these are purely lucky breaks - being in the right place at the right time, with the right skill sets. But, who cares how they come in. 

Suddenly, I'm involved in two separate companies now which are both interesting - one, an old-world company and another, which I'm starting. More importantly, the quality of people involved in both these companies is excellent. 

This is apart from my PMS venture which has taken a pause until I find the right partner there.

The partner search is still "on" for PMS, but I've got enough on hand to learn and grow in the meantime. If you happen to read my blog accidentally, I am super interested if you are or know someone who might be the right partner to start an exciting PMS house. Just email me to start a conversation.

Ciao till next time...Harsha

Financial Independence: A year after leaving a corporate job

I had noted to write something about this a year after I leave my corporate job. That time is now. Exactly a year ago was the last time I got a paycheck.

I wanted to pen down some thoughts on what I would feel after a year out. I told myself that I'll sit down and write an account. Let me try to organize and draft this into a blog post. It may help some of the readers. 

I know the concept of FIRE - Financial Independence and Retire Early. I've loved to read some blog posts from authors like Sam. Early retirement is not something that motivated me to leave Enphase (my previous company). But, financial independence was something important to me. 

I loved what I did at Enphase; well for 90% of the time :-). There are always some frustrations. But, the happy times were far more than the frustrating times. 

Creating business plans and putting them in action, owning a product (and I always felt I owned the most important product in the company - the microinverter), building a great team, and working with engineering & sales folks to tinker on ideas is a dream come true job. On top of that, in 2017, when I joined, the company was in some trouble and it was so much fun traveling to customers, differentiating our products from competitors, and winning back market share! And, growing business! Making it profitable.

OK. I am deviating from what I wanted to write. I know. Let me get back to my story. I've always been passionate about Enphase. But, this blog is not about Enphase. Let me tell you my short story here. 

The back story...

Early in my corporate career, I thought I should be financially independent by the time I'm 40. Seeing my father invest and tinker in stocks, I was hooked on the investing bug since my school days. 

I had built a portfolio even before my first job (though I realize, it was usually based on momentum). Analyzing companies, and reading their annual report, and quarterly earnings was not new to me. We used to get physical copies of annual reports at home (during the 90s) and I ended up reading them.

My first paycheck in 2004 was for Rs. 9200, and I bought 200 shares of NTPC with that. I took a loan of Rs. 2000 from my father, as the IPO was at Rs. 56/share. 

Anyway, doing an MBA sort of muddled my concept of stock picking. It seemed market models, CAPM, etc. were used as proxies for business. I had hoped to get into a finance job but that got quickly squashed as NITIE was not known for finance. 

Somehow, passion rarely dies. Investing bug got me to find teachers, and do quite a bit of self-study. I've written about that here. 

In 2015-16, I tried to get into fund management when I was in the US. An interaction with one of the partners of Sequoia Fund, Roelof Botha, gave me some ideas. I also realized, that, I'm a misfit in an early-stage VC. My experience as a semiconductor guy was not of much use. But, my interactions gave me the idea of writing my own personal annual investing letters - so that one day - I can create my own investment fund. 

So, ever since 2016 - I started writing about how I have performed, in investing my personal assets in the form of an annual letter. I shared my investing letters with a bunch of people who I felt could be my partners a few years down the lane. 

During Christmas vacation at year-ends, I spent time reviewing and calculating my annual CAGR and writing a thesis on my investments for the year. I loved writing them. I kept at it till 2021.

Anyway in the meantime - around 2018 - I felt that monetarily - I was doing fine and I could call myself financially independent.

My definition of financial independence was - getting more dividends from my investments than my paycheck. Usually, dividends also grow - so, inflation usually gets taken care of.

I simply felt that it was right for me to come back to India post-2018. There was a strong urge to do something in my country. I felt there would be a level of comfort and a zone of fulfillment here in India - even like building a team or creating an India-based product, etc. was something I looked forward to. 

Luckily, my wife was fine with that, and the kids were young enough. Within a year, I gave up my green card (not the best decision financially as I see now) and settled back.

Anyway, by 2021, having spent 3 years here in India, and, feeling that my task at Enphase was now one of safekeeping, rather than growing - the urge to really get into full-time investment was biting me. 

At the same time, a mentor (who goes unnamed, actually more than one) stepped forward to help me. He offered to set up an investment vehicle in the US and invest. My annual letters from the past 5 years were at last helpful. Having good-meaning, well-wishers and mentors have been a blessing in my career. Someone, who is ahead of you in terms of life stage can act as a wonderful sounding board from time to time. 

I had created an entity in 2018 through which I invested and always felt I could get a SEBI license sometime and scale that up. So, these were my thoughts as I parted ways with Enphase last year. It also helps to be open and tell exactly what you are going to do, to people in the organization. Clarity of thought is important. If you are real, usually people on the other side of the table are real too. 

So, with the good wishes of the management team at Enphase, I charted out. That was exactly a year ago.

So, what's happened in the past year?

It's a mixed year. Nothing crazy good or bad. Things move slow when regulators are involved.

