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.

How to make decisions the Jeff Bezos way

As a senior executive, what do you really get paid to do? You get paid to make a small number of high-quality decisions. Your job is not to make thousands of decisions every day. There are two types of decisions. There are decisions that are irreversible and highly consequential; we call them one-way doors, or Type 2 decisions. They need to be made slowly and carefully. I often find myself at Amazon acting as the chief slowdown officer: “Whoa, I want to see that decision analyzed seventeen more ways because it’s highly consequential and irreversible.” The problem is that most decisions aren’t like that. Most decisions are two-way doors.

https://www.fastcompany.com/90578272/how-jeff-bezos-makes-decisions

The fight for value investing to stay relevant

In an economy mostly made up of tangible assets you could perhaps rely on a growth stock that had got ahead of itself to be pulled back to earth, and a value stock that got left behind to eventually catch up. Reversion to the mean was the order of the day. But in a world of increasing returns to scale, a firm that rises quickly will often keep on rising. The appeal of old-style value investing is that it is tethered to something concrete. In contrast, forward-looking valuations are by their nature more speculative. Bubbles are perhaps unavoidable; some people will extrapolate too far. Nevertheless, were Ben Graham alive today he would probably be revising his thinking. No one, least of all the father of value investing, said stockpicking was easy.

https://amp-economist-com.cdn.ampproject.org/c/s/amp.economist.com/briefing/2020/11/12/value-investing-is-struggling-to-remain-relevant

How the internet changed our consumption pattern?

This point cannot be emphasized enough: the Internet is the single most disruptive force of our lifetimes because it does not evolve existing ways of doing things, but completely smashes the assumptions underlying them — assumptions we often didn’t even realize existed.

So it was with the Internet and the trade-off between reach and time: suddenly every single media entity on earth, no matter how large or small, and no matter its medium of choice, could reach anyone instantly. To put it another way, reach went to infinity, and time went to zero.

https://stratechery.com/2020/never-ending-niches/

The Road Ahead by Bill Gates - looking back after 25 years   

One thing I wrote about that hasn’t happened yet—but I still think will happen—is the way the Internet will affect the structure of our cities. Today the cost of living in a dense downtown, like Seattle’s, is so high that many workers (including teachers, police officers, and baristas) can’t afford to live there. Even high earners spend a disproportionate percentage of their income on rent. As a result, some cities are arguably too successful, and others are not successful enough. It’s a real problem for our country.

But as digital technology makes it easier to work at home, then you can commute less often. That, in turn, makes it more attractive to live father away from the office, where you can afford a bigger house than in the city center. It also reduces the number of cars on the road at any given time. Over time, these shifts would mean major changes in the ways our cities work and are built.

https://www.gatesnotes.com/About-Bill-Gates/The-Road-Ahead-after-25-years

100 Baggers: The Lost Chapter

The profiles in this chapter were originally collected for my book, 100 Baggers: Stocks That Return 100-to-1 and How to Find Them. They are the stories of 100-baggers... Brilliant thinkers... and mavericks who built fortunes with their wits – and a good bit of luck…

In the end, I felt the stories distracted from the main idea of the book. But these investing greats have important lessons to teach... as much from their failures as their successes.

https://drive.google.com/file/d/1_VLCiGPhVCPh9SsUowIX574KqzFCYzuh/view

For building a solid long term portfolio, look at subscribing to www.intelsense.in long term advisory.

For technofunda investing and positional trading, subscribe to our Hitpicks advisory service on www.intelsense.in

For momentum trend following systematic trading, subscribe to Quantamental at www.quantamental.in 

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.

Are economic forecasts any good?

How much stock should you place in the consensus macro forecasts generated by the experts? How much value should you place on the forecasts of an individual macro forecast from an expert?

They find that there is consistent under-reaction in the expectations of the consensus forecasts. The aggregated expectations and the slow revisions of economist means their forecasts are playing catch-up to reality. This conclusion is not new albeit still inconsistent with a rational expectations view of the world. Given this under-reaction to news, the consensus forecast revisions are positively correlated to forecast errors. The conclusion is that investors should discount these forecasts. 

While individuals may over-reaction, the use of different models, different information, and slow updating will lead to an under-reaction in aggregate. So, the investor should fade the forecast of the individual but assume that the group is slow to respond to the market realty. 

https://mrzepczynski.blogspot.com/2020/11/how-much-value-should-you-place-in.html?m=1

The pursuit of luxury products

Luxury consumption used to strictly mean the purchase and display of items from well-known luxury brands. It has now taken on diverse and sometimes unexpected forms – within the traditional luxury domain but also beyond and even outside of it. 

For instance, in the realm of traditional luxury, less experienced consumers (typically from lower socioeconomic status) prefer ‘loud’ luxury products with more prominent brand identifiers such as logos, as they seek a visible affiliation with affluent people. Meanwhile, more experienced luxury buyers, who chiefly aim at dissociating themselves from mainstream consumers, favour less conspicuous luxury products.

For the same purpose of differentiating themselves from the middle class, high-status individuals may mix and match traditional luxury products with non-luxury ones. 

