CHAPTER 2

Discovering the World of Specialization ¹

‘Everyone holds his fortune in his own hands, like a sculptor the raw material he will fashion into a figure. But it’s the same with that type of artistic activity as with all others: We are merely born with the capability to do it. The skill to mould the material into what we want must be learned and attentively cultivated.’

—Johann Wolfgang von Goethe ²

‘Use only that which works, and take it from any place you can find it.’

—Bruce Lee ³

Introduction

On most Sunday evenings, Saurabh’s family plays out what must be a ritual of modern urban life in millions of households across the world—they argue about what genre of movie they will watch over dinner. While Saurabh’s teenage son usually votes for action adventures and his daughter loves detective serials, his wife prefers comedies. As Saurabh oscillates between these three opinionated individuals, he reminisces about a very different time and place—1980s Delhi—in which he grew up.

At that time, Indians used to have only two channels at their disposal, and every Sunday evening, Doordarshan, India’s state-owned broadcaster, would air the only Bollywood movie of the week. So not just Saurabh’s family, the whole country would watch the same movie together. Thanks to technological progress and greater affluence, we now have a plethora of choices. However, it is not obvious that these choices have actually made us unequivocally better off. The painful dilemmas posed by plentiful choices are most apparent when it comes to the crunch point in the careers of most industrious young professionals—deciding what to specialize in.

Why specialize?

The first thinker to clearly articulate the merits of specialization was the Scottish economist Adam Smith. In 1776, he published a book that would lay the foundations of free market economics—The Wealth of Nations ⁴. The book explained the merits of the division of labour, i.e. the division of a large job into smaller jobs and then the assignment of these small jobs to specific workers such that each worker becomes a specialist in executing a narrowly defined task. So, in one of the most famous case studies ever narrated by an economist, the Scotsman explained how the task of making a pin (from a wire) could be broken down into the following sequential tasks: cut wire, sharpen one end, stamp the head and, finally, solder the head to produce the finished product. Each task would be given to one worker who by dint of doing the same thing all day long would become extremely proficient in that specialized task.

Smith’s idea provided the basis for how factories would be organized during the Industrial Revolution and for a long time thereafter. In the first decade of the twentieth century when Henry Ford built the assembly line for the first mass-produced car, the Model T, he drew upon Smith’s theory of the division of labour; each worker would work at one station all day long and do just one thing. This not only enhanced the worker’s efficiency but training the workers also became easier as they only had to be trained in a narrow, specific task. Almost a century later, cars are still made in much the same way in a silent salute to the Scottish economist who explained why specialization by workers radically improves efficiency for the manufacturer and productivity for the worker (who can thus command a better wage).

In the context of the post-industrial world, the man who has taken Smith’s thinking and turned it into practical principles is Malcolm Gladwell. In his provocative book Outliers: The Story of Success ⁵, Gladwell laid out a template for specialization or expertise development which we will revisit repeatedly in this book. This template hinges on relentless application, ideally from an early age, to develop a skill under the tutelage of a master or in the confines of a progressive organization.

More specifically, Gladwell challenged the conventional view of success that it is mostly about innate talent possessed by almost superhuman individuals. Using examples as diverse as Bill Gates, the Beatles, Canadian ice-hockey players and Jewish lawyers in New York, Gladwell illustrates that success arises from a mixture of immense application (usually thousands of hours of practice) and social circumstances (for example, being born to the ‘right’ parents, in the ‘right’ place and at the ‘right’ time).

Matthew Syed, a former British number-one table tennis player, turned Gladwell’s template into an inspirational self-help book. In Bounce: The Myth of Talent and the Power of Practice ⁶, using examples ranging from chess players and violinists to firefighters, Syed debunks many of our cherished myths about talented super-achievers.

Syed explains that success has three distinct drivers:

• Relentless practice: 10,000 hours of practice, as codified by Gladwell, to develop a specific skill is a necessary but not sufficient driver of success. To quote Syed, ‘. . . from art to science and from board games to tennis, it has been found that a minimum of ten years is required to reach world-class status in any complex task . . . In Outliers, Malcolm Gladwell points out that most top performers practise around one thousand hours per year . . . so he redescribes the ten-year rule as the ten-thousand hour rule. This is the minimum necessary for the acquisition of expertise in any complex task.’
• Coaching: ‘Purposeful practice’ under the guidance of coaches and/or high-quality institutions helps optimize the skill development derived from 10,000 hours of practice. In other words, the whole process of learning becomes more efficient if done under the tutelage of experts who can spot the budding star’s mistakes and provide remedies while harnessing her strengths.
• An enabling environment makes all of the above possible. Without this environment—without the support of parents, coaches and without the right infrastructure—and the opportunities that it creates, we would not have the Virat Kohlis, the Sachin Tendulkars, the Warren Buffetts or the Steve Jobses. Given access to such an environment, more youngsters will blossom to become successful professionals.

