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.

 

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Stop using old models to understand a new world

There is a parallel between today’s stock market and Fischer random chess. The last time we faced a global pandemic was in 1918, and this might as well have been in the BC era. Few of us were alive then, but even the history books are not that useful, as the structure of the US and global economy, the central bank system, the diversity and dynamism of society, and the state of technological progress are nothing like the world knew then. Most of the mental models we as investors rely on are based on an environment that no longer exists. The only common denominator between now and then is that humans have not really changed that much – it takes a few millennia to rewire our DNA and thus our fundamental behaviour.

We need to confront this environment on its own unique terms: we have never been here before. We have to incredibly careful not to fall back on using old mental models. With every move we make, we have to reexamine our assumptions.

https://contrarianedge.com/the-fischer-random-chess-stock-market/

 

Rise of Livestream Shopping

Livestream shopping is a natural confluence of several current tech trends—streaming, influencers, social, commerce—and offers companies a new path to consumers' hearts and wallets.

In April, Huang Wei—known professionally as Viya—sold a rocket launch for around 40 million yuan ($5.6 million). The live, online shopping extravaganza the 34-year-old hosts most nights for her fans across China is part variety show, part infomercial, part group chat. Last month, she hit a record-high audience of more than 37 million—more than the “Game of Thrones” finale, the Oscars or “Sunday Night Football.”

Each night, Viya’s audience places orders worth millions of dollars—typically for cosmetics, appliances, prepared foods or clothing, but she’s also moved houses and cars. On Singles Day, China’s biggest shopping event of the year, she did more than 3 billion yuan in sales. The spread of coronavirus, which put most Chinese people under stay-at-home orders, doubled her viewership.

https://www.bloomberg.com/features/2020-viya-china-livestream-shopping/

 

Robinhood investing is here

Professional investors have largely abandoned the stock market amid the coronavirus pandemic, but sports bettors and bored millennials have jumped into the retail stock trading market with both feet.

They may be a driving force pushing U.S. stocks to their recent highs — and potentially driving them further.

43% of North American men aged 25-34 who watch sports also bet on sports at least once per week, and that's the same group that has flocked to Robinhood.

https://www.axios.com/sports-betting-stock-market-surge-0e945773-d676-4f0a-a6a0-a0f92611b10b.html

 

John Bogle did not invent the index fund - A lesson in history of the index fund

In the January 1960 issue of the Financial Analysts Journal, Edward Renshaw and Paul Feldstein published an article entitled, “The Case for an Unmanaged Investment Company.”

The fundamental problem facing individual investors in 1960 was that there were too many mutual-fund companies: over 250 of them. “Given so much choice,” the authors wrote, “it does not seem likely that the inexperienced investor or the person who lacks time and information to supervise his own portfolio will be any better able to choose a better than average portfolio of investment company stocks.”

The solution suggested in this paper was an “unmanaged investment company”, one that didn't try to beat the market but only tried to match it. “While investing in the Dow Jones Industrial average, for instance, would mean foregoing the possibility of doing better than average,” the authors wrote, “it would also mean that the investor would be assured of never doing significantly worse.”

https://www.getrichslowly.org/history-of-index-funds/

 

Newton's Law of Productivity

In many ways, procrastination is a fundamental law of the universe. It's Newton's first law applied to productivity. Objects at rest tend to stay at rest. It works the other way too. Objects in motion tend to stay in motion. When it comes to being productive, this means one thing: the most important thing is to find a way to get started. Once you get started, it is much easier to stay in motion.

https://jamesclear.com/physics-productivity

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.