An Investing and Life Lesson from Mahendra Singh Dhoni (and Bertrand Russell)

Focus.

Everyone who is anyone and has reached somewhere in life, and now wants people to hear him or her or them out, like the 70-hour work week, tends to use this word liberally. To succeed in life, focus is necessary.

And focus is something I have always struggled with. Like today. It’s a Wednesday morning (actually in societal terms it’s already afternoon.) Like, almost always, today as well, I woke up when I woke up. And in Mumbai winters—or whatever we have of it—that means waking up post 10 am. By that time self-help gurus making Insta reels have already spent half a day changing the world and are getting ready to make their reels for the next day.

As I write this, it’s 1 pm and around three hours since I woke up. And I have spent this time scrolling through Twitter, watching Insta reels and WhatsApping, knowing fully well that I have writing deadlines. Some time has also been spent listening to Punjabi music, particularly one song, Apa Fer Milaange (We will meet again), which I happened to discover late last night (actually early morning in conventional terms).

Oh, and there is also this book I started reading a couple of days back, and want to read it, instead of writing this. Dear reader, I have already written more than two hundred words here, and still haven’t gotten anywhere near saying what I want to say here. See even my writing lacks focus, despite having figured out the headline for this piece a few days back.

So, let’s talk about the book I have been reading. It’s called Rabbit is Rich, authored by John Updike, and is the third in a series of four books and a subsequent novella.

Updike’s Rabbit books, more than being novels, are essentially a comment on the post Second World War US and how things evolved from the 1960s to 1990, through the life of Harry ‘Rabbit’ Angstrom, the main character of the book. The plots are just an excuse for Updike to write what he wanted to write.

Rabbit is Rich was published in 1981. The book is set in a time when the world was facing the effects of the oil shock of 1979. Oil prices had reached never-before-seen levels and the American economy—where life revolved majorly around the automobile—was struggling.

Rabbit is a car salesman, who, along with his wife and mother-in-law, part owns an automobile business he inherited from his late father-in-law. He sells Toyota cars, one of the most fuel-efficient cars out there in the American car market at that point of time, unlike the gas-guzzlers that Detroit car companies were used to producing.

A lot of dialogue in the initial few pages of the book is based around high oil prices. As Charlie, another character in the book, tells Harry ‘Rabbit’ Angstrom: “Listen, Harry. You know damn well Carter and the oil companies have rigged this whole mess. What does Big Oil want? Bigger profits. What does Carter want? Less oil imports, less depreciation of the dollar. He's too chicken to ration, so he's hoping higher prices will do it for him. We'll have dollar-fifty no-lead before the year is out.”

““And people'll pay it,” Harry says, serene in his middle years.”

Or on another page, Harry tells Charlie:

“I figure the oil's going to run out about the same time I do, the year two thousand. Seems funny to say it, but I'm glad I lived when I did. These kids coming up, they'll be living on table scraps. We had the meal.”

Basically, what the two characters are discussing here is that the oil prices will continue to remain high, and that gas prices (or what the whole world calls petrol) will continue to remain high, and that the world will eventually run out of oil during their lifetimes.

Of course, nothing like that happened. Oil prices fell in due course and the world still hasn’t run out of oil. Oh, even Jimmy Carter, the US president Harry and Charlie were talking about in the book, is still alive.

But then, we humans, tend to assume that our near future will be like our immediate past. And the reason for that is fairly simple. We make sense of the world with the help of information that is almost always easily recallable and something that has happened recently is usually the most easily recallable, and by extrapolating that information we assume that the future will be like the immediate past. But the world is a lot more complicated than just that.

On 12 February, which happened to be a Monday, stock prices of public sector companies fell big time. The BSE PSU Index, fell by 4.4% in comparison to 9 February, which happened to be a Friday, with the stock market being closed over the weekend.

A fall of 4.4% hides the massive falls that happened in a few individual stocks. SJVN, a company that operates in the business of hydroelectric power, fell 20%. Central Bank of India fell around 12%. ITI, a company operating in the telecom and networking equipment space, fell over 14%. Engineers India, an engineering consultancy company, fell 11%. Bharat Earth Movers also fell more than 11%.

The business media and the experts who appear on it, used their favourite term profit-booking (or profit-taking) to explain the fall. Now, this is one of those terms which explains everything and doesn’t explain anything.

