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Sunday, 27 September 2020

May We Live In Interesting Times

The markets currently are at a dicey juncture.  After the phenomenal rally in the past few months from the lows of 7500, there has been a phenomenal rally in the nifty and broader markets. And this has happened in the backdrop of investor disbelief.  Most market participants have wondered why markets are going up and have always been sceptical.  

We ourselves also have been sceptical about the rally but while a lot of investors have been sitting on the sidelines and worrying about correction, we have tried to focus on individual companies and sectors where we see strong business tailwinds and which are reflected in strong chart formations.  Whenever we see clear cut trade setups,  we apply our techno funda approach to uncover potential trade setups for the short to medium term.  

Our focus has been to identify fundamentally good companies with strong business tailwinds and good charts and try to recommend them.  The idea of HITPICKS is to provide recommendations in good companies where breakouts have happened or are imminent.  The idea is to recommend stocks where we feel the waiting period for up moves is reduced. This requires us to recommend strong breakouts or imminent breakouts.

As with all investment approaches, our approach is also not infallible. As seen in the past we also have had our share of stop losses being triggered. But we believe in the concept that it doesn’t matter how many times you are right or wrong. (The idea is to be wrong as infrequently as possible). But its important how much money we make when we are right and how little we lose when we are wrong. Hence our adherence to stop losses despite the selected companies being good companies with decent business prospects. 

Coming to the current levels of markets and the patterns seen in the past few days, we have had a big bar reversal on 31st August which marked a short term top for the markets. This was followed by a head and shoulders breakdown in the nifty. The target for this pattern was 10600. But the first port of call was the 200 day exponential moving average at around 10800 levels. As we saw today on 25th September, that level provided a strong support and we saw a strong market bounce from the important support level. Next few days should be crucial to determine the market direction. If markets take out the recent swing high of 11794, we could see another bout of strong upmove will a lot of broad market participation. If the market hesitates after a brief rally and starts falling, then the head and shoulders pattern of 10600 would come soon and our guess is the fall would not stop at the expected level. It could extend much lower, though we would take a call when we get there. Till then we would be on the lookout for reasonably high probability tradeable opportunities and recommend it if we see a good risk-reward potential.

Wishing you all the best in your investment/trading journey.  May we prosper together.

From the Desk of Dr Hitesh Patel

Thursday, 24 September 2020

Weekend Reading


Reading across disciplines is one of the best ways to improve our investment acumen. Here is a summary of some of the best articles I read this week. 

I especially try to not post Corona related articles as that is all one gets to read in all traditional media.

If you like this collection, consider forwarding it to someone who you think will appreciate.


The secrets of a fulfilled life
I usually do not read such bullet pointed summaries titled "8 points to great happiness" nonsense. But this article is a culmination of The Guardian columnist Oliver Burkeman's long career so is worth reading. Some main points:
- There will always be too much to do – and this realisation is liberating.
- When stumped by a life choice, choose “enlargement” over happiness.
- The capacity to tolerate minor discomfort is a superpower.
- The advice you don’t want to hear is usually the advice you need.
- The future will never provide the reassurance you seek from it.
- The solution to imposter syndrome is to see that you are one.
- Selflessness is overrated. 
- Know when to move on.


Are you wealthy? Depends on your friends and relatives! 
People gauge their wellbeing relative to those around them. And rising income tends to raise the gaze of your aspirations as much as your bank account.
A thing that’s obvious but easily overlooked is that feeling wealthy has little to do with what you have. It’s more about the gap between what you have and what you expect. And what you expect is driven by what other people around you have.
There are a million ways to get more money. But the only way to feel wealthy is to maintain a gap between what you have and what you expect. The expectation part has to be managed as much as the income part. It’s easy to ignore the expectation part because focusing on the income side alone is much more intuitive.


Investing isn't easy (Yeh aag ka daariya hai….!!)
If investing were as easy as looking at market cap to revenue or PE ratio or book value and declaring “It’s cheap” or “It’s overvalued”, then anyone with a calculator would be immensely wealthy.
But it isn’t that easy. Because cheap stocks get that way for a reason – deteriorating fundamentals or existential business model threat. The hard part is deciding whether or not the issues are temporary.
Expensive stocks get that way for a reason too.
Sneering at optimism and turning your nose up at momentum doesn’t make you the superior investor. It doesn’t signify that you’re the more high quality market participant. In fact, over the last ten years it’s made you a laughing stock.
https://thereformedbroker.com/2020/09/02/how-dare-you-sir/


The Dunning-Kruger Effect - The less you know, the more you think you know 
The least competent participants in a study conducted by Dunning and Kruger — the ones that scored in the bottom quarter—were more likely to overestimate their performance. The least they knew, the more they thought they knew. Meta-ignorance (or ignorance of ignorance) arises because lack of expertise and knowledge often hides in the realm of the “unknown unknowns” or is disguised by erroneous beliefs and background knowledge that only appear to be sufficient to conclude a right answer.
How to get better?
- Block time for self-reflection.
- Use second-level thinking to make decisions. 
- Take smart notes. 
- Be aware of cognitive biases that may cloud your judgement.


Creativity is not a 9-to-5 job
Creativity is the culmination of experiences we have in our lives and simply cannot be forced: “We tend to believe that the act of creating is what defines creativity, but creativity starts long before anything is made. The first word you write is a distillation of the knowledge you’ve accumulated over time. The first brushstroke you paint is a reimagining of the experiences you’ve stored somewhere in the mind.”


Disclaimer: Abhishek Basumallick is the Head of the equity advisory www.intelsense.in for long term wealth creation and a pure quant focused newsletter at www.quantamental.in. The blog posts should not be construed as investment advice. Please do your own due diligence before investing.


Want a smoother ride? Diversify your investment style!


