Stock Market Crash, Gold, US Stocks & Bulletproof Portfolio | Saurabh Mukherjea | FO573 Raj Shamani

What do you think is the biggest crisis. in the world today? I think there's a. real risk that rupee will crack through. 100 in spite of the RBI's best efforts. A lot of things which are valued at. trillions of dollars will end up getting. valued at billions of dollars will. become much cheaper whether that is real. estate whether that is stocks. when these large incidents which are. happening globally are we going to get. affected because of them as well I think. it's highly likely that oil prices go up. to 120 food prices rise and and I think. a supply side shock jacking up the cost.

of food increasing the cost of living in. turn leading to higher inflation higher. inflation will lead to higher interest. rates Sor Mukharji, author and founder. of Marcelus Investment Managers. In this. episode, we talk about building. long-term wealth, finding highquality. businesses, and the biggest mistakes. investors make. You told me how there. are companies which are able to create. thousandx 100x kind of value even when. the crisis are there. To deal with this. these sorts of upheavalss, you need to. have three sets of skills.

The first is understand what you're good. at. Double down on that. Don't try to. copy other people. I think is the first. aspect. The second piece is I will build a great. team around this. hire bright people as a firm. We will. invest in them for decades. Then we will. rotate them across various divisions. But by doing a variety of things, that. person will become a well-rounded. leader. And the final element to. creating this 100x,000x. is deliberately taking challenges head. on.

what happens if the oil prices continue. to rise for next 2 three years. Now one. of the fascinating things I'm seeing. across the world right is governments. are saying that we are struggling for. money so don't expect too much by way of. public services from us. So so that. means private sector will provide these. services and I think there's scope to. make money on that because these are. services that will be in steady demand. if you provide hospital care if you. provide basic medical diagnostics blood. test urine test you provide medical. insurance you provide medicines. So the. privatization of public services I think.

globally is a colossal opportunity. What should an individual do? As I got. older, I realized the trick build a. successful life is to build a. bulletproof portfolio where regardless. of how the world plays out, you're in. good shape. So step one of that before. you even get to investing is have very. little debt. Make sure that your EMIs. are no more than 20% of your monthly. outgo. Second piece is buy plenty of. insurance. Next piece is diversify. Spread yourself across asset classes. Indian stocks are 3% of the world.

market. America's 5560. Europe is 2025. Diversify in equities globally. Also. have [music] some amount of gold, some. amount of bonds and some cash. And the. last piece was. I have a small favor to ask you. I need. you to subscribe to our channel. The. more subscribers we have, the better and. bigger guests we can bring and provide. you more value through these. conversations. And the full audio. experience of this show is also. available on Spotify where you can.

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part is that you never have to negotiate. on price. Whatever rate you see on the. app is exactly what you pay. To know. more about our title sponsor porter and. their services, check the link in the. description. There's one thing which I've noticed in. you is every time you come and meet me, you come up with a new insight. about in which industry the crisis is. going to come [laughter] as.

>> and which industry it's going to this is. what I'm noticing like today you were. telling me about influencer and. podcasters last time you were telling me. about middle class like every time you. come up with some insight and you're. only looking at people where the money. is getting lost and [laughter] where the. crisis is coming right so. >> I love that thing about you as well like. you you tell me in advance and then I. start thinking about it a lot. >> so today let's let's start with this. point that. >> what do you think is the biggest crisis. in the world today.

I think we've spent from 1980 I think. 1980 we've seen the price of money drop. right the price of money simplest way to. measure the cost of money raj. is to look at the US 10-year bond yield, right? I think US 10-year bond yield. 1980 double digit and from 1980 it kept. falling, kept falling, kept falling. It. bottomed out during COVID. I think went. to close to zero. Money became almost. free during COVID because the Federal.

Reserve uh printed money, flooded the. world with $10 trillion of liquidity. So. from 1980 to 2020, 40 years, money kept. getting cheaper, right? Um then from 2020 because 2020 was. exceptional Federal Reserve printing $10. trillion almost 10x the money they. printed during the GFC. From 2020 cost of money has started. rising but we still behaving because for. 40 years we had money getting cheaper.

and cheaper. The world is still behaving. as if money is cheap. Um and and when. people believe money is cheap, they. believe they can do outrageous things. such as uh finance wars which have no. logical endpoint uh such as spend spend. a trillion dollars a year on uh on capex. on AI. So when you see people losing. sight of the cost of money, they do. irrational things. >> and that usually ends in tears. I think.

we're getting close to that point in 26. Maybe it'll come in 27 where uh we will. once again start appreciating that money. is not free. Uh whether it is money in. India, money in America, money in China, money has a cost. And whether that cost. of money is whether the cost of 10ear. dollar money is 5%, 7%, 8%, I don't have. a fix on that number. Some people are. saying it'll be five, some are saying. it'll be seven. But I think the cost of. money is higher than a lot of people, a.

lot of people younger than me. A lot of. people your age, a lot of people your. age in their mind money is cheap and. hence it can be frittered away whether. for personal or for corporate purposes. I think the reckoning is coming on that. Um the the result of this will be the. result of this will be valuations. Valuations will get challenged. A lot of. things which are valued at trillions of. dollars will end up getting valued at. billions of dollars. A lot of things. which are valued at billions of dollars. will get valued at millions of dollars. Right? And I thought many things which.

are valued millions of dollars will. become much cheaper. Whether that is. real estate, whether that is uh uh uh. stocks is a matter of detail. We can get. into that. But the biggest challenge is. I think we had a generation the. generation younger than me um growing up. with cheap money as the backdrop of. noise in their life. And for them buying. a 1.6 lakhs 1.6 six lakhs latest phone. or financing a holiday uh to Maldives. using loans is a secondary instinct. I.

think those instincts will get. challenged and similarly in corporate. life a lot of people are building. companies which don't generate cash but. the whole point of the company is to get. a big valuation big exit. I think that. behavior will get will get challenged. So both in corporate life and in. personal life in India and in America I. think we're heading into a point of. point where money will get expensive uh. valuations will get challenged and the. inevitable aftermath will be uh uh uh uh. non-performing assets bad debts and. personal life. So in simple terms tell.

me what do you mean by money is getting. expensive and money is cheap? How do I. know that money is cheap or money is. expensive? >> For me money is money. So, so when you. see when you go to a high-end restaurant. in Mumbai, [snorts] right, where you. know the meal will cost per person 2, 2,500 rupees per person and you can see. everybody there is under the age of 25. >> Um, and it's not even a weekend. It's a. weekday night in say BKC or weekday. night in in suburban Bombay. Um, and.

everybody's under 25 and you can see. that the payments are being made through. credit card. You know there's a. challenge coming. uh when you can see. that uh autoricha drivers in Mumbai have. the latest iPhones you know there is a. challenge coming right I love my iPhone. my iPhone is a is a old iPhone uh the. model is so out of date I dare not say. this on the podcast so I won't mention. the model I think it lead to national. embarrassment for me. >> it's a it's [laughter] a it's a SE I.

won't even sell which SE um but it's. it's cheap it does the job I'm very. proud of my made in Bangalore lowcost. iPhone but when I see the auto rick. driver with a cutting edge iPhone I know. he's bought it on installment um I I. wish him the very best in repaying that. 1.6 six lakhs but I think broadly at a. cultural level there's a phenomenon. which I think will be hard to hard to. unravel without NPA. >> So when everyone is buying.

things way beyond their means on EMI and. loans and on credits and spending on a. lifestyle which they don't have but a. credit card can afford that lifestyle. Whenever you see this becoming a normal. thing you think money is cheap. >> Yeah. So that's the personal life. construct. >> You can see the same in business. >> But you would say that that means money. is cheap. >> That means money is cheap. And I've seen. before in my life that when these. periods in history happen, the. unraveling doesn't take very long. So we. had one bout of this. I went through one.

bout of this in 200 um 5 2006 in the UK. So I I grew up in a suburb of London. I. used to do a newspaper round through my. teenage years. >> So I knew every shop in that. neighborhood. There was around 250 shops. to whom I used to deliver the newspaper. in the evening after school. So it was a. you know working-class neighborhood in. London. Nothing fancy. [snorts] 2004 56. all the normal shops started getting. replaced by real estate brokers. um or coffee shops where uh in today's.

money cup of coffee would in uh in. Indian rupees be 350 400 rupees 500. rupees. Uh so either uh uh real estate. brokers, coffee shops or mobile phone. shops. The all the other normal shops. disappeared. Green Grocerer disappeared. Butcher disappeared. Uh Nike Duk the. Khan disappeared. Barber shop. disappeared. And um I said I know this. place well. I know that this. neighborhood doesn't have so much money. to have so many real estate brokers. And. I could see on the real estate brokers. cuz they advertise the flats outside.

You can see what the ticket price is. So, a one BHK in this uh working-class. suburb of London was £200,000, £250,000. And I knew what the people in that. neighborhood earned, right? They simply. didn't earn enough either to buy that. coffee [snorts] or to buy the cutting. edge mobile phones of that era or those. flats. So, I was a financials analyst. then. I used to cover uh lending stocks. for a living. So I traveled around the. UK for around a month in my secondhand. Ford escort and I figured out this is.

going to blow up. So on 2nd February. 2007 Raj I wrote a 60-page note for my. client saying this whole system this. country will blow up because people have. taken on shitloads of credit which. they'll not be able to repay. uh the. banks and non-bank lenders have lended. the money but very cleverly they've then. downsold that risk to other pension. funds asset managers you know other. people who don't realize that this is.

risky loans um and to make sure that. these loans don't blow up they're. lending even more money to those. previous people and in India it's called. evergreening in the UK it's called. something else so I said this whole. thing is going to blow up uh short the. UK lenders 2nd February 2007 And I have. to confess I was lucky within few days. uh uh HSBC had a US subsidiary called. household. They announced that they were. hitting problems in America. I I was. living in the UK. I didn't realize.

America had an equally big problem. Right. So so I was like a frog in my. well and then through 2007 it blew up. 2008 the whole thing blew up. Um so I. saw that habit then. But what happened. is when it blew up in 2008 the Federal. Reserve said we will print even more. money, >> right? We will stabilize. we will kick. the can down the road. The next. generation will deal with the problem. >> Right? So we were I thought then by late. late 2018 19 now maybe the world will. snap out of it since economies are doing. all right but then COVID came the.

Federal Reserve said last time we. printed 10 1 trillion now we will print. 10 trillion right so then we had another. four five years of this but now we're. getting to a stage where it's insane you. know we've seen equity valuations SpaceX. for example uh unbelievable valuations. we haven't bought it we can't make any. sense of those valuations but even say a. great company like Nvidia, arguably a. company that will change the world we. live in. Even there the valuations are. not making any sense to us. Um and.