In fact, in Saurabh’s first book, Gurus of Chaos: Modern India’s Money Masters ⁷, he showed that the template laid out above goes a long way towards explaining the success of several of India’s leading fund managers. Looking at the careers of Indian investment legends such as Sanjoy Bhattacharyya, Akash Prakash, K.N. Sivasubramanian and B.N. Manjunath, Saurabh found that success in managing large sums of money over long time periods comes from:

• ‘A decade or so of intense training in analysing companies, quizzing management teams, cultivating primary data sources and understanding the business cycle;
• An almost obsessive focus on intellectual integrity (an avoidance of shortcuts in researching, understanding and diligencing a company) even after the initial period of apprenticeship is over to ensure that clients’ wealth is preserved and harnessed in an optimal fashion; and
• The ability—created through training, self-awareness and humility—to successfully deal with greed and fear on a daily basis and thereby peel away from other investors who succumb to these primal emotions.’

For example, the chief investment officer (CIO) of one of India’s largest fund management houses, ICICI Prudential Asset Management Company, Sankaran Naren, started investing his father’s money in Indian stocks when he was fourteen years old. He continued investing through his years in IIT Madras and IIM Calcutta. This hobby was sustained through his early years in the world of work—as a stockbroker in Chennai through the 1990s. In 2000, Naren joined a prominent brokerage in Mumbai first as vice president (Operations) and then as head of research. In 2004, he became a fund manager at ICICI Prudential at the age of thirty-eight. Six years later, he became the CIO of ICICI Prudential.

From his entry into investing in his early teens, Naren’s journey to the peak of his profession had taken nearly thirty years. Those years were spent reading thousands of annual reports, understanding market cycles, understanding the investing styles of other investment legends, investing money, losing money, discussing those mistakes with other investors, learning from the mistakes, improving the investment process and gradually, through sustained effort, learning how to deliver healthy returns without taking high levels of risk. That is the level of time and effort it takes to achieve mastery in difficult, demanding jobs.

In fact, in the decade since the publication of Outliers, the benefits of 10,000 hours-style specialization in terms of superior expertise and the attendant mental development required for the demonstration of superior expertise have now been scientifically proven in numerous fields. Take, for example, the London taxi drivers we encountered in the previous chapter. The men and women who drive the famous black cabs are specifically trained to: (a) have a very detailed mental map of the city in their heads; and (b) be able to use this map to identify the shortest route between two locations. Their accelerated mental development has been studied in detail by psychologists.

In his book Peak: Secrets from the New Science of Expertise ⁸, Swedish psychologist Anders Ericsson writes:

To master the Knowledge, prospective cabbies . . . spend years driving from place to place in London, making notes of what is where and how to get from here to there. The first step is to master a list of 320 runs in the guidebook provided to taxi-driver candidates. For a given run, a candidate will generally first figure out the shortest route by physically travelling the various possible routes, usually by motorbike, and then will explore the areas around the beginning and end of the run . . . After repeating this process 320 times, the prospective cabbie has accumulated a foundational set of 320 best routes around London . . . even after passing all the tests and getting licensed, London taxi drivers continue to increase and hone their knowledge of London’s streets . . .

Neural imaging has allowed psychologists to see how the brains of these taxi drivers change as they go through the long process of memorizing thousands of routes, then passing The Knowledge and then—even more interestingly—becoming experts in the decade after they have passed the test.

Thus, many years of deliberate practice gives London cabbies extraordinary and valuable knowledge of London’s roads; it also gives Olympic male gymnasts massively developed arms and shoulders; it gave Steve Jobs the extraordinary ability to perceive, to understand and to create simple, intelligent and yet highly functional designs which have changed the way we use and perceive our phones.

Is it better to be a ‘generalist’ than a ‘specialist’?

Before we delve deeper into how to specialize, it is worth questioning the whole notion of specialization. As highlighted earlier in this chapter, Gladwell’s bestseller Outliers popularized the concept that with 10,000 hours of ‘deliberate’ practice under the guidance of an expert/coach, anyone could become a world-beater at anything. That in turn led to ambitious parents enrolling their kids into coaching classes as early as they could to ensure that their children started clocking those 10,000 hours as soon as possible.

However, in an equally well-written book entitled Range: Why Generalists Triumph in a Specialized World ⁹, David Epstein says that the ‘10,000 hours of practice’ theory is not only misguided, it could also be damaging. Epstein argues that specialists flourish in ‘kind’ learning environments (such as golf, classical music, technology innovation, chess), where patterns recur and feedback is quick and accurate. By contrast, generalists flourish in ‘wicked’ learning environments (business, politics, fund management, medicine, day-to-day life), where patterns are harder to discern and feedback is delayed and/or inaccurate. Why so?

Epstein cites two reasons why generalists outperform specialists in ‘wicked’ learning environments. Firstly, generalists tend to have a more rounded set of skills and hence are able to adapt to difficult/fluid learning environments better than specialists (who tend to be more unidimensional in their talents and training). Secondly, generalists have better ‘match’ quality—since they have done a broader range of things in life, the odds are relatively high that generalists have settled upon/specialized in an activity which fits (or matches) their talents better. As it happens, another book—Bruce Lee: A Life ¹⁰ by Matthew Polly—provides an almost ideal exemplification of Epstein’s theory in a context many of us can identify with, namely, the rise of Asia after World War II.