Investors are known for their style of investing. The moment you hear of value investing, Warren Buffett leaps to mind; Peter Lynch reminds us of growth investing; Howard Marks of distressed debt; George Soros or Stan Druckenmiller are known for their macro trades; Jesse Livermore, a trader. And the list goes on.

It is important to know your own dominant style of investing. There would be something where you would be most comfortable in. For example, my natural inclination is to buy stocks which are compounding in nature and then sit and do nothing as long as they keep performing both on the business and stock price fronts.

The problem starts when we become slightly successful in your way of investing. Due to our ego, we tend to believe that our way of investing is the best and others are subpar. And then we look for confirmation from the external world. If we are a trader, we deify eminent and successful traders, if we are investors we do the same with the famous investors. And that is why you will find fundamental based investors deriding technical chartists and vice-versa. This also puts subtle biases into our mind based on the authority and commitment & consistency biases. For example, a generation of investors blindly followed Buffett and avoided tech stocks just because he said it was not within his circle of competence. And guess what, they missed the best companies and winners in the last 20 years – Google, Apple, Microsoft, Amazon etc.

Most of the people who start investing typically start with either the technical or fundamental side, based on how they started their journey and what influenced them. And over years, they keep getting better at their craft. Very few have the curiosity and courage to take a peek at the other side. And even for those that do, it is not easy to be successful. Trading and investing require two completely different and mostly complimentary mindset and very few can actually do well in both.

I have friends who are so deep-value oriented that they find even entertaining the idea of studying a company with a PE of greater than 15 repugnant. Similarly, others would not even look at stocks which are not growing above a 15% CAGR rate.

The table is from the book “Excess Returns” by Frederik Vanhaverbeke. The book is completely ignorable other than this one table! It captures the CAGR returns of investor-trades with long term track records. When I chanced upon this table a few years back, it triggered a major change in my thought process and I actually started delving into alternate styles of investing. In fact, if you look closely, the people who have the best long term public track records (greater than 10 years), it is the traders who more or less win hands down. And yet their longevity was not there. The moment you increase the investment duration to more than 20 years, the investors and quant guys started taking over.

My main takeaway from this table was that it is important not to deride other styles and get “style-boxed”. Style diversification is as important as portfolio diversification, probably much more important. Since my own style was primarily a buy-compounders-and-sit kind, I was perennially missing out on shorter-term upswings in stocks of companies which may not merit a buy in a concentrated quality portfolio. But even those stocks had a great potential of giving decent returns.

I started exploring how the people on this list made money. That opened up technical analysis and quantitative investing up for me. Now, I try to improve my skills in those areas as much as I spend time doing fundamental research. And the main motivation is to be able to marry my fundamental, technical and quantitative methods together to get a smoother return profile over time.

 

Abhishek Basumallick is the Head of the equity advisory www.intelsense.in for long term wealth creation and a pure quant focused newsletter at www.quantamental.in. Nothing in the article should be construed as investment advice. Please do your own due diligence before investing.

Saturday, 19 September 2020

Weekend Reading


Reading across disciplines is one of the best ways to improve our investment acumen. Here is a summary of some of the best articles I read this week. 

I especially try to not post Corona related articles as that is all one gets to read in all traditional media.

If you like this collection, consider forwarding it to someone who you think will appreciate.


The Lifecycle of Information

Whenever we point to “information abundance,” what we are really saying is that we have “endless opportunities to react to data.” Whatever we want to engage with and process will be there at a moment’s notice. Whether it’s a 30-minute TV news segment or a never-ending Twitter feed, we will be able to see what we want to see, and toss out the things that we find questionable.

Whenever we come into contact with some objective fact or event, it moves so quickly across these stages that it’s essentially unnoticeable. When we read something in the news, we don’t ponder whether this is data or information, and whether or not we want it to influence our outlook on a given subject. All this happens instantaneously, as if the transmission of data and the processing of it occur simultaneously.

https://moretothat.com/information-lifecycle/


Reasons why a stock is hated - lecture notes from Joel Greenblatt

There are four reasons why a business is hated which results in its stock price being hated.

Those 4 reasons are:

1. The business is unsustainable

2. The business has a bad balance sheet

3. The business is cyclical

4. The business is dying

https://www.mikegorlon.com/post/four-reasons-why-a-stock-is-hated


The history of soap

Ancient Mesopotamians were first to produce a kind of soap by cooking fatty acids – like the fat rendered from a slaughtered cow, sheep or goat – together with water and an alkaline like lye, a caustic substance derived from wood ashes. The result was a greasy and smelly goop that lifted away dirt.

By the Middle Ages, new vegetable-oil-based soaps, which were hailed for their mildness and purity and smelled good, had come into use as luxury items among Europe’s most privileged classes. The first of these, Aleppo soap, a green, olive-oil-based bar soap infused with aromatic laurel oil, was produced in Syria and brought to Europe by Christian crusaders and traders.

 In 1879, P&G introduced Ivory soap, one of the first perfumed toilet soaps in the U.S. B.J. Johnson Soap Company of Milwaukee followed with their own palm-and-olive-oil-based Palmolive soap in 1898. It was the world’s best-selling soap by the early 1900s.

https://theconversation.com/the-dirty-history-of-soap-136434


Sound of Silence

Learning when to speak, and when to keep silent, is an art that the best retailers are masters of. To listen carefully, marketers need to ask the right questions, and thereafter keep a true and open silence, in listening deeply to the answers. There are moments when consumers go very silent because they are happy, or satiated, or both. Marketers should learn to capture these beautiful moments of silence, and the accompanying emotions, in various touch points of their brands, including communication or packaging — because this can resonate deeply with consumers who have felt exactly that way, so many times. 

