I have just started reading the bestseller book by Rolf Dobeli titled ‘The Art of Thinking Clearly’
The very first chapter tells us why analyzing mistakes of dead companies can be beneficial for long term investors. If done diligently, this exercise helps one avoid making huge losses in stock markets.
The author asks readers to visit a cemetery or a graveyard.
But this is not a normal graveyard.
Its a graveyard where dead companies have been buried. These are companies which were unable to cope up with their sufferings and failed to survive. These have either closed down or are on verge of closing down.
As an exercise in realization, the author forces us to realize(!) that it is highly probable that number of stories about people/companies’ failures are far higher than those about their success. That is to say that for every one success story being reported in media, there are hundreds unreported ones about failures.
In a great example, he tells that if one was to analyze the Dow Jones Industrial Average (a US index similar to Sensex or Nifty 50), then it would have been easily understood that these indices are made up of ‘out-and-out-survivors.’
The index does not have place for companies which are unable to withstand extremes of economic cycles.
And there is a reason(s) why companies survive. But these reasons are absent in dead bodies of dead companies!
In India, Hindustan Motors and Premier Padmini had monopolistic hold over Indian automobile industry till late 80s. But what happened after that? Company’s resistance to change led to their extinction. Their cars Ambassador and Fiats are nowhere to be seen today. This tells that adaptability to change is one of the key survival factors.
This is one of the books I re-read every now and then. I have gifted many copies to people close to me too. Its a must read, if you want to clear your thought-process about investing as well as life.
I love the book, as one of the fallacies suggested it's very difficult to move learning from one field to another, I find it difficult to implement these theories to practical aspects.
I will finish the book and then comment on the same 🙂
But as you have rightly pointed out, its tough to implement theoretical concepts to practical situations.