Bruce Lee: The ultimate ‘generalist’

Polly begins the book by giving us the outline of Bruce Lee’s life. He was born in San Francisco in 1940 to Chinese parents who were in the USA on a working visa. He then grew up in Hong Kong and became a child movie star before he was banished by his father to the USA when he was eighteen. He finished his schooling in Seattle and set up his first martial arts (kung fu) school there even before he went to the University of Washington. Another kung fu school in Oakland followed three years later, before Hollywood discovered Bruce Lee at the Long Beach Karate Championships in 1964.

Small roles in US TV serials followed, but Hollywood couldn’t get over its mental block about an Asian man helming a movie. Instead, Bruce Lee’s big break came from Hong Kong; his lead role in The Big Boss (1971) made him a superstar in Asia. Over the next two years, four more hit movies—the final one being Enter the Dragon (1973), widely considered the finest martial arts movie of all time—established Bruce Lee as a global superstar before his tragic death in Hong Kong in 1973 in mysterious circumstances. While some say that Bruce Lee died due to an allergic reaction to a prescription painkiller, Polly says that Bruce’s death was caused due to his body overheating as he had had the sweat glands in his armpits removed so as to help him film for longer without having to change shirts. Without sweat glands, Polly claims, Bruce’s body could not cool down swiftly enough in the peak of the Hong Kong summer.

More than his death in mysterious circumstances, what makes Bruce Lee interesting is his fusion of many different styles of fighting to create not just a unique style of combat (which would go on to be called mixed martial arts) but also a new genre of cinema—the martial arts movie.

As a schoolboy, Bruce Lee began by learning wing chun, an obscure style of kung fu, in Hong Kong from his first and only formal guru, Ip Man. He then studied other styles of kung fu while learning judo from his pupil in Seattle, Jesse Glover, and taekwondo from his friend in Oakland, Jhoon Rhee, also known as the ‘father of American taekwondo’. In fact, Bruce Lee learnt martial arts from so many that when he became a star, several people—from film star Chuck Norris to Jhoon Rhee—claimed to have taught him his famous side kick.

While still in his early teens, Bruce was taught the basics of Western-style boxing by Father Gordon, a schoolteacher in Hong Kong. After he moved to the USA, Bruce studied boxing films closely, especially those of Muhammad Ali, to understand how the entire body can be used to pack an enormously powerful punch. Bruce also took from boxing its training techniques—skipping, weight training, punching heavy bags 500 times in a day and a five-mile run at the crack of dawn to build stamina.

In his early teens, Bruce also learned the basics of fencing from his brother. He would go on to read and build a library of many dozens of books on fencing. Not only did he become an expert fencer, he combined kung fu and fencing to create the pose which he holds in his iconic photographs wherein he ‘leads’ with his right hand and ‘finishes’ or signs-off with his feet. Bruce called his style of kung fu ‘fencing without a sword’. ¹¹

In his twenties, after reading American bodybuilding magazines, Bruce Lee adopted the dietary practices recommended by them, viz. a protein-rich diet accompanied by weight training with lots of repetitions to improve muscle definition. Addicted to non-stop training, while watching TV or waiting for his shot on the sets of a movie, Bruce would do hundreds of repetitions.

Battling Hollywood’s relentless racism, Bruce Lee learnt from acting coaches how to slow down his English to make it easier for Western audiences to follow him, and how to slow down his fighting so that the camera could actually see him. By slowing down his fight scenes—most of which he choreographed himself—Bruce Lee transformed the Asian martial arts movie from a sideshow to mainstream entertainment in the US market.

Alongside all this training and movie work, Bruce Lee was reading and writing at a frenetic pace. He extensively read Western, Taoist and Confucian philosophies and was particularly influenced by Jiddu Krishnamurti’s ¹² religion-less philosophy. Martial arts coach to the biggest Hollywood stars of his time, Bruce Lee went on to write two martial arts guides to his style of kung fu—Chinese Gung Fu: The Philosophical Art of Self-Defense ¹³ and Tao of Jeet Kune Do ¹⁴. The latter book, published after his death, has become the largest selling martial-arts book of all time, as stated in Polly’s book Bruce Lee: A Life.

In the 1971 American TV series Longstreet, Bruce Lee narrated lines which have almost become his epitaph: ‘Empty your mind, be formless, shapeless—like water. Now you put water into a cup, it becomes the cup; put it in a teapot, it becomes the teapot. Now water can flow or creep or drip or crash. Be water, my friend.’ ¹⁵

Settling the ‘generalist versus specialist’ debate

While Range makes a compelling case that all of us should strive for broadness throughout our careers, there is no conflict between Epstein’s exhortation to generalization in Range and Gladwell’s 10,000 hours. In fact, the two notions appear to be complementary, for it seems self-evident to us that in any competitive profession, the people who will rise to the top are those who have (1) generalised skills to deal with a wide variety of challenges, and (2) deep expertise in the core skill or competency offered by the profession to its customers. For example, for the captain of a cricket team to be successful, she not only has to be a good cricketer—which is her core skill—but she also has to have more general skills, such as the emotional intelligence required to get the best out of her players.

