The Man Who Mistook A Stock For His Wife

Meeting Suzie

Suzie blew me away. It happened in Goa. On Colva beach on a memorable windy evening in late October 2007. I will never forget Suzie. Or that evening.

I was there to visit an iron ore mining company. A boring company to visit indeed. You bore a hole into the ground, dig out the ore and you ship it to the buyers. Ore is bore. Even the name was boring.


Why couldn’t they ever send me to an exciting company? One that would change the world? Like that alternate energy company one I was reading about on my windy, turbulent flight to Goa? What’s it called? Never mind. Just get over this boring shit meeting.

The same questions again and again. But this is my job. I have to ask them.

Can you give me your latest estimate of proven reserves? I smiled on that one. Hard to supress it when you’re thinking that a mine is a hole in a ground with a liar on the top. Twain said that, isn’t it? Who cares? It’s a good quote to help me out of this boredom hole.

What will you earn next quarter? What’s your outlook for ore prices this month?

Month??? No one thought in terms of decades. Or even years. You can’t produce a baby in one month by getting nine women pregnant. Graham said that, isn’t it? No, that was Buffett. Graham would never say that without trying it out. Tee hee. That’s funny.

I was so bored. And I had to be here till tomorrow morning.

Hey! Wait a minute! Why not go to the beach?

Yes, I thought that’s a awesome idea. Beaches are good. Anything can happen on a beach. Tonight, I was prepared for an adventure. I needed one and fortune favours the prepared mind. Louis Pasteur said so.

I guess the problem is that I am just too cautious. Every time I’ve met a girl in the last two years, it has never worked out between us. I am too young to make any long-term commitments. Or, rather, I was. Until today. Tonight I feel different. Romance is in the Goa air. Or, maybe it was the double shots of Sea Breeze cocktail I drunk at the hotel bar before coming here. Who cares? Tonight, I throw caution to the wind.

And so I had a couple of drinks and I headed out towards the beach. And here’s how it happened.

Colva beach is so beautiful by the sunset. The wind is blowing softly and I just love it so much here. But I am lonely and tipshee and why I am I shlurring even while thinking?

Who’s that girl? Why is she standing alone in the water?

Suzie on the Beach

Look at that sunset! That’s what she’s gazing at and I gaze at her.

Her silhouette is so hypnotic, that I can’t even blink my eyelids. Why aren’t other people looking at her? Maybe they are just too engrossed in each other. Good. Or maybe she is that magical woman only I can see. She is there only for me. Or maybe I am just hallucinating.

Very gently, I tip-toe towards her, while the splashing, soapy waves wipe away the toe prints I leave behind. Softly, I enter the water and approach her.

Shit scared. My heart is probably racing at 200 beats a minute. OMG, she will hear, turn and scream! I pause three feet before her silhouette and see the contours of her outline against the sun behind her. She is as breathtaking to me as the sunset is to her.

I take a deep breath to slow my heart beat but the soft wind blowing towards me carries her mild but distinctively fruity fragrance inside my nostrils. She’s inside me now. I have inhaled her won’t let her go away so easily. But in ten seconds, I am breathless with my heart now pounding away at 240.

She turns her head a bit, still oblivious of my presence. I can see the shape of her face, her nose, her lips. She is the most beautiful woman he have even seen this close. She turns her head and smiles as if she knows. As if she is expecting me. She says

Are you here for me?


I knew you’d come. I’ve waited so long for you.

She smiles so beautifully. Everything about her is so awesome. And she moves her body like a cyclone. That’s a song, isn’t it?

She moves closer and it feels like a whirlwind. She touches me gently. On my neck. Feels my face. Caressed my arms. Ruffles my hair. As if she’s known me for a long time. And then she gently leans over and whispers in my ear.

My name is Suzie. No one else will see me. You can’t touch me but I can touch you. We will live here on the beach. And I’ll be yours so long as you will have me. Agreed?

At that moment, I felt so powerless. All I wanted was her. On any condition. I blurted a yes. She opened her arms, and came closer still. Then she hugged me tightly. Squeezed me for 30 seconds. It felt as if I was in a wind-tunnel.