Nvidia at least has um unique technology. modes around their GPUs. There's memory. manufacturers, companies just who make. memory for say the cameras in this room. or memories for for the phones that we. use. Their valuations have also uh some. of the valuations are larger than the. Indian stock market. uh uh just one one. memory company single memory company's. valuations rivaling that of the Indian. stock market. >> because there's a shortage of memory. because everybody thinks memory. everybody wants memory there's a. shortage of memory so a typical memory.

company till till uh till the covid bout. of printing by the fed a typical memory. chip manufacturer Raj cross cycle would. make operating margins of 5 6%. bad. years negative, good years plus 10. >> on average five. Now their operating. margins are 80% 90%. Right? Because. there such a shortage everybody wants. memory cuz they set up want to set up. data centers and data centers therefore. uh without data centers they can't cater.

to the demand for AI. So this this. shortage is artificial. Behind this. shortage is this is this monetary. expansion. I think the monetary. expansion uh will will reverse and in. fact it's very interesting um because. the AI companies are now issuing bonds. uh uh uh the American tech giants are. issuing bonds at a colossal scale they. are dragging up the bond deals. So. American government needs money but. that's been the case for the last 40.

years. The new players who are saying we. also need a trillion dollars is the AI. giants because they're saying we are now. effectively like the government only. Without our tech, without our hardware, software, chips, you can't run the. world. So we're like government only and. we make most of the these American. giants make around $120 billion profit. Some of them make $200 billion of. profit. So they're borrowing money more. than governments. As they're borrowing. money more than governments, they're. dragging up the cost of money. And this. time around if the American if the Fed.

says right the Fed says we will now. print money again uh I don't know what. where the world will end up in but I. think this time around the Fed will. struggle to print money because if they. do it'll push American household. inflation to a place where they will get. into trouble. So at some stage this. party around printing money to deal with. crisis will have to end. I saw the 2005. 67 party that was the first time I made. a little bit of money in life. Um then. that money we uh with we moved to India. I sold my business in the UK. We moved.

to India and tried to we've tried to. build a life in Mumbai. But I get the. same sense now. Right. But what are the. see this is a sense like what are the. tellt tell. eight or 10 small crisis around you. which you are seeing which can which is. actually giving you some kind of belief. and understanding that all of this is. coming like a big crisis might come like. the money. money shortage will come people will.

start depreciating money a lot like lot. of different terms which you said it. just give me an understanding that the. crisis is coming. Yesterday I was in a major southern. Indian city, right? So, so uh we. publishing a new book called Art of. Enduring. I had gone to uh u uh gift a. copy to some of my clients in one of the. major southern Indian cities and I met. the the South India head of one of. India's largest steel companies. So I. said uh you know how's business? So he.

says never better. Yeah. S never better. some so why is your business doing so. this is steel demand retail steel demand. so retail means just normal householders. buying steel right it's growing at 20%. in volume terms right so remember this. is steel this is not some mobile phone. right. >> so I said steel TMT bars right he say. TMT bars growth is 20% in south India. that's my zone I'm so proud of this ste. steel demand is 20%. So why is steel.

demand 20%. He says everybody wants to. build a house right doesn't matter. whether they are uh bank manager. podcaster. uh wealth manager fund manager autoria. driver everybody wants to build their. own house so thankfully other than. Mumbai Hyderabad Bangalore rest of the. country people can afford to build a. house uh right so they want to build a. house and he says even though our steel. is is 20% more expensive than other. people's steel demand for steel is. through the roof we are selling as much.

steel as we can possib ly make. >> So I said, "That's at one level that's. good. People are borrowing money, they're buying steel, putting up a. house. What's wrong in that?" He says, "No, no, even if they can't get a home. loan, we have non-bank lenders who are. just willing to finance the steel." So I. said, "What do you mean financing?" He. said, "Exactly just like Bajage Finance. provides consumer durable financing, washing machine fridges financing at. Vijay sales or Chroma. we have now. NBFC's.

who are willing to finance Sara right so. I said give me some of the names so he. gave me some of the names I'd never. heard of these NBFCs he said not only. are these NBFCs doing it they're doing. it in the uh in the countryside. >> rural areas. >> rural areas may they're willing to. finance. and by the way sort of they don't don't. even need to fill paper it's all fintech. >> so [snorts] you know you come if a buyer. comes and he doesn't have the money to. buy the SA I just put him uh get him. into this app and through the app he's.

able to borrow money for my sa I say. what if he doesn't pay he says look. that's not my problem no my job is to. sell the sa right if the if the lender. is willing to finance the surya it's not. my no skin of my nose right. >> so know at one level I'm happy that in. our country financial inclusion has. reached such a level that in rural. southern India you can get your sa TMT. bar finance that is. >> but I do worry uh uh what will happen.

when the the dude who's borrowing money. is not able to repay. >> is not able to repay right uh so so 2025. Reserve Bank of India cut interest rates. by 1.25%. Uh 2025 Reserve Bank of India printed. flooded the system with twice as much. liquidity. as it did during COVID. Right? So money. our country is a washed with money. Right? I'm sure those watching will be. aware that India has raised some $25. billion of FCNR dollar deposits that.

also will flood the system with. liquidity. >> So as we speak right in the suburbs of. Mumbai, the country is a wash in. liquidity and as we are discussing Sara. can get financed in a village in South. India. Um that to me sounds like a. little excessive financing auto driver's. iPhone. you know, at least the iPhone. has resale value. And now the way the. financing is done is if you don't repay, they disconnect the they deactivate the. phone. So they're able to do that. remotely. [snorts] Uh financing cars,

bikes, if you don't repay. >> but sa um at. like you'll be like out of the out of. the house, they will take the papers. probably something like that. I was. thinking some fintech probably based in. BKC he'll go around South India. collecting the surya right so it is at. one level it is coll there there is. collateral but what will you do with. that collateral so this piece right I'm. I'm deliberately using an extreme. example to illustrate the madness that. has gripped uh not just our nation this.

is true the world over we seeing this. we're seeing this both in personal life. we're also seeing it in business life. where flimsy businesses are getting. crazy valuations but do you I think. so you see this in the local level right. in on an Indian level domestic level. when these large incidents which are. happening globally. are we going to get affected because of. them as well like for example let's say. the the oil and then choke point uh you.

know the shipping choke point of what. happened with straight of hormos and oil. is getting expensive more and more like. do you think that has to do something. with. >> I think this is where we have to be. really really careful All of us by by. saying we mean all of us as individuals, investors, people running small. companies, big companies, households, countries, right? Because we're we're b. we're likely to see a set of crises. They'll be intertwined, right? And for. us to be able to deal with them, we have.

to think through carefully. for ourselves what are we good at. whether as a human being or as a. business. What are we good at? What what. do we want to specialize in? double down. on triple down on. and then build our teams our businesses. allocate capital accordingly otherwise. what will happen is and what in a way I. think already happened is because there. is so much noise in the world uh there. is so much talk about AI so much talk. about geopolitical disruption that. there's a risk that rather than doing. what we are good at we end up just.

getting caught caught up in the noise so. let me give an example of uh of an. example that I think everybody can. relate to and then I'll connect it to. corporate. So, so you know as a as a teenager I. used to uh follow Rahul Ravid and like. him because he used to win India. matches. I was at that time it was I was. when he made his debut I was. >> 19 20 years old I was desperate to see. India win abroad because we used to get. go abroad and get completely thrashed. I. would Australia lose 3-0il or 4-0il.

South Africa 3-0. So what they call the. SA countries right South Africa, England, New Zealand uh uh Australia we. would get absolutely hammered in SEA. So. Davidid was like a savior for us, right? He would bat out hour after hour, day. after day and win us matches in. Australia, England, uh New Zealand, right? So, so then as I got older, I. realized it's not just about Draid. winning us matches. What Draid at least. for my generation of people did was he. helped us understand that if you're able.

to understand what are you good at, right? So in his case he had incredible. mental strength, sup mental fortitude I. think on a level which I hadn't seen. till that point in anybody else. He had. immaculate defensive technique and he. had he was a very fit guy right uh I. think he ate healthies went to bed on. time etc. So he says these are my. strengths and what drive also showed my. generation is there might be there might. be other 20 other cricketers who are who.

are able to hit the ball harder longer. who are more muscled up I have no desire. to copy them said Dravid even in the age. of IPL Dravid stayed dravid and by doing. so he took Indian cricket up several. notches. even more remarkably he did it as a. cricketer and then he did it as a coach. right he could have easily said my years. in cricket are done now I will do coach. coaching for big money during the IPL. and other than that I will stay in. Bangalore in a nice villa and and you. know spend quality time with the family. but instead she said I will run the.

national cricket academy I will coach. India a then I will coach the Indian. senior team and I will pass on to the. next generation this is Dravidian. mindset that understand your core skills. double down on that and regardless of. what the world says and does just do. your thing in your lane yeah stay in. your lane really really uh do your thing. really well right now. I think we're. going to head into a world, we're. probably already in a world, but if if. for those watching it's not apparent, we're going to head into a world where.

doing this really well will be super. important because I think the the. chances are more than 50% I think that. we'll get a set of interlin issues. coming through, right? And broadly. speaking, I know not all of these might. come through, but I think the broadly. speaking, the interlin issues look like. the issue we began with. I think it's. highly likely that the cost of money. will rise. If the cost of money doesn't. rise because of the bond issuances by. the US government and by the AI giants, a supply side shock. Supply side shock.

meaning oil prices go up to 120 because. of some some events in the Middle East. or elsewhere or food prices rise, right? Global global warming is uh is creating. hotter and hotter summers. Not just in. India. I was in England this summer. It. was mad hot. I've grown up in England. I. never understood how I never expected it. to be. >> 38 39. Apparently continental Europe is. 42 43 right and hotter summer means food. gets the crops get decimated in the. summer. Um it also means uh hotter. summer means uh uh ferocious monsoons.

which increase the risk of flooding. Uh. it also increases risk of elino which. means we get droughts in India. So it. could be an oil shock, it could be a. food price shock, um uh it could be. global warming itself uh uh creating. issues around whole countries needing to. rewire their air conditioning or heating. systems. Um and and I think a supply. side shock jacking up the cost of food, increasing the cost of living in turn. leading to higher inflation, in turn leading to higher bond yields.

Higher inflation will lead to higher. interest rates which will lead to higher. bond yields between money gets money. gets deerer. um in these sorts of. circumstances right where money gets. dear bond yields rise typically public. start public people start defaulting. companies start defaulting. >> and and as we've already seen in a world. where things are getting harder tighter. dearer conflicts are more likely than. not to happen already we are seeing. conflicts a plenty at least may uh. Russia Ukraine but I think in a world.

where cost of money rises I think. conflicts the the probabilities increase. right so so We we've been through a. generation of cheap money. In fact, not. just cheap money. 1980 to20 was money. getting cheaper and cheaper every 5 6. years. Every time there would be a. problem, they would uh kick the kick the. kick the can down the road. So, so. there's a joke joke that I read in. American newspapers that you know. there's a war happening in the Middle. East. Let's print some more money that. will solve it. Right? So, that's been. the reflex in which my generation grew.

up. Right? I was I was born 50 years ago. and for out of that 50 years 40 years. I've just seen money getting cheaper. I'm now trying to get used to a world. where money will potentially get dearer. over the next several years. Right? So. now let's come back to Dravid right just. like Dravid there are corporates in our. country who are able to do a Dravid. right and it's again taken me the best. part of my life to understand why they. are so so 10 years ago when I wrote. unusual billionaire Raj I understood it. through numbers right so just like you.

say it has great test cricketer pas. average 50k average means great test. cricketer 10 years ago I said great. great company means return on capital. above 15% over 10 years every year and. doubledigit revenue growth. that's a great company and let me write. up uh a book on seven such companies. So. that was unusual villainous 2016. Uh in. 2026 I looked back at that book and I. realized seven out of out of the seven. companies six have beaten the market and. overall that portfolio has beaten the.

market by 40%. Then I said now I'm 10. years older right let me revisit this. and see what h why are these companies. able to do this. So I was fortunate that. the other smart people in Marcel is more. thoughtful than me and they said let's. let's make this tougher so that the the. dravidian characteristics come out more. So I said so they said let's make it. let's look over 15 years and let's have. three tests not two. So the tests will. be every year 15% return on capital over.