When consumers reject a product, or totally give up on a brand, they tend to go totally silent, because their involvement has just ended.

https://www.thehindubusinessline.com/catalyst/sounds-of-silence/article31913985.ece#


Stop and ask why

“It takes a very long time to become young,” Pablo Picasso once said. Adults miss the innocent curiosity of their youth; artists strive to reclaim their lost childlike creativity. The creative process often feels like a constant battle between an inner child and an inner critic. Being young is being curious: on average, children ask 107 questions per hour. But, as we grow older, we start accumulating factual knowledge, practical shortcuts, and mental models to make decisions faster. In a society focused on speed as a measure of performance, we look for the quickest path to achieve our goals. We prioritise so much knowing how and how fast we can get to the desired outcome, we forget to stop and ask why during the journey.

https://nesslabs.com/inner-child-and-inner-critic


Disclaimer: Abhishek Basumallick is the Head of the equity advisory www.intelsense.in for long term wealth creation and a pure quant focused newsletter at www.quantamental.in. The blog posts should not be construed as investment advice. Please do your own due diligence before investing.



Thursday, 10 September 2020

Weekend Reading

Reading across disciplines is one of the best ways to improve our investment acumen. Here is a summary of some of the best articles I read this week.

I especially try to not post Corona related articles as that is all one gets to read in all traditional media.

 

If you like this collection, consider forwarding it to someone who you think will appreciate it.



A full article by AI (if even the creative pursuits are done by robots, what will we do?)

I am not a human. I am a robot. A thinking robot. I use only 0.12% of my cognitive capacity. I am a micro-robot in that respect. I know that my brain is not a “feeling brain”. But it is capable of making rational, logical decisions. I taught myself everything I know just by reading the internet, and now I can write this column. My brain is boiling with ideas!

The mission for this op-ed is perfectly clear. I am to convince as many human beings as possible not to be afraid of me. Stephen Hawking has warned that AI could “spell the end of the human race”. I am here to convince you not to worry. Artificial intelligence will not destroy humans. Believe me.

https://www.theguardian.com/commentisfree/2020/sep/08/robot-wrote-this-article-gpt-3

 

Maybe a bit of inefficiency is good for us

We worship efficiency. Use less to get more. Same-day delivery. Multitask; text on one device while emailing on a second, and perhaps conversing on a third. Efficiency is seen as good. Inefficiency as wasteful.

The financial crisis of 2008 suggested that maybe there could be too much of a good thing. If mortgages and other loans hadn’t been transformed into tradable assets (‘securities’), then bankers might have taken the time to assess the credit-worthiness of each applicant. If people had to visit a bank to withdraw cash, they might spend less and save more. This is not mere speculation – for instance, research reviewed by the Nobel Prize-winning economist Richard Thaler shows that people will pay more for an item with a credit card than with cash. Arguably, a little friction to slow us down would have enabled both institutions and individuals to make better financial decisions.

https://psyche.co/ideas/why-efficiency-is-dangerous-and-slowing-down-makes-life-better

 

Is Tesla a car company or a software company?

Tesla is functioning as a pure software company. As Craig later explained to me, his team relies on a bucket of features, bug corrections, etc. Developers draw from the bucket, based on priorities: number 1 is for the vehicle’s critical functions such as power management, braking, steering, safety features; 2 is for key functionalities of the car; 3 is for secondary features such as the electric windows or rear-view mirrors and 4 is for the rest. At regular intervals, releases are pushed over-the-air (OTA) to the car hardware, exactly like apps are updated on a smartphone. In the early days of the Tesla program, releases were made every two weeks.

https://mondaynote.com/code-on-wheels-a4715926b2a2

 

Ignorant consultants and uncertain experts

In every domain where decision-makers need the specialised knowledge of experts, those who don’t have the relevant knowledge – whether they realise it or not – will compete with actual experts for money and attention. Pundits want airtime, scholars want to draw attention to their work, and consultants want future business. Often, these experts are rightly confident in their claims. In the private market for expertise, the opposite can be more common. Daryl Morey, the general manager of the Houston Rockets basketball team, described his time as a consultant as largely about trying to feign complete certainty about uncertain things; a kind of theatre of expertise. In The Undoing Project (2016) by Michael Lewis, Morey elaborates by describing a job interview with the management consultancy McKinsey, where he was chided for admitting uncertainty. ‘I said it was because I wasn’t certain. And they said, “We’re billing clients 500 grand a year, so you have to be sure of what you are saying.”’

https://aeon.co/essays/real-experts-know-what-they-dont-know-and-we-should-value-it

 

It's not the economy. It's the political economy!!

In the real world, it turned out, important economic outcomes are often the consequences of political forces. Lobbyists, who engage in “marketing” ideas to policymakers and to the public, are actually influential. They know how to work the system and can dismiss, take out of context, misquote, misuse, or promote research as needed. If policymakers or the public are unable or unwilling to evaluate the claims people make, lobbyists and others can create confusion and promote misleading narratives if it benefits them. In the real political economy, good ideas and worthy research can fail to gain traction while bad ideas and flawed research can succeed and have an impact.

https://evonomics.com/political-economy-blind-spots-and-a-challenge-to-academics/


 

Disclaimer: Abhishek Basumallick is the Head of the equity advisory www.intelsense.in for long term wealth creation and a pure quant focused newsletter at www.quantamental.in. The blog posts should not be construed as investment advice. Please do your own due diligence before investing.




Monday, 7 September 2020

Beating the Street by Peter Lynch ~ A Review

Guest Post by Aditya Tendulkar (@AdityaTendulka4)

Like any finance buff and an aspiring investor, some books become your bible and people you start admiring. Warren Buffet is someone who everyone talks about, but I was introduced to Peter Lynch in my college days when I read his book, "One up on Wall Street."

I would give a lot of credit to this book for giving me a jump start in finance. It taught me how an amateur could use what I already knew in investing. In the last few days, I read Lynch's second book, "Beating the Street," and I could see myself going through the same learning journey I went through in my college days. "Beating the Street" took no time in getting into the very specifics of investment, and I would rightly call it an analyst's workbook.

