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Friday, 14 June 2019

Weekly Reading - Some Interesting Stuff


1) No more laundry - how will detergent companies handle this disruption??!!
Unbound is part of a broader wave of startups designing clothes that require less laundering. An eco-friendly brand called Pangaia, which launched late last year and already counts celebrities like Jaden Smith and Justin Bieber as fans, creates $85 seaweed fiber T-shirts that are treated with peppermint oil to keep the shirts fresher longer between washes. The brand estimates that this will save about 3,000 liters of water over the course of a lifetime, compared to a regular cotton T-shirt. Then there is menswear label Wool & Prince, which creates everything from $128 oxford shirts to $42 boxer briefs out of wool, all designed to be washed infrequently. Last year, the company launched a sister womenswear brand called Wool& that makes dresses that can be worn for 100 days straight without washing.

2) Alpha in investing is derived from behavioral psychology
Alpha is finance-geek speak for an investor’s skill that allows her to outperform an index. In a sense, all alpha is behavioral. Whether you follow an algorithm (set of automatic rules) to select investments, decision rules, gut feeling or all three. It is a human who is making the trading decisions. (Even an algorithm is programmed by humans, with all their biases and skills.)
The most direct thing individuals can do to reduce their negative alpha, is to trade as little as possible, minimize costs and above all, keep it simple. Behavioral alpha is about building our skills and knowledge about both the financial markets and our own decision-making processes. The first job is to avoid the costly mistakes.

3) A new digital bank in Brazil is shaking up the traditional banking industry
Not many people are familiar with Nubank, a digital bank that has become the most valuable startup in Latin America by extending credit cards to the unbanked and challenging the financial system of one of the world’s biggest markets, Brazil. Brazil is a particular opportunity — 55 million people there don’t have access to a bank, primarily in the country’s poorest households. Even Brazil’s own government has criticized the country’s banks for gouging locals for “excessive” profits, with the country’s economic chief saying this week that insufficient competition had led to a “cartelized” economy. The top five banks in Brazil, led by Ita├║ Unibanco, control about 82 percent of assets that are banked. Nubank announced last month that it was expanding to Mexico, where it plans to launch credit cards later this year. The company envisions serving millennial customers all across Latin America and possibly could represent a way for younger, internet-connected customers to avoid the bureaucracy found commonly in their home countries.

4) I have been wondering why I see a lot more bearded men all around these days. Two interesting articles giving a perspective on this.
The razor industry nervously recorded a 5 percent decline in sales last year as men’s shaving frequency has continued to decline; producers of shaving accouterments have tried to cut prices and diversify into new grooming products, having apparently accepted that our beards are here to stay.
We can thank the Global War on Terror and the reluctance of military leaders to impose discipline on special operations forces.The war on terror widened, and more tactical operators—Green Berets, Seals, Rangers—got explicit or tacit approval from military higher-ups for their beards while on missions in the Middle East and Southwest Asia, once-unheard-of exceptions to the services’ longstanding grooming regulations, which had posited that facial hair might run counter to good order and discipline. The evidence of this is the proliferation of beards in the military, which now extends to civilian society. We worship the post-9/11 military operator.

5) An investigative report on Eros International
Eros’s key Indian operating subsidiary had its credit rating lowered 10 notches to “default” by CARE ratings, the second largest Indian ratings agency. The issue, according to CARE was “a slowdown in collection from debtors”.
After extensive on-the-ground research in India, interviews with multiple former employees, and a detailed review of Indian private company filings, we believe the underlying problem is that a significant portion of Eros’s receivables don’t actually exist.
We have uncovered details of highly irregular related-party transactions. For example, Eros has directed $153 million to a supposed production company based in tiny office located in a residential Mumbai slum. The entity is operated by the brother-in-law of Eros’s Chairman and CEO.
We have also documented what we believe to be multiple undisclosed related-party transactions that appear designed to hide receivables.
It is hard to imagine Eros’s equity makes it out of this scenario intact. We expect the price of both the BSE and NYSE stock to end up worthless, barring some sort of bailout from a friend of Eros’s leadership.
In our opinion, this situation has arisen due to a complete failure of Eros’s auditor, Grant Thornton, to apply even basic scrutiny to Eros’s financials.

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