As, soon as I left, I applied for a SEBI PMS license. I always felt it would be great to build something in investment management. 

After all, in my mind - I had an 8+ year track record (since 2013 audited) of investing with an annual rate of return of 37.1%. I had made money myself, having been financially independent for a few years already. Though, luck is a huge component in investing, I felt an element of skill was present in the numbers. Numbers don't lie - over long periods.

Setting up an entity in the US, an investment partnership is easy. Unless you have $150M of assets under management, SEC (Securities Exchange Commission) does not have too many conditions. It is an entrepreneurial culture. The US loves people starting out new companies in any field! 

That, unfortunately, is not the case here in India.

The way you look at anyone is usually with an amount of suspicion in India. The regulators seem to be set in their ways. There might be very legitimate reasons for the same, but over-regulating kills entrepreneurship. 

After multiple clarifications, SEBI rejected my PMS application a few months back. I did not officially get a reason for the rejection. 

Official requests for an explanation went about with no answer. Letters went unanswered. Unofficially, I was told that my personal track record of experience in investing is not considered "experience". My company checked all other boxes for the PMS, I was sounded out.

I am looking at various alternatives as of today. Partnering with someone, hiring an experienced individual who "checks the box" for SEBI, etc.

So, if you know anyone in this area who could potentially help, or partner with me - feel free to reach me through my blog/email/comments/tweet. 

A smart lawyer friend was telling me that I'm an idiot to start anything here. Just relocate to Singapore or Dubai and start-up there. Just route in money as an FPI! I am not ready to give up on India yet - it is better to fight the system to make it a little better than before, instead of moving. Playing long-term games is a kind of passion. I will need to stay at it for longer, a year is too short to decide. So, that's that.

Apart from the frustration of "not going anywhere" on the PMS front, life has been great. 

On the home front, it is indeed enjoyable to see kids do well. They are getting enough attention from me as they are growing up, and they love it. My wife is not frustrated that I have late night calls or early morning calls. That is definitely a big plus in the past year. I feel that I am the sharpest I have been in over a decade. At last, I am hitting the gym daily. Trekking, cycling, and, meeting younger people. 

I am trying to help some start-ups. That is fun. I have been consulting on a few topics - in solar and semiconductor. I might actually end up starting something in either of the two fields. I am discussing this with a few experienced friends. There is so much potential. It would be so much fun.

Talent is plenty in India. Channeling them in the right direction can do wonders. The West (the US and Western Europe) is basically stagnating. Any growth, on a massive scale, I believe, has to come from emerging markets. 

But, then again - ease of doing business is more of a marketing ploy in India. The actual issues, seem to be a hindrance - license, regulation, taxation, approvals, etc. 

Our nation seems to be in the clutches of controlling everything. I may pick an area where the regulators are not really knowledgeable enough to regulate. 

If you, as a reader are working on something interesting, I look forward to collaborating. Especially in green hydrogen, semiconductor, solar, or cleantech.

For one thing, in the past year, I've never really missed the paycheck. 

I always felt that our addiction to paycheck and sugar is legendary. A lot of time would be required for de-addiction! That was my main worry.

Maybe, I overthought that problem for far too long. Yes, dividend checks are infrequent. But, apart from that being a slight irritant, I've not felt a pinch at all.

I guess each one of us has a different set of problems. A different set of goals.

Now, someone was asking me if I missed my job. 

Definitely. I always felt great - building something, working on a project, working towards growth. Even preventing a problem, making mistakes, and correcting, was nice. I was passionate about making a difference.

Also, in general, interacting with a set of high-quality people is always fun.

I am still building my network in the field of investing - especially since I am basically unknown. Building a high quality network in a new field takes time.

Literally, I've been super secretive in this field. Fame has no meaning in investing. Being right over the long term is all that matters.

I also feel that people in the field of investment management are too theoretical. Most are really smart, but have little practical knowledge of building and running a business or a product. Not their fault, but they are in the financial field for far too long and sometimes, cannot differentiate between qualitative and quantitative matters. 

Analyzing a business is not just "excel modeling" - sometimes, cycles cannot be really modeled. It is understanding the key aspects that can affect the future. How management can build their vision while making the company stronger (financially stronger, building durable, enduring competitive advantages) over a period of time is very important. 

You cannot drive forward looking at the rearview mirror. You have to understand the range of possibilities (and probabilities) in the future.

Sadly, running a business, creating a product - building competitive advantages around it, differentiating it, and working with customers, do not count as experience to SEBI. And, that is my frustration today on the PMS front. 

Anyway, I am happy that I am trying. The next 20 years will define if charting out on my own was better or not. I am deeply thinking about the future. 

"I think the best way to prepare for the future 20 years is to find something you love to do, to have a shot at being one of the best people in the world at it. Build an independent brand around it, with your name". - Naval.

Anyway, this too shall pass. 

Ciao till next time...Harsha

Green Hydrogen: My views on the sector. A story to unfold?