15 years not 10. >> Second revenue growth not 10% 12% more. than 12%. >> Okay. >> Right. So return on capital above uh 15. uh revenue growth above 12 and third. third test new test this new test wasn't. there in unusual businesses new test in. art of enduring is 12% earnings per. share growth. >> so so three tests and now let's identify. people companies who have passed this. test so we found that out of the BSC 500.

only about 50 passed the test but around. 10 are PS public sector companies where. the government has given them a monopoly. so we said let's ignore them 40 left, >> right? 40 left. Out of the 40, uh around. 10 are lenders who benefited from that. 40 years of cheap money. So I said, let's let them be. 30 left. Out of the. 30, we said let's understand them. better. Uh thankfully out of the 30, five were from unusual billionaires. So. I was really happy that the unusual. billionaires passed this time as well. and we looked at the unusual.

billionaires. But we then we found new. five new companies. So Bajage Finance, Dies Lab, Titan, >> Tata Alexi and Dr. LS Bajage Finance. Dies Lab, Titan Tatalexi and Dr. LS. >> So using the unusual billionaire Baj. Finance is. >> Titan Titan Dr. Lal and Tatexi. >> Dr. Lal Dr. LS and Tatal Alexi. So. >> Tata Alexi E Tata E L X SI E L X SI. right what do they do?

>> They do engineering R&D. So, so say. Mercedes wants to design a new EV, >> right? They will have they'll have. obviously in-house engineers in. Mercedes, but they'll say instrument. panel is a servicing company. >> Yeah. So, they provide engineering R&D. services. They will send engineers from. uh from Bangalore or from India who will. go to Germany, sit in uh Tatalex's. offices and design the instrument panel. >> It's an engineering services company. >> That's right. Engineering services. company. This is different from IT. services. Okay. So, so we said these.

five and the five from you unable who. are also persisting we were group of 10. companies right let's understand why are. they able to make money over 10 20 30. years and when we say make money right. these companies over 10 20 30 years. return on capital is average 25 30%. right in India the nifty50 companies. will have average pay return on capital. do 10 11%. But this set of companies and. remember I've written about them 10. years ago. Even today the return on. capital is 25%. Okay.

>> The the new lot the out of endearing. five companies return on capital again. is 25%. >> Over the [snorts] last uh 20 years these. companies would have given around 100x. uh and over the last 20 years. >> Over the last 20 years roughly. So. regardless of the your regardless of the. crash, regardless of the boom, regardless of coming down or covid or. anything at all like all the possible. things which have happened in the world, the political instability, the political. shift and change, all of that they.

survive. >> Demonetization, Trump won, Trump 2, GST, uh COVID, Gulf War, um Russia war, right? They go through ups and downs. Each of these companies has been through. difficult circumstances. Some of them. have been through firm specific issues. So for example in HDFC bank's case the. issues are firm specific right the the. challenge that they're having in the. boardroom is firm specific tartile XC. has been through several firm specific. issues uh some of them have been through. macro issues so for Dr. Lal path labs uh.

after co a lot of new entrance came in. right and they attacked Dr. Lar Pathol. Labs' market share in diagnostics. But. what was interesting was again the. ability to deal with crisis and come out. stronger. Right? So back again to the. simple Ravida example that regardless of. this 20 year and multiple crisis, these. guys have given 100x. >> 100x over a 20. >> 20 year period and there have been ups. and downs but they come out of every. crisis stronger not weaker, better not. bitter. Right? So I learned this phrase. from Jesse Jackson. JC's Jackson was a.

US presidential candidate uh when I was. just finishing school. So, so uh so I I. used to listen to US presidential. candidate debates when I was a when I. was a kid cuz I I was trying to learn. how to speak, right? And this Jackson. said try to come out of every crisis. better uh stronger not try to come out. of every crisis stronger not weaker, better not bitter, right? So these guys. have done that. So I said let's learn. from them, right? uh uh uh reading about. Dravid I was a Dravidob obsessed guy.

I've I've written a book with my. colleagues on on Rahul Dravid's. greatness called called diamonds in the. dust the whole chapter on why Dravid is. so such a exceptional uh cricketer. exceptional human being so we said let's. apply that framework and understand what. makes these companies remarkable because. the world that we are heading into where. potentially. uh supply side issues lead to higher. higher input costs food prices oil. prices higher the cost of money, higher. inflation, conflict, right? We will have.

to be ready for in cricketing terms, the. wicket will spin, it will seem, it will. bounce. It will not be a flat track. where we will be blasting the ball out. of the park, >> right? Uh uh uh Web of Suryani style. So, so I like Web of Suryawani as a. superstar and I hope he becomes the next. big thing in Indian cricket. But the. world we are heading into, we will need. plenty of Rahul Draits. Right. >> He was also found by him only. >> Right. There you go. S you're right. So, so Dravid can not only rebuild a Dravid, he can find the next superstar in. Rajasthan Royals. That's why Dravid is.

such a special guy. Right now, now what. we found in corporate life is that to to. deal with this these sorts of. upheavalss, you need to have three sets. of uh the companies that we've written. about have three sets of skills which. make them singular, right? And and and. those return on capital, revenue growth, those are ways of identifying them. But. the how behind them, why are they so. singular? The first is they have extreme. appreciation of what are they good at,

right? Uh in the context of their own. skill sets, they have extreme. appreciation what are they good at. For. example, Bajage Finance is very clear. that they are good at big data analysis, collecting colossal amounts of data, mining it to figure out what who are the. who are the borrowers uh who need to be. priced at a very attractive interest. rate. >> and who are the borrowers who should be. priced more expensive. >> Okay, there are other aspects of Bajage. Finance. For example, the Bajage family. has built a great brand because there.

are the Baj family has had impeccable. credit record. Bajage Finance is able to. borrow money cheaply in the Bombay. market at very low costs. Uh they're. able to borrow money for long durations. of time at low cost. Exceptional. strength there. But at its core, Vaj. Finance is a is a tech company with. exceptional ability to mine colossal. amounts of data. So they have data on I. would submit to you 120 million Indians. M so they have detailed data on you and. me and almost certainly almost most of.

the people watching this podcast and. they're able to mine that data very. cleverly to figure out what rate to lend. to Raj what rate to lend to Sorb etc. right they're not trying to be they. turned down a banking license right 2013. they said we don't want to become a bank. means we have to go and collect deposits. branch none of that not interested right. similarly um uh a Titan is that. superficially it's a jewelry company. 80% of its profits come from jewelry.

And one would think jewelry are what's. the big deal? There are hundreds of. jewelers in the country. And yet a. titan's been able to make return on. capital close to 30% north of 30% in. jewelry actually and the blended firm. level 25%. return on capital and Titan since 2003 4. would have given,000x. kaspas right uh uh because they figured. out that the jewelry itself. is simply an expression of people's.

faith in you. Jewelry is fundamentally. about trust. Yes, the Tata brand Titan. Tata has a large stake in Titan. Um, the. Tata brand conotes trust, carries trust. But Titan also figured out that if you. can make jewelry to a higher standard, you can get a premium for the jewelry. It's the same jewelry that Titan is. selling and another chain is selling. The Chitan jewelry will sell for a trust. premium of 20 to 30%. Secondly, they.

figured out that if you can figure out. which jewelry will sell where when, you. can reduce your inventory to half the. inventory per of your customers. So. inventory days for Titan are 60 days. Rivals rivals carry the jewelry for 120. days. For natural good reason, jewelry. doesn't move so quickly, right? So Titan. figured out that if I have say five. branches in central Bangalore in the MG. road area um which branch should carry. what inventory and they also figure out.

a system where if in a certain branch. certain inventory is not moving but it's. moving in a branch 2 km away how to. switch the inventory between branches to. reduce the reduce the amount of time the. inventory stays on the shelf. Right? Then they figured out over time that. because people trust them so much their. customers themselves can provide working. capital financing to Titan. It's they. called it the golden harvest scheme. Right? So for many years the RBI then. did something around 12 years ago which.

stopped the golden harvest scheme. But. for a good 12 15 years Titan's customers. were giving Titan lowcost financing. Right? Rather than Titan having to carry. the inventory and have working capital. cost, the customers were saying, "We. trust you so much. We will basically. give you money at a low interest rate.". Right? Remarkable innovation called the. golden harvest scheme. Other jurors then. copied them but then the RBI stopped it. around 12 13 years ago. So, so Titan. said our skills will be around using. building trust.

uh charging a premium for that trust, providing a good product, charging a. premium, but then using technology to. deliver a superior product uh at speed. Speed in the sense this jewelry is not. going to hang around in the shop for for. a for a very long time. And then there's. many aspects to Titan where they kept. doubling down on this trust aspect, right? [snorts] The customer trusts us. So, we will be treating our carers well. Other jewelers buy jewelry from other. third party karigers. Titan said we will. build a modern office park almost like.

an office park uh uh 60 km south east of. Bangalore where we will house the. kigars. The karigers will be. self-employed but we will give them. modern working spaces clean welllit. working spaces not some h where the. kiger will be doing his thing. They. didn't have to but this was part of. doubling down trust building. So karas. then repaid that faith. They produced a. high quality product with better. productivity. Titans Karigers I I reckon. are two to threex more productive than. typical jewelry carers. Right? So Bajad. Finance is a digital data mining giant.

Um I think they're probably the largest. users of Salesforce in Asia. Probably. the largest users of Salesforce in the. world. Um um uh Baj Baj is such a large. user of Salesforce that I think in. Salesforce it's called Bajad scale. They've never seen a company with data. on 100 120 million people and enormous. details of data. Right? Titan is saying. trust. We are in the business of trust. Superficially we are selling jewelry but. actually we're in the business of trust.

How do we harness that trust. constructively? Right? So this aspect I. think is the first dravidian aspect to. understand what actually are you good at. in a way that other people don't. understand it. Right? and then doubling. down on it rather than saying I will now. try to copy 20 other people right so baj. finance copy other people would we say. let's also get a bank license opened. lots of branches chase current in. savings account cross-ell to raj 55. different things uh they said no they. they thought about it they applied and. then they pulled back right I found that.

I found that I was I I was in the. process of researching unusual villainas. then they were not in that book but I I. lived through that and I found it very. interesting so so this aspect understand. what you're good at double down on that. Don't try to copy other people. I think. it's the first aspect in the world we. are heading into. This will become. central to. >> whether you're an individual or a. company. You need to figure out your. core. >> And it's very hard. It's easy to say. I've said it to myself, but every year I. spend a couple of days trying to figure. out what exactly am I good at? What's my.

core? Right? What's my core? Uh um yeah. And it doesn't help that when I have a. gym trainer, he says we got to. strengthen your core as well. Right. So. whenever he says that it's like oh jal. right the second piece is then saying. not only will I run a great not only. will I try to build a great franchise. around the core I will build a great. team around this I will hire bright. people as a firm we will invest in them. for decades right by investing in them.

doesn't mean we'll send them for some. expensive course and MBA and you know. give them smoothies in the morning and. orange juice in the afternoon right I. that can be part of it but there will be. mentoring of of bright people mentoring. by senior people that's cost a lot of. time then we will rotate them across. various divisions whether it's in bajad. finance or titan or or tatalex we'll. rotate them so that they get a variety. of experiences so in the context of uh. say titan they'll work in jewelry then.

they will work in the chashma business. this is a titan chashma I'm wearing. they'll work in uh the watch business. they'll work in marketing then they'll. work in sales is they might work in HR. right but by doing a variety of things. that person will become a well-rounded. leader but there's a further benefit. which dawned on us whilst we were. writing art of enduring which is that. that person themselves will bring fresh. perspectives see if the same guy is. doing finance for 20 years right he'll. also get bored of it but his his whole.

team will get stale because it's the. same old same old finance whereas if you. rotate someone from HR into finance. They'll bring fresh perspective on how. to look at finance right so the firm. benefits the individual benefits but. this is hard work because there'll be. vested interests who will say I am the. dada of finance how dare someone from HR. come here right that dude will say I. just spent 3 years getting a hang of HR. why do you want me to now go work my. butt flat in finance right but that's. the second aspect again back to Dravid.

