One Big Investing Lesson from Bhagavad Gita

Karmanye vadhikaraste, ma phaleshou kada chana,
Ma karma phala hetur bhurmatey sangostva akarmani

This verse is from Bhagavad Gita, where Lord Krishna explains Arjuna to him to perform his duties, as the latter was not willing to fight the epic war of Mahabharata.

Karmanye vadhikaraste, ma phaleshou kada chana – You have the right to perform your actions, but you are not entitled to the fruits of the actions.

Ma karma phala hetur bhurmatey sangostva akarmani – Do not let the fruit be the purpose of your actions, and therefore you won’t be attached to not doing your duty.

In essence, Krishna asks Arjuna to keep on performing his duties without being attached to the result of his actions. “Forsake do-ership,” Krishna says.

What Krishna tells Arjuna is encapsulated in the idea of Karma Yoga or the “discipline of action”. The word karma is derived from the Sanskrit kri, meaning ‘to do’.

Karma and Investing
Replace Lord Krishna with the likes of Warren Buffett, Ben Graham, Seth Klarman, or Howard Marks, and this is exactly what they have been teaching investors (the Arjunas) for years – focus on the “karma” – the process and action – and not the outcome.

Consider any field of activity where probabilities play a big role – the outcome is largely unknown – and research has identified a common trait amongst successful performers – they all emphasize process over outcome.

Look at investing, and look around you. Most investment experts selling their services always highlight the outcome – so much return in so many months or years – and never the process they used to get this outcome.

This is simply because, while the outcome is there for everyone to see (availability bias), investors rarely ask the question whether that outcome was due to the skill of the expert (a proper investment process) or merely luck.

This is not to say that result (the phala) doesn’t matter; obviously it is important in measuring success. But if the result has been largely thanks to luck, it may not come in as expected in the future.

What is more, if you focus only on the outcome, you are less likely to achieve it. Instead, if you focus on the process, the outcome will take care of itself.

Here is a small story I recently read on Farnam Street, which emphasizes why the right process can lead to a great outcome…

A giant ship engine failed. The ship’s owners tried one expert after another, but none of them could figure but how to fix the engine.

Then they brought in an old man who had been fixing ships since he was a young boy. He carried a large bag of tools with him, and when he arrived, he immediately went to work. He inspected the engine very carefully, top to bottom.

Two of the ship’s owners were there, watching this man, hoping he would know what to do. After looking things over, the old man reached into his bag and pulled out a small hammer. He gently tapped something. Instantly, the engine lurched into life. He carefully put his hammer away. The engine was fixed!

A week later, the owners received a bill from the old man for ten thousand dollars.

“What?!” the owners exclaimed. “He hardly did anything!” So they wrote the old man a note saying, “Please send us an itemized bill.”

The man sent a bill that read:

Tapping with a hammer………………….. $ 2.00
Knowing where to tap…………………….. $ 9,998.00

So, knowing where to tap – the process – makes all the difference…whether you are working with a hammer or with your money.

Charlie Munger says…

The only way to win is to work, work, work, work, and hope to have a few insights.

If you are not willing to work on creating the right investing process that suits you – and just rely on the readymade stuff available out there – you face a great probability of ending up with a bad outcome.

“Focus on the karma,” Krishna would tell you. “Don’t let the fruit be the purpose of your karma.”

Focusing on your investment process, and not the outcome, should be your goal.

Here is the payoff: Over the long term, a good process delivers highly desirable results, and generates better and more reliable outcomes. This isn’t any secret.