During Covid, I had looked at buying some Bloom Energy shares when it was trading around $3/share with a Price/Sales of 0.4x or thereabouts. I did not feel strongly about their Hydrogen story, but, who was to doubt that it was a steal at that price. After all, they had growth ahead, and eventually, they would start making money! I did not have enough cash in the US, so never acted on it.

I never really understood the hydrogen story. I always felt it will never be produced cheap enough or in a distributed fashion that will make it usable with PV (using Solar PV for generation at low operational prices once Capex is done). 

More recently, I got interested in this sector after speaking with a few knowledgeable friends who piqued my interest. I had really not given Hydrogen a thought as I felt Solar (PV) + Storage (Lithium) is the only way to go. You see, I'm a Solar guy. I feel strongly about the growth prospects there. It had blinded me to certain other possibilities.

At the end of the day, PV + Storage alone has some drawbacks. Especially for a country like India. 

I'll try to articulate my thoughts below in this long article. I don't know how this post will unfold, but I'll try to solve this interesting problem here. 

I have a rough framework. What I normally write down in my sector analysis notebook, I'm putting my thoughts in a blog post. It may be better this way if someone watching this sector comments. I'd love to engage with people more knowledgeable in this space!

For starters, I read Modi's Green Hydrogen policy that was released earlier this year. You can download it here if you are of a curious mind!

I missed the entire idea of Green Hydrogen until now. The news articles or policy documents do not articulate why "green hydrogen" is important. Or, why, anything, that is taking India a step closer to "energy independence" is of utmost interest.

What's the big problem in India?

Let's start with the problem statement. India, since independence, has acted on reforms only when it has been forced to act. Mostly. The 1991 balance of payment problem forced reforms upon our throats. Read more about that in this longish RBI article for background. 

The real problem for India is twofold: 

(1) Increasing fiscal deficit: we are spending more than earning. That has always been a problem, there are various reasons. I'll not get into that. 

(2) Trade imbalance (leading to current account deficit i.e., CAD): India imports more than it exports, which is a problem as we pay in USD. High capital inflows (FPI's pouring money), Remittances (NRI's pouring savings back) have been funding/financing this.

The problem has escalated as foreign investors have pulled back money when interest rates have increased in their home countries (like the US) just when Oil prices have gone up.

This is the main reason for INR falling sharply versus USD. It's a vicious cycle and will take time to correct itself. Either inflows (remittances, capital inflows) have to increase or outflows have to reduce. I am not an expert on the economy and cannot predict what will happen here. 

The larger problem of fiscal deficit (a) may not get solved anytime soon. The grip of socialism is not easy to loosen. Either the country has to grow its way out or the political will needs to be strong enough to cut down the deficit spending (reduce subsidies in various forms).

So, what's the way out: Increasing growth within the economy and reducing (or altogether eliminating) trade imbalance.

Source: Financial Times

The largest bucket under imports is "Oil". A third of India's imports are always oil. The latest breakdown of imports is as below:

The balance of trade (difference between exports and imports) for June 2022 is -$26B. Essentially the difference between exports of $40B and imports of $66B.

The difference between being a net exporter to a net importer for the past few decades has consistently been "oil". If the government of our times in the long term (decade of the 2020s) solves this one critical problem - it would have lifted the country from a low-income, emerging nation to a strong mid-income growing nation.

So, anyway - I have tried to provide a picture of why "energy independence" (self-sufficiency in terms of energy needs) is important. 

Off course, one could try to find more oil fields in India to increase oil production. After all, that's a possible solution. I always wonder if the deserts of Saudi Arabia or Africa (Libya) can store great oil reserves, why not the deserts of Rajasthan? That's probably a wrong comparison. We should try to explore more.

But, oil is a dying fuel. It's unloved. Causes pollution. Increases greenhouse emissions. It's a fossil fuel. 

Just like the stone age did not end for lack of stones, so too the oil age will not end for the lack of oil.

We need to leapfrog ahead.

What are the possible solutions?

Many countries use oil imports to augment electricity generation. That was the case with India before where Diesel and natural gas were used for electricity generation. Quite a lot (up to 30% of generation in the past).

It has been reduced significantly now. Less than 10% of electricity generation is today through diesel/natural gas (source: power ministry). Fossil fuels (mainly coal) still account for ~60% of energy generation, while renewables form the rest. Back-up power (when there is a grid failure) is predominantly diesel gensets in India.

Solar is still <15% of generation while plans for 100GW+ Solar generation have been doing the rounds for quite a while now. I will not go into the details of the 100GW+ Solar generation plan. That might take a whole lot of space.

Essentially the grid needs to be capable of handling that much amount of energy produced by solar PV. It will need its own overhauling. India's power distribution is much weaker than many peer nations. Our utility distribution companies (mainly state DISCOMs) are money-losing enterprises as farmers/consumers alike try to either get free electricity or steal electricity.

Generating energy locally (in a distributed fashion) is the best way of powering local communities. Generating local solar power and using battery storage (either large lead acid-based systems or other technologies) is likely the most cost-effective way instead of creating multi-$B distribution networks from centralized power stations leading to further distribution losses (India loses 20% of generated electricity while distributing energy).