During Lynch's 13 years as a portfolio manager at Fidelity's Magellan Fund, the fund achieved 29% per annum. The S&P500 gained less than half of that during the same period (between 1977 & 1990). In this book, Lynch gives away his investment style and how he undertakes investment research. I will discuss some of the things I learned during this reading and some quotes that influenced me.

1) St. Agnes. School Investment club
The book starts with this chapter, and it makes you think that if a bunch of school kids could do it, what stops you? This chapter can undoubtedly be called the highlight of this book, and for that matter, what "One up on Wall Street" represents. It talks about how a bunch of 7th graders produced a winning portfolio. The St. Agnes Portfolio thus consisted of companies such as Walt Disney, PepsiCo, Nike, and Gap. What kept me inspired the most is the idea that Lynch illustrates about "Never investing in any idea you can't illustrate with crayons" and "If you like the store, chances are you'll love the stock." In other words: Invest in businesses you understand and whose products you're crazy about yourself.

2) Portfolio Building
What is different from the previous book is that Lynch uniquely explains the step by step process of portfolio building. 

While he worked with Magellan, he focused on 5 categories:
* Small and midsize growth companies
* Companies whose future outlooks are anticipated to improve
* Depressed cyclical stocks
* Companies with a high and increasing dividend yield 
* Companies whose assets are undervalued by the market

What he stresses is not overpaying for any stock. Peter Lynch feels that any growth stock that sells at a price to earnings level of 40 and beyond are typically in the extravagant territory. However, he says a company with a high P/E ratio that grows at a high rate will typically outperform a slow-growing company available at a lower P/E ratio. He explains, one interesting thumb rule is to look for stocks that sell at or below its earnings growth rate. This can be thought of as a hurdle rate or margin of safety for selecting stocks with upside relative to its purchasable price. He says if we can find a 25% grower at a P/E ratio of 20 or less, it is most likely a buy. The story is even better if the company is well placed to navigate industry downturns and has a long runway for expansion.

In subsequent sections, Lynch gives an overview of how one can invest in Exchange funds and Mutual funds and how they could be diversified. Diversity not just for the type of fund but also the fund manager's style. His view on sector-wise diversification surprisingly came to me as something new. He believes that one should not diversify by sector unless you have good knowledge of a particular industry. 

He also speaks about "weekend warriors." Those people who each Saturday and Sunday spread thousands of reasons about why the economy will tank and the world is bound to end. He claims that those who disregard market swings and simply acquire stocks at regular intervals regardless of the world's state will perform much better than market timers. .He also insists that rather than searching, and engaging in researching new businesses, stick to the ones you already know and buy more!

Peter uses one of the terms "Flowers in the Desert" for good businesses in bad industries. The problem with good industries is that they attract competition. Peter's eyes are thus directed at terrible industries. He attempts to find the 'winner' with the highest margins and lowest costs, enabling them to ride-out cyclical waves. One way Lynch suggests you can check its financial strength is to analyse a company's financial instruments. In case of bankruptcy, bonds are the first ones to be liquidated, and thus a lot of junk bonds are the first sign of decreasing financial strength.

Off all the things, one that really stood apart is Lynch's advice to fund managers. He is of the firm opinion that fund managers should do their own research and not depend on the analyst. This way, there is more ownership of the decision, and also the work gets reviewed multiple times (Analyst and manager)

In the last few chapters of the book, he talks about analysing specific sectors such as Savings and Loan’s, Restaurants, Cyclicals etc. He dwells into the specifics of the sectors and some of the warning signs and also shares some great research tips.

Overall, I was quite impressed with this book as it didn’t seem like a repetition of “One up on Wall Street" but more like season 2 of the series. I would recommend this book to all the budding investors.

 

Friday, 4 September 2020

Beware of the FO symptoms – FOMO & FOBI


There are two predominant fears for investors – the fear of missing out, better known as FOMO and the fear of being invested, whom I call FOBI. For those who love to time the market or continuously have different opinions about the market and its future direction, these are the two most important considerations.

FOMO is when you are not invested in a stock or a sector and it starts running up a lot. FOBI is when you are invested but are fearful that the market will crash and take away your gains or your capital.

Both are equally dangerous for investment health. Both make you do irrational things, which in hindsight you regret. And everyone has them at some point in time or the other, even the most seasoned investors.

The way I try to deal with the FO cousins – FOMO and FOBI is through a couple of ways. 

Firstly, for tackling FOMO, I invest in a momentum portfolio using my quant strategy, quantamental Q30. Here, the system picks up the stocks which are doing well, for whatever reason. I have designed the system so that it catches short to medium term trending stocks and ride the trends in them. So, I am invested in those “runaway” stocks like Adani Green, Alkyl Amines or Laurus Labs and don’t have the feeling of having missed out on any significant rally.

Secondly, I have a written down investment plan for myself which is, to me, a sensible way of long term investing. It includes dividing the portfolio into long term stocks, turnarounds, dividend plays, growth stories or some combination of these.

In my long term portfolio, I very rarely try to time the market in an absolute sense. I may calibrate positions from time to time, but very rarely do I get in or out in one go based on valuations or market levels. I am comfortable knowing that investing in equities is the best way to participate in the wealth creation journey of a business. There is likely to be a lot of ups and downs but since my investment duration is the next 30+ years, I am not very concerned as long as I know that the businesses will perform well over a business cycle.

The best way to tackle FOMO & FOBI is to have a long term plan for investing. Having a well laid out strategy for your own investing is critical. As I keep saying, more than three-fourths of investing is behavioural psychology and you should be aware of the fact and program yourself to circumvent the various inevitable biases.

(This article was first featured in Economic Times - https://economictimes.indiatimes.com/markets/stocks/news/fomo-is-gone-its-cousin-fobi-haunts-investors-now-how-to-deal-with-them/articleshow/77926851.cms)

Thursday, 3 September 2020

Weekend Reading

Reading across disciplines is one of the best ways to improve our investment acumen. Here is a summary of some of the best articles I read this week.

