1. The empty chair

Part 5 of 19 in The Patient Owner: Charlie Munger’s Ideas, as Rakesh Jhunjhunwala Might Have Taught Them to an Indian Investor← Part 4Part 6 →

This chapter explores Rakesh Jhunjhunwala's interpretation of Charlie Munger's investment principles, tailored for the Indian market. It emphasizes the importance of restraint and understanding one's limitations in investing.

We used to sit where the noise was lower than the price. He liked that. A market, he said, is a place where people come to be entertained by their own opinions. He preferred a table at which one of the chairs could stay empty.

Aniruddha. You keep a chair empty. Charlie Munger used to talk about a latticework, not about furniture. Are we starting in the wrong room?

Rakesh. We are starting in the only room that matters. Charlie’s latticework is a way of not being a fool. My empty chair is the same idea with Indian legs. The empty chair is the business you refused. Most of the money I did not lose was lost by other people in chairs I never sat in.

Aniruddha. In clinic we call that the operation you did not do. The complication rate of restraint is wonderfully low.

Rakesh. Exactly. Charlie’s whole almanack, if you boil the speeches and throw away the jokes, is a manual of restraint. Don’t step outside what you understand. Don’t ignore incentives. Don’t fall in love with a forecast. Invert the problem. And then, if you are lucky enough to own a wonderful business, sit on your hands so that compounding is not interrupted by your personality.

Aniruddha. India interrupts compounding professionally. A budget. A rumour. An uncle. A tip on a Sunday afternoon. A new application that vibrates when the index moves half a percent.

Rakesh. Which is why the Indian version of his book cannot be a translation. It has to be a quarrel with our habits. Charlie could assume his reader had already met a clean audit, a trustee culture, and a market that sometimes sold a good business at a silly price. I had to assume my reader had met a promoter who called him beta, a balance sheet that tanned nicely on the beach, and a television channel that needed him to have a view before the break.

You can’t make money on borrowed knowledge. If following another investor was all it took, a lot more people would be rich. — Rakesh Jhunjhunwala, public interviews

Aniruddha. So this book is not ‘what Charlie said, now in rupees.’

Rakesh. It is what I would have made you do with what Charlie said. He gave the tools. I give you the ward. Titan is a ward. Satyam is a ward. A pitch deck that uses the word ‘platform’ eleven times is a ward. And the last ward, the one I did not live to enter, is the machine that will write you a perfect research note agreeing with the trade you already wanted to do.

Aniruddha. We should name the rules before the cases, the way we name the vital signs before the diagnosis.

Rakesh. Good. Write these on the first page of whatever notebook you still keep, because the machine will not keep them for you.

He counted them on his fingers, the way he counted risks, not the way a teacher counts chapters.

One: know the boundary of what you understand, and treat the boundary as the product. Two: invert every thesis until you can see the obituary. Three: never think about anything else when you should be thinking about incentives. Four: a moat is a customer who does not leave when you are rude for a year, not a paragraph in a presentation. Five: the big money is not in the buying or the selling. It is in the waiting. Six: opportunity cost is a real cost, especially for an angel who can only do a few things well. Seven: psychology will pick your pocket while you are reading the cash flow. Eight: avoid stupidity before you seek brilliance. Nine: India is a tailwind, not a substitute for a business. Ten: a tool that flatters you is not a tool. It is a salesman.

Aniruddha. That is the almanack. The rest is commentary.

Rakesh. The rest is India. Commentary without India is an imported suit. It fits in the shop and splits at the first family wedding.

Evening question. Name one investment you are proud of, and one you refused. Which decision made you more money after ten years? If you cannot answer, you are still renting other people’s stories.