Providing solar water pumps (for farmers), and using local distributed solar PV might become the norm going forward. That's clear in the various government schemes for rural electrification.

We need to note, that India's energy consumption per capita is much lower than the western nations and will continue to grow. Massively adopting solar PV is a no-brainer. I think that's already clear to most. Baby steps in the right direction have been taken, but they need to leapfrog massively over time. 

But, even as that happens, this addresses only <10% of oil imports.

Transport - The Elephant in the room accounts for 85%+ of India's Oil imports

That's the key. Road transportation. 

Today the largely noted alternative to oil usage is EV adoption. That's not a bad alternative. City transportation where range anxiety is not an issue can be addressed with EV vehicles.

The issue again becomes that of charging the EVs. Today many of my friends are buying EV cars and charging the vehicles from the grid (at their homes or offices). 

It is no surprise that our coal/gas powered generation units (read again that 60%+ of power generation happens through fossil fuels) are transported through leaky distribution networks (with 20%+ leakage in distribution) further weakening the already suspect grid through the massive consumption posed by EVs!

The only way to counter that is through super sweetened net energy metering programs (government funded) for residential rooftop solar PV adoption. This, along with home energy storage (lithium-ion-based systems with at least 10+ year life, 4000+ cycles are much needed.

Storage systems that are lithium-based will have two issues:

(a) sourcing of lithium on large scale (that is low-cost, sustainable, and environmentally friendly)

(b) re-use or disposal of used batteries

Today, China controls most of the battery cell market and indirectly the lithium production. Three countries - Chile, Australia, and China account for 98%+ of Lithium production. 

White gold (as it will soon be known) exploration is widely conducted in many countries. It is expected that Russia, Argentina, and other South American countries will likely hold the majority of lithium deposits.

The more I think about this, adopting large-scale EVs might lead eventually to replacing oil imports with lithium imports! These are large-scale future second and third-order impacts. I am no expert - but, this does not look sustainable unless we find large local reserves or come up with alternate storage technologies (both seem far-fetched today).

We may replace our Middle east dependence (Oil) with China's dependence (Lithium). We'll likely move from multi-sourced procurement to single-source procurement. That might not work out well. Alternatively, India must already make heavy commitments (buy mining rights) in countries like Chile, Argentina, Russia, Afghanistan, etc.

Also, the disposal or reuse of lithium is a big question. Lithium is highly combustible. Unlike lead acid batteries, a lithium-based battery is not easily re-usable. Read this article to understand some problems associated with the disposal/re-use of batteries.

Lithium batteries are extremely heavy. No doubt an EV car is super heavy today. A 100kWh battery-powered Tesla is basically transporting a large battery that's otherwise useless (but for its stored energy)! Gasoline is lightweight in comparison.

Gasoline energy density is 47.5 MJ/kg (34.6 MJ/liter); the gasoline in a fully fueled car has the same energy content as a thousand sticks of dynamite. A lithium-ion battery pack has about 0.3 MJ/kg (0.4 MJ/liter. Gasoline thus has about 100 times the energy density of a lithium-ion battery! 

No doubt, oil has been powering cars for over a century because of its super high energy density! Human progress has been based on improving the key parameters in every sector. It's interesting that in Fuel-cell, we seem to be going backward.

One should always understand that oil = fuel, lithium = storage. Lithium is not fuel. Fuel will be Solar PV / Fossil fuel / Hydroelectric generation. 

Hydrogen as fuel?

Let us again look at the specific energy density. That is the key metric.

Hydrogen has an energy density of 120 MJ/Kg i.e., ~3x gasoline. Of course, that's a no-brainer. The Japanese with their first hydrogen-powered Toyota's were always right in their argument!

A single Kg of hydrogen roughly is equivalent to 33.6kWh or 1 gallon (around 3.7L) of diesel in terms of usable energy.

The problem for Hydrogen has always been the extreme difficulty of producing and transporting that at prices that are less than that of diesel.

I will not go into the full arguments about producing hydrogen that requires more energy today. Today's electrolyzers use about 50kWh of energy to produce 1Kg of Hydrogen. Note again, that 1Kg of hydrogen in terms of energy density is equivalent to around 33.6kWh (i.e., 3.7L of diesel).

So, that was my argument that today - you are using more energy to just extract hydrogen and it's not sustainable! 

Also, transporting hydrogen in liquid form is difficult. It's like transporting more metal than hydrogen when transporting between fuel stations. Basically, the heavy pressurized metal container holding lightweight hydrogen gets transported in trucks. Transporting diesel by the way is super simple and easily done.

What's different now? Why the hydrogen policy may have long-term implications?

If local solar PV stations power small distributed hydrogen electrolyzer stations (that will also act as future fuel stations), that solves both generation and distribution problems! The generation will depend on Solar (abundantly available) and if they are distributed enough, they can also act as fuel stations! So, essentially grid power is not used in the generation process. That's the key. 

Or even if transportation is complicated, hydrogen can be produced very cheaply (since the raw material is water!) using large utility-scale solar farms. Getting to scale at a generation cost of less than $1 per Kg - will simply obliterate the case for EV cars or the current diesel cars/trucks. 