uh uh if you look at Dravid signing up. for national cricket academy in. Bangalore I think he did a whole bunch. of cricket coaching courses before he. became a coach he wasn't you know just. saying I'll be I just finished test. cricket now you make me a coach he went. and did a whole bunch of courses then. went to NCA then took the India a job. the Rajasthan Royals job then finally. the India senior team right and in so. doing uh he put himself through. different experiences. um and and and and he groomed the next.

layer of Indian legends you know. including hopefully young where we have. Surya this piece is very hard this HR. piece is exceptional because again post. factor it's easy to say that for example. Titan invested in CK wanker Drummond I. think he was hired in 1991 they rotated. him groomed him and in 2019 he became a. terrific CEO under CKV Titans uh profits. went up two and a half times right it's. easy to say that's the way to go hire. bright people and they'll become CEO but. for every one CKV that you succeed at.

there'll be three other people you. mentored. it didn't work out but the company. expanded resources but if you don't. mentor four five CK banker trins you're. not going to get if you don't mentor. four five CK bankers you're not going to. get that one one star who then takes. your company forward give me an example. of some other company where they've done. this mentoring building a team and how. have they done it. >> right so so uh uh Bajage Finance again.

lot of rotation right so in fact Bajage. Finance may there's. uh in-house rule which says all roles. will be advertised internally. >> and you're in one division you see the. role advertised internally if you apply. for that role and you're selected your. boss can't stop you from taking the new. role right so so most of the leaders in. Bajad Finance were groomed internally. they go through every 2 three years new. role so you might be working in big data.

data analyst then you might be put in uh. credit uh credit uh uh uh uh and credit. assessment you then might put in sales. uh you'll rotate across divisions and by. the time you get to a senior role you. would have done seven eight uh different. things right so so so Rajiv Jen the guy. who the CEO of Bajage Finance he he. joined in 2008 he came from I think MX. before Baj Rajiv was RMX he bought this.

culture from AMX that we will throw. people into the deep. in job after job after job and then I. think they have a monthly bonus system. So they have very tightly metricized. performance rules and it triggers. monthly bonuses. So the whole firm can. see that um she this lady was in sales. she's now in HR. Um in sales she was. doing really well. Now in HR she's doing. still doing well. The monthly metrics.

she's hitting the metrics. she's either. getting paid really well or if she's not. hitting the metrics uh she's suffering. So the performance management system is. is some call it brutal right. So in. Bajage Finance whenever we've had a. chance to meet the senior management the. meeting starts at 7:30. >> a.m. in the morning. >> 7:30 a.m. Um so for that we leave I. leave my home in suburbs of Bombay at. 3:30 a.m. Right. Um the meeting start is. typically has breakfast. So you get a.

south Indian breakfast. >> Um it's not just that the the CEO is. there for a meeting. There's four five. people. They're all and it's not just. there that that's an exception. Everybody starts at 7:30. And the norm is a 60-hour week. And the. company's very clear. If you don't want. to do a 60-hour week, if you don't want. to work in a culture where you'll be. challenged every 2 three years with a. new role and if you're not willing to. put up with a highly metricized culture. which will push you to the limit every. day, then you know don't come to Bajage.

Finance. There are other places where. you'll have a decent in a more. comfortable life, right? And everybody. from Rajiv Jan down to the the most. junior person will work this uh with. this intensity. This performance culture. is very hard to build. Rajiv himself has. been at Bajage Finance now for 22 years, right? 2008 he joined is sorry 18 years. Um he's been there for 18 years. Bajage. Finance has grown,000x. right it's grown,000x 27 28% loan book.

Kagar. So 10x in 10 years building this. performance system. >> right? Uh uh u sorry has grown at 28%. Kagar. Uh so that would be uh uh uh 10x. in 10 years 100x around 1239. 12130x right not 1,000x I'm sorry 12130x. and this performance system is. relentless right relentless and it's. been extended to other parts of the firm. so I think they're now building a. [clears throat]. asset management business I think.

they're they're planning to build a. wealth management business uh they. already have a insurance business um so. so so it's the stretching of the. performance perance management system. and a brutal performance culture. Uh. some of this is uh some of this culture. has its roots in what GE did in America, G and its pump did in America uh uh um. so again highly metricized. highly metricized culture everything. captured in detail uh tracking of those.

metrics monthly reviews around those. metrics. So in your monthly reviews, red, green, amber, depending on how. you're doing in your reviews. And the. monthly review is largely to talk about. the reds and the ambers. And you're. expected to be prepared for those. reviews. Uh you know, if you if you if. after two reviews, three reviews, you're. making up excuses, then in the GE. culture, uh your career would be fairly. short-lived. Um that culture in turn. influenced uh other companies. So now. global portfolios, we've had investments.

in say a company called Danner. Danner. was deeply influenced by G. In fact, uh. some of G people went to Danahar. Danner. people went to G. At the moment, G is. run by a ex Danahar guy. Dan her then. implemented it's they called it the. Daner business system of this intense. performance culture. In these in these. performance cultures, right, by November. 30th, your next April's targets are. ready. uh by Jan 1st your next April's. performance metrics to your one downs.

have been rippled down and by the time. the year ends you're already your mind. is on how do I deliver next year's. numbers so Bajage Finance bought that. culture to Indian financial services and. it's it's done wonders for them. >> do do you think Nvidia also has someone. something similar because you were. reading about book yeah so. >> because they also like there have been. if you read about them they also push a. lot they pressurize a lot.

>> they stress people and to bring the best. performance. >> so so fair point and uh Nvidia has. obviously created enormous shareholder. wealth and Nvidia Nvidia has another. feature that I've seen with all the. great Indian compounding machines Nvidia. has had three episodes Raj where the. share price fell 80 80% or more three. episodes and 30 years India's 30 years. three episodes the share price were 80%. or more everybody said it's all over for. Nvidia and then Jensen Huang and team.

bought it back right. >> and that's the norm with many of the. great Indian compounders so for for. example Bayaj finance fell. 85 90% share price correction between. 2006 to 2009 right basically middle of. that period Rajiv Jan took the helm as. CEO uh 85 or 90% share price correction. Right. 8590 was almost eroded. >> Yeah. Almost gone. Right. And uh and. then again between in uh between Jan.

2000 between Jan 2000 and May 2000 sorry. Jan 2020 Jan 2020 beginning of COVID Jan. 2020 to May 2020 right the height of. COVID 65%. in 5 months 65%. S price correction and we were we were. had we had a small position. We got. hammered on that position but luckily my. colleagues uh uh especially uh our. financials guru Tsha had the courage to. say in May 2020 that this is too good a.

price not to double down. So we trebled. down but my we were sitting at home all. all of us were quarantined. uh uh we. were sitting at home and we trebled our. position in Bajage Finance after that. 65% draw down and the stock trebled over. the next 18 months. Right? So this. aspect going back to Nvidia, they've. been through these drawdowns. The. difference though um I'm happy to be. corrected by viewers who know more about. Nvidia than we do. We don't own Nvidia. We love them but we don't own them.

Difference is Nvidia's Jensen Huang. Jensen Huang's remarkable brain, personality, intellect driving the whole. engine. So I think he has some 20 20. direct reports. He the whole company. reports into him. Bajage Finance or has. elements of that um uh but it's not as. centralized. right with most of the great Indian. compounding engines with the art of. enduring or the unusual business. The. the mantra which has worked really well.

is decentralization. Train people well give them. responsibility. Give them give them. room. Let them run. If they fail, don't. punish them because then otherwise then. risk- takingaking gets wiped out, right? So, so perhaps in a in a in a tech. construct in Silicon Valley, you can run. these sorts of highly centralized. construct. Bill Gates did it for many. years, right? Satin Adela runs a very. different Microsoft. Bill Gates. centralized power. Uh Steve Jobs. famously. So I think in the tech. construct in Silicon Valley uh legendary.

founder, incredibly driven, brainy, visionary. But I think in the chaos of. India, I think perhaps you need more. decentralization and more creation of. leaders because otherwise the the crisis. comes different types of crisis comes. one man or one woman uh I think becomes. a little too much. Um that being said. you still need a leader in the center to. say that we will do things a little. differently from other people. M. >> uh this is how we will do it differently.

and when crisis comes we will double. down on our strengths rather than trying. to copy other people. So this is the team and making. performance met making everything very. metricized and making sure that. everybody's following that to the team. and the final element to creating this. 100x,000x. right and that final element is is. deliberately seeking out deliberately. taking challenges headon.

>> right so again just to use the Dravidian. analogy before we get into corporate. examples uh right as I said Rahul Draid. finished a career in uh test cricket, then did did cricket coaching courses, then took on tough coaching mandates. national level, right? And if you fail. in these national level coaching jobs, we all know what happens, right? He. doesn't have to do it, right? He could. have he could have uh uh rested on his. laurels, but he took on these intensely, incredibly high-profile, tough mandates.

and delivered. Right? [gasps] Now, now. this is a critical aspect of the art of. enduring, right? Not only do you know. not only do you know your core, not only. do you double down on it, not only do. you build other great leaders, not only. do you metricize, then you look and say. was kahape where do I get the big big. challenge that I can take on or. challenge which will force me to. >> level up. >> level up and force my team to strengthen. up right so so let's now go back again. to um to professional right so so Dy's.

lab uh Dy's lab was created 1990 by. Merly Dvi right so brilliant scientist. he's the chemist he's from what I hear. he still works [laughter]. 14 15 hours a day he's 70 plus now uh. he's worth several billion dollars but. he's still intensely driven right so he. created in 199 2003 2004 IPO it's been a. 24 25% compounder for the last 22 years. again 10x in 10 years will be 25 26%.

100x in 20 years I think is it will have. done and it's a similar number with Abaj. finance Dy's lab. No um they uh Emily. Devi figured out how to make naproxen. through a new process which he patented. right the lab patent naproxin is the the. the churan the real kicker in. painkillers the world's the main it's. called the active pharmaceutical. ingredient the main API in painkillers. is naproxen murv figured out a new way. to make it they make 75% of the world's. naproxins right so most painkillers you.

and I have had we have to thank mv for. the API in it and then using his. brilliance they uh similar things with. say coughs 50% of the world's coughska. API I think it's called dextrothorphin. right they make it and by the time co. came around in uh in 2020 they were. already making around 25 of the world's. leading APIs uh out of the world's 10. largest pharma companies seven were big. clients of dies dies itself was the. fifth largest API maker in the world the.

largest in India so all good right. making is successful and he can afford. to chill. COVID is happening. So during COVID obviously the demand for. CO drugs rocketed. The global pharma. majores uh created the uh created the. the the molecules but they needed it. made at speed. So there was this mo API. called monopir which will go into a co. drug. I think fizer said we need monopir.

made. They asked everybody all they. asked all API companies who can make. this fast. Midvi himself. decided that he will basically uh so. when you to to when you want to bid for. a uh a contract for these sorts of. things you have to produce a sample and. show the sample to the big pharma. company in America and say sir is this. sample good enough and if it is and. you're meeting the cost and quality. specs they will give you the contract. So Muridi himself took it on. He called.

up raw material suppliers himself. Some. of the raw material suppliers said, "Well, if you want it, you have to come. and get it." He himself got on a plane. Remember this is all happening during. co. He got on a plane, went to Germany, got the raw materials and the legend has. it, he hasn't told me this, we found out. from friends in Hyderabad. uh by the time any other competitor had. even got the raw material mully was in. front of the relevant people in Fizer. saying here's the sample right so they. basically said we just sent out the.