Basically, what they are trying to tell you is that investors who had invested in public sector stocks sold out in order to book some of the profit that they had made. And since there weren’t enough investors out there interested in buying these stocks at the point they were being sold, the prices fell.

The question is, why did these investors who decided to sell out of public sector stocks do so on that given day. Why was it 12 February and not some other day? And why was it that on that day there weren’t enough investors buying these shares? Of course, experts who used the profit-booking term sounded very confident while offering this explanation, and all of us, the humble others, bought their explanation.

The trouble is that the stock market is too complicated a beast to be explained on a day-to-day basis. But then investors want clear, concise and confident explanations at the end of a day’s trading. There is a market for it. And the media and its experts cater to it.

It needs to be said here that the PSU Index has recovered from its fall in the days after 12 February and the stocks that had fallen have rallied since. Nonetheless, this does raise some interesting thoughts.

The philosopher Bertrand Russell talks about an interesting paradox through the example of a chicken farmer raising chickens for commercial purposes. A part of the job requires the farmer to feed the chickens being reared, every morning. It’s a set routine.

While nobody has asked the chickens as yet, but they, perhaps, every morning start expecting food from the farmer. They assume that their future will be like their present and like their past. This is inductive reasoning, where one looks at the patterns prevailing around us, draws conclusions from them and makes assumptions about the coming future.

Now, let’s get back to the BSE PSU Index. From 6 July 2023 to 9 February (the last day the stock market was open before 12 February), the index went up nearly 65%. (Why I have chosen the specific date of 6 July will soon become clear). During the same period, the BSE Sensex, India’s most popular stock market index, went up by a much lower 8.8%. During 2024 (up to 9 February) the BSE PSU Index had gone up by more than 18%.

Inductive reasoning, which most of us follow, leads us to assume that things will continue to be the way they are. And that explains the growing interest in public sector stocks over the last few months, with retail investors coming into the market only after having seen these stocks do well for some time.

In that sense, they are like the chickens in Russell’s example. And on 12 February and even 9 February, things didn’t turn out the way they were expecting them to be. As Russell writes in The Problems of Philosophy: “The man who has fed the chicken every day throughout its life, at last, wrings its neck instead, showing that more refined views as to the uniformity of nature would have been useful to the chicken.”

As he further writes: “In spite of the misleadingness of such expectations, they nevertheless exist. The mere fact that something has happened a certain number of times causes animals and men to expect that it will happen again… but we may be in no better a position than the chicken which unexpectedly has its neck wrung.”

On 12 February, which is what happened to some investors who had only recently started punting on public sector stocks and quite a few would have sold out in a hurry, only to see the stock prices go up again.

Now, this is not to say that public sector stocks have gone out of fashion. Honestly, I don’t know. But there are stock brokerage research reports which have been quickly written to assuage retail investors and high net worth individuals, that the steam hasn’t run out of this rally. And stock prices have gone up again since.

Now, why did I choose the specific date of 6 July 2023? To understand that we need to go back and look at the history of the BSE PSU index. On 4 January 2008, the BSE PSU Index touched its then all-time high of 11,092.67 points. It crossed that level only on 6 July last year, close to fifteen-and-a-half years later. And that is something worth keeping in mind.

The stock market has rarely valued public sector companies in the same way as their private counterparts. In a way it’s an anomaly that is being set right in the current rally (as fund managers and stockbrokers in Mumbai tend to explain), but there are major reasons as to why the market has never valued public sector stocks the same way as private companies.

Public sector companies do not use their capital as well as private companies tend to do (of course, there are always exceptions on both sides). Plus, the government keeps raiding their balance sheets to bring down its fiscal deficit or the difference between what it earns and what it spends.

Now, their return on their capital has improved over the last few years, largely due to public sector banks recovering from the battering they had faced thanks to accumulating a large amount of bad loans. The bad loans are largely loans which haven’t been repaid for a period of 90 days or more. This improvement led to a change in expectations from investors towards public sector companies. Of course, what has helped is bureaucrats (and politicians) talking up the prospects of these companies.

But the question is will this performance be sustained? Or will the bad habit of public sector companies of not putting the capital invested in them to optimum use, make a return? Or has it really gone away in the first place? On that your guess is as good as mine, though that doesn’t seem to be the current feeling in the stock market. As usual investors are very certain about things.