So, regardless of whether you are a cricketer, a politician, a fund manager, a dancer or a film star, it is hard to believe that a unidimensional expert or an incompetent expert will reach the summit in the rapidly evolving flux of a complex and competitive society. The mental-model for achieving success in complex ‘wicked’ societies such as ours therefore resembles the letter ‘T’, i.e. broad-based knowledge alongside deep, focused expertise.

Building deep, focused expertise

‘The two most important days in your life are the day you are born and the day you find out why.’

—From a 1970 pamphlet distributed by a church in the USA ¹⁶

In spite of the popularity of the 10,000 hours principle, we are still left asking, ‘What should I specialize in?’ And even more fundamentally, ‘What are the guiding principles to use to figure out what I should specialize in?’

The tussle between ‘should’ and ‘must’

In 2018, on a flight from Delhi to Mumbai, Saurabh saw a young lady in the seat next to his settle down and spend the next hour doing some high-quality sketching on her tablet (with what looked like a high-tech stylus). Then after the in-flight meal was out of the way, she opened her laptop and started working on a conventional PowerPoint presentation for a large Indian corporate firm.

Saurabh immediately identified with the pattern in her behaviour. A decade ago, when he was her age, Saurabh used to write columns for magazines using the time allocation she was following—the first part of the flight was spent doing what Saurabh loved to do, what his creative instincts said ‘I must do’. Then, once the meal was out of the way, Saurabh would switch to doing what he ‘should do’ to earn a living and/or to meet societal expectations, e.g. prepare research reports for institutional investors with deep pockets. (Saurabh discovered later that the lady sitting next to him on the flight from Delhi was a consultant with a prominent management consultancy.)

For millions of professionals like Saurabh’s neighbour on the flight, the tussle between ‘should’ and ‘must’, between what they feel they should do (because of financial or societal reasons) and what they must do (in order to fulfil deeply felt urges) is the defining tussle of their lives. The American artist Elle Luna immortalized this internal battle in a celebrated blog published in 2014. ¹⁷

However, it doesn’t have to be like that. It has taken Saurabh the best part of twenty years to understand that there is no trade-off between what we should do and what we must do.

It is harder to excel if you are not doing what you ‘must’ do

What is original thinking? One way of understanding this is to ask yourself how you gain knowledge these days. Generating new thoughts on your own isn’t easy. Our knowledge today is based on the expertise of others. Thanks to technology, new ideas are now disseminated rapidly and a large part of our waking hours is spent absorbing the latest ideas produced by others either for professional use (say, by attending professional courses or by subscribing to a trade website) or for personal use (say, by staying glued to Facebook or WhatsApp).

Original thinking is at the heart of professional success in the highly competitive economies which we find ourselves in. And, regardless of your profession, if you want to be an original thinker you have to do what you ‘must do’, not what your parents or your social circles think you ‘should do’.

There is no trade-off between ‘should’ and ‘must’

‘Work is often seen as a means for making money so we can enjoy that second life we lead. Even if we derive some satisfaction from our careers, we still tend to compartmentalize our lives in this way. This is a depressing attitude . . . If we experience this time as something to get through on the way to real pleasure, then our hours at work represent a tragic waste of the short time we have to live. Instead you want to see your work as something more inspiring, as part of your vocation . . . Your work then is something deeply connected to who you are, not a separate compartment in your life.’

—Robert Greene, Mastery ¹⁸

Ironically, it is not so much a question of following your heart over your head. Once you realize that the trade-off people talk about (eg. ‘you have to choose between a steady job and the financial security that comes with it versus the fluctuating fortunes of an entrepreneur’) is a false notion—you have neither financial nor emotional security if you are in a job you don’t enjoy—you will be on your way to a happier and more successful career. Looking at it another way, there is no career advancement available for unhappy executives who churn out unimaginative slides/reports just because of the pay cheque available at the end of the month.

However, the problem with this sort of emotional response to a practical question is that our emotions can be fickle. If today I want to be (or must be) the next legendary batsman to play cricket for India and tomorrow I must be a footballer and the day after I decide that journalism is my abiding passion, it is hard for me to use my ‘passion’ as a compass for determining what I should specialize in.

So is there a more practical and more sustainable way to determine specialization? Yes, says Greene in his deeply researched book Mastery. He writes:

You possess a kind of inner force that seeks to guide you toward your Life’s Task—what you are meant to accomplish in the time that you have to live. In childhood this force was clear to you. It directed you towards activities and subjects that fit your natural inclinations, that sparked a curiosity . . . In the intervening years, the force tends to fade in and out as you listen more to your parents and peers, to the daily anxieties that wear away at you. This can be the source of unhappiness—your lack of connection to who you are and what makes you unique. The first move toward mastery is always inward—learning who you really are and reconnecting with that innate force. Knowing it with clarity, you will find your way to the proper career path and everything else will fall into place.

