Mr Murthy's Advice: Is Hard Work Mandatory for Investing Success? 

Hello everyone, Rahul Shah here, trying to make investing accessible and profitable for the average investor.

Narayana Murthy, the founder of Infosys and one of the most iconic entrepreneurs of India, recently shared his views on India's work culture.

Most of you must have read about it by now. In fact, you must have formed your own opinion and even shared it on social media.

Here's the crux of what he said. He has advised young professionals to work 70 hours per week on a consistent basis. This, he believes, will improve the country's productivity and will help boost the Indian economy further.

What do you think of Mr Murthy's advice? Is he being too harsh or is he right on the money?

Well, I don't want to wade into this debate. All I'd like to say is if you really like your work and are passionate about it, then working close to 60-70 hours a week won't feel like a stretch. However, if you are in it just for the money, then the same number of hours could really take a toll on you.

What about investing though?

Is it true that the harder you work the better your investment results would be? Do analysts and investors who regularly put in 70 hours per week, always end up earning better long term returns than the ones who don't?

Let's find out.

I believe that the flag bearer of working extremely hard in an investment job and being extremely successful at it, is Peter Lynch.

Peter Lynch is one of the world's most successful fund managers. At a very young age of 33, Peter Lynch was appointed as the fund manager of the legendary Magellan fund at Fidelity. The fund earned an impressive CAGR of 30%, which was more than 2x better than the benchmark index.

To outperform the broader market by a factor of 2x is huge. No wonder, he has gone down in history as one of the world's best fund managers.

Now, his track record is certainly well known. What's not all that well known is the hard work that Peter Lynch put into it. I came across a digitised version of a 1990 article on Peter Lynch. Here, it is mentioned that he spent as much as 90 hours a week on his work, and often worked seven days a week.

Then there was another piece on a website called kingswell.io, which gave further insights into Peter Lynch's insane work ethic.

Here's what it said.

He visited hundreds of companies each year, conducting on-the-spot research of management and operating performance, all across the country.

When not traveling, he was holed up in his office poring over annual reports and other filings - leaving no stone unturned in his quest to grow Magellan's money.

80+ hour work weeks didn't leave much time for anything else and, eventually, something had to give.

One day, he was standing in the rain, at his daughter's soccer game and said to himself that he wanted to see more of these. He wanted to spend more time with his wife and his family.

Well, he retired soon after, hanging up his boots at the ripe young age of 46.

So, he did retire early but as long as he worked, his work ethic was something that Narayana Murthy would be proud of, consistently putting in more than 70 hours per week.

Peter Lynch is a classic example that hard work does pay off. But please note that working hard and slogging for 70+ hours relentlessly, is not enough. When it comes to investing, you need to have the right kind of approach and you need investing smarts and discipline.

You need to be able to identify your circle of competence and need to walk away from stocks that you did not understand, no matter how bright their prospects or how pushy their managements. And Peter Lynch excelled at all of these in addition to being extremely hard working.

Now, before you make up your mind and decide to put in the mandatory 70+ hours of work in order to achieve investment greatness, let me share another example.

This one is of Walter Schloss. He may not be as famous as Peter Lynch but his long-term track record was equally phenomenal. In fact, it far exceeds that of Peter Lynch in terms of sheer longevity.

Walter Schloss started his own fund in 1955 and over the next four and half decades i.e. 45 years, delivered his investors a CAGR of 15.3% versus 10% for the S&P500. This is an achievement that very few investors can boast of.

Yes, Peter Lynch has managed to earn 29% for his investors but over a period of 13 years. In contrast, Walter Schloss earned 15.3% CAGR but over more than four and a half decades. This makes Walter Schloss' track record as commendable as that of Lynch.

How exactly did Walter Schloss achieve such a track record? Was his work ethic as gruelling as that of Peter Lynch?

You'd be surprised to know that the answer is a big NO.

Walter Schloss did not work as hard as Peter Lynch. In fact, Walter Schloss once mentioned in an interview that Peter Lynch was killing himself and burning himself out by working so hard and putting in 80-90 hours of work per week. He did not approve of Peter Lynch's approach as it involved a lot of hard work.