A barrel contains roughly 160L of oil. At $100/Barrel of oil, it translates to $0.625/L i.e., $100/160L which is equal to Rs. 50/L of diesel. Diesel that gets procured at Rs. 50/L in international markets gets sold at Rs. 90-100/L in our local retail outlets. 

At $1/Kg (Rs. 80/Kg) of Hydrogen, in specific energy density terms, you are getting energy equivalent to roughly 3.7L of diesel. So, essentially it's like producing 1L of diesel for Rs. 80/3.7 = Rs. 21/L. Even if international crude prices drop to $50/Barrel (i.e., Rs. 25/L), locally produced hydrogen will win hands down.

This solves the oil problem. That, I think is a huge step. 

There need not be a single winning technology. But, I do believe that this decade will be the decline of oil as the primary fuel source!

Hydrogen will find a place in the scheme of things. It's a busy place today with many technologies. There might not be a single winner here. Through this decade, we'll come to know how the story unfolds. 

Ciao till next time...Harsha

To the Boring. The Consistent. The Relentless.

I decided I'll at least update my blog once every 2 weeks. More frequent if possible. I've noted time every Friday if something hits me to write.

I really don't feel the need to write something thoughtful today.

A commitment needs to be kept i.e., updating my blog in the 30 min window. I am somewhat flustered and would rather do other things than write today. I am too bored to be writing. 

Here's something I found on the internet today. I felt it had a nice ring to it. I agree with the author Jack on consistency, but consistency necessarily need not be boring. Writing is boring. I don't see any payoff in writing. But, then again, who knows! Someday someone might read this. 

They might feel it helped. So, here goes this quote that provoked some thought today. 

"It doesn't matter if you are a weightlifter, writer, hedge fund manager, programmer, or musician. Your success, or lack thereof, will be determined by your ability to do ordinary things for extraordinary lengths of time.

Do some boring stuff, adapt that boring stuff, and don't stop doing the boring stuff. If you can do the boring stuff longer than everyone else, you will probably achieve some not-so-boring results.

- Jack"

I do like the ring of consistency for long periods paying off. I am a believer in that. 

Ciao till next time...Harsha

Continuous Education: A Point of View and a Thank-you! Note

A friend of mine recently joined an Education start-up, he sees huge growth there. He's got a healthy stock package (I felt it was over-valued). Anyway, today, most Edu-start-ups are high flyers. Who's to argue with him!

Another friend sends his kids to a high-cost online tutorial.. after all, who would want to penny-pinch for education, right? He made a point that he will spend all that he can, to get his kids the best education there is.

It made me think. I was not sure if I had to write about it. But, then again, I felt I should pay my thanks to two teachers who thought me a lot. For free. No noise, no fees.

Well, read more to find out.

Now, let me come back to my story. 

Mentally, yesterday, I got transported to around 2012 when I was seriously considering whether I do a second MBA - Stanford or INSEAD (1 year MBA which they offer). That's exactly 10 years back!

I was in Germany working then and I started seeing some of my Indian friends do a second foreign MBA. Mostly, they were unhappy that they did not get a globally recognized name tag like an IIM when they did an MBA at NITIE. 

A NITIE MBA was cheap. I spent around Rs. 2L (~$4000 then), of which I majorly recovered the cost by winning B-School case study competitions that offered handsome cash prizes over the 2 years. I had no major loans when I came out unlike some of my counterparts from other B-Schools when I joined the workforce. 

A marquee MBA is not a bad thing. I pondered if that will help me. I called my former manager who I admired, who had also taken a similar path by getting a 1 year MBA at Stanford. 

He was at best 50-50. His thoughts were neither for nor against doing a second MBA. I came out more confused after speaking with him. I thought he could give me a clear yes or no answer.

Most things in life don't have a simple yes or no. Now, that's entering the real world. Bummer...

That's when I was somewhat unclear on what path I foresaw my career growth, over the next decade.

My motto at that time was - "I am on the highway, and I love driving"! I literally had that piece framed on my office desk in Munich. I was traveling to customers every day. Meeting companies, trying to grow Cypress's business. That was super fun. I loved it.

Well, on the other hand - I had saved up enough to get a 1-year INSEAD MBA without loans. It was in France after all. Not a bad idea to just remain in Europe, and get an MBA when I am there. On the other hand, when I looked at their average salary post MBA - I felt that was lower than what I was making already.

Anyway, what I realized is, that I had some time on my hands when I was traveling. I felt I was not learning anything. Seeing people go back to do an MBA made me think about that.

Somewhere in the back of my mind, I felt - somewhere down the lane, I wanted to learn more about finance. NITIE unfortunately did not offer the best of the teachers. It was not known for Finance. 

I was 30, and I decided I might not want to work at all, by the time I was 40. So, spending a year on MBA was not really worth it. I just loved to invest and pulling money out for an MBA was not something I wanted to do.

So, that gave me an answer on the MBA part. Now, I got looking at how to go about learning Finance - portfolio management, security analysis, and valuing companies. 

