When I left McKinsey to join private equity in India, I was extremely nervous.
I knew nothing about investing. All I had learned at b-school and at McKinsey was the theoretical stuff. And now I would have to rub shoulders with the ‘pros.’
Since these people were investing hundreds of crores, I expected to see very smart people, with solid business fundamentals, industry knowledge, and a good intuition.
Instead, I found that most people had zero understanding of fundamentals. In the name of finance, many only knew EV/EBITDA multiple.
If you talked about return or capital or anything resembling fundamentals, the best you got was a condescending smirk.
While there were a few smart investors, they were the exceptions.
On one occasion, a senior guy irritably asked, “Why are we wasting time talking about industry attractiveness? There is no good industry or bad industry. You can find winners everywhere.”
My fund manager, who was very sharp, said, “If you stand outside a casino and ask everyone leaving if they won or lost money, you will find both. But on average, you will lose money. As an investor, we bet on odds.”
But then, how does it matter? Maybe these guys did well.
Sadly, they did not. All those cowboy investors who did not know their basics lost hundreds and thousands of crores.
We can do as much showboating and chest-thumping as we want — reality will catch up.
Nature is unforgiving — it does not respect your college degrees, number of years of experience, or your suit and tie.
If we deviate from fundamentals, nature will make us pay.