email how have you made it so fast he. says no this is how we did it but you. don't have to bother how we made it. here's the sample if you give us the. contract we will make it at this. standard. um so in a world where everybody else. was reporting supply chain problems uh. raw material issues uh ships are not. moving panicking panicking mur got the. contract and then in the space of I. think 10 or 15 days delivered for fizer. monopir at scale fiser in turn made the. underlying drug sold it to the world.

saved. probably tens of thousands of lives and. you can imagine what that did for deiz's. brand and reputation in big pharma as it. is big pharma was reliant on deise um um. now now uh whence co ended obviously the. malupave business went away. But we knew. that the reputation had been enhanced to. such an extent because if a 65year-old. founder. >> has this level of hunger, 65year-old. founder who's already a. multi-billionaire in most other.

countries. by 65 year on the beach enjoying, you. know, reading fine literature, sipping a. glass of wine. This 65year-old said, "I. will take it upon myself to travel to. the other to to Germany for the raw. material and then to America for the. finished good contract." And after covid. deiz labs business has gone into a. different level and when we have g when. we hear of gp1 drugs the the the p in. glp1 now is increasingly divis lab cap p.

right so this aspect of saying I will. take on the challenge I I I live for the. challenge it's very interesting mindset. right in our country we are told right. from very young age panga. the the dravidian characters the the. murly devious characters They say bring. on the banga. We want the panga. We want. to go head on and keep doing the big. things. Okay. So, so see you you told me how.

there are companies which are able to. create,000x. 100x kind of value even when the crisis. are there. Right? And now the. >> now the time is where we would want to. probably identify these kind of. companies. Y right or at least find out. a strategy for an individual or for. myself or the people who are watching to. find out some strategy so that we can go. through certain kind of crisis. I don't. know whether the crisis is coming or no.

but there are enough macro shocks which. are happening globally. Let's go to go. through these macro shocks one by one. by a lot of people ask me to why do you. talk keep talking about shocks? So when when people ask me that right. I've you know I often introspect right. you also keep telling me that every time. I come I'm thinking of a new crisis. right. >> I think part of this is a middle class. upbringing so I grew up in what's called. a DDA flat right so so folks like you. grew up in Indor probably haven't seen. DDA DDA flats for Delhi development. authority.

>> okay. >> so DDA. Mahada flat okay I grew up in a DDA flat. >> and ours was a low lowerend DDA flat so. it was so bad that the roof literally. used to fall in right because the. landlord wouldn't be bothered to mend do. the maintenance. So, so we you know we. went through a bunch of bunch of. circumstances like that. My parents. ended up migrating to the UK because. that life in the DD flat wasn't really. panning out and um um you know I also.

saw the tough side of life in the UK. That's why my brain has always been. geared to think about where can the. challenges come, where can the issues. come and how can I protect my clients, my colleagues, myself, my family from. these challenges. Right? So the first. big challenge from that perspective I. keep thinking about is oil prices are. rising. >> [snorts]. >> uh whether it's a Gulf crisis, whether. Russian Russia Ukraine war, whether. >> Trump going and seizing the Venezuelan. president, there's a bunch of reasons to. expect that that commodity prices.

generally will keep rising and keep. making our cost of living ramp. My. reckoning is in India today, those who. are watching this podcast, >> their cost of living is ramping at 7 8. 9%. >> Right? So, how can we protect ourselves? Right? That's the first question I keep. asking every day. I'll I'll give some. stock specific answers and then at the. right at the end I'll give some broad. ways to think about how to protect. ourselves from this sort of rising uh uh. inflation. And by the way, there's no. point blaming the government of India. for this. It's not their fault that oil.

prices are at $90. It's not their fault. that globally food prices for example. cooking oil prices are up 60% in the. last 6 months. Right? It's not the. government's fault. This is a free. market. We got to figure out for the for. ourselves. But tell me what happens if. the oil prices continue to rise for next. 2 three years. Right. So generally. supply side prices rise typically in. such times when price rise means money. is getting devalued. So simple reflex. will be people will buy gold right. In. the art of enduring we've written about.

about how Titan has dealt through decade. after decade of of rising gold prices. and made money without without being. themselves a uh without being themselves. exposed to the price of gold. So title. effectively leases gold. >> makes the jewelry and sells it onto the. customer making a spread on the price of. gold. But there's a simpler way to think. about this. there's a company if food. prices are going to rise and I think the. orders are pretty high that food prices. will keep rising u because of global.

warming because of conflict [snorts]. uh the the largest tractor maker by. revenues in the world is a American. company called John Deere or deer as. they call de e double e r right so so if. food prices are going to rise farmers. will get richer the world over including. in our country hopefully uh tractor dem. demand agriculture implement demand. generally tractor demand should do well. So the other way to think about food. prices is uh literally the pick and. shovel the pick and shovel that is used.

to make that is used to grow food those. picks and shovels will get dearer John. Deere or deer as it's called is a. straightforward way to think of a of a. modernday pick and shovel the world's. largest tractor maker by revenue who. should do well well out of it. uh uh uh. we have got tractor makers in our. country as well. uh uh generally I think. a world of rising food prices will bode. well interestingly for rural India. >> right there are some agriculture so. those if there are policy makers. watching if there are some ag there are.

some policy issues in our country which. mean that our politicians keep giving. the farmer a raw deal but if there's any. policy maker watching and and they want. rural India rural India to do well for. the next 10 years I think a great window. of opportunity is coming on the back of. rising food prices the urban middle. class will will struggle we discussed. this in our previous break point as to. why the urban middle class will struggle. but rising food prices should do be good. news for rural India uh farmers. generally and and if you can invest in.

the agri sector through pix and shabul. John deer being an example is an. interesting place to think about right. so so the remember we are effectively. talking about a reversion a reversal of. the last 40 years last 40 years is money. gets cheaper and cheaper and cheaper we. do fancier and fancier things and and. we've literally end up investing. Some people have literally ended up. investing in companies which are. financing rockets to go to Mars. Right? Uh I think the next 10 years we might. come back to earth. Right? So food is.

the most elemental need and if food. prices keep rising um then the most. basic sector which is agriculture might. end up being a very attractive place to. be and I think perhaps one and a half. years ago I did a pod with you where we. discussed this and actually rural India. seems to be on an upswing uh uh partly. because of what we're living through. Don't you think like let's say the oil. prices will go up and all these global. war and things and like shipping choke. points becoming big things so. fertilizers prices will go up and. because these things also directly.

affect the farmer's life or an aggre in. or the agriculture sector it's not net. net going to be. >> so that's the call that the politician. has to take does he subsidize it. >> does he hit the farmer or does he let. the farmer pass on the higher input cost. to the customer right so if the. politician says I need I want to protect. my middle class vote bank then and I. want to keep the price of food. artificially compressed you're right the. farmer farmer potentially gets hit but.

if the politician says either we the. government will subsidize fertilizer or. we will not subsidize all of fertilizer. some some fertilizers will be priced by. the free market but we will let the. farmer price pass on the end market. increase through higher food prices I. think the farming sector potentially. ends up in a very interesting space. My. reckoning is higher food prices. generally should be good for. >> tractor makers or farm implement makers, right? Um then then then if you sort of. extend this further, if you extend this.

further, uh higher food prices, higher. oil prices, higher inflation naturally. end up being money gets deer, interest. rates interest rates go up. Right now, one of the fascinating things I'm seeing. across the world, right, is governments. are saying that we are struggling for. money. So don't expect too much by way. of public services from us. So my. parents live in the UK. >> I'm seeing the National Health Service. there. Tell my parents, my parents are. retired people. The NHS is taking longer.

and longer to give appointments. >> Um the basic local health services are. also falling by the wayside. Something. similar is happening in India as well, right? Half the schools are half the. Indian kids I think 45% of Indian kids. probably study in private schools. Most. people watching this podcast will be. treated in the private sector. I doubt. too many people watching this part are. going to government hospitals. Um the. number of private security guards. outnumbers cops by 5 is to1 in India. >> What? >> Right. So there's more security guards.

right. There's there's one outside your. office building. There's one outside my. office. >> For every cop there are five security. guards in India. >> Yeah. Right. Right and by cop I don't. mean officers including the constables. right so so and and that ratio is. >> uh increasing increasing right so. effectively government will say the. public services we can't provide much of. so so that means private sector will. provide these services and I think. there's scope to make money on that. because these are services that will be. in steady demand if you provide hospital. care um if you provide basic medical.

diagnostics blood test urine test you. provide medical insurance you provide. medicines meds the way you know demand. is not going to be volatile for that. So. the privatization of public services I. think globally is a colossal. opportunity. So in art of enduring we've. written about Dr. Lal's. uh we've we invest in it for many many. years. I've seen them grow from tiny. office in Gura when I first met them 13.

years ago to now um substantial company. with 6,000 uh 6,000 uh uh uh uh. collection points, 6,000 labs. I think. Dr. Lal looks after twice as many. patients as its nearest two largest. competitors. Right? And that aspect this. this aspect whether it is hospitals. whether it is diagnostics medical. insurance I think the world over will do. well because governments the world over. will say bond deals are going up we have. less and less money you the public look. after yourself right.

>> okay. >> but if you go global in the western. world there's even more ways to make. money so there's a company listed in New. York called thermoffisher. >> so when we were doing you know co we. were doing RTPCR. >> PCR in RT TPCR is thermophissures right. it's called I'm not I'm not a chemist. but I've tried to understand this called. polymerase chain reaction [snorts]. right so the RTPCR tests we were doing. during covid the PCR is provided by.

>> thermopisher right and effectively. thermopisher is like the windows. software for any lab whether it's a. pharma lab or a a path lab like dr. whether it's a pharma lab like dy's lab. of. Fiser lab or a clinic clinical lab like. Dr. The effectively the hard the soft. operating system inside a lab is all. thermopisher, right? So not just the the. the software, the machines are.

thermopisher, the the chem the reagents, the chemicals used are thermofishure, the electron microscopes are. thermopisher. [snorts] So in a world. where we will get older, hopefully. richer, most likely sicker, right? Demand for meds, demand for treatment, demand for research will go up, >> demand for diagnostics. Yeah, thermopisher is a kind of one-stop shop. Literally, it is the one-stop shop and. they have monopoly. >> They have a monopoly. They have. dominance in a in in the inside of the. lab. The lab basically means. thermopisher. Right. So, Dr. Lal, by the.

way, is a user of thermofisher as is. every other path lab anywhere in the. world as is every other uh farmer. company anywhere in the world. Right? So, if you're heading for a world of. difficulties, >> [snorts]. >> um these sorts of companies are are safe. farmers, right? storm shelters in a in a. in a in a tricky world, right? Uh then. we let's move forward another step, right? Let's think of the public, right? In breakpoint, we were discussing lots. of retail borrowing, right? In. breakpoint, we've said the Indian middle. class is amongst the most indebted in.

the world, right? I don't know whether. on that part I told you about I met this. office boy in Bombay. He was serving. tea, coffee to me in a meeting room in. an office. So I asked him how many loans. have you taken? He said s loan and I I. said is 6 670 loans I will pay repay. remaining 30 I don't know about so if if. bond deals keep rising. uh uh I reckon interest rates in India. interest rates the world over will start. rising that's when bad debt issues come.

to the four that's when my 2007 right. that's when I keep rethinking 2007 2008. right so in that sort of world we. discussed baj finance in India and how. clever they are in how They assess who. to lend to, who not to lend to. Just to. give you an example of how they do this. and I find it endlessly fascinating, right? I could talk about this for. hours. So they're they're amongst the. largest lenders to doctors. So you know. GPS, dentists, when they grow their. clinics, they need money. So finance is. the largest lender to this whole doctor,