We were married the next day. On the beach. She would be the wind beneath my wings  and I was so happy that I was going to fly. Just like Jonathan Livingston Seagull.

I felt invincible. And I felt committed. I had made my vows. My commitment was for real.

The Prof Buddy

And then my phone rang. It was my childhood buddy – a professor in finance. Kind of revered. He had just heard. He said

WTF? Are you crazy? Is this for real? Have you lost your senses?

How did you wind up with a girl like HER?

I knew my prof buddy meant well. But what did he know about love? He was practically married to his kindle and he couldn’t talk about anything but risk management.

So I told him. Life is short. It can come and go like a feather in the wind. Shania Twain said that. I told him that too. He said Shania who?

He tried hard to talk me out of it. I told him to forget it. It’s complicated. He hung up. I knew he’ll be back, though. Just like the terminator.

A week later, he called again. Said he is giving a talk in class which will be of particular interest to me. I must come. He has sent the tickets. I said I will go, just to make him happy.

And so I go to Gurgaon, to attend his class in mid November of 2007. He makes me sit in the front row. Now I won’t even able to sleep in the back bench!

The class is about his new fangled ideas – god knows where all he gets them from. Every year he comes up with a few.

Backward Thinking and Reductionism

He starts by talking about mental tricks like backward thinking and reductionism. He says there’s a bubble building up inside the global alternate energy sector but people inside the bubble don’t know they are inside it because they are inside it. I guess this means that HE is outside it and he will rescue those inside it. Hmmmm.

He reminds me and others that backward thinking is a trick we all learnt in school. It’s called proof by contradiction. So if we have to prove that proposition x is false, we first assume that it’s right. Then we show that if it’s right, it will result in an absurdity y. But that’s not allowed, so from this we deduce that proposition x must be false.


He then shows examples used by his guru Warren Buffett where he applied this technique. Apparently, Buffett proved, using this backward thinking technique that dot com companies were hugely overvalued in early 2000. He quotes Buffett:

“When we buy a stock, we always think in terms of buying the whole enterprise because it enables us to think as businessmen rather than stock speculators. So let’s just take a company that has marvelous prospects, that’s paying you nothing now where you buy it at a valuation of $500 billion. If you feel that 10% is the appropriate return and it pays you nothing this year, but starts to pay you next year, it has to be able to pay you $55 billion each year – in perpetuity. But if it’s not going to pay you anything until the third year, then it has to pay $60.5 billion each per year – again in perpetuity – to justify the present price… I question sometimes whether people who pay $500 billion implicitly for a business by paying some price for 100 shares of stock are really thinking of the mathematics that is implicit in what they’re doing. For example, let’s just assume that there’s only going to be a one-year delay before the business starts paying out to you and you want to get a 10% return. “If you paid $500 billion, then $55 billion in cash is the amount that it’s going to have to disgorge to you year after year after year. To do that, it has to make perhaps $80 billion, or close to it, pretax. Look around at the universe of businesses in this world and see how many are earning $80 billion pretax – or $70 billion or $60 or $50 or $40 or even $30 billion. You won’t find any…”

My prof buddy then gives another example of this technique used by another of his gurus – Ralph Wanger who proved that the disk drive industry was overvalued in early 1980s. He quotes Wanger:

“Remember back in the early ’80’s when the hard disk drive for computers was invented? It was an important, crucial invention, and investors were eager to be part of this technology. More than 70 disk drive companies were formed and their stocks were sold to the public. Each company had to get 20 percent of the market share to survive. For some reason they didn’t all do it . . .”

He then starts talking about using this technique to prove that the Global Wind Power industry is hugely overvalued. But this time he used another technique in addition. He calls it reductionism, an idea he says he picked up from another one of his gurus – Charlie Munger. He quotes Munger:

“At a very young age, I absorbed what I call the fundamental full attribution ethos of hard science. And that was enormously useful to me. Under this ethos, you’ve got to know all the big ideas in all the disciplines more fundamental than your own. You can never make any explanation that can be made in a more fundamental way in any other way than the most fundamental way.”