Of course, I googled it. I bought a few books. Also, I religiously downloaded Buffett's annual letters. Read them all that year. 

Enter Gurus: Prof Aswath Damodaran and Prof. Sanjay Bakshi

There appeared to be two names that always popped up when I searched on these topics. Prof Aswath Damodaran of NYU Stern and Prof. Sanjay Bakshi of MDI, Gurgaon. 

The greatness of these two gentlemen was that their teachings were all there on their websites! All their class notes, lecture notes, and even the question papers were uploaded on their websites. 

Having a mentor is great when you are on the path of self-education. Having two is even better!

Years 2012, and 2013 on and off were spent heavily doing every single case study, and question paper and reading through their courses - Valuation, Corporate Finance (Damodaran), and Behavioral Finance and Business Valuation (Bakshi).

You see, I was working, so most of my learning was slow. You could ask - how I took 2 years doing a few courses. But, then again I was not in a race. I thought I was giving myself 1 hr here or there to do this reading. I was also reading a bunch of letters/memos from hedge fund managers, investment partnerships, etc (which I continue to read even today).

The basic foundation I received from both these professors is something I would be forever grateful for. I tried emailing and providing my answers to the professors once (for their question papers/case studies), but I never got an answer - I realized that the courses were a year old, so my answers were probably a year old. So, I stopped doing that. But, who cares, if I got graded or not! 

Around the same time, I did get an executive management program at Santa Clara as part of Cypress's CYPA. But, that helped mostly to meet and know people. 

Also, later in California, it was great to take courses on and off at Stanford Continuing Studies (also sponsored by Cypress - could that get better!). Now more recently - I've taken NISM Courses and now enrolled for a CFA this year (kinda late - doing that mid-life you'd say!... but, who cares? I am in no race).

Continuous education is very important. To be a lifelong student is one of the joys of life!

In Summary

I know, I am meandering. Let me come back. 

I felt I have to write a blog post to thank both Prof Damodaran and Prof Bakshi for their generosity. Their courses are fundamentally the building blocks for anything I've learned in security analysis. 

I have sent them my own annual letters - on my investments which I started writing ever since 2016. I have got a warm short reply sometimes. 

I have got a world-class securities valuation education from these two gentlemen for no money at all. They've never looked at monetizing their courses. Courses are even today available on their websites (I've linked the latest classes above). 

Here's just a note to thank you. That $100K saved then on a second MBA is worth far more than $1M today.

Professors, If ever, we meet in person - I would love to thank you in person. Your work has helped one individual (me:-)) to learn. That individual is very grateful for your efforts.

Ciao till next time...Harsha

Investing Errors - Inability to Gauge Margin of Safety

2020 was a great time to invest. All that I touched, turned to gold and there seems to be a touch of hubris that affected me post that. People panic all the time. Somehow, I thought that Covid was a virus after all and was crazy enough to be in good equities and bought more exhausting all my liquidity. 

That was a great year. But, then again, buying in 2020 is not a skill. It is purely buying at the right time. It is luck. 

I think I mistook that for skill. I was wrong.

Many of the stocks I touched in 2021 are trading at lower prices in 2022. At least till now. I deeply looked at each one of my mistakes. Most of my picks don't have anything bad in their fundamentals. But, I have been woefully wrong in gauging their strengths. Overpaying for them.

Most company strengths are based not just on the skills of the management, the market they play in, competitive strengths, or their past successes but driven in part by external factors. That they play in friendly playgrounds. A lot of factors help their growth: Government support, Liquidity (a rising tide lifts all boats), Lure of a recovery spurring short-term demand (and then, you consider that as a given for a number of years ahead), and Low-interest rate environment continuing, etc...

These, and many more, are errors I fell prey to in 2021. I wish I had been more careful. But, I cannot go back to change what has happened. Not jumped into buying. Waited.

I recently read a wonderful book written by Adam Mead - The Complete Financial History of Berkshire Hathaway. Adam analyses basically everything Buffett did at Berkshire for the past 55 years. And even a historical perspective of Berkshire right from the 1930s. 

I think he wrote it for Buffett aficionados. It's a rather dry, long, rambling book, but I rather enjoyed it. I re-read the lines I marked out and cross-referenced Buffett's biggest successes and failures and some patterns which led to them being successes or failures.

One thing that clearly strikes me is the unwavering discipline that was maintained by Buffett in any of his buys. The clarity of thought of understanding the downsides more than the upside is very clear in all his successes. 

Where he missed analyzing the downsides/risks (Dexter shoes with Chinese competition, Gen Re with its derivative book, IBM with tech obsolescence and changing direction), etc. are clearly the ones where he missed something vital in analyzing the ecosystem. And hence he overpaid. 

If I have to point out what I did not do well in 2021, it is summarized by three words: "Margin Of Safety". I basically failed in looking for risks that warranted an extra margin of safety.

Buffett bought Gen Re in the late 1990s and it took a long time for him to set that business on the path to success. 

