On illusion, instinct, and the wisdom of patient capital

“There never was and never can be anantelope of gold. Yet Rama chased one. When trouble approaches, the first thing we lose is judgment.” - Vyasa, Mahabharata

Long before stock markets existed, the Mahabharata described a behaviour that investors still struggle with today. Itis the tendency to suspend logic when something looks too attractive to ignore.

In the Ramayana, Maricha disguises himselfas a golden deer. Sita sees it and asks Rama to capture it. Rama, despite knowing that such a creature cannot exist, still chases it. That moment ofdistraction sets off a chain of events that leads to great trouble.

Investing often follows the same pattern.When something shines too brightly, reason tends to step aside.

 

India’s Golden Deer Phase

Over the last few years, Indian equity markets have seen something similar. Between 2021 and 2024, small cap and mid cap stocks delivered extraordinary returns. Millions of new investors entered the market. Demat accounts reached record levels, SIP flows surged, and IPOs were being subscribed hundreds of times over.

Everywhere investors looked, there seemed to be another opportunity that promised quick wealth.

In that environment, many investors stopped asking the most important question: What are we actually paying for the business?

Several companies with modest earnings, weak balance sheets, or unproven business models began trading at valuations that assumed many years of flawless growth. The excitement around certain sectors such as defence manufacturing, railways, renewable energy, and platform businesses pushed prices far ahead of fundamentals.

Much like the golden deer, the story looked beautiful, but the reality underneath was often far less certain.

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Contemporary Examples of the Chase

This pattern is not unique to India.

A few years ago, investors across the world chased meme stocks. These were companies with little earnings but enormous online excitement. Prices surged purely because everyone believed someone else would buy them at a higher price.

More recently, many global investors rushed into AI related companies simply because the narrative was powerful, even when the underlying businesses had limited profitability.

Closer home, many investors have piled into micro cap stocks with limited liquidity, or newly listed IPOs with aggressive valuations, simply because the previous few IPOs had delivered quick gains.

In each case, the logic was simple. If it is going up fast, it must be a good investment.

But markets eventually return to fundamentals.

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What the Market Is Showing Us Now

The correction that followed in parts of the small cap and mid cap space has been a reminder of a simple principle. Prices can move faster than earnings for a while, but not forever.

When valuations stretch too far, even good companies can struggle to justify their price. When the excitement cools, markets begin to look again at cash flows, balance sheets, and real business performance.

This adjustment does not mean that India’s growth story is weakening.

India continues to have strong structural drivers. A young population, increasing formalisation of the economy, expanding digital infrastructure, and growing capital markets all support long term growth.

The real question is not whether India will grow. The real question is which businesses will capture that growth and at what valuation we enter them.

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The Approach That Works

Our approach during such phases remains simple.

Instead of chasing the most exciting stories, we focus on businesses that demonstrate a few basic qualities.

  • Consistent and growing cash flows
  • Strong balance sheets
  • Credible management and governance
  • Sustainable competitive advantages
  • Reasonable valuations

These companies rarely make headlines every week. They do not deliver spectacular gains in a few months. But over long periods, they tend to compound wealth steadily.

In many ways, they are the businesses still standing quietly in the forest after everyone else returns from chasing the golden deer.

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A Timeless Reminder

Vyasa’s observation remains remarkably relevant for investors today. Loss of judgment usually comes before financial loss, not after it.

Markets will always produce dazzling opportunities that appear irresistible. New themes will emerge, new narratives will capture attention, and new golden deer will run across the investing landscape.

The role of a disciplined investor is not to chase every shining object.

It is to remember why we entered the forest in the first place. To build enduring wealth through patience, discipline, and ownership of sound businesses.