Munger, my prof buddy says, means that if you must prove or disprove something in social science, you should use the tools of not just backward thinking, but you should also use the tool of reductionism, whenever possible. In Munger’s worldview, its better for social scientists to respect the ethos of hard science and reduce problems in their domain to a hard science domain, where it would be virtually impossible to argue against the wise social scientist’s conclusions.

And then my prof buddy takes the aggregate market value of the wind power industry and uses the techniques of backward thinking and reductionism to show that there is not enough space on this planet to support the number of installations of wind power generators required to produce the quantity of power which would necessary to produce the earnings sufficient enough to support those gigantic valuations. He claims that he has reduced a social science problem to a hard science one.


He then puts up a video. But why is he looking at me when he plays it?

He says this extra-vivid video and other similar extra-vivid presentations made by agents of companies in the wind energy business together with soaring stock prices have mesmerised  many a people who are living in a world of illusions. He quoted Galbraith.

This is a world inhabited not by people who have to be persuaded to believe but by people who want an excuse to believe.

He looks intently at me.

This business, my prof buddy says, is really a tax shelter business enjoying tailwinds for the moment. Eventually, it will face headwinds. When that happens, valuations will crash. But in the meantime, there’s a party on and no one wants to leave before the clock strikes twelve. The only trouble, he says, is that the clock has no hands…

Then, to illustrate his point, he puts up this slide.


Why is he doing this this to me?

No! No! No!

This can’t be true!!!

Oh God No!

Epilogue (Five years later)

Gone With the Wind…

20 thoughts on “The Man Who Mistook A Stock For His Wife”

  1. Dear Sanjay Sir,

    I guess this happens in every new industry when the aggregate of the market cap of the sector far far exceeds the potential of that sector. It has happened in history and it will repeat in future too. Well, many small innocent investors fall in this trap of mistaking Suzie to be their wife. One very important corollary which I can understand from this post is that long term investing and long term partner needs to be selected carefully :). Unfortunately, many of the investors in Suzlon were just fooled by the broking community to earn their largesse and I believe many of the so called self confessed long term investors who invested in Suzlon in 2007 fall in this category and constitute large component of public shareholding.

    Same is the case with Facebook too and I hope small investors understand these fooled by broker’s or intermediaries or for that matter media concept (reality).

    Hope small investors do not get trapped in future in similar Suzie’s on Colva Beach …



    PS : Not that I did not get trapped in similar cases. I have contributed to my share of such mistakes and learned hard way to avoid hyped stocks.

  2. How is suzie professor at this price? If somehow Interest burden reduces- through stake sale in subsidiary, or further equity dilution in favourable market conditions… is it worth a look?

    1. A nice writeup with a good insights how an investor has to keep in mind the long term impact.

  3. Prof Bakshi

    I didnt know you were such a romantic at heart :-). To paraphrase Sir Arthur Conan Doyle ” What the world of satire has lost the world of investing has gained”.



  4. Thank you sir.

    Your post had all the thrills of a fiction with loads of learning as always.

    Sir, as per my understanding, in some companies, the professed technological advantage turns out to be a sham which leads to it becoming a gruesome business for the shareholders. Since technology is easily available (either through buyout, JVs or technology transfer agreement with some nondescript company, mainly in Europe) at a reasonable price coupled with the supposedly large opportunity for the sector (risk of looking at the macro without going into the micro), several companies enter the sector. And as the great guru Mr. Buffett said:

    “Businesses in industries with both substantial over-capacity and a “commodity” product (undifferentiated in any customer-important way by factors such as performance, appearance, service support, etc.) are prime candidates for profit troubles. These may be escaped, true, if prices or costs are administered in some manner and thereby insulated at least partially from normal market forces.……If, however, costs and prices are determined by full-bore competition, there is more than ample capacity, and the buyer cares little about whose product or distribution services he uses, industry economics are almost certain to be unexciting. They may well be disastrous……….Of course, over-capacity may eventually self-correct, either as capacity shrinks or demand expands. Unfortunately for the participants, such corrections often are long delayed. When they finally occur, the rebound to prosperity frequently produces a pervasive enthusiasm for expansion that, within a few years, again creates over-capacity and a new profitless environment. In other words, nothing fails like success.”