Greene goes on to provide a three-step method to help you find your calling:

Step 1: You must connect (or reconnect) with your inclinations, with your sense of uniqueness. In that regard, Step 1 focuses on looking inward—you search your past for signs of that inner voice. You try to clear away other voices—parents, friends, teachers—that might confuse you. Greene says, ‘You look for an underlying pattern, a core to your character that you must understand as deeply as possible.’

Step 2: Having nailed Step 1, you look at the career path which you are already on (or the one that you are about to begin). The choice of this path is critical. More specifically, when you are choosing this career path, you need to avoid making needless distinctions between your professional and personal lives. Greene says, ‘. . . you will need to enlarge your concept of work itself. Too often we make a separation in our lives—there is work and there is life outside work, where we find real pleasure and fulfilment.’

Step 3: Once you have figured out your career path, you need to give yourself a mental model of how your career will broadly pan out. Greene says,

. . . you must see your career or vocational path more as a journey with twists and turns rather than a straight line. You begin by choosing a field or position that roughly corresponds to your inclinations . . . You don’t want to start with something too lofty, too ambitious—you need to make a living and establish some confidence. Once on this path you discover certain side routes that attract you, while other aspects of this field leave you cold. You adjust and perhaps move to a related field, continuing to learn more about yourself, but always expanding off your skill base.

How to specialize?

Greene’s book, published four years after Gladwell’s Outliers became a global bestseller, also gives a detailed road map to specialization, to expertise and ultimately to mastery. In fact, we reckon Greene’s road map to mastery is best seen as the fleshing out, the detailing of Gladwell’s 10,000 hours principle with the main difference between these two American authors being their view of the role that fortune and circumstance play in attaining success.

As explained earlier in this chapter, Gladwell believes that the time, the place and the family circumstances in which you are born play a major role in the attainment of expertise. So, the fact that Bill Gates was born in an affluent American family, went to a high quality school and had access to computers from an early age played a central role in his success in creating Microsoft. In the Gladwellian world, an equally talented child born in an impoverished village in eastern or northern India is highly unlikely to become as successful as Gates.

Greene takes a different, more radical and a more exciting view, more relevant for people like us who do not hail from privileged First World families. He believes that the attainment of mastery—in their chosen vocation—is open to anyone regardless of their financial position, social standing or biological attributes. In Greene’s world all you need to attain mastery is a deep commitment to your craft, your vocation allied to a ferocious willingness to learn and push yourself day after day, year after year.

In the passages which follow we have summarized the key steps outlined by Greene but anybody who is serious about gaining expertise in her craft should read Greene’s book from cover to cover. Greene articulates a three-step path to mastery: apprenticeship, creative-active and mastery. To summarize each of these steps:

• Apprenticeship: We need mentors because life is short—we have limited time and energy to expend, especially since our most creative years tend to be our late twenties into our mid-forties. We can learn through books, courses, videos, our own practice and the occasional piece of advice from others. However, that process is a hit-and-miss because the information in books or courses is neither customized to your specific circumstances nor takes into account the quirks in your personality and mental makeup. Further, the books and courses are likely to be abstract and when you have little knowledge of the world, the utility of such knowledge is limited. Leaving books and courses aside, you can learn from your personal experiences but that is likely to be a drawn-out process. It is in this context that a mentor or a guru can be of help. Such a person can streamline your learning to suit your specific requirements.
  The mentor’s personal experiences allow her to not only share with you battlefield stories which you can learn from, it also allows her to tailor all the resources that are available to you—courses, books, work experience, etc.—to suit your personality and needs. The mentor’s guidance reduces the chances that you will walk down blind alleys and fall prey to diversions. Her ability to give you real-time feedback will allow you to make the best use of your time. In short, the mentor can potentially help you learn in, say, five years what could have taken ten years to learn without appropriate guidance.
• Creative-active: As you accumulate knowledge and experience in your chosen discipline, ideally under the guidance of a mentor, you will increasingly have to choose between: (a) keeping your mind active, hungering for more knowledge, asking increasingly difficult questions and seeking out new experiences; or (b) turning conservative with your knowledge acquisition, preferring to fit into groups of people and sticking to procedures which—for you—are tried and tested. If you want to attain mastery in your craft, you will have to choose path (a) rather than path (b). In other words, as you move towards the end of your apprenticeship, you have to be bold enough to expand your knowledge of related fields. You have to experiment and look at old problems from new angles. As you do this, Greene says that ‘you will turn against the very rules you have internalized . . . Such originality will bring you the heights of power.’
• Mastery, or the development of high-level intuition: As you push the frontiers of your knowledge and your skill set repeatedly, you will develop an understanding of all the parts involved in the discipline that you are studying (or the craft that you are learning). The knowledge will now be internalized in you in ways that even you will not fully understand. Albert Einstein, famously, was able to see a whole new way of seeing the whole universe—the time-space continuum as he called it—in one single visual image. ¹⁹ Similarly, Thomas Edison was able to visualize how an entire city could be electrified in a single image. Greene says that this level of intuition can only be reached after 20,000—not 10,000—hours of learning and practice. Through sheer practice and experience, you transform the neural networks in your brain such that it is able to make connections no one else can. In short, you become a ‘master’.