GP, dentist. So their research is so detailed. they will know whether the doctor has a. degree from all India institute some. prestigious place like as or do they. have a degree from a third rank run. medical school. Is the clinic in a. really wealthy neighborhood like say. Bandra. >> or is the clinic in the back of beyond? Is the doctor specializing in something. uh uh essential like oncology right high. value essential or is it something more.

discretionary like cosmetic surgery. right so so if it's a as doctor in. bandra specializing in oncology they. will lend at a really attractive rate. they will want that customer because. they say this guy or this woman is never. going to default. >> to keep making money for very long. >> and if it's a plastic surgeon in the. boondocks with a dodgy degree [snorts]. they will jack the interest rate up and. if that customer calls them up and says. you know somebody else is giving you a. lower rate they'll say you know good for. you you balance transfer out right so so.

the c the rival will think I've poored a. customer from maj finance but baj. finance will say that's fine this guy. was risky I'll priced him accordingly. he's gone such is life right so so when. you get into again on a on a flat track. when benign conditions on benign. conditions you know don't need drive. every lender looks like vaj finance Yes, but the ball starts spinning, the. wickets start seeming bouncy track, then. your credit assessment skills come to. the four. Now, uh as I mentioned, Rajiv.

used to work at American Express. American Express is the dada of this in. the western context. >> How. >> right. So, so American Express as we. know provides cards to wealthy, really. wealthy people, right? So, for modest. Joe's like me, Visa, Mastercard and. Visa, Mastercard model is they will run. the network but the bank will issue the. card. M. >> right uh the American Express model is. very different. They're saying it's a. premium card. There'll be a membership. fee. Uh but we will issue the card.

directly. So Raj Shamani MX card will. come directly from MX. The the merchant. will also have MX machines. So both it's. a completely controlled system. There's. no other bank. MX is saying we are. giving you the card Raj. We the issuer. We're also controlling the merchant. Both ends pay fees. Raj is paying MX. the merchant is paying MX and that. network is turned into a super premium. network. The world's best hotels, uh, airlines, lounges and I think their most.

famous card, I don't have it, but I've. seen my colleagues, they have it. It's. called the Centurion card. >> Luck. the membership benefits are enormous, right? And I've seen people who have it, they sort of, it's almost like a. religious thing for them. >> It's a flex. >> Yeah, it's a flex. It's a religious. thing for them. >> because you can't get it, right? They. have to invite you. Even if you're rich, you can't get it, >> right? So, so the level to which I get. to is at the airport, they call me out, but you know, at the airport, uh uh uh. uh plus I'm just a little wary of of of. uh borrowing money, so I haven't taken. the MX cards. But jokes apart, their.

customer base is elite. So, the chances. as we get into difficult times, the. probability of MX, the probability of MX. customers defaulting has always been. low. They've been around for 50, 60, 70. years. Even in the roughest credit. cycles, they don't tend to get troubled. because they've never gotten in trouble. They've never never got in trouble. Their customer base is so elite that. even in the roughest credit cycles, right, they stay they stay in good. shape. Usually when cost of money goes. up, Raj, right, uh um emerging markets.

uh right, they tend to struggle more. because in developed markets there's. still systems, processes, institutions. which can buffer the shock, right? Emerging markets, especially highly. indebted emerging markets, tend to get. hit by hit hit more by shocks. Um, the. last time we had a big emerging market. debt crisis was the uh uh late '9s. East. As Southeast Asia, Indonesia, Malaysia, Thailand, I think even Korea and East.

Asia got hammered. I I have a feeling. that if this time around cost of debt. rockets, if the bond deeds rocket, we. will see some some uh emerging market. exposure as well. And specifically back. home uh we've seen the rupee lose 12% of. its value. I think there's a real risk. the rupee will crack through 100 right. uh uh the rupee will crack through 100. in spite of the RBI's uh best efforts. right so so for us to make for us to. protect ourselves from that perspective.

obviously putting money in dollars. abroad will help but back home in India. a div. because it's selling its active. pharmaceutical ingredients primarily to. western big farmer 80 90% of its profits. are in dollars so if the rupee. depreciates It's a DI lab will be. natural beneficiary and even in a crisis. the western big farmer will need the API. from Dwai the API for their DAI. So I. think D is from both perspectives in a. in a world where both there's there's a.

inflationary shock rising bond yields. and potentially a currency shock I think. Diz is well positioned and again as I. said Muri Dvi has built the business. like this very deliberately in art of. enduring they've given a 40 45 year. history on how this man has thought the. business through so that he's he's in. the best place in the hardest times. right but back in the in the western. world. There's another business which is. which does something similar. In fact, it does something similar to Dr. Al Path.

Labs, but it does it for dogs and cats. So, so there's a company called IDEX. It's listed in New York. I think it was. listed in New York roughly around 1990. [snorts] Um, it's compounded. 400x in roughly 40 years or so. [snorts]. >> Um, and it it has no competitors. It. basically looks after dogs and cats of. you know affluent people in Europe and. America right and their model is looks. after world so so their model is that.

you know you are a pet owner you know. you love your pet if anything happens. you just you will have a app we'll give. you app we can on an ongoing basis track. your dog or cat's health so every month. uh you know weight cholesterol uh uh uh. blood urine and the whole 9 yards just. like a human being but for your pet and. if there are any health issues you can. obviously call us we will turn up with. the vet the meds and the tests all the. diagnostic machines in their case are.

portable so that and the customer's home. itself they will do the medical tests on. the pet and give the results there and. then but they'll also use they'll also. predict using their AI they. >> what's likely to happen to a pet yeah. they say next year your dog is likely to. get arthritis for example. And this year therefore preemptively you. should do these the these treatments for. your pet. Right? So an Idex dog or cat. lives much longer than a normal dog or.

cat. Right? So owners tend to get very. attached to IDEX uh and they're willing. to pay a premium for its services. because they love their pets and the. pets live. >> Are they in India? >> They I think there is a there is someone. in India has taken the the India rights. and and they are available in India. I. think a colleague in one of the. colleagues in Marcelus his uh his uh dog. is uh looked after by Idex. >> Okay. I need to get this done. >> So yeah. So so yeah. So I so it's IDEXX. for anybody who wants to wants to use. the services. Now nobody else in the.

world has been able to do this right. It. sounds very simple but to do this you. need 30 40 years of data on lots and. lots of dogs and cats right. So no. competitors and if you're heading into a. world of difficulty deise is one way to. think about it. drugs for human beings. Uh but the other. way to think about it is in a world with. difficulty someone who's built an. essential service for pet owners should. be in in good shape right and again just. think so this was created I think 1982. 1983 this business was created in IPOed.

in 1990 it's compounded for example more. than Google more than alphabet. >> in the last 30 to 35 years right it's. exceptional business but small business. by western by global standards small. small market 40 billion I think $40. billion is the market cap. >> from our standard it's big But yeah by. understanding but for you know world. where each one one company's $4 trillion. this is a tiny firm but remarkable firm. right. >> but then let's go further if cost of. money goes up right that means cost of.

money goes up which means bond price is. under pressure it's highly likely stock. prices will also face pressure right it. can't be that money rockets up and bond. prices come under pressure but stock. prices hold up so I think there's. potential that the postcoid boom we have. seen across the world gets questioned. right Cuz if you have war, one major war. happening in Europe, one major war. happening in in the Gulf, it can't be. that we will live peaceful lives. In the. meantime, the planet is getting hotter. visibly, palpably. So, so I think stock.

prices facing pressure also. I think. with each passing year, the odds are. increasing. Now there's a there's a firm. uh in there's a the the standard way. that people in my profession have. thought about profiting from this is if. there's stock price volatility options. get deer option valuations rise if stock. prices get more jagged right um and. there's one exchange in America which. just specializes in in selling options.

in and and trading options it's called. CBO E right so CV is the world's largest. options exchange, right? So, and New. York Stock Exchange, London Stock. Exchange, NSC, they specialize in in in. trading stocks plus they do options. CBOE just does option trading. >> only, >> right? Only option trading, right? And. historically, therefore, whenever stock. market crashes have come, whenever stock. markets have gone into difficulty, CBOE. holds up far better because option. prices option trading can increase even. if stock prices are going down. Right?

So, so that will be one way to think. about it. Uh, in our country as well, I. think an SE is heading for IPO. Uh, BSE is listed. So, if someone. understands those, those will be. interesting. But my safer way to think. about this is just think of the world's. largest options exchange and think about. how they will hold up in a difficult. time. So more generally in a world where. a 40-year trend of money getting cheaper. and cheaper and cheaper is disrupted and. money starts getting dearer on a. structural basis we will learn I think.

to do we'll learn how to spend less both. in corporate life and in individual life. and we will learn how to build. optionality in our lives rather than. saying directional let's rather than. taking directional bets and saying you. know if it doesn't work out I'll write. this off right a lot of our thinking. around business around life around. personal life will change as we start. getting adjusted to a world where money. I think will become much dearer than. it's been for most of our most of our. lives right then we've already seen.

armed conflict right we're seeing it. almost on a daily basis in the in in. Iran in and and Russia Ukraine has been. on the go for now what. >> 2022 four years right four years of. Russia Ukraine on the go. >> um we also we've also seen armed. conflict on the subcontinent. um with each passing month right I'm. reading more and more about AI being. used in conflict. >> right so so these uh American tech. giants are being very quiet about how AI.

outages are taking place where AI is. hacking systems AI civilizations are. being born and they're dying within sort. of 3 4 weeks right and and I'm not so. sure how much of this is actually under. control but I think with each passing. year it feels to me that it's a matter. of time before. >> each passing here it feels to be a. matter of time before AI itself becomes. central in conflict. Um in that context. I think thinking about how to protect.

ourselves in a world where I think. conflict will become more likely than. not becomes important. So so. jet jet uh uh drones jets uh uh fighter. jets I think are already in short supply. right. Right. So India for example, we've ordered 114 Rafals from from. Dasalt in France. They've only sold 14. to us. The other 100 we are waiting for. And I think that's the story for all. countries. Massive shortage of planes, commercial jets, fighter jets. And.

therefore that whole supply chain around. drones and jets I think will become more. and more valuable as we get into these. >> defense as a whole sector. defense of. defense of the whole sector and. specifically fight the the the the parts. and components going into into jets. So. G aerospace makes 75% of the jet engines. in the world. So for example for Tjas. our government is very keen to get G. aerospace engines right and America is. playing hard ball but G aerospace.

engines I think have a 12 year waiting. list now right 12 year waiting list. because 75% of the world's jet engines. are made by them I think 25% is. Rolls-Royce um but even something as. basic as a seat belt a seat belt on a. plane whether it's a fighter jet or a. passenger plane 95% of the world's. airline seat belts are made by one. company called Trans Dime. 95% is made. by one company, right? So they control. the world's seat belt supply and. naturally if everybody wants their seat. belts, the promoter is a guy called Nick.

