A key realisation is that long-term trends play an influential role in equity returns. Examples are India's demographic advantage and a higher level of savings rate. The influence of these trends is well discussed but investors are prone to overlook these powerful factors. What these trends offer you is clarity during times of crisis or uncertainty. The decisions an investor makes during such crisis points have a large bearing on his/her long-term returns. A better appreciation of these long-term trends serves as an anchor and helps an investor avoid expensive mistakes during such uncertain times.
The ability to let winners run for a long time and cut laggards early is an attribute critical in generating strong returns. I do admit that this observation sounds quite theoretical, but this is as important as identifying a good business to invest in. Truly exceptional returns are made by remaining invested in growing businesses for a long time. The converse is also equally important; I have suffered from having hung on to struggling businesses for a long time, at least longer than desirable, in anticipation of an improvement. In this context, a 'fail fast' approach would have spared me a lot of heartburn!
To make things more interesting, investors must realise that such lessons from past investment experiences are not equivalent to scientific truths. These are not immutable theories that work always. For example, the investment conclusions gathered from 2004-2007 might not have worked during 2015-20; and vice versa. Without letting go of a few core principles, investors must be intellectually prepared to experiment with a few different theses for a given situation and be willing to discard a solution that may have worked in a different situation that does not appear effective in this case. This is a difficult skill to develop; I know this since I have been struggling to do so. But this is what makes investing intellectually stimulating, besides monetarily rewarding.
This interview was conducted in June 2021