Health, Wealth & Leadership [3 Mar 2024]
Email #81 on mens testosterone, my love for Marcellus and echo chambers
This week I write about:
HEALTH: Men, if you don't use it, you will lose it.
WEALTH: I haven't made money in Marcellus in the last two years, but why I still stay invested with them.
LEADERSHIP: When someone has an opposing point of view, you should listen.
Let's begin!
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HEALTH: Men, if you don't use it, you will lose it
Let me explain with an example. Your body is this sophisticated machine. When you turn it on, it revs at a certain level. Top athlete revs are like Ferraris. When they turn on, their revs at startup may be at 2000. A normal guy who works out twice a week and plays a competitive sport, may have a startup rev of 1000. A sedentary guy may have a base startup rev of 500. Everyone's starting base revs differ. You should know your base level i.e. your bioavailable Testosterone.
When you exercise, that base level rises. The brain signals to the body that the machine is being used so it bumps up the testosterone levels to meet the demand. So a guy whose base level is 1000, may get to 1500 after exercising. But here is what is interesting. Once he stops working out, his base level stays elevated for the rest of the day at let's say 1250. The next day, the body produces more testosterone because it is anticipating the demand of you exercising again. Your base is rising.
Let's also look at the flip side. When you fall sick, stop exercising or stop playing a competitive sport, the base rev level falls. You are lying in bed or sitting at your desk all day, not using your machine at all. So your body reduces your base level from 1000 to say 750. The brain tells your machine "you ain't using it, so I am going to reduce how much testosterone you have."
Mens testosterone levels peak at 18 and decline by 1-2% per year after the age of 30.
So what should we do? Are we all doomed to become grumpy old men who can't get it up?
Actually you already know most of the answer. It is the age old boring advice:
(1) Eat well
(2) Exercise
(3) Go to sleep on time.
Fun fact: if you're having fun by partying late into the morning hours, you are putting you body under tremendous stress. It is meant to be asleep. It will punish you be reducing your testosterone levels.
(4) Have a loving understanding partner - this plays a huge role in the performance anxiety you feel even when your Mr.Beast is ready to perform.
Men tend to lose their mind if they don't take care of their balls. Look after them!
The answer to mental stress is physical stress. Get the hell out there and move that beautiful machine, your body. Otherwise, the next time you try to turn on the ignition, it will stutter and slump.
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WEALTH: I haven't made money in Marcellus in the last two years, but why I still stay invested with them.
My friend messaged me on Friday asking why I am promoting Marcellus. I told him that:
He then told me the following:
100x returns would require 26% compounding. No one has historically given that consistently.
Marcellus portfolios are not doing well.
You should be clear whether you personally stand to gain by recommending them or not because it will add trust to your message.
Anuj told me all this because he is a friend who cares. He is a brilliant entrepreneur whose opinion I value. I asked him what returns he expects from the PMS he is invested in? He said:
This triggered a whole host of questions in my mind. Is my long-term thinking on investing flawed? Should I be judging Marcellus on their underperformance as compared to the benchmark? The BSE Small Cap Index has grown 64.63% in the last year. My money has grown 0. I tossed and turned and woke up at 5am to think some more.
Investing can be active or passive. I first eliminated the options which were not on the table for me:
Would I invest in equity directly? No! I tried in Covid and it scared the shit out of me. I don't have the ability or the time required to make those hard investment decisions based on future cash flows.
Would I invest in another asset class - real estate? gold? bonds? No! Historically they have not performed as well as equity.
Would I be open to making judgment calls on when to get in or out of funds so that I can time the market? No! I will have to make the right decisions too often. Anything multiplied be a 0 is 0 so one bad decision would wipe out any luck I may have.
What about index funds? Most asset managers cannot beat the index. Why not just buy the index that everyone is trying to beat? Hmm... this was an interesting thought. I downloaded the BSE Small Cap Index to see the returns it has given since inception. It's average over the last 5 and 10 years has been an incredible 27% and 21% respectively. That's a pretty high average!