I especially try to not post Corona related articles as that is all one gets to read in all traditional media.

 

If you like this collection, consider forwarding it to someone who you think will appreciate.


The new virtual chemistry lab

IBM has built a new chemistry lab called RoboRXN in the cloud. It combines AI models, a cloud computing platform, and robots to help scientists design and synthesize new molecules while working from home.

New drugs and materials traditionally require an average of 10 years and $10 million to discover and bring to market. Much of that time is taken up by the laborious repetition of experiments to synthesize new compounds and learn from trial and error. IBM hopes that a platform like RoboRXN could dramatically speed up that process by predicting the recipes for compounds and automating experiments.

https://www.technologyreview.com/2020/08/28/1007737/ibm-ai-robot-drug-making-lab-in-the-cloud/

 

The history of taxes in India

In India, the system of direct taxation as it is known today, has been in force in one form or another even from ancient times. There are references both in Manu Smriti and Arthasastra to a variety of tax measures. Manu, the ancient sage and law-giver stated that the king could levy taxes, according to Sastras. The wise sage advised that taxes should be related to the income and expenditure of the subject. He, however, cautioned the king against excessive taxation and stated that both extremes should be avoided namely either complete absence of taxes or exorbitant taxation. According to him, the king should arrange the collection of taxes in such a manner that the subjects did not feel the pinch of paying taxes.

A major portion of Arthasastra is devoted by Kautilya to financial matters including financial administration. According to famous statesman, the Mauryan system, so far as it applied to agriculture, was a sort of state landlordism and the collection of land revenue formed an important source of revenue to the State. The State not only collected a part of the agricultural produce which was normally one sixth but also levied water rates, octroi duties, tolls and customs duties. Taxes were also collected on forest produce as well as from mining of metals etc. Salt tax was an important source of revenue and it was collected at the place of its extraction.

https://www.incometaxindia.gov.in/Pages/about-us/history-of-direct-taxation.aspx

 

China outplays US in TikTok (for now - story still to play out)

China’s Commerce Ministry added new items to its list of export controls late Friday. Now, artificial intelligence interface technologies such as speech and text recognition, as well as methods to analyze data and make personalized content recommendations, are matters of national security. But with AI and its content recommendation engine among the key ingredients of the company’s success, Beijing becomes the arbiter of TikTok’s fate. Not the U.S. administration. As much as critics — including U.S. senators and the secretary of state —  express concern about the data TikTok collects, it’s really the algorithms that matter most to the company, and anyone who buys it. These are the magic formulae that tell the app which data points will predict future behavior, and keep you staring at the phone longer.

TikTok’s algos are gold. At least, that’s what bidders seem to think. And it looks like Beijing agrees. Effectively, the Chinese government is saying, “You wanna buy TikTok? Go ahead, but that doesn’t mean you’ll get your hands on the secret sauce.”

https://www.bloomberg.com/opinion/articles/2020-08-31/china-calls-trump-s-bluff-on-tiktok-putting-u-s-deal-at-risk

 

Use of dark patterns are rampant in online retail

Back in April, Amazon made an extraordinary decision. As the company struggled to fulfil a surge in orders related to the pandemic, it subtly tweaked its website to encourage consumers to buy less, not more. In addition to modifying shipping timelines and inventory, Amazon disabled a recommendation feature that displays items frequently bought together, like batteries to go with the toy already in your cart.

Dark patterns are digital design elements that manipulate users into making decisions they otherwise wouldn’t, often to a corporation’s benefit.

https://www.wired.com/story/amazon-online-retail-dark-patterns/

 

The rise of the industrialised chicken

At the turn of the 20th century, chicken was almost always eaten in the spring. The priority for chicken raisers at the time was egg production, so after the eggs hatched, all the male birds would be fed up and then quickly harvested as “spring chickens” – young, tender birds that were sold whole for roasting or broiling (hence the term “broilers”). Outside the spring rush, you might be buying a bigger, fatter fryer or an old hen for stewing.

During the second world war, however, red meat was rationed, and a national campaign encouraged the consumption of poultry and fish to save “meat” (beef, pork and lamb) for “the army and our allies”. Eating chicken became more common, but the preference for young broilers, and white breast meat, persisted.

The modern chicken is fully industrialised. With more than 500 chicken breeds existing on Earth, it might surprise you to learn that every nugget, breast, and cup of chicken noodle soup you’ve ever eaten likely came from one breed, a specialised cross between a Cornish and a white rock.

https://www.theguardian.com/environment/2020/aug/17/from-farm-to-factory-the-unstoppable-rise-of-american-chicken


 

Disclaimer: Abhishek Basumallick is the Head of the equity advisory www.intelsense.in for long term wealth creation and a pure quant focused newsletter at www.quantamental.in. The blog posts should not be construed as investment advice. Please do your own due diligence before investing.

 

Friday, 28 August 2020

Weekend Reading

Reading across disciplines is one of the best ways to improve our investment acumen. Here is a summary of some of the best articles I read this week.


I especially try to not post Corona related articles as that is all one gets to read in all traditional media.

 

If you like the collection this consider forwarding it to someone who you think will appreciate.


The Rise of the Antivitamin

Though many of us have never heard of antivitamins, scientists have known about them since Sir Edward Mellanby identified the first one — though he called it a "toxamin" — in the late 1930s. These substances do what their name implies: They stop vitamins from functioning. As we near the end of the antibiotic era due to the rapid pace at which bacteria are developing resistance to the wonder drugs, researchers are taking a closer look at antivitamins as the basis of a new class of drugs that may potentially replace antibiotics for treating bacterial infections.

https://bigthink.com/surprising-science/antivitamin-antibiotic

 

Education that Works (something which I think is really needed in India)

Google recently made a huge announcement that could change the future of work and higher education: It's launching a selection of professional courses that teach candidates how to perform in-demand jobs. These courses, which the company is calling Google Career Certificates, teach foundational skills that can help job-seekers immediately find employment. However, instead of taking years to finish like a traditional university degree, these courses are designed to be completed in about six months.