Howley. Very smart man. You can imagine. what he's going to do to seat belt. prices as as u I think Airbus has a. 16-year waiting list. Uh Boeing has a. similar 16-ear waiting list. These. fighter jet companies have I think. slightly shorter waiting list. But. everybody needs seat belts because seat. belt is also a replacement item, right? So, so whenever I've gone on planes. where the seat belt is a little scruffy, you know, I get really stressed because. if they're not changing the seat belt, I. keep thinking what else are they not are. they not replacing. So, this whole. defense piece will become, [snorts] I.

think, a big part of our lives. We'll. realize that because we're living in a. world with increasing conflict and. shortage of of uh jets, >> shortage of components for jets. um we. will we will all start thinking more. proactively about how how does this. sector make money? How does can how can. the sector become a part of our lives. right and for us this is actually for a. country this is also a uh a strategic. issue because in in uh in a we don't.

make planes ourselves right we've made. the the but critical parts of the are. imported and foreigners are hardballing. us I think we as a country will have to. indigenize. on the fly at speed to deal with what's. happening in the world around us right. so so it feels you know we started with. something as basic as food prices Right. Then food prices you go to higher. inflation, higher cost of capital, higher bond prices. Higher bond prices. If bond prices are going to rise, bond. uh sorry, if bond yields are going to.

rise, which means bond prices come down, then stock prices inevitably tend to. have have have a a follow on impact. Then onto uh uh geopolitical conflict. which in turn leads us to thinking about. defense and how how can we make money. from defense. And I'm thinking of all of. these in the context of hedges. Yeah, >> right. I can't stop food prices from. rising. Question is, how can I hedge. against that? I can't stop geopolitical. conflict. How can I hedge myself from. that? >> How can I make money in this and not.

lose? >> Yeah. So, how can I come out of this. stronger not weaker, better, not better? Right. So, every morning I wake up and I. have my my coffee and my dry fruits in. the morning. Stronger not weaker, better, not weaker. And last leg of. this, if if even half of what we just. discussed, half of what we just. discussed plays out, I think the AI. hyper capex cycle, right? As I'm sure. many of your listeners know, uh uh the American tech majors plus the. Chinese are going to spend around $800.

billion, perhaps a trillion dollars on. AI this year. Right? At one level I'm. happy as a user but another level I keep. thinking if the cost of money goes up 2. 3%. It'll put them in a lot of trouble. with their with that with financing. Much of that with much of that AI. spending out of that $800 billion I. suspect $400500 billion is b is borrowed. money. >> If that borrowed money becomes 23%. dearer I think they will have to rethink.

their. >> capex capex. Yeah absolutely they'll. have to rethink their air capex. Who can. win from that? So coming back to art of. enduring Tata Alexe provides engineering. R&D. M. >> so for the last 2 years I was hearing. and Tata Alexi share price I think is. down 70% in 3 years because the point of. view was you won't need engineering R&D. you'll just tell AI AI will figure out. the engineering R&D if Mercedes needs a. new instrument panel on their new EV. they will just tell anthropic or chat.

GPT and then the presto instrument panel. design will be created um and thus. everybody said who needs software who. needs dataexc who needs engineering R&D. but I think if the AI capex cycle gets. arrested right I'm sure one day we will. have AI which will do a lot of this work. but if this capex cycle gets arrested. we're likely to end up in a world where. Tata Alexi suddenly becomes much more. appreciated rather yeah much more. appreciated again and that'll be the. third time where after a 70 80% draw.

down they go back to a all-time high but. there there are companies of this ilk. many many of them listed in Europe in. America. So, one of my f favorite is a. is a Toronto based company called. Constellation Software. So, they do very. boring things. So they spend their lives. looking to acquire companies doing. incredibly niche boring things such as. helping courts manage their cases.

through software systems. legal software. system for codes [gasps] such as. managing helping local government do. births and deaths registry right such as. helping real estate developers manage. properties right so this is called. vertical management software VMS they. buy these constellation buys these. companies and holds them forever and. they let the company be it's not as if. they buy them and they bring them. through some central office and say now. we will do shared services none of that. they just buy the company and they let.

them be remarkable man called Mark. Leonard has built this over the last uh. 40 years. Now constellation ended up. acquiring. thousands of companies. So then they. said the European acquisitions they spun. off and around 250 companies in Europe. they had acquired. They put all of those. 250 companies in Europe in a separate. entity listed in Holland called Topicus. and they listed Topicus in Amsterdam. Right? Right. And topicers does these as. I said topic owns these boring companies.

equally boring companies uh uh who who. operate all over the world but in. topic's case they're they're listed in. Amsterdam. >> So for example one company just. specializes in digital questionnaires. right so again what had happened was. because AI was on the ascendant people. said what's the big deal? Yeah. Uh. you'll just tell Claude that create. software for births and deaths and soon. every local government will be telling. Claude and they will not need topic. software. But again if this whole race.

towards spending gazillion dollars on AI. takes a reality check. boring stuff like. this, right? Uh uh lowc cost software. which helps courts manage their uh their. cases backlog and pendency and uh. records of cases what was argued in the. court that sort of boring thing once. again becomes relevant. So so so I I I. reckon we will as money gets dearer.

um we will see boring things become. >> become become valuable. We will see. Rahul Ravit uh I think we we are already. in in Marcelus we are Rah Rah Rahul. Ravidit worshippers but I think the. world will start the world will start. appreciating Rahul Ravidit style. companies and which is why we said we. will write a book on such companies. right in Marcelus are the you know we we. don't have that much money what we have. is the ability to write so our ultimate. tribute to boring companies such as Dy's. lab such as Dr. Lalpath labs uh is to.

write a book framing for the world. exceptional promoters exceptional CEOs. CEOs who look superficially ordinary at. a point in time you'll say what's the. big deal about Dr. Lal path labs a blood. test urine test or what's the big deal. but when you stand back and look at what. Arvin Dr. Vindlal and his dad who. founded the company in I think 1950s may. right this is just normal Punjabi people. in Delhi with their own money put one.

lab next to Hanuman Mandonder in Konaut. place in Delhi uh they put up one lab 50. 60 70 years ago from there they have. gone to 6,000 6,000 uh uh uh collection. points um for half our country they are. the medical diagnostic ecosystem. And they've not done this by raising. gazillions of dollars from uh uh uh uh. American private. They've done some. money raises but fundamentally Dr. Lal.

still owns I think 70 75% of the company. is told owned by Dr. Alvin Lal. I think. the Lals are still involved in running. the company. They still come to office. Uh if you meet Dr. Lal, he will discuss. spirituality. He will not be interested. in discussing return on capital angllay. sala capex plan. He'll be discussing his. he's got a spiritual guru who is I think. from nanal area. His book is also about. spirituality. His book is not how to run. a profitable path lab right.

>> or what are the patterns that he's. seeing in the diagnostic. >> That's right right of every and I'll try. to bring him back saf you tell please. tell me how much money will be made in. path lab and he'll go back to [snorts]. spirituality. But that's what I think. makes these characters I think we'll. head back to a world where the boring. will be exciting. The boring will be valuable. And I think. in all of in that as I've grown older. I've come to appreciate that that. there's a there's a there's a genius in. that. There's a God in that. Um. I hope that the next 10 years is doesn't.

have anything like the difficulties I. described. But uh something in me tells. me that half of what I just described is. likely to play out. I have two. questions. You you've summed it up very. well actually. You know, this can be a. very short sweet podcast in itself. What. you just did like as a monologue, right? I just loved it. But I have like two. questions. Okay. One is. >> I get your point of.

boring is cool. We're headed toward. crisis. There are a lot of shocks which. are happening. >> Long form content. >> Long form content is cool. >> Yeah. Long form content is cool. all of. these and because of shocks we will. realize this uh step by step or maybe. all at once at some point right. >> I get this and I maybe agree maybe. disagree to certain points. >> but I have this one tweet which I found. out which is fascinating. >> which was on about the one shock which.

was the debt is rising. >> the US debt is rising can you read this. tweet and tell me does it make sense to. you so look I think the from since time. in memorial real uh governments have. devalued the governments have in uh. >> yeah because one of the shocks that we. were talking about the cost of capital. is rising and. >> yeah this essentially talks about that. >> so from time immemorial governments have. had the temptation to print money. >> jack up uh inflation increase money. supply uh use the money supply. >> to to uh jack up to create inflation and.

thus devalue the debt [snorts]. >> and the by the way the the practical. mechanism which through which this. happens is um the government borrows. money rather than borrowing money from. the bond market they tell the central. bank you buy my bonds. >> right and if the central bank buys the. government's bonds which is happening in. America it's happening in our country as. well right if the central bank buys the. government's bonds that's same as. printing money when you print money your.

inflation goes up your currency gets. pounded because you're increasing the. supply of your currency your currency. gets pounded as Your currency gets. bounded, imported imported stuff gets. more expensive. That leads to more. inflation. That devalues the debt. further, right? So that's a temptation. the world over for. >> many decades, right? that you inflate. your way out of a crisis by by reducing. the real value of the debt and the point. of view for many years has been as they. do that in America's case the treasury.

is saying we will buy buy our own bonds. and effectively the treasur the American. treasury means the American government. itself is saying we will buy our own. bonds and thus we will increase the. money supply um now if that leads to. American stock prices going up I'm not. going to complain in my case half my. money is in global stocks uh a part of. our clients's portfolio now through our. global compounders portfolios in. America. So I'm not going to complain. but my central learning in life has been. uh if you hedge yourself and that's why.

I focus the discussion on hedging. If. you hedge yourself so that regardless of. the outcome you're better off rather. than worse off if you hedge yourself. you're in a far stronger position in. life than if you take a directional bet. So let's think of the simplest hedging. portfolio, right? [gasps]. 1/5th in Indian stocks, 1/5 in global. stocks of which America will naturally. end up being 60%. 1/5th in gold, 1/5th. in highquality bonds, government of. India bonds, um top quality corporate.

bonds and 1/5th in cash. If you just do. this 1/5if 1/5th you can hire a wealth. manager and pay him or her lots of money. to do this or you can just build this. basic 1/5th in Indian stocks 1/5th in. global stocks you want to keep it simple. 1/5 in uh in American stocks 1/5 in good. quality Indian bonds and 1/5 in cash if. you do this you get returns which are. pretty similar to nifty50 returns but. with 1/4 the volatility right 1/4 the.

volatility of the nifty50 but for. returns which are same as nifty50 So you. sleep at night. Why do you sleep at. night? Because at any point in time. something or the other in your portfolio. is working out. So for example, if. [snorts] uh the American Treasury goes. into a buying spree, right? Uh American. Finance Secretary is saying he will keep. buying bonds even though his guru Stan. Draeniller is saying this is a bad idea. Let's assume uh the American Finance. Secretary does spend crazy amounts of. government money buying bonds. Floods. the market with money. Stocks go up in.

America. I'm good. I will make plenty of. money on a on a global portfolio. especially a US portfolio. Um if on the. back of that some of that money flies to. India and we make money in Indian stocks. again I've got no problem. [gasps] But. let's assume that their benign state of. affairs doesn't come to pass. >> Right? If instead their attempt to jig. up uh uh to uh uh engineer bond prices. doesn't work. My reckoning is is already. struggling. Their ability to buy.

government bonds in America bring down. the yield. I think America is already. struggling. >> And there's a further problem. If the. American government does this, the AI. hyperscalers are immediately slamming in. more bonds because they they want to. borrow money to finance their data. center. Right? So, so, so what's. happening for the first time is if the. American government engineers through. its hard-earned money, [laughter] right, a reduction in bond deals, other. opportunists are saying, "Thank you very. much. We'll have some of that." So, so.

if the scenario plays out that this. attempt to engineer cheaper bond deals. doesn't work out and the cost of money. rises [gasps] as we discussed as the. cost of money rises, bad debts start. kicking in the world over and we see a. reversal in the stock market rally that. has uh effectively it's a rally that. started in 1980 and we see a reversal in. that. I [snorts] want to be in a place. where my clients and I are still making. money. So that's where the gold piece in. the in in the in the portfolio kicks in. That's where the bonds piece, right? The.

bonds piece also kicks in because our. the yield on our bond investments will. yeah go up, right? So the so when I was. younger, I used to think the the the. manly thing to do is to take directional. bets and tell the whole world about the. directional bets. As I got older, I realized the trick is. and the way to build a successful life. and a decent career is to build a. bulletproof portfolio where regardless. of how the world plays out, you're in. good shape. So, step one of that before.

you even get to investing is have very. little debt, right? Uh live a modest. life, stay try to live life within your. means. If you're borrowing money to buy. a house, uh that's fine. Make sure that. that your EMIs are no more than 20% of. your monthly outgo. Second piece is buy plenty of insurance. Right? Life insurance in India is I I. submit to you pretty cheap. Buy plenty. of life cover. Even if your employer. gives you cover, Marcelus gives me. cover. Over and above that, my wife and. I buy cover because we want to be as.

fully insured so that something happens. to us, our children are in good shape. Similarly with medical insurance, buy. plenty of medical insurance. I reckon. medical insurance cover is going to zoom. in price. Already the 10 15% inflation. peranom is happening. Um but the younger. you are the cheaper it is right. So buy. plenty of medical insurance. Uh reduce debt. Second pieces diversify. Spread yourself across asset classes. Indian stocks are 3% of the world. market. America's 5560. Europe is 2025.

