Predicting rain does not count, building ark does.

-Warren Buffett

It takes a long time to build an ark. Hence you want to build arks in summer when the skies are clear and not when the skies turn dark. Yes, yes, yes… everybody will laugh at you for doing that. But the wise know something that others don’t: it is going to rain for sure.

This kind of thinking does not come naturally to us. For example, we buy ACs at the peak of summer and start going to the gym after our health has worsened. Even though we know in winter that summer will come and not exercising leads to health problems. It rains so much in Bengaluru, yet so many people are caught without an umbrella or a raincoat.

So along with predicting rains, start constructing your arks.

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My job is to study businesses. And smart businesses like smart people can teach us something, provided we are willing to listen. Here is just a small sample along with my 2 cents worth of interpretation.

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1. Suprajit Engineering and the need to diversify

Suprajit Engineering was started by Ajith Rai. When Suprajit started it had one product and was supplying to one client. Now, from being dependent entirely on one product and one client, it has come a long, long way! If Suprajit had remained concentrated, chances are that it may neither have survived nor thrived.

About 3 years ago, I remember watching an interview of his and he asked the analysts (in their 30s): how many had prepared a will? I remember this vividly because at that time my wife and I were making our wills while a few friends thought I was dying :). If you know how messy things can be for survivors to claim what is rightfully theirs, you would start preparing your will too.

Ajith Rai has thought about things like Succession Planning while he is at the helm and in good health condition and not when he is on his death bed.

2. HDFC Bank and the need to plant seeds

Antony Deden is an investor and there is a famous interview of his on Youtube. In that interview he narrates an anecdote where he meets a Dates farmer. And he asks the farmer, how long does it take to harvest good dates and the farmer says about 40 years. He goes on to say that he is harvesting the dates because some of the trees were planted by his father and grand father. And he himself is planting trees for his future generations. Just as building an ark takes time, growing a productive date plant takes time. And therefore you need to plant now for future benefits.

HDFC Bank says it’s branches are like date plants. As they mature, they yield more. And hence planting many seeds now will yield many more fruits in future. Planting seeds is laborious and there is no output to show now. But slowly over the years you will start to see these seeds turn into saplings then into trees and then into high yielding trees.

Similarly, companies which are doing the hard work of setting up distribution network today will see the fruits of that labor many years down the line. Not setting them up is like not building the ark.

Now, here is an example of what happens when there is no long term thinking. Alphonso mango trees like the dates take long time to yield good fruits. Impatient farmers go for varieties that take less time and hence while the demand for Alphonso goes up every year, the supply is constrained and hence Alphonso mangoes become more and more expensive. (Based on anecdotal evidence.)

3. Warren Buffett: Pain today at Geico but massive gain tomorrow

Geico provides car insurance. Warren Buffett acquired Geico in the 90s. He knew there was something wonderful about Geico – it provides the lowest priced car insurance. And so what he did was spend heavily in advertising as this was a way to acquire new customers. And once a customer buys Geico is unlikely to switch to another insurer. So he was willing to undergo the pain of losses today just to have massive gains in the future. The crucial piece of insight was that people don’t switch after trying out Geico.

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To whomever wants to know what I do- I say there are two parts: Exploring and Mining. The job of an explorer is to keep wandering randomly and explore new industries, new businesses and new ideas. The job of a miner is to go and mine businesses that the explorer found interesting.

Of the two, exploring is harder because it pushes me out of my comfort zone whereas mining is well within it. But I realized the more I explore today, the more there is to mine tomorrow. And hence I have to push myself to learn. It is like building an ark when the skies are clear. The next crash could be next month or next year or next decade – I have to be ready for it with my shopping list today.

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Let me just summarize.

When we think of Compound Interest we think only in terms of money. But Compound Interest works in almost every aspect of life. It takes years to learn new skills, new languages, new competencies and you can’t start building these arks when the skies turn dark. Instead, the the time to work on yourself, your health, your will, your relationships is now; the benefits will come to you manifold in future.

A few months back I wrote a blog on valuing time. If you and I have so many arks to build now, why are we wasting time bothering about the world?

-Cheers!