In doing so, he talks about the characteristics of a sound insurance operation (quoted from page 546, footnote 2 of Adam's book):

1) An understanding of all exposures that might cause a policy to incur losses;

2) A conservative evaluation of the likelihood of any exposure actually causing a loss and the probable cost if it does; 

3) The setting of a premium that will deliver a profit, on average, after both prospective loss costs and operating expenses are covered; and

4) The willingness to walk away if the appropriate premium can't be obtained.

These principles apply not just to insurance companies, but to all companies in general. All you need to do is, replace some of the specific terms he has used with more generic terms.

I put my guard down in buying some (good) companies at prices that were not discounting all the potential and probable risks. I am paying the price for that error. 

Here is an old Graham quote that is so apt:

The problem overlooking the margin of safety is: that you'll have to wait much longer for recovery. You have to go through the pain. There are no shortcuts. 

There is no place for hubris in investing. You cannot correct mistakes already committed. Sometimes, if the money supply is plentiful, liquidity + low-interest-rate environment hides many of these errors. I reflected on that in my last post - Gravity and Oxygen: Makes all the difference.

Even if you buy good companies at prices that do not discount all risks - it is a bad buy. I hope that I never make this mistake knowingly again.

Ciao till next time...Harsha

Gravity and Oxygen: Makes all the difference

I remember that in school, when we went to the local science museum, there was a machine that calculated our weight on the Moon, Mars, and many other planets.

It was fascinating to see that our weights differ! I still remember that our weight on the Moon was 16.5% of what we weigh on Earth. 

Someone who weighs 100Kgs is only 16.5Kgs on the Moon :-) That was a very interesting titbit. It still psyches me though... The concept of gravity. How gravity is different on different planets, and so our weights change based on that.

We were taught of Earth as the "Goldilocks" planet as it had a stable atmosphere, viable oxygen supply, the right amount of sunlight, and water for the sustenance of organisms. 

That, we were told, was why we could only live on Earth and not Mars...or anywhere else.

Well, now, let's take that analogy and move into the stock market:

We are seeing a sudden fall in the stock markets - lots of reasons, some relevant, some not so relevant. 

Quite a few stocks have corrected in the last few days. Certain themes have taken a tumble of 5-10% in this week alone. 

A lot of story stocks were trading at 100x P/E and some even more when there are no earnings, but only projected earnings... 

100x P/E means you are extremely sure of earnings growing rapidly for many many years ahead and are supremely confident of the quantum and trajectory of growth... I've always wondered how you can be sure of something 20 years down the line when you are unsure of what happens a week or two from now. 

People change, companies change, directions change, and all sorts of things can happen. How can someone be so sure. Where is the margin of safety??

Anyway, I'm digressing.

At the end of the day, the way you value a business is by estimating the future cash flows it would produce, and discounting it back to today.

Essentially, we are looking at two variables - 

(a) What the asset would produce yearly -- Cash flows

(b) What is the rate at which the cash flows get discounted -- Interest rate

With feds and central banks finally looking at curtailing inflation, rate hikes have come in. With (b) going up, the value of assets needs to come down. Interest rates are like gravity. Higher the rates, lower the asset value...

You see, gravity brings down the weight?

Though it is to be expected, it is always the lack of visibility of earnings, extra caution creeping in, and a sense of the unknown which causes liquidity to disappear, leading to prices falling indifferently.

Who knows how to perfectly value future cash flows...

Anyway, nobody knows how much something falls. The future is always uncertain. 

But, as we're taught in school... Oxygen does make all the difference for sustenance. Oxygen typically in the world of stocks is the availability of easy money. 

Nobody thinks of oxygen, but it makes all the difference when it is not present. It is the same as liquidity to the market. Nobody cares about liquidity as long as it is abundantly available.

When liquidity tightens, uncertainty gets heightened due to a sense of pessimism. One becomes less certain of future cash flows. 

That is our problem today. Both these together create issues. Uncertainty creates doubts. 

We start looking at everything during times of uncertainty. Government policy (China-US), Oil price, Covid (still?), and Ukraine-Russia issues (last I checked, they were <2% of world GDP) among others. 

All of these do cause uncertainty. Some of the factors are more relevant - Oil prices for example, which a country like India is heavily dependent on; more than others...

But, all of these affect the way we perceive the future unfolding and with it, the movement of interest rates, and the certainty of future cash flows.

What can we do?

We humans always love to hear a story. Who doesn't like a story with that fantastic twist at the end? Something that will change the world.

I certainly do like a good story. And so do you. But, we also know that change and growth are usually slow. There are always bumps on the road. 

It is better to look at realistic storylines of companies as the future always holds a range of possibilities. It is better to stick with a future that is conservative, but directionally positive. Something that might not change the world today or tomorrow - but, over long periods, will lead to a massive difference.

What am I doing?

Usually, when I have made a good purchase, I just don't want to do anything. Most of my errors have been in doing something - typically selling early. Notional price movements should not always dictate actions. Sometimes, not doing something stupid is better than doing anything at all.

Again, Earth is a Goldilocks planet due to a combination of factors. Of course, Gravity and Oxygen are key ones, but many others are needed like the right amount of water, sunlight, environment, atmosphere, etc, etc. 

