Investing Lessons from Spending Time with Animals — Feat. Tanzania

My wife and I recently went to Tanzania, and without a doubt it was the most thrilling experience of our lives – witnessing the migration from Serengeti in Tanzania to Masai Mara in Kenya with millions of wildebeests, and hundreds of thousands of zebras and gazelles. The migration attracted all predators, and we saw multiple prides of lions, coalitions of cheetahs, and clans of hyenas. Watching these animals in their natural habitat, driven by primal instinct revealed insights about human behavior that are applicable to investing.

Migration with the wildebeests: Our main intention of planning a trip to Tanzania at this time of the year was to see the great migration – where millions of animals move across the northern side to the southern side in search of better living conditions. As we witnessed this natural phenomenon, I wondered to myself that why do these animals follow the same path year after year (for millions of years) – moving together in a herd, one after the other, without independently thinking of the best route to avoid/minimize getting preyed on by animals such as cheetah, lion etc. This herd-like movement made it easier for predators to prey on these wildebeests, since it was easier for a lion or cheetah to spot their next meal from a distance. The predators on the other hand were solitary creatures, camouflaged in the shadows, creatively positioning themselves to catch animals sometimes 2x their size.

What is the investing lesson here you ask – don’t be a wildebeest in a herd, be a lion. Be comfortable investing in businesses that are disliked by the market (are not flavour of the season) as long as the long-term economics of these businesses stay intact. This does not mean that you have to actively seek out to be different, but if investing in a great business comes at the cost of standing out from the crowd don’t be afraid. Following the herd (market) will deliver market type returns, Period.

Harem of impalas – survival of the fittest: On one of our safari’s, we witnessed a harem of impalas, but on closer inspection we saw only one had long beautiful horns. Our guide “Eddie” told us a very unique thing – a harem is a group of one male impala roaming around with multiple (~10-20) females, and since this is a prime position to be in (I am sure you can guess why :P) there is a constant battle between male impalas in the jungle to displace each other through physical altercation – hence, the fitter an impala is the longer it continues to enjoy the benefits of its prime position.

What is the investing lesson here you ask – investing in businesses that have a competitive moat surrounding their business which is endurable over a long period of time is the secret to nirvana in investing. All competitive moats are challenged by existing and new competitors because who does not want to compound capital at higher-than-average rates for a long period of time. Therefore, businesses which remain fit aka pristine balance sheet, great product, superior capital allocation etc. etc. continue to survive and enjoy the benefits of compounding for a long period of time.

Cheetah – as good as it gets: Cheetah is a majestic animal with its chiseled body and speed that is envy of a lot of other animals. On our last couple of days, we witnessed a cheetah’s masterful hunt unfold - a meticulously planned and flawlessly executed attempt to ambush a calf. From the first glance to millions of calculated moves and finally the breathtaking strike, every second was a display of raw power and precision. Without a doubt, it was the most electrifying and pulse-pounding chase I have ever seen.

Is there something to be learnt from a cheetah chase for investors? – most definitely YES! – The first and foremost attribute of this chase is what struck me the most as I was always of the opinion that animals don’t think before they set out to prey, but it was quite the opposite – the cheetah waited for hours (literally) patiently watching a group of wildebeest passing by from a distance and did not make any move. We were both very surprised as to why she did not do anything despite having multiple opportunities of small calves within striking distance. Seeing our confused faces Eddie explained, a Cheetah is very patient irrespective of how hungry she is and is very selective of the target she shortlists and will only attack when the chances of error are almost near zero. As I listened, I could not think of a better lesson for investors – patiently waiting and only striking when a fat pitch arrives is easier said than done, and is therefore the secret to outsized returns.

The second thing which I noticed which was very peculiar about the Cheetah was that despite having shortlisted the target she wanted to go after, she stopped after every 100m and repeatedly scanned her surroundings before proceeding, why – she wanted to be sure that there is no threat to her from any other animal from any part of the jungle as she carries on her chase. Infact as the calf ran into the woods – the cheetah despite being 2x faster gave up the chase. Why? Because she didn’t want to take the risk of going into the woods where her life could be threatened by a larger predator (lion, hyena, leopard) waiting for her behind a tree. Lesson for investors – accounting for risk or having a big margin of safety even when you are sure of your thesis helps minimize the pain and eventually maximizes gains. As Mr. Marks would say, it is more important to avoid/minimize losers, than getting the winners, the Cheetah must survive today to hunt tomorrow.

Despite planning so much and patiently choosing and moving towards her target, this Cheetah turned out to be unsuccessful in her pursuit for a calf. At first, we were deeply disappointed to see the cheetah, exhausted and hungry despite her Herculean effort. Yet, beyond the heartbreak of her failed hunt, I found immense satisfaction in witnessing the precision and skill of her PROCESS. I was certain that in the long run, her well-honed process would prevail—because a strong process always outlasts unfortunate outcomes. _Lesson for investors – focus on the process of choosing the right businesses to invest in since it is an investor’s process that differentiates skill from luck in investing, a bad process can have a good outcome because of luck but you definitely do not want to play in that domain as a long-term investor.

After we returned my wife already started planning a safari trip to a different part of Africa, and to her utter shock and surprise I said HELL YEAH! – why don’t we take these trips 4-5 times a year :P