If Walter Schloss did not work as hard as Peter Lynch, how did he manage to put together such a fabulous long term track record? What was Walter Schloss' secret sauce?

Well, a 2008 article on Walter Schloss in the Forbes magazine threw some light.

He ran his business with no research assistants, not even a secretary. He and his son, Edwin (who joined him in 1973), worked in a single room, poring over charts and tables.

He doesn't think about the economy.

Typical work hours when he ran his fund: 9:30 a.m. to 4:30 p.m., only a half hour after the New York Stock Exchange's closing bell.

If you want more evidence that his work hours were the envy of most analysts and fund managers, here's Warren Buffett talking about Walter Schloss in one of his letters.

Here's what Buffett said about him...

• Walter did not go to business school, or for that matter, college. His office contained one file cabinet in 1956; the number mushroomed to four by 2002.
  
  Walter worked without a secretary, clerk or bookkeeper, his only associate being his son, Edwin, a graduate of the North Carolina School of the Arts.
  
  Walter and Edwin never came within a mile of inside information. Indeed, they used "outside" information only sparingly, generally selecting securities by certain simple statistical methods Walter learned while working for Ben Graham.
  
  When Walter and Edwin were asked in 1989 by Outstanding Investors Digest, "How would you summarize your approach?" Edwin replied, "We try to buy stocks cheap." So much for Modern Portfolio Theory, technical analysis, macroeconomic thoughts, and complex algorithms.

I believe it is clear from these observations that as compared to Peter Lynch, Walter Schloss achieved his phenomenal track record without so much as breaking a sweat.

While Peter Lynch put in his 80-90-hour weeks, year in and year out, Walter Schloss worked for just 7 hours per day and still managed to achieve a fantastic long term track record.

I am sure this has made you curious. It makes you wonder whether you should follow the Peter Lynch style of investing or the Walter Schloss style?

Well, it depends on what kind of approach you prefer. It should be noted that Peter Lynch's approach was about trying to find the next big multi-bagger and trying to predict the stock's future.

It involved not just analysing the financial statements but also visiting the company headquarters, talking to the management and talking to the company's suppliers and customers.

Peter Lynch's approach is about making the big money and if you have to make the big money, you have to make sure that you are investing in a growth stock and have a very good grasp on the company's growth strategy.

Walter Schloss' approach on the other hand was not making big money but trying to earn 50-100% from a stock over 2-3 years. It was not about trying to find the next big money spinner but beaten down companies with poor growth prospects that no one is looking at.

It was not about analysing the company's future but only its past and ensuring that the company survives the next few years and does not die.

If I were to give an analogy, Peter Lynch's approach is about finding the next Page Industries or the next Titan whereas Walter Schloss was happy investing in commodity stocks or PSU companies where he is happy earning 100-200% returns and then moving on to another cheap stock.

Walter Schloss' approach is more about EQ whereas Peter Lynch was more about IQ where he was trying to outperform based on superior information and superior analytical skills.

Walter Schloss on the other hand was trying to be emotionally smarter and buying stocks that everyone was hating and also having the patience of waiting for them to hit 52-week lows or go below book value before buying them.

There's money to be made in both the approaches provided you supply the skills and the emotional discipline.

Peter Lynch's approach is definitely more demanding where you may have to put in the extra hours. However, you only need a few multi-baggers to go your way and you could end up with a lot of wealth.

However, Walter Schloss' approach is also not bad. It does not require you to put insane hours but does require you to be contrarian and have the emotional strength to go against the crowd.

Besides, the returns from this strategy may not come thick and fast like Peter Lynch's approach. However, they'd still be good and could keep coming in for a much longer duration.

It is really up to you as to which horse you would want to ride. If you are happy spending long hours as Mr Murthy has highlighted, then that's the horse you should get onto. However, if you want to outperform through EQ and not IQ then that also is fine.

There is a third option as well. Just put your money into a low-cost index fund and see your wealth rise at the rate at which the broader stock market is growing.

The choice is entirely yours. But do take your decision based on your own strengths and weaknesses and which approach suits your temperament the most.

Happy investing.