Luxury consumers have also started looking outside of the traditional luxury categories and increasingly invest in education and health. Parents, for instance, face mounting pressure to send their children to elite kindergartens and schools. In Beijing, the fees for such kindergartens can be up to six times the cost of a top university education.

https://knowledge.insead.edu/marketing/the-tension-filled-world-of-luxury-consumption-15561

The secondhand clothing market is booming

According to a new report, the US secondhand clothing market is projected to more than triple in value in the next 10 years—from US$28 billion in 2019 to US$80 billion in 2029—in a US market currently worth $379 billion. In 2019, secondhand clothing expanded 21 times faster than conventional apparel retail did.

The secondhand clothing market is composed of two major categories, thrift stores and resale platforms. But it’s the latter that has largely fueled the recent boom. Secondhand clothing has long been perceived as worn out and tainted, mainly sought by bargain or treasure hunters. However, this perception has changed, and now many consumers consider secondhand clothing to be of identical or even superior quality to unworn clothing. A trend of “fashion flipping”—or buying secondhand clothes and reselling them—has also emerged, particularly among young consumers.

https://qz.com/1933900/can-secondhand-clothing-solve-fashions-sustainability-crisis/

The lessons from history

History is full of specific lessons that aren’t relevant to most people, and not fully applicable to future events because things rarely repeat exactly as they did in the past. An imperfect rule of thumb is that the more granular the lesson, the less useful it is to the future.

The second kind of history to learn from are the broad behaviors that show up again and again, in multiple fields and different eras. They are the 30,000-foot takeaways from events that hide layers below the main story, often going ignored.

How do people think about risk? How do they react to surprise? What motivates them, and causes them to be overconfident, or too pessimistic? Those broad lessons are important because we know they’ll be relevant in the future. They’ll apply to nearly everyone, and in many fields. The same rule of thumb works in the other direction: the broader the lesson, the more useful it is for the future.

https://www.collaborativefund.com/blog/the-big-lessons-from-history/

Is value investing dead?

The performance of value stocks is the worst it’s been in nearly 200 years.

The first problem with the above is that it doesn’t accurately portray the performance of actual value investors. What we are seeing here is the performance of the value ‘factor’. In this case, the value factor is measured using dividend yield between 1825-1871, price-to-earnings between 1871-1938 and book-to-market from 1927-2020. 

In other words, it portrays a simplistic view of how value stocks have actually performed over the last 200 years. It assumes that value stocks all fit into a neat category and by definition have a low p/e, p/b or high dividend.

As you probably know, there is a big difference between factor investing (which seeks to find small edges from financial indicators) to value investing which generally seeks to buy high quality companies for less than their intrinsic value.

https://decodingmarkets.com/is-value-investing-dead/

For building a solid long term portfolio, look at subscribing to www.intelsense.in long term advisory.

For technofunda investing and positional trading, subscribe to our Hitpicks advisory service on www.intelsense.in

For momentum trend following systematic trading, subscribe to Quantamental at www.quantamental.in 

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.

Has our luck finally run out?

The global economy has been extraordinarily lucky for 75 years. Food and energy have been cheap and abundant. 

In our complacency and hubris, we attribute this to our wonderful technologies, which we assume, guarantee us permanent surpluses of energy and food. The idea that technology has reached hard limits or that it could fail doesn’t occur to us. 

We’ve taken good luck to be our birthright because it’s all we’ve known. We attribute this good fortune to things within our control — technology, wise investments and policies, etc.

We are woefully unprepared for a long run of bad luck. My sense is the cycles have turned, and the good luck has drained from the hour-glass. Energy and food will no longer be cheap and abundant, our luck in leadership will vanish, and our vaunted technologies will fail to maintain an abundance so vast that we can squander the finite wealth of soil, water, resources and energy on mindless consumption.

https://dailyreckoning.com/has-our-luck-finally-run-out/

Lots of Overnight Tragedies, No Overnight Miracles

The most important things come from compounding. But compounding takes a while, so it’s easy to ignore.

New technologies take years or decades for people to even notice, then years or decades more for people to accept and put to use. Show me a new technology that was immediately recognized for its full potential and instantly adopted by the masses. It doesn’t exist. A lot of pessimism is fueled by the fact that it often looks like we haven’t innovated in a decade because it takes a decade to notice innovations.

Same for economic growth. Real GDP per capita increased eight-fold in the last 100 years. America of the 1920s has the same real per-capita GDP as Turkmenistan does today. 

Same for investments. Netflix stock returned 35,000% between 2002 and 2018. But it was below its previous all-time high on 94% of days, which made the progress easy to ignore, and the number of investors to actually hold Netflix from 2002 to 2018 round to zero.

Growth always fights against competition that slows its rise. New ideas fight for attention, business models fight incumbents, constructing a building fights gravity. There’s always a headwind. But everyone gets out of the way of decline. Insiders might try to stop it, but it doesn’t attract masses of outsiders who rush in to push back in the other direction like progress does.

https://www.collaborativefund.com/blog/lots-of-overnight-tragedies-no-overnight-miracles/

The need for an antilibrary

Tsundoku is a beautiful Japanese word describing the habit of acquiring books but letting them pile up without reading them. I used to