Specialization case study: Charlie Munger

A uniquely original and astonishingly capable mind, Charlie Munger has trained himself across multiple disciplines without taking a single course at university on business or finance. His life provides rich lessons for those who seek wisdom. At the core of Munger’s wisdom is the realization that thinking does not come naturally to the vast majority of people in the stock market, i.e. most of us do not think most of the time; we parrot/imitate and respond reflexively to what we read, see and hear. Therefore, if we can set up systems and processes and learn tricks, which teach us to think and in fact make us think, we will gradually become better than most people around us. This central insight from Munger is extremely relevant for investors in a market such as India where the herd instinct is even stronger than it is in the developed markets and where accounting/governance inadequacies characterize even prominent companies.

Based on our reading of three superb books—Seeking Wisdom: From Darwin to Munger by Peter Bevelin, Charlie Munger: The Complete Investor by Trenholme J. Griffin and Poor Charlie’s Almanack ²⁰—we provide our summary of what we are trying to learn from this titan:

1. Continuously learning, thinking, building mental models and deep knowledge: In order to benefit from this model of focused learning, we need to be patient and we need to realize that there will always be people who will be going faster than us. However, if we persist, we will benefit from what is called the second half of the chessboard—or the area where our knowledge bears fruit in a much more meaningful way. ²¹ In Munger’s words, ‘Spend each day trying to be a little wiser than you were when you woke up. Discharge your duties faithfully and well. Slug it out one inch at a time, day by day. At the end of the day—if you live long enough—most people get what they deserve.’ ²²

There is another way to think about what Munger is saying. If we build a repository of knowledge and accumulated experience of real-world situations, we will gradually become more able to correlate problems we come across with the knowledge we have already accumulated. In the words of the psychologist-cum-economist Herbert A. Simon ²³, ‘The situation has provided a cue; this cue has given the expert access to information stored in memory, and the information provides the answer. Intuition is nothing more and nothing less than recognition.’

2. Understanding our circle of competence and staying within it: A decade ago, Munger said in a BBC interview, ‘We have to deal with things that we’re capable of understanding.’ ²⁴ At Marcellus Investment Managers, Saurabh and his colleagues are repeatedly asked why they don’t invest in stocks which don’t have high returns on capital and strong cashflows. After all, the thinking goes, great investors are all about finding decent companies at bargain prices. However, since they can’t second-guess how an ugly frog will become a handsome prince, the team at Marcellus has focused on its core competence of investing in great franchises with strong moats and a clean management. To quote Munger, ‘It’s obvious that if a company generates high returns on capital and reinvests at high returns, it will do well. But this wouldn’t sell books, so there’s a lot of twaddle and fuzzy concepts that have been introduced that don’t add much.’ ²⁵

Munger also makes the broader point that ‘[k]nowing what you don’t know is more useful than being brilliant’, and ‘[a]cknowledging what you don’t know is the dawning of wisdom’. ²⁶ Munger’s friend Li Lu has restated this nicely: ‘The true insights a person can get in life are still very limited, so correct decision making must necessarily be confined to your “circle of competence”. A “competence” that has no defined borders cannot be called a true competence.’ ²⁷

3. Focus on one or two variables: Both in the businesses he invested in and in the way he gradually built a vast body of knowledge, Munger learned to focus on the one or two variables which drive success. In his words: ‘In business we often find that the winning system goes almost ridiculously far in maximizing and or minimizing one or a few variables—like the discount warehouses of Costco.’

Warren Buffett has articulated this point of view from the perspective of an investor: ‘You only have to be right on a very, very few things in your lifetime as long as you never make any big mistakes . . . An investor needs to do very few things right as long as he or she avoids big mistakes.’ ²⁸

4. Focus on outstanding businesses, not on cheap stocks: Until he started collaborating with Munger, Buffett was focused on using Benjamin Graham’s cigar-butt style of ‘value investing’. Munger’s influence played a major role in Buffett gradually abandoning this style through the 1970s and 1980s and moving towards investing in outstanding franchises such as Capital Cities/ABC and Coca-Cola. Munger deserves enormous credit for first saying ²⁹: ‘Ben Graham had blind spots. He had too low an appreciation of the fact some businesses were worth paying big premiums for.’ 

And then saying ³⁰:

Ben Graham had a lot to learn as an investor. His ideas on how to value companies were all shaped by how the Great Crash and Depression almost destroyed him, and he was always a little afraid of what the market can do. It left him with an aftermath of fear for the rest of his life . . . I think Ben Graham wasn’t nearly as good an investor as Warren Buffett is or even as good as I am. Buying those cheap, cigar-butt stocks [companies with limited potential growth selling at a fraction of what they would be worth in a takeover or liquidation] was a snare and a delusion . . .’