I then reminded myself of why I invested with Marcellus. The companies I own are free-cash flow generating profitable businesses with monopolistic characteristics, clean accounts and honest management. It's the kind of companies that legends like Buffett own. They help me sleep well at night.
I then thought about Happy Ratio, my health and nutrition business. I am working with my team to make it profitable and cash flow positive, drawing inspiration from some of the stocks I own through Marcellus. We have gone from 1 restaurant to 3 restaurants in one year. We are inching towards profitability and free cash flow. With the free cash flow that the business generates this year, I plan to re-invest in the business to open more restaurants, be present in more locations, and serve more diet conscious Indians. Currently no one sees the tremendous brand we are building. But as the balance sheet starts becoming stronger, investors will notice. Our value will rise, just like the value of Marcellus portfolio businesses will rise.
I took all my thoughts and burdened Saurabh with three questions:
Do prices always follow free cash flow compounding?
What is the likelihood that we will beat the benchmark to not only catch up but also make more than the average?
Is my 18%-26% CAGR goal over ten years achievable?
This is the answer I got:
Hi Harsh – I am sorry that we have not been able to make money for you. You and your friend are obviously right in saying that over the past 2 yrs, had you invested in the Nifty, you would be a richer man today. In the attached spreadsheet, I have tried to explain why that line of thought does NOT work over longer periods of time. Thank you for bearing with us as we try to generate returns.
Saurabh
Honest.
Straight forward.
Humble.
I have noticed these character traits in almost everyone in the Marcellus team. There is a positive culture that trickles from the top to the bottom.
The spreadsheet basically explained the following equation with examples:
Return from any investment = Change in P/E + Change in the company's Earnings - Fee paid to fund manager
Change in P/E:
We have little or no control over P/E. Over 1/2/3 year horizons, P/E is the main driver of your returns.
Over long time periods (eg. 5 yrs) P/E does not move significantly.
Change in the company's Earnings:
We focus on investing in high growth companies i.e. companies with high ROCE who re-invest massive amounts of capital to drive high growth.
Over long time periods, almost all your returns come from Earnings growth. Since Marcellus portfolio companies grow earnings much faster than the benchmarks, you are better off with them in the long run (5+ years).
The companies that Marcellus invests in have a proven track record of 20% EPS compounding. After 2% management fee, the 18% net earnings basically means 2x your money in 4 years, 4x your money in 8 years.
It all makes sense to me.
I will stay invested in Marcellus.
Finally I have been asked this a few times so I want to make sure I am completely transparent. Marcellus does not pay me to write about them! They have never asked me to do so. I write about them because I learn so much from them. I am a better businessman because I am an investor with them. I bring my learnings from the case studies of Asian Paints, HDFC, Bajaj Finance and so many others into Happy Ratio. Reading the Marcellus newsletters is like doing an MBA; you get to peel the layers of Indias best businesses and learn from them.
Do I make money if someone ends up investing in Marcellus? Yes, "if" you decide to put my name down when you invest. You do not have to! So far I have made a sum total of ... drum beats... 58,364 rupees in commissions from Marcellus since 2022 because when one of my cricket buddies invested in their Little Champs portfolio he wanted Marcellus to know that I sent him. This is not my source of income. If this changes I will let you know.
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LEADERSHIP: When someone has an opposing point of view, you should listen.
Charlie Munger said "You have to listen and chase down arguments that run counter to your views. You have to think about how you might be fooling yourself."
When my friend Anuj was giving me an opposing point of view I tried to explain my point of view. But then I listened to what he said and thanked him.
Most people will keep their opinions to themselves. You don't want that. You want them to tell you why they think the way they do. Otherwise you will live in an echo chamber.
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I build businesses. Region Head @ EthosData VDRs (16 years). Founder @ Happy Ratio Diet (13 years). Long-Term Investing Evangelist @ Marcellus (3 years).