Learning like a child

How did my investing apprenticeship really work? Just like childhood, and I'm not just referring to my tantrums.

My previous essay covered how my Nalanda journey started with “I’m an idiot”. I continue to view my Nalanda stint as an apprenticeship, trying to improve from that low base. While my biased assessment is that this has worked out well, there is one aspect of my learning that bugged me for quite a while. It was that my learning was highly uneven, with a disproportionate part of it happening within the first few months.

My prior investing stint had me viewing businesses through the wrong lens and asking the wrong questions. Within a few months at Nalanda, this flipped 180-degrees. I changed to weighing track record over forecasts, return on capital over growth, risk over return, moat over story, actions over words, achievements over credentials, safe heuristics over complicated XL … you get the drift. There was no investing bootcamp or manual that formally taught me this approach. My metamorphosis happened on-the-job, starting from day-one, as the five of us divvied up companies for study and compared notes on which ones were worth spending more time on. A part of the change was likely due to my unthinkingly copying colleagues’ approach in the spirit of cohesion and job safety. If that’s all there was to it, I would have felt strong dissonance with my new way of thinking. But reality was quite the opposite. This new way of thinking seemed to gel with who I really was. I felt like I had (finally) found a professional home.

This raised troubling questions that I struggled with for many years thereafter. If this way of investing felt natural and correct, why the hell couldn’t I get there on my own? How come I made no progress in years, only to have a light-bulb switch on within weeks at Nalanda? Why didn’t my earlier exposure to sensible investing, though reading and meeting sound investors, have any effect? And the most fundamental question, how stupid did I have to be for all this to hold true? While I had made peace with ‘idiot’ as shorthand for incompetent at investing, I wasn’t expecting it to apply in a more general sense. This raised fundamental doubts about the self-image I had painstakingly built till that point. Was centum in maths a sham <shudder>?

As with all existential doubts, I handled them in the customary way: through denial. I went about life pretending that the previous para never existed. Since I was otherwise enjoying work and company, it wasn’t hard. Nearly a decade passed without me revisiting these questions, at least overtly.

Until something changed. In 2014, my son was born. While I always had an interest in psychology, unsuccessfully trying to influence a tiny stochastic being led me to a sub-field called developmental psychology. This field is the study of how children learn, how they go from helpless feed-to-poop convertors to sarcastic little bums using their encyclopedic knowledge of Calvin & Hobbes to torment parents. Amidst that adolescent world, I stumbled on the answer to how adults learn too. At the least, the answer to why my aforementioned learning curve was so lopsided.

Developmental psychology explained why it is hard to enforce screen-time limits on kiddo when every adult in the room is hypocritically glued to a screen all day. Developmental psychology maintains that children don’t learn from advice or lectures (duh). Children primarily learn in two ways: (1) imitation, (2) trial & error. Note that both pertain to actions, not words. The two aren’t entirely independent either. The latter feeds off the former. While trial & error offers a feedback loop to limit self-harm, what kids try is rooted in imitation. Kids imitate what nearby adults do, not what they say. If I want kiddo to read for an hour before bedtime, I better read for an hour before bedtime too. At the least, I shouldn’t be glued to a screen while confiscating his TV remote. When we see a kid being disrespectful towards a nanny, it’s almost certainly linked to parents being disrespectful towards household help. As astute observers of the world around them, kids naturally imitate and take to how those around them behave. As my kiddo helpfully points out, when I ask him to stop screaming, I am usually the only one still screaming.

In my experience, adults learn the same way kids do. We imitate those in our (professional) neighborhood, both consciously and sub-consciously. We learn by doing what peers do, especially if they are people we respect or work with. It is why corporate cultures are invariably driven from the very top. Companies are mirror images of promoters’ personalities and values. Some businesses are hard-charging to the point of criminality, while others are conservatively yet competently built. Diverse businesses owned by the same promoter exhibit similar strengths and flaws. Entire investment teams mirror the nature of one key person, whether Seth Klarman, Terry Smith or Prashant Jain.

While it is possible to imitate from a distance, it is much less effective. I can read everything Buffett has written but struggle to implement it when context, constraints and people differ (not to mention, with vastly inferior abilities). That’s why apprenticeship works so much better than correspondence course (or ed-tech, as kids call it nowadays). It is totally different game to observe an investing approach being practiced within the same walls. High-bandwidth imitation is possible, with minimal transmission loss.

I don’t want to mistakenly imply that imitation is blind. There is thinking, questioning and iterating involved. However, the starting point for me to absorb a sensible investing approach was imitation. In observing Pulak and others analyze hundreds of companies during my first few weeks at Nalanda, I picked up the basics of what questions to ask, what to seek and what to avoid. Without fully understanding their thought process, I imitated it as best as I could with companies I was looking at. Before then, I was only reading or listening about sensible investing. Now, for the first time, I was living it. This made it real. As I went through more companies back-and-forth with peers, a certain way of thinking got reinforced. After ploughing through a few hundred companies, even I could see the merit in this method. I started taking baby steps from imitating to internalizing. In that process, I didn’t encounter much dissonance, implying that this way of thinking was generally aligned to my natural orientation. When I found something incongruous, I could explicitly table and debate my discomfort. Over the first many years, I remember arguing incessantly, though I was mostly wrong. Over time, I might have even contributed to refinements to our collective investment thinking. After a decade, I had an approach that felt like my own, though none of it was original and wouldn’t have happened without apprenticeship and imitation.

My intent here is to write a personal note on how learning occurred for me. My experience was similar to how children learn from the environment immediately around them. It is possible that others manage distance learning a lot better than I did. However, I do believe that strongest learning occurs from those immediately around us, through doing, not reading.

If you are a new, aspiring investor, an apprenticeship with a seasoned investor whom you respect is an ideal starting point. However, such opportunities are rare and involve too much luck. Learning from a distance is more likely. In deciding who all to learn from, it’s good to apply the apprenticeship test: would I willingly do an unpaid internship with that investor, to learn? Then, to make distance learning more real and sticky, do incorporate learnings from developmental psychology and my experience. Go from reading and listening to imitating. Translate their thinking into implications for your investment actions. Live the method with real money, even if it takes years and mistakes. Remember what your child instinctively knows. Lectures are nice, but imitating actions with some trial & error is the path to development.