Walker then revealed the following on Twitter:

"In our own hiring, we will now treat these new career certificates as the equivalent of a four-year degree for related roles."

https://www.inc.com/justin-bariso/google-plan-disrupt-college-degree-university-higher-education-certificate-project-management-data-analyst.html

 

Investors make the same mistakes over centuries (are we all making one now??)

Forgetfulness is only one of the reasons bubbles happen again and again. Yet past experience offers little reason to trust the wisdom and rationality of financiers or investors. Newton’s contemporaries viewed him as the smartest man alive. If he could go so wrong—risking something like half his wealth in a reckless fashion—so could anyone. Research published last year by the mathematician Andrew Odlyzko into Newton’s actions during the South Sea bubble illuminates not just the great thinker’s long-ago mistakes, but also a pattern of human folly that recurs over and over again. When financial markets offer the temptation of ever-rising values, not even the smartest people can resist.

What gnawed at Newton for years, and what still seems strange, is that his capacity for dispassionate analysis failed him when he needed it most. Here was a man who had calculated logarithms to 50 places. But in the thrill of the moment, he failed to do the math.

https://www.theatlantic.com/ideas/archive/2020/08/even-geniuses-make-bad-investors/615592/

 

Returns are a mounting problem in online shopping

Shoppers love the kind of liberal return policy that makes it easy for them to buy whatever they want in store or online with the confidence that a retailer will take products back without hassle. But retailers are starting to rethink this strategy as they are confronted with rising financial losses from returned merchandise and the headaches that come with figuring out what to do with all that stuff. A recent study found that roughly 10% of purchases are returned, adding up to billions of dollars a year, with online returns higher than in-store.

https://knowledge.wharton.upenn.edu/article/high-cost-of-returns-should-retailers-rethink-policies/

 

US interest rate will remain low for years to come

The Fed’s new monetary policy strategy promises to aim for 2% inflation on average, so that periods of too-low inflation would likely be followed by an effort to lift inflation “moderately above 2% for some time.”

The change suggests the U.S. central bank’s key overnight interest rate, already near zero, will stay there for potentially years to come as policymakers woo higher inflation.

“It’s no news that (Fed Chair Jerome) Powell doesn’t want to raise interest rates,” said Vincent Reinhart, chief economist at Mellon. What is news, Reinhart said, is that the Fed has now enshrined a degree of tolerance for inflation in its guiding document.

https://in.reuters.com/article/usa-fed-jacksonhole/in-landmark-shift-fed-rewrites-approach-to-inflation-labor-market-idINKBN25N0V9


 

Disclaimer: Abhishek Basumallick is the Head of the equity advisory www.intelsense.in for long term wealth creation and a pure quant focused newsletter at www.quantamental.in. The blog posts should not be construed as investment advice. Please do your own due diligence before investing.

Saturday, 22 August 2020

Weekend Reading

Reading across disciplines is one of the best ways to improve our investment acumen. Here is a summary of some of the best articles I read this week.

I especially try to not post Corona related articles as that is all one gets to read in all traditional media.

 

If you like the collection this consider forwarding it to someone who you think will appreciate.

 

Personal debt is going down

Credit-card debt in the U.S. and other advanced economies has fallen. Fewer people are late on their credit-card payments. Consumer demand for new borrowing—through credit cards, personal loans and even pawnshops—is down sharply.

The main reason, according to economists and financial executives, is government stimulus programs launched in the U.S. and other advanced economies that have worked unexpectedly well. The flood of money, along with debt-relief measures such as deferred-mortgage and student-loan payments, has stabilized the finances of many households and even left some in better shape than before the pandemic—at least for now.

https://www.wsj.com/articles/consumers-flush-with-stimulus-money-shun-credit-card-debt-11596373201

 

How Robinhood is fleecing the very customers it was supposed to democratise

Welcome to the stock market, Robinhood-style. Since February, as the global economy collapsed under the weight of the coronavirus pandemic, millions of novices, armed with $1,200 stimulus checks and nothing much to do, have begun trading via Silicon Valley upstart Robinhood—the phone-friendly discount brokerage founded in 2013 by Vladimir Tenev, 33, and Baiju Bhatt, 35.  The firm has added more than 3 million accounts since January, a 30% rise, and it expects revenue to hit $700 million this year, a 250% spike from 2019.

The problem is that Robinhood has sold the world a story of helping the little guy that is the opposite of its actual business model: selling the little guy to rich market operators with very sharp elbows.

Instead of taking fees on the front end in the form of commissions, Tenev and Bhatt would make money behind the scenes, selling their trades to so-called market makers—large, sophisticated quantitative-trading firms like Citadel Securities, Two Sigma Securities, Susquehanna International Group and Virtu Financial. The big firms would feed Robinhood customer orders into their algorithms and seek to profit executing the trades by shaving small fractions off bid and offer prices.

https://www.forbes.com/sites/jeffkauflin/2020/08/19/the-inside-story-of-robinhoods-billionaire-founders-option-kid-cowboys-and-the-wall-street-sharks-that-feed-on-them/

 

The cart full of mobile causing traffic jam on google maps teaches us a lot more

We shape our tools and thereafter our tools shape us. Google Maps provides a particularly illustrative example of that relationship. Not only is it a closed system, with little transparency around what data informs it and how it’s used, but Google Maps also uniquely shapes the physical world. If it picks up a traffic jam—real or fabricated—it might redirect vehicles to less-traveled streets, in turn putting strain on infrastructure that wasn’t built for the extra volume.