    Also, unfortunately most of us have not read Mr. Munger or use the idea of inversion regularly (“All I want to know is where I’m going to die so I’ll never go there”). And for executive of companies with improper incentives (focus on growth, earnings, increasing their kingdom, etc., without due focus on cash flow) coupled with easy availability of money (during bull market) leads to several incorrect decisions whose side-effects are felt during slowdown (demand slowdown coupled with huge debt leads to a negative virtuous loop).

    Sir, based on your example above, from the management’s perspective, can this be considered as a case of loss aversion, defending the status quo and narrow framing?

    1. Wanted to add this from Mauboussin’s Expectations Investing: “ An important feedback mechanism materialises when stock prices affect business fundamentals……particularly for young, high-technology companies, which depend heavily on a healthy stock price. George Soros calls this dynamic feedback loop reflexivity. He sums it up this way: “Stock prices are not merely passive reflections; they are active ingredients in the process in which both stock prices and the fortunes of companies whose stocks are traded are determined.” We now consider the impact of reflexivity for start ups in two critical activities- the ability to finance growth and the ability to attract and retain key employees”.

  5. Hello Sir,

    As usual, another great post.
    Request you to please share the doc/pdf which shows how you arrived at the conclusion of the bubble for the sector.


    1. Jatin,

      I dug out some of the material. Download it from:

      You will need a mind manager reader software to read the mind map file. There’s also a pdf file which contains an article written by me back in 1997. That particular article, which was titled “Where have all the windmills gone?” was written by me under a pseudonym JMK (stands of John Maynard Keynes). Anyway, in that article I had written about a blowup in the win wind energy space that had already occurred back in 1997. And the story got repeated 15 years later. You can download that article separately from:

      Click to access Where%20have%20all%20the%20windmills%20gone.pdf

      Also download reports from one broker on the company just to see how it’s opinion changed over time. Link is:


  6. You are right about Graham. He would’ve tried it. 🙂
    Another company that surprises me with its ‘consumption story’ fuelled pricing is Bata; No cash generation 😦

  7. I have just found this GEM quote related with Warren Buffett which I thought of framing in my bedroom “Warren Buffet thinks cash as a call option with no expiration date, an option on every asset class, with no strike price and “call premium” on the cash option is opportunity cost.”

  8. Dear Prof. Bakshi,
    This is my first comment on your blog though I have been a follower for quite some time. My question is this: is the clean energy space doomed forever or is the story specific to Suzlon?
    One would be tempted to believe that the market is huge and a well-managed company should be able to generate handsome returns for its shareholders in the long run.
    More specifically, and personally, I am invested in Praj Industries which has a similar price history but with quite different fundamentals (zero debt, to start with). Is there a future for such companies?

    1. My story was specific to Suzlon. I don’t think clean energy is doomed at all and all clean energies aren’t the same so it’s wrong to put them in the same bucket in my view. Having said that, one has to differentiate between an industry having a bright future and identifying the winners in that industry. These are two very different problems. The computer hard drive industry had a great future back in 1980s, but only a few companies survived. It’s the same with computers, microprocessors, airlines and many other industries.

      I don’t have any specific view on Praj except that Charlie Munger feels that using ethanol to solve the energy problem is a dumb idea.

  9. I have a very simple question is the title inspired by the essay in Oliver Sacks book on neurological disorders?

  10. Excellent post Prof. Bakshi,

    I think this happened with me as well… It was the same Suzie… I was not aware of the value investing principles those days & adrenaline in my body was demanding rapid action. I came to the conclusion (buy Suzlon) on the basis of easily available reason (power deficit in the world, limited non-renewable sources of energy & blah..blah..blah…). Then I painted a beautiful picture in my mind to justify my decision (its an emerging industry…. heavy investment would be required….pay off in long run….Government support to renewables….Initial losses would be fine….Debt would be required to support heavy capex in initial stages… So why bother about high debt-equity & so on)… I got out of that mess at a very nominal profit…. I think we get attracted to the complex stuff even if we dont understand them & ignore the everyday simple stuff that we understand.. Maybe thats the reason why some themes like technology sell like hotcakes in bull run & outpace industries with proven business models like FMCG..

    Keep up blogging excellent stuff…

    Best Regards,

Comments are closed.