Diversify in equities globally. Also. have some amount of gold, some amount of. bonds and some cash. Right. Next piece is in your equity investments. look for Dravidian companies. Right. Dravidian in the sense uh 10 10 15 years. of return on capital above 15%. doubledigit revenue growth, doubledigit. profit growth over long periods of time. Right? that history piece, that ability.

to play consistently well for decades. comes in very handy when things get. hairy uh uh from an economic front. And. lastly, lastly in that context, you you kind of answered my next. question only. I was going to ask you. what should an individual do? >> Okay, >> but you answered it already. So go. ahead. Yeah. And the last piece was uh. all of what I'm saying right the. temptation is to say look I've done it. once that's fine now let me just forget. about it I think this is worth an annual.

revisit so you know you choose whether. you want to do it on 1 April or 1 June. July or 30th June or Diwali but an. annual revisit where you make sure that. you you've kept your debt low loaded up. on medical cover and health cover. diversified yourself across the big five. asset classes global equities Indian. equities gold bonds and cash and in the. context of equities you've loaded up on. Rahul Ravidit style companies 15% return. on capital consistently over long. periods of time not for 3 4 years 15 20.

years and double digit topline bottom. line growth um if you're doing this. systematically once a year. >> m. >> I submit to you you probably won't need. that much by way of uh financial advice. it'll be super boring so you might say. yeah where will I the excitement. So. obviously you can watch Rajamari podcast. for the excitement but you can also if. you want a little bit of hobby hobby. money keep a separate pool of money for. the excitement but we are again heading.

into a world where the tighter our. defense the the more spread out we are. across uh the big five asset classes and. within the equities piece whether it's. Indian equities or American equities the. more uh uh uh unusual billionaire style. art of enduring style companies we have. uh the more confident the better we will. feel with the passing years and if you. get stronger in a difficult planet where. others are getting weaker then you'll. get opportunities to do other far more.

exciting things uh that you know I can't. even env today but if you get if you. keep building muscle when others are. losing their losing their um I. think good things will happen to you. tell me one thing you in your portfolio. about 19% is written which is passive. instrument struments. >> in the global portfolio. >> Yeah, >> in the global portfolio 19% is passive. instruments. So we've what we've done is. >> what is passive instruments? >> So basically ETFs, right? So we've.

bought a bunch of ETFs. So So what have. what sort of ETFs have we done? So we've. done three types of ETFs. We bought the S&P 500 equal weight, right? So the S&P 500, the normal S&P. 500 is now dominated by the tech majors, right? the se 6 7 8 big tech companies. account for 50 60% of the of the. benchmark. So we said the rest of the. S&P 500 sands the top 10 they're.

actually fairly cheap. They're growing. earnings at 134% decent earnings 30 14%. dollar. They're fairly cheap outside the. the big tech. So let's buy the S&P 500. equal weight effectively buying the the. the cheaper companies. So that's the. first type of passive investment we. made. Secondly, we've bought an ETF, an. exchange traded fund. which. uh uh in turn buys uh which in turn buys.

commodities. proportional to their volatility. So the. more volatile the commodity price, the more of that that ETF buys. Effectively the the volatility is a. signal of of impending. >> price rocketing in that commodity and. it's a very cleverly constructed ETF. It's available to anybody who I won't. give the name away but it's available on. on on the NYSC. So our global team said.

I'd never heard of it and when I. realized it's a very clever idea. You. basically have one ETF which in turn. buys other commodities. But the more. volatile the commodity prices are, the. more the volatility the commodity price. is zigging zagging, the more of that it. loads up on. And uh uh uh uh the third the third uh. uh item the third ETF we have bought is. basically uh we've bought a ETF which is. uh uh taking a short position on some of.

the most richly valued tech companies. So there's a ETF which itself has taken. a. >> short position on the most richly. valued. >> Are you shorting them? >> Uh so we not shorting them. the ETF is. shorting them but jokes apart yes rather. than us doing the shorting because it's. far more complicated. So, so, so yeah, so we are taking a view that um the. hyperscalers have a role. The. hyperscalers are in our portfolio. Um, uh, uh, we've got the tech the the the.

semiconductor manufacturers in our. portfolio. Uh, uh, we've got the supply. chain which feeds into semiconductors in. our portfolio. We don't have Nvidia. Um. we believe there's value in in the. [clears throat] US and European market. beyond the beyond the tech giants and. hence uh uh for example defense and. aerospace we discussed on the pod. defense and aerospace I think earnings. growth will be punchy valuations are. compressed we're heading into a world.

with conflict similarly power generation. uh there's the the the world will need. >> the lot of power. >> a lot of power as air conditioning needs. increase so. data centers increase bunch of things. So the world we reckon the world will. need to install as much power in the. next 10 years as it's installed in the. last 150 years right. So gener turbine. manufacturers, transmission. distribution, excavation companies and. again a lot of these things are cheap. multiples. So barring big tech and. especially Nvidia uh a lot of the things.

are actually sensibly valued. So buying. buying an S&P 500 equal weight uh by. buying this ETF which is basically. playing expensive commodities uh and. taking a view that some of the most. egregious valuations in big tech will. unwind. We are positioning ourselves for. a world where even if the American. authorities do QE and reflate the whole. planet, we can make money um both here. and there. But there's also a point of. view that we need to protect ourselves. from a from a blow up. um that piece.

right when I wrote the unusual. billionaires and when COVID happened I. didn't have that clarity of thought and. co we made money from COVID blow up but. when then the blow up when COVID ended. when COVID ended in Diwali 2021. we got pounded in 22 23 24 in the. aftermath of COVID so we learned from. that saying if you take a directional. bet if you live by the sword you'll die. by the sword and you know if as an. investor you aspire to build a. multi-decadal career if you say I'll.

live by the sword diver the sword uh. then you die too many times. >> So as we as I got older I said let's. build a firm and let's then build a. portfolio which is able to do reasonably. well regardless of how the world pans. out and if everybody else is saying. quantitative easing will happen. A lot. of people are telling me that QE is. happening. Tech will roar through. It. might I'm positioned to make money from. that. But even if it doesn't, I still. want my clients to do reasonably well.

out of that. Got it. Here's one last. question which is just out of curiosity. Is there some kind of correlation. between the stock market growth and GDP. growth? >> So yes, >> because India we are growing at 7.8%. M. >> right that's the number that we hear one. of the fastest growing economies in the. world and then if you look at last one. year our stock market returns have been. minus 10%. Right? So for small countries. which have low ex which do not don't.

have that much by way of exports right. there should be a correlation. So our. country our main export is IT services. followed by DAI pharmaceuticals right um. I reckon I reckon the next 10 15 years. we'll see non-farma nonIT. uh Indian manufactured exports do really. really well in our domestic portfolios. we're loading up on that from everything. from children's garments to car parts to. precision engineering to stuff which. goes into the right.

>> so I think the currency the Indian. currency weakening which should help. manufactured exports for a country like. America where a big part of their. company's profits come from exports that. ex uh GDP to stock market ratio becomes. far less relevant. So a lot of people. keep I see in India a lot of people. blast away on social media look at. America's market cap to GDP it's above. 1.5 right so American market cap is more. than 150% American GDP there must be.

this must be a harbinger of problems to. come that's less relevant because say an. Apple a Microsoft. uh uh an Nvidia a big part of their. profits are now not coming from America. we are sitting in India giving them. >> profits so effectively if you buy if you. buy the American stock market you're. buying the world. So if you really want. to do this market cap to GDP then do the. world American market cap divided by. world GDP that would be one way to see. then the ratio is very low right u now. but coming back to India I think it's a.

relevant metric for most markets in our. country small and midcaps continue to uh. perform as if there is no uh there is no. issue in the economy they the small and. midcap promoters didn't read breakpoint. I guess but the large cap companies both. in terms of their earnings growth and in. terms of their share Enterprises are. very much in breakpoint territory. So, so our country has got a market which. has got this kind of Dr. Jel Mr. Hywala. feel small and midcaps over the last. year are up about 15%, large caps as.

you're saying are very I think down one. or 2%. So it's very strange right and. again this is why this rising rate. >> 2026 year to date is minus 10%. >> Right. So that's why this rising rate. cycle I think will be very interesting. Usually in every market I've ever seen, when interest rates rise, small and. midcaps suffer more than large caps. [sighs and gasps] Um, I'll be amazed. I'll be amazed if in this rate rise.

cycle as money gets nearer, I'll be. amazed if small and midcaps in our. country don't suffer more than large. caps. Their valuations are clearly way. richer than large caps. um uh uh and and. therefore their uh their likelihood of. suffering uh is greater. Uh but as I. said the skill in in all of this is to. say to build something which is able to. do well in different in different. circumstances rather than making a. direction and macro call and then.

>> hedge your way out. >> Yeah. So hedge your way out. So that was. why we I kept saying that. >> if if Yeah. So if you if you create a. portfolio which has little bits of. everything. So it's like a think of it. in a thali. You're creating a thali. There's a little bit of carbohydrates, there's a little bit of protein, there's. a little bit of vitamin, there's a. little bit of everything. Um the. temptation especially for a bong like me. to have pack the thali with sweets, right? But if I have a thali full of. sweets or I've seen other people, they'll take lots of achar. If you do.

that, it's a recipe for either a stomach. cake or diabetes, right? So if you have. half your portfolio small and midcaps. right a lot of that's very fashionable. these days half my volume is small and. midcaps do you know how much money I've. made sort of right obviously done well. but the risk is that in the 30 40 50%. reversal. many years of hard work gets uh wiped. out so I've lived and learned that. diversification doesn't look uh doesn't.

look attractive but I've also lived and. learned that all of these traits right. these traits which are long- term very. valuable short-term look super boring. right uh a Dr. Lal path labs or a Rahul. raid or a chitishar pujara who was sort. of the draid after they don't look. valuable at a point in time it's only. when you look at 20 30 years that you. realize my god this is exceptional right. um I think a lot of investing a lot of. wealth creation is like that at a point. in time it looks boring and it's far.

more interesting if I did a pod with you. saying um let's load up on these 10. stocks and get rich um it'll perhaps do. generate more views. Uh perhaps in the. near term I might get them right as well. but over a long sweep of time the boring. stocks. >> will perform better are are a better. place to be for longerterm wealth. creation. >> Well perfect then thank you so much. Thank you for hosting me. Thank you so.

much. Thank you for coming again. first. but with each year right semi-final. quarterfinal semiinal final.

million first. As the abadi comes the first round guy. gets screwed. because thousand other people are choing. that money out. So I think. and I think they've all become.

influencers. that the typical dude is not making. much. Thank you for watching this. episode till the end. We would love to. know what you liked or disliked about. this episode and which guests you would. like to see on the show. Let us know in. the comments. Your feedback help us. improve and make every episode a little. better. I'll see you next time. Until. then, keep figuring out.