While watching the great COSMOS series brilliantly narrated by @neiltyson this clicked us somewhere around the 12th episode of season 1.
This set of observations might help you understand what great investors and thinkers like sir charlie munger globally and Prof Sanjay Bakshi in India have been explaining for decades – the importance of multi-disciplinary thinking.
Observation 1: It takes much longer than you think Earth is approximately 5 billion years old & the universe is approx. 15 billion years old if we compress these 15 billion years (scale) into a single calendar year i.e., from 1st Jan to 31st December.
We, humans, arrived on earth approximately in the evening of 31st December and entire species of mammals came around 25th December. As per the timeline of the universe, we are just 4 days old. Crazy right? That’s how young our species is.
In business models like evolution,it takes much longer for business decisions to reflect in numbers. Hence qualitative analysis matters more than just number crunching. That’s why maybe great investors ask us to see business as an evolving movie rather than a static picture.
May be boiling frog syndrome also explains the same thing (hypothetically if you keep a frog in a pan of water & slowly increase the temperature the frog won’t be able to feel the heat & will die boiling in the water)
Observation 2: Common element between earth,moon, our solar system,our galaxy,our universe: GRAVITY. Our entire ecosystem is governed by gravity. We are controlled by earth through gravity, earth control moon through gravity, moon control winds & waves on earth through gravity.
Earth is controlled by sun through gravity, Sun is governed by gravity of milky way galaxy. Similarly in business world there are few variables (respective to various industries) that govern the entire cycle. For e.g,
1) Take AMC business -> It’s all about scale & Trust.
2) Cement -> it’s also about cost
3) CRAMS/CSM -> it’s about scale and R&D
4) FMCG it’s all about product SKUs, category innovation & distribution
5) Banking -> it’s all about low cost of liabilities & quality of Asset book. (These are just some basic examples)
Observation 3 Facts vs narratives: It will be fascinating for you to know that in earlier times if someone disproved beliefs of the Church (no targeting of religion, we are just quoting what was presented in the COSMOS series) you were burnt alive or banished from society.
When one of the greatest astrologers of that era Galileo developed a telescope to see the farthest distance in the skies people controlling the church did everything in their hands to destroy his findings.
Even when Issac newton was selected as a fellow for Trinity college there was a note mentioned in his so-called offer letter that he can’t commit a few CRIMES – one of them being Heresy (i.e., going against accepted faiths & beliefs).
They were hiring a scientist and wanted to be a “Yes” man in the beliefs of the church. Similarly in investing when a narrative is believed by the markets to be true the stock just keeps on going in one direction.
It does not matter how loud you shout with a contra opinion people just disregard it and label you as a fool who does not UNDERSTAND what is going on. In the end, fact & logic win but again it takes much longer than we expect.
Observation 4: What makes you sometimes kills you: It is due to carbon elements that we humans exist. In creation of Stars, humans, universes carbon plays one of the most crucial roles and it is the same carbon element which is causing global warming/greenhouse effect.
which might lead to the death of the earth. Similarly, there are some things in business that you might do at a smaller scale that actually makes you dominate a field but doing the same things at a larger scale kills you.
For e.g,imagine a B2C business initially focusing on product development as you need that 1-2 great products to start attracting customers. This brings initial traction but what if you just keep focusing on product innovation without thinking of expanding the distribution scale?
You will end up burning money in R&D with good products to sell but not having enough scale and ROEs to further continue product development which in the end will kill you.
Observation 5: Weather vs climate: A brilliant insight that we learned in COSMOS was weather & climate are different things. Weather is a short-term/daily/seasonal phenomena which get affected by even smallest of the factor hence it is so difficult to predict whereas climate is long-term phenomena.
For e.g, greenhouse heating the earth is a climatic issue if we look at the global temperatures, not Y-o-Y but over decades, we will clearly see that the earth is heating up & ice on glaciers is melting but it may be possible that: The recent winters were even colder than earlier. years confusing you whether global warming is really true? Similar events happen in the business world where investors confuse short-term effects with the long-term performance of the business.
Rather than focusing on long-term business drivers like Market Share, product innovations, Gross margins, ROICs, management execution etc., we get affected by the noise of short-term events. Observation 5: If you don’t know that does not mean it’s not important .
It was really intriguing to understand why melting of ice is such a huge problem.Water absorbs heat & ice reflects it. So,it’s imp for ice glaciers to be intact else earth will absorb all the heat being poured by sun (infrared lights) on our planet & it will heat it up even more.
Similarly in investing its imp for an investor to talk to people involved in the value chain of the business (suppliers, buyers etc) a lot of time,you may be missing some crucial activities happening in the business as not every minute detail gets reflected in the numbers quickly.