Which is why it is worth remembering something that Russell wrote: “We have therefore to distinguish the fact that past uniformities cause expectations as to the future, from the question whether there is any reasonable ground for giving weight to such expectations.”

Governments, despite of what they say, rarely work towards improving the return on capital employed of the companies that they own and their managers run. In that sense, any investment in a public sector company requires a detailed study of the company, its present and its prospects. Of course, that implies deductive reasoning, which is difficult.

Inductive reasoning that way is straightforward. Prices have gone up recently. And they will continue to go up. And they very well might. But then they might not as well. As Michael Kemp writes in The Ulysses Contract—How to Never Worry About the Stock Market Again: “Certainty and truisms are rare in the investment world.”

Of course, try telling this to many retail investors who are punch drunk on short-term gains and aren’t really going to buy—for lack of a better term—this global gyaan (knowledge). For them, the night is still young and there is a lot of money to be made. And a man’s gotta do what a man’s gotta do.

In his recent book, the economist Kaushik Basu, who happens to be Nirmalya Dutta’s favourite economist, talks about Russell’s chicken example that I have discussed earlier in this piece. The book is titled Reason to Be Happy—Why Logical Thinking is the Key To a Better Life, and Nirmalya produces this newsletter (all the brilliant memes you see are his creations). I am hoping that a day will come when Basu and Dutta—doesn’t that sound like a Physics textbook meant for the students of Presidency University—are caught on the backseat of a taxi and are forced to make some conversation about the bhodrolok who left Kolkata and ended up achieving what they did.

Getting back to the point. In this book Basu writes: “Arguably, there is nothing the chicken could do to avoid ending up on the dinner table. To fret about something over which you have no control is to bring unnecessary distress upon yourself.”

Does this mean that one should live life like a chicken and be fatalistic? Whatever has to happen will happen. So, why worry? As Basu writes: “By saying we should live life like the chicken, I do not mean we should delude ourselves into believing that the future will be like the past… However, we human beings spend a disproportionate amount of time fretting about matters over which we have no control.”

When it comes to investors, they tend to think about multiple things. In a scenario where stock prices have been going up, and they fall big-time on a given day, then the question topmost in the minds of many is, does this signal the start of the end of the rally? Will stocks now run out of fizz? Or in a scenario where stocks are being regularly beaten down, the worry is how much more will they fall? And other such questions for which no one really can have certain answers, though there are many out there who are falling over one another to provide clear, concise and crisp answers on this.

Or as Kemp puts it: “If an imminent stock market crash were obvious to lots of people, then it would have already crashed. Think about it!” The vice versa is also true. If a huge rally would be obvious to a lot of people, then stock prices would have already rallied by now.

In that sense, is there nothing really that can be done? That’s not true either. As Mahendra Singh Dhoni, the most famous man from the city I come from, once said: “Worry about the controllable.” What’s the controllable here? There is definitely no way of knowing in advance for certain which way the market is going to go, despite many individuals providing you answers for the same. But then that’s how they make a living. And we must forgive them for that. There is no way of knowing for sure.

In the specific case of public sector stocks, if an investor does not have the time to think and indulge in deductive reasoning, they are just better off investing in a mutual fund that invests largely in public sector stocks. Of course, this might limit overall returns in comparison to betting on individual stocks that could end up doing very well. But they will also limit losses in case things don’t work out well. In the larger case of investing, and at the cost of repetition, diversification is the most important investment strategy—diversification within and across different kinds of investments.

In the even larger case of life, buying term insurance is very important. If you are in a risky profession, like mine of a freelance writer, ensure that you have a couple of years of savings put away in bank fixed deposits. And if that is not possible, then at least a few months.

Basically, try and control what is controllable. The rest you really don’t know what’s going to happen. Of course, this is easier said than done. Even I am working on it.

Finally, as Kemp puts it: “We discount the possibility of change. Yet the reality is, as the Greek philosopher Heraclitus stated, ‘nothing endures but change’.” Or as they say closer to home: “Parivartan hi is sansar ka niyam hai (Change is the way of life).”

And try and focus.

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Written by Vivek Kaul. Edited by James Mathew. Produced and memed by Nirmalya Dutta. Send in your feedback to [email protected].