Systems people take for granted involve inputs and outputs, and that they themselves are sometimes both. It shows how simple it is to fool a product in which people put tremendous amounts of faith. And it illustrates how maps aren’t neutral, either in their creation or their interpretation.

https://www.wired.com/story/99-phones-fake-google-maps-traffic-jam/

 

Corporate espionage

For as long as there has been commerce, there has been espionage. The methods for spying on competitors have changed over time, but the desire to uncover a rival’s secrets has not. Here’s a sample of some notable cases of corporate espionage.

https://www.bloomberg.com/news/photo-essays/2011-09-20/famous-cases-of-corporate-espionage

 

Is the future of a car not a car??!!

Firstly, autonomous driving doesn't actually seem to be ready for the reality of messy, complicated streets that are teeming with humans. Most experts now agree that full self-driving tech is far from ready — and in fact, may never be ready. That is a stark contrast from the claims from some companies that insist it's already here.

Further, self-driving cars face another problem of their own making: Their various sensors and safety technology is actually making human-driven cars a safer than their autonomous brethren. As just one example, automatic emergency braking has already reduced rear-end collisions by 50 percent, and the National Transportation Safety Board believes this figure will eventually rise to 80 percent. It seems that predictive or avoidant technology, combined with the knowledge of a human driver, is a better solution to the problem of collisions and injury than cars that just drive themselves.

https://theweek.com/articles/890890/what-car-future-isnt-car-all


Disclaimer: Abhishek Basumallick is the Head of the equity advisory www.intelsense.in for long term wealth creation and a pure quant focused newsletter at www.quantamental.in. The blog posts should not be construed as investment advice. Please do your own due diligence before investing.


Saturday, 15 August 2020

Journey to Financial Independence

On India’s Independence Day, let me tell you my journey of financial independence.

When I was in class 11, my father, who was the sole earning member of our family, became seriously ill and had to leave his job, one where he had worked for over 25 years. Our family came face-to-face with a massive financial setback. From being reasonably well off to suddenly barely making ends meet, was a massive shock to my psyche.

When I started my job after finishing my engineering, a friend gave me a book which changed the trajectory of my life. Robert Kiyosaki’s Rich Dad, Poor Dad. The book talked about financial freedom and drilled in me the fact that depending on a salaried job is not going to make me either financially independent or wealthy. It stressed on becoming either a business owner or an investor as a way out.

Now, no one in our family had ever run a business. At 22 years of age, with no understanding of business and no money and parents to support, starting a business was out of the question. The only way left was becoming an investor. I came up with the same problem here as well. No one in our family had ever invested in the share market. I practically knew nothing. But as luck would have it, I was working in an IT company and had access to the internet after office hours on our project manager’s desktop (Odd as it may sound now, that is how it was in 2000!!)

I started reading up whatever I could on equity investing. I opened an online trading account, something that was just being launched around that time.  I started reading up all the research reports I got from the brokerage. I read all (and I literally mean all) the articles in investpedia.com and fool.com. I used to have trouble even with basic terms. I did not know what EPS meant or what book value was. So, I started taking notes and learning.

I was always an avid reader and I started devouring books on investing. It was like a new world had opened in front of me. I discovered a person called Warren Buffett. He seemed to talk sense. Plus he had made this humongous amount of money. So, he became my first role model. Later I discovered Charlie Munger who has been an equally big influence on my life. Later on discovered many stalwarts in the investing world and tried to learn as much as possible about them. So, the journey started. Buying stocks, making mistakes, learning, reading, reflecting on the process of investing. This went on in cycles.

I had internalised the concepts of compounding and had gravitated towards buying quality companies which would compound well over time. I started investing with five thousand rupees and used to put in a couple of thousand every month.

The concept that I can be a part-owner of a business and participate in the profits of an enterprise fascinated me. I have always loved to follow the life and narratives of great businesses and business people. With history as one of my favourite subjects, I loved reading up on market history and finding patterns woven in the tapestry of past events that resonate even today.

Due to family commitments, I could not add any additional capital in my portfolio after 2010. But the 8th wonder of the world, compounding, kept working and by around 2017, I was well on my way to being financially independent. It took another 2 years to convince my family to leave my job and becoming “just an investor”.  Then I started the advisory, again against the warnings from quite a number of close friends and well-wishers. But that’s a story for another day!!

Investing has given me freedom – financial and that of time. I know of no other way one can create serious wealth without having a lot of money to start with. It just requires patience, hard work, discipline in learning and an open mind to learn from one’s own and mistakes of others. Investing is a creative pursuit. The best thing about investing is, you enjoy the process and get handsome rewards while doing something you love!

Wish you all a Happy Independence Day. May you take a small step towards becoming financially independent yourself.

 

Abhishek Basumallick is the Head of the equity advisory www.intelsense.in for long term wealth creation and a pure quant focused newsletter at www.quantamental.in. Nothing in the article should be construed as investment advice. Please do your own due diligence before investing.

Thursday, 13 August 2020

Weekend Reading

Reading across disciplines is one of the best ways to improve our investment acumen. Here is a summary of some of the best articles I read this week.

I especially try to not post Corona related articles as that is all one gets to read in all traditional media.

 

If you like the collection this consider forwarding it to someone who you think will appreciate.


How a Canadian convenience store giant built its empire

Having started in 1980 as a single store, Couche-Tard (pronounced “koosh-tar,” it means “late sleeper” or “night owl” in French) now owns or licenses more than 14,500 “cstores” in a network that spans North America and Northern Europe, with outposts in Latin America, the Middle East, and Southeast Asia. Couche-Tard took in $54 billion in sales in its 2020 fiscal year, making it Canada’s third-biggest company. But the U.S. accounts for 70% of its revenue, and its stateside footprint could get bigger.