Interestingly, this resulted in an investment style for Munger (heavily influenced by the great Philip A. Fisher) which works nicely for Saurabh’s colleagues at Marcellus Investment Managers in India and has given them a portfolio of moated, relatively clean, well-run companies such as Asian Paints, Pidilite, HDFC Bank and Dr Lal PathLabs. In Munger’s words ³¹, ‘Once we’d gotten over the hurdle of recognizing that a thing could be a bargain based on quantitative measures that would have horrified Graham, we started thinking about better businesses.’

5. Carefully choose the people you work with: Munger says one has to be selective about the people one works with because people who do unwise things in one setting usually proceed to do unwise things in other settings as well. In Munger’s words ³², ‘. . . it’s just so useful dealing with people you can trust and getting all the others the hell out of your life. It ought to be taught as a catechism [W]ise people want to avoid other people who are just total rat poison, and there are a lot of them.’

Learning from Charlie Munger

Saurabh and his colleagues at Marcellus Investment Managers have benefited immensely from Charlie Munger’s teachings. The Marcellus team in Mumbai focuses on analysing in-depth no more than thirty stocks. This is significantly lower than the number of stocks covered by an average portfolio management house in India. Marcellus’s Consistent Compounders Portfolio has only thirteen stocks in it. The firm has seven analysts in its team, and each is required to dissect only four to five stocks. Why? Because Marcellus does not think it can realistically ask its analysts to build deep knowledge on more than this number of companies.

By ‘deep knowledge’ Saurabh means (a) familiarity with the last fifteen years of annual reports of each of these companies; (b) a deep understanding of every single major capital-allocation decision made by these companies over the last fifteen years; (c) a deeper understanding of the competitive advantages—or the lack thereof—of these companies than anyone else in the Indian stock market has; and (d) a full understanding of the accounting/governance tricks being used to flatter the firm’s profits and its net worth.

The past decade has taught Saurabh and his colleagues that building deep knowledge of high-quality Indian firms is unusually rewarding because most analysts/investors operating in India are seldom able to focus long enough on a company to truly understand its sustainable competitive advantages. As a result, if the team at Marcellus can understand the same better than others, it should generate superior results over long periods of time. That being said, it is tough, grindingly hard work—not just because of the many hours spent reading but also because of the time and effort involved in tracking down experts who can provide deep, original insights into the workings of these companies. The fact that a legend like Charlie Munger traversed a similar path gives Marcellus the proof of concept that it needs to focus as deeply as the legendary American investor.

* * *

Key takeaways from this chapter

• The first thinker to clearly articulate the merits of specialization was the Scottish economist Adam Smith, who explained the merits of the idea 250 years ago in his famous book The Wealth of Nations. Smith’s idea regarding the division of labour on the lines of specialization provided the basis for how factories would be organized during the Industrial Revolution and for a long time thereafter.
• Authors such as Malcom Gladwell and Matthew Syed have debunked the notion of talent as the key driver for success. Instead, they have written about the role of social circumstances, immense application, relentless and purposeful practice, and an enabling environment as keys to success.
• In the debate on generalists versus specialists, we believe that one must be both a generalist and a specialist. The people who rise to the top are those who have: (1) generalised skills to deal with a wide variety of challenges; and (2) deep expertise in the core skill or competency offered by the profession to its customers. For example, for the captain of a cricket team to be successful, he not only has to be a good cricketer—which is his core skill—but he also has to have more general skills, such as the emotional intelligence required to get the best out of his players.
• What should you specialize in? Robert Greene provides three steps: Connect with your inclinations, choose your career in line with your inclinations, and prepare a mental model of how your career will broadly pan out. How to specialize? Follow Robert Greene’s path to mastery. Find a great mentor, ignite the ‘creative-active mind’ and finally develop high-level intuition.

How Raamdeo Agrawal Built the Motilal Oswal Empire

Raamdeo Agrawal and his friend Motilal Oswal are legends of Dalal Street. They are a testimony to the power of specialization, given their focus on a single area: equities. Their tag line reads, ‘Equity Sahi Hai’ (equities are right). We met Agrawal or RA (as he is known within the company) on 23 July 2019 at the Motilal Oswal Financial Services (MOFS) Ltd headquarters in Prabhadevi, Mumbai.

MOFS is named after Oswal since, as Agrawal says, ‘he went into the ring’ (the trading ring at the Bombay Stock Exchange) while Agrawal ‘took the trade orders’. MOFS was set up as a stockbroking house in 1987 and since then has diversified into fields such as wealth management, mutual funds and housing finance. Between the two, RA is the more visible face, seen often on business TV channels, in newspaper interviews, holding forth confidently regarding India’s future and about the Indian stock market being the best avenue for an average Indian to grow his wealth.

RA gives his own example as the son of a farmer from a village in Chhattisgarh who went to Raipur, now the capital of the state of Chhattisgarh, for his schooling, Nagpur for his college, and then came to Mumbai as a broke but hugely ambitious Marwari graduate who vowed to build his own business and get rich. From those early days of setting up MOFS to the present-day Motilal Oswal HQ in a 300,000-square-foot glass tower in the central suburb of Prabhadevi, RA has traversed a long distance.

