Pulak Prasad, the founder of Nalanda Capital managing a $5 billion fund, achieved an extraordinary 15-fold return over 15 years (2007-2022), equating to an annualized compound return of 20.3% after fees.

In his book, What I Learned About Investing from Darwin, Prasad reveals his ultimate investment philosophy, heavily inspired by evolutionary biology—an approach also praised by Charlie Munger for providing fresh perspectives beyond traditional fundamental analysis. Prasad's strategy boils down to three core evolutionary principles:

1. Prioritize Survival by Avoiding Major Risks

In nature, survival is the absolute priority. For example, bumblebees will instinctively avoid flowers where they have previously encountered predatory spiders, even if it means starving and reducing foraging efficiency. This risk-averse instinct has allowed the species to survive for 30 million years.

Similarly, Prasad aligns with Warren Buffett’s top two rules of investing: "Rule No. 1: Never lose money. Rule No. 2: Never forget Rule No. 1." If the risk of capital loss is too high, Nalanda Capital will walk away, regardless of the potential rewards. To survive in the long term, investors must learn to be "rejecters." Prasad strictly avoids fraudulent entrepreneurs, highly indebted companies, businesses undergoing major transitions, serial acquirers, and fast-changing industries.

2. Buy High-Quality Stocks at a Reasonable Price

A famous Siberian experiment showed that breeding wild silver foxes based on a single trait—"tameness"—eventually produced foxes with dog-like physical features and friendly behaviors. Prasad applies this logic to investing: focusing on a single, powerful commercial characteristic can naturally bring along a host of other positive business qualities, rather than relying on a scattered checklist of popular metrics like high growth or profit margins.

Nalanda Capital strictly targets these high-quality enterprises but only buys them at attractive valuations during unavoidable "short-term setbacks." Because such opportunities are incredibly rare, they trade very infrequently. In fact, they have only actively bought into the market three times over the past decade, including during the COVID-19 pandemic crash. They never chase rallies in low-quality stocks, constantly asking themselves, "Do we want to be permanent owners of this company?"

3. Trust Only "High-Cost" Signals and Historical Facts

In the wild, a small frog faking a deep croak to sound larger is a "dishonest," low-cost signal, whereas a male guppy's vibrant colors represent an honest, high-cost indicator of health and fertility.

The financial world is constantly bombarded with low-cost, "dishonest" signals—such as corporate press releases, management interviews, and optimistic forecasts. Prasad argues that investors should only trust high-cost, honest signals. Instead of believing a company's promise that "margins will hit 15% next year," look at the fact that "average margins were 12% over the past decade."

Unlike physics or chemistry, evolutionary biology does not predict the future; it explains how things came to be based on history. Prasad believes the investment world’s obsession with the future has wrongly replaced the study of hard historical data with baseless predictions. By acting as long-term investors, Nalanda Capital abandons the guessing game of "what will happen" and focuses entirely on the factual reality of "what has actually happened."