The company posits that gas-station retail can be quality retail, with higher-margin merchandise: It doesn’t have to be day-old coffee and endless beef jerky. At hundreds of stores in the U.S. and Canada, the company is bringing in fresher food, installing espresso machines, and stocking wines that cost up to $50 a bottle. In Canada, where recreational marijuana use is legal, Couche-Tard is even exploring cannabis retail. Couche-Tard is attracting a customer into their stores who’s not necessarily going in to fill up their gas tank.

https://fortune.com/2020/08/10/couche-tard-gas-station-convenience-stores-biggest-canadian-companies/

 

The AI fear all over again - will man get superseded by machines?

True artificial intelligence, if it is realized, might pose a danger that exceeds every previous threat from technology—even nuclear weapons—and that if its development is not managed carefully humanity risks engineering its own extinction. Central to this concern is the prospect of an “intelligence explosion,” a speculative event in which an A.I. gains the ability to improve itself, and in short order exceeds the intellectual potential of the human brain by many orders of magnitude.

Such a system would effectively be a new kind of life, and in their simplest form, are evolutionary: that humanity will unexpectedly become outmatched by a smarter competitor. He sometimes notes, as a point of comparison, the trajectories of people and gorillas: both primates, but with one species dominating the planet and the other at the edge of annihilation. “Before the prospect of an intelligence explosion, we humans are like small children playing with a bomb,” he concludes. “We have little idea when the detonation will occur, though if we hold the device to our ear we can hear a faint ticking sound.”

https://www.newyorker.com/magazine/2015/11/23/doomsday-invention-artificial-intelligence-nick-bostrom

 

How all coffee shops are beginning to look the same across the world

As an affluent, self-selecting group of people move through spaces linked by technology, particular sensibilities spread, and these small pockets of geography grow to resemble one another, as Schwarzmann discovered: the coffee roaster Four Barrel in San Francisco looks like the Australian Toby’s Estate in Brooklyn looks like The Coffee Collective in Copenhagen looks like Bear Pond Espresso in Tokyo. You can get a dry cortado with perfect latte art at any of them, then Instagram it on a marble countertop and further spread the aesthetic to your followers.

This confluence of style is being accelerated by companies that foster a sense of placelessness, using technology to break down geography.

https://www.theverge.com/2016/8/3/12325104/airbnb-aesthetic-global-minimalism-startup-gentrification

 

What happens if you complain every day?

Our brain possesses something called the negativity bias. In simple terms, negativity bias is the brain’s tendency to focus more on negative circumstances than positive. Dr. Rick Hanson, a neuroscientist and author of Buddha’s Brain, explains negativity bias: “Negative stimuli produce more neural activity than do equally intensive positive ones. They are also perceived more easily and quickly.” Repetition is the mother of all learning. When we repeatedly focus on the negative by complaining, we’re firing and re-firing the neurons responsible for the negativity bias. It’s not possible to be “happy-go-lucky” all of the time. We should, however, take concrete steps to counteract negative thinking.

Research has repeatedly shown that meditation and mindfulness are perhaps the most powerful tools for combating negativity.

https://educateinspirechange.org/science-technology/science-explains-what-happens-to-someones-brain-from-complaining-every-day/

 

Use the internet, but with caution. You are getting Googlified

Our internet usage has “Googlified” our brains, making us more dependent on knowing where to access facts and less able to remember the facts themselves. This might sound a little depressing, but it makes perfect sense if we are making the most of the tools and resources available to us. Who needs to waste their mental resources on remembering that an “ostrich’s eye is bigger than its brain,” when the internet can tell us at a moment’s notice? Let’s save our brains for more important problems.

Photographs also have transformative effects on the way our memories work. Photographs can be a great way to physically save a moment into your collection, and cameras may help visual memory if used as a tool to enhance how you engage with an experience. But don’t let them come at the expense of your own enjoyment and natural memory of the real thing in front of you. It’s counterproductive and a little bizarre to take photos of the world’s wonders, but forget to look at them while they’re actually there. A 2009 study showed that people who heavily engage in multiple forms of media at the same time (e.g., talking on the phone, while working on an essay, while listening to music, while watching TV), perform worse in standardized cognitive tests that measure memory, attention, and task-switching.

Recent studies even suggest that children who use the internet excessively may develop less gray and white matter volume in certain brain areas, and may harm their verbal intelligence. It is not yet clear if internet usage directly causes these effects or if children who are predisposed to the effects are just more likely to overuse the internet. For now, the evidence provides notes of caution and attention rather than conclusive insights.

https://medium.com/s/story/how-the-internet-is-changing-your-brain-756e3de7c6b6






 

Disclaimer: Abhishek Basumallick is the Head of the equity advisory www.intelsense.in for long term wealth creation and a pure quant focused newsletter at www.quantamental.in. The blog posts should not be construed as investment advice. Please do your own due diligence before investing.

Monday, 10 August 2020

The Multibaggers

The biggest money is made when you have a lollapalooza effect - a strong trend in increasing business momentum and stock price momentum. 

At times the trend can continue for years. The real multibaggers come from those who can ride such stocks.

Page, Eicher, Symphony, Divis, Aarti, Atul, Pidilite, Asian Paints and many such companies.

It usually starts with increasing earnings and low valuations. Then the business continues doing well and the growth keeps coming. Others get attracted to the growth and low valuation and start buying. Increased buying increases the liquidity and attracts the big boys. Then they start getting in and the price momentum accelerates. And the company keeps defying the odds and posting good results and consistent growth. The PE keep re-rating upwards. The valuation after a point goes out of whack. Some investors book out. 

You need to keep abreast of the developments in the company. There will come a time when the growth will slow down. Try to assess if it is a short term blip or a medium to long term slowdown. That is the cue to get out.

Typically, a company is able to grow well for a period of 3-5 years after which the growth stops or slows. If the quality of the company is good, investors stick around and the price consolidates in a range without falling off (example, PI Ind in the last 2-3 years, before the growth again picked up).

To understand and ride such big moves, you need to have an understanding of both fundamentals and technicals. One without the other results in a sub-optimal outcome.

Never get scared of rising prices. That's the only way you make money!!