Book Review

Learning from the Gurus of Chaos

In his book, Gurus of Chaos: Modern India's Money Masters, Saurabh Mukherjea writes about the ability of the gurus to think differently & take an independent view of companies

Learning from the Gurus of Chaos Modern India's Money MastersAs the post-launch marketing blitz around my book "Gurus of Chaos: Modern India's Money Masters" settles down with the first print run of the book being sold out, I sat down on a Sunday morning to reflect on what exactly have I learnt from the "gurus" featured in the book.

The gurus featured in the book - great fund managers whose wisdom I have benefited from immensely - are Sanjoy Bhattacharya, the founding CIO of HDFC Asset Management; Alroy Lobo of Kotak Asset Management; Akash Prakash of Amansa; Sankaran Naren of ICICI Prudential Mutual Fund; Sashi Reddy of First State; BN Manjunath, the former advisor to Ward Ferry; and the unnamed former CIO of an iconic investment management house.

What leapt out as I revisited the interviews and narrative featured in the book is the ability of the gurus to think differently and to take an independent view of companies regardless of what the rest of the market is saying about that company. At its core, this is the essence of successful investment management. The problem, as we all know, is that it is so hard to do - when the whole market is selling a stock, our natural instinct is to be fearful rather than to see it as a buying opportunity. The opposite applies when the whole market seems intent upon buying shares in a particular sector or in particular stock. Being able to neutralize greed and fear is the defining trait of a great fund manager.

So how does one acquire this ability to neutralize greed and fear? The last two chapters of my book drill into this question using the latest research in neuroscience and psychology. Looking back at the interviews in the book, I think the basic ingredient that goes into the making of a great fund manager is humility. If there is one underlying quality that eventually helps a few fund managers peel away from the many who sway with the market's waves of greed and fear, it is humility. I can think of at least three good reasons which make humility the essential building block for a great money master.

One of the critical problems that all of us face whilst making tricky decisions - whether it be in markets or elsewhere - is overconfidence. As numerous books on behavioural psychology have pointed out over the past decade, we are overconfident in many different ways - about the extent of our knowledge, about our ability to make accurate forecasts and about our ability to outperform our peers in our chosen field of competence. This overconfidence then results in us trading more often than we should and in making bigger gambles when we trade. The humility to understand our own limitations, on the other hand, inclines us towards conservatism i.e. if we are aware that our knowledge is limited (rather than perfect), that our forecasts are probabilistic (rather than certain) and that our abilities, relative to our peers, are modest then we are more likely to trade less and take less risk when we do trade.

Secondly, with humility comes not only a greater awareness of one's limitations but also the spur to work harder, research companies deeper and meet a wider range of companies. Albert Einstein said that "It's not that I'm so smart; it's just that I stay with problems longer.' The analogous saying comes in the world of investment management comes from the Fidelity legend, Peter Lynch. Whilst writing the Preface to another investment legend Anthony Bolton's biography, Lynch said, "'What distinguishes investment winners, as you'll see in this book, is the willingness to dig deeper, search more widely and keep an open mind to all ideas--including the idea that you might have made a bad call. He or she who turns over the most rocks, looks over the most investment ideas, and is unsentimental about past choices is most likely to succeed."

A specific facet of the work ethic arising from an awareness of one's limitations is a desire to learn more. If you believe that your knowledge and understanding of the world is limited, you are that much likely to want to read more, to travel more and to learn from others. This powerful combination of curiosity and inquisitiveness combined with an openness to perpetually learn is a common thread running through the interviews and biographies of great investors.

During the three years that it took me write this book, I met the gurus several times. Initially, I used to take their humility to be the sort of false modesty that immensely successful people cultivate in order to put the rest of us at ease. But as I got to know the "Gurus of Chaos" better, I realized that their humility is real - the gurus genuinely believe that they are more fallible, more human and less powerful than most people around them. They constantly underplay their achievements and their strengths and in that genuine modesty lies, I believe, the true underpinning of their immense success. In a world full of ironies, this surely is the one of the more delicious ones - the super investors who believe themselves to be more ordinary than most turn out to be amongst the most extraordinary group of achievers that I have had the good fortune to encounter.

Saurabh Mukherjea is CEO, Institutional Equities, at Ambit Capital. The views expressed here are personal.

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