Many a time, stock portfolio construction is also a work of art. This needs to have the right amount of order and balance. 

Deploying extra cash I have, sitting quietly and deeply looking at any potential themes, and not unduly changing anything... is what I am trying to do.

Well, here is an old clip of Buffett that seems to so succinctly summarize the situation:

Ciao till next time...Harsha

Magic: Compounding Over Long Periods

My son and I were reading the newspaper earlier today. He is 10 years old. An article piqued his interest - Elon Musk taking over Twitter and how he is shelling out $40B+. He knows that Elon Musk is the richest man today with ~$250B. 

He seems more interested in finding a way to make money himself. Here was our conversation:

Son: How much is a $1B? 

Me: It's roughly Rs. 7,500 Crore

Son: Well, I'll start a company and will make more

Me: OK, good. Get working

Son: Anyway, how much will my piggy bank grow if I keep investing that?

Me: Let's calculate. How many years do you think you'll live and what interest rate will you grow your money at...?

Background: He's seen the simple compound interest calculator, and he's played around with me. His piggy bank is fully invested in stocks which he picks with me. He seems to like valuing companies we come across.

Son: 90 years (80 years ahead of him), 20% every year

Me: Yes, you'll get to a $1B+ with what you have, if you grow that without touching it (I'm leaving out the exact $B)

Son's not too happy having that when he's 90 years. We'll see what he does to get there sooner.

It's magical to see how money snowballs. He seems to get the concept. Now, let's see if he can really grow that at 20% YoY and if he does not lick into the honey pot.

That's for time to tell. 

Ciao till next time...Harsha

Exponential Growth: A Curious Case

I hate popping pills. Especially if something needs to be taken regularly. All sorts of pills have taken a foothold into our lives. Pills for blood pressure, diabetes, fat burn, protein supplements, and so on and so forth. It is like someone controlling our lives, and you can do nothing about it.

A magic pill that can cure anything is just what we are looking for. Though I hate pills, I love the pharma business. It is here to stay, and it is here to grow. Exponentially.

Here is a curious case of the Dolo-650

The one magic pill for fever, body aches, general weakness, or anything which causes you discomfort, is not there. 

But the belief is: if you're not really sure of what caused it.... take a Dolo! It might just help you. 

Or so, some of us believe. Yours truly included. I've popped a Dolo in the past year like so many others.

With Covid raging, the only over-the-counter drug that seemed always available, readily trusted, and used was Dolo. I was surprised how it became a household name in India.

I tried purchasing generic paracetamol when my mother was having a bout of Covid in 2020. I was told to only trust the one highly effective paracetamol, by the local pharmacist - "Dolo". 

When you need medicines for your family, you don't typically bargain on price, you go by what works. 

If the guy selling medicines says it works, you tend to believe him and pay a premium (50% more than the generic 500 mg Paracetamol).

I decided to dig a little deeper after the incident. It turned out to be a very interesting case indeed. I wanted to write on this topic since last year but kept putting it off. Well.. I've got to write it now. 

I recently read an article on Micro Labs in Fortune and it triggered back what I had researched myself.

Micro Labs (a privately held company based in Bangalore), was one of the many manufacturers of the common paracetamol. Their foray seemed quite unspectacular until the mid-90s. They were one of the many paracetamol manufacturers in the already crowded space.

Their "Aha!" moment came up when they differentiated their product by introducing a rather queer product size. The 650 mg Paracetamol product, christened "Dolo-650".

All Paracetamol products were sold in the standard 500 mg packaging. 

The brilliant idea of a 650 mg dosage was the result of focusing on the small set of people who really needed to take a dose of paracetamol due to high fever! 

Most people with light fever tried not to take pills. High fever warranted a higher dosage, and an extra 150 mg really helped!

Anyway, where is the growth?

Though Dolo was an effective fever reducer, it was a fairly steady product that sold a million strips (of 10 tablets) every year until 2019 for the Suranas (the family that owned Micro Labs).

All that changed, when Covid hit. I read estimates that they sold 3.5 Billion pills during Covid and are growing rapidly in high double digits YoY since.

They seemed to have now cornered a crowded generic paracetamol market with a slightly differentiated, modestly innovative product. 

Dolo is no longer a paracetamol 650 mg pill, it has got a brand of its own.

Paracetamol in India is now called "Dolo". This seems like the Xerox moment for them. A photocopier even today is called a Xerox machine. 

What got me really interested, is the philosophy of the Surana family (Dilip Surana) in a recent interview which I want to summarize here:

• Differentiation and branding (in this case, with medical advisors and doctors)
• Consistent quality
• Consistent messaging

Nobody can predict when exponential growth can hit in, but it was interesting to see a small domestic manufacturer corner a commodity market in the face of strong overseas competition (GSK) which had 10X more firepower.

Indian Pharma is ripe for more 10X's - I wonder who is next? The search will always continue. 

I just wanted to stop by, and tell you the unexplained story of "Dolo", the magic pill!

Ciao till next time...Harsha