Like almost all the experts we interviewed for this book, RA is a voracious reader and this habit goes back to his school and college days. While RA was strong at sciences in school and at accounts in college, he was poor in English. Determined to address this deficiency, RA began reading newspapers and books in college—a habit that helped him easily read huge annual reports later in his career.

RA’s struggle in building his career has now become a competitive advantage for him because it allows him to spot great entrepreneurs early—RA looks for driven men and women who put in immense efforts in clearing competitive exams (like the entrance exams held each year to get admission into IIT, IIM and medical colleges, the professional exams held for chartered accountants or the evaluation exam for the Indian Administrative Service). RA believes that determination to clear the exams is an indicator of an inner desire to fight and win against the odds. RA recalls his own desire to clear the hugely competitive chartered accountancy (CA) exams. RA was determined to pass the exams even if it took multiple attempts.

RA was also clear that he would never work for a salary. He stayed on track to be an entrepreneur even as all his friends settled into comfortable jobs after earning their CA qualification. RA attributes this bent of mind to the many financial fiction books that he read in his youth—books by authors such as Paul Emil Erdman (The Billion Dollar Sure Thing, Zero Coupon and The Silver Bears), Irving Wallace (The R Document) and Arthur Hailey (The Moneychangers). Most of these books were easily available to read at cheap rentals in local libraries. Books from these local libraries shaped RA’s mind and led him towards a career in the stock markets, preventing him from going down the traditional CA routes of accounts, audit and taxation.

As RA started understanding the stock market, he would analyse businesses everywhere he went. If he went to a restaurant, he would work out the number of customers, table turnarounds, average billings, etc. and construct a profit and loss (P & L) account within minutes. This laid an early framework to understanding businesses. It also helped RA set up a low-cost, self-funded brokerage that benefited from the long settlement periods of buying and selling shares in the physical settlement era of India’s stock markets. The Harshad Mehta-led bull run (and subsequent crash) of 1991 and 1992 helped MOFS’s fortunes. A hunger to learn and an ambition to succeed drove RA to focus on what he knew best—fundamental research of companies and their promoters. ‘We were young and mad. The stock market is all we knew. We liked to say that if you like mad people, come work with us, else don’t. And it is difficult to compete with mad people,’ RA told us.

Everything changed when veteran Indian investor, Sanjoy ‘Bhatta’ Bhattacharyya pointed RA towards the Berkshire Hathaway (BH) founder and legendary investor Warren Buffett. In the 1990s, Buffett was an unknown name in Indian stock markets. But RA dove deep into the work and investment philosophies of Buffett, procuring all of BH’s annual letters. Before reading Buffett, RA focused only on simplistic and ‘primitive’ price-to-earnings based investing with basic knowledge of the company from annual reports. RA was so deeply influenced by Buffett that he even travelled to Omaha in 1994—for the first time—to meet Buffett and got a photograph clicked with him. While the trip to meet the Oracle of Omaha was an achievement for RA in those days, it has become a ritual for many Indian investors over the past few years. RA credits a lot of his investment frameworks and even management styles to Buffett. ‘Investing is much more than just reading the balance sheet. So that [Buffett and his investment style] really changed everything for us in investing,’ RA told us. To date, RA credits his friend Bhatta for pointing him towards Buffett, towards other global investors and towards investment philosophies—all of which have made RA a better investor. ‘Buffett is my guru, but Bhatta is my Sadhguru,’ RA told us.

While RA often comes across as animated in our discussions with him, he is detached and calm about how the stock market moves. Unlike many people who can’t get their eyes off the stock price ticker on the TV screen or mobile phones, RA gave us his full attention for this interview. RA credits this detachment to his steadfast refusal to lever (use debt to increase his bets). He is unfazed with any stock-market boom or crash, other than propounding his beliefs in the power of equity when TV channels call him during those booms or crashes.

RA credits his chartered accountancy degree to staying focused on sensible capital allocation. ‘I will never manage anything based on my market cap. I do things based on what I have in my pocket,’ he told us. RA believes that an owner of a company is the chief risk officer because if the company fails, his employees may leave him, but his company is all that he has. Hence, he must manage risks more than anything else. ‘Because I started from zero, I never want to go back to zero. Even if I commit mistakes, I will cut my losses in such a way that we stay safe overall,’ he told us.

Finally, when we ask him for his advice to a twenty-five-year-old, RA tells us to do two simple things. First—find your passion. Unlike his time when opportunities were limited, he believes that opportunities for today’s youth are global. They can even take a few years off to find their passion and then pursue it with everything they have, to literally put their lives behind finding success with an unshakeable belief in themselves. Second—have a strong value system that you hold through good and bad times. RA quotes Charlie Munger, vice-chairman of Berkshire Hathaway, ‘The safest way to try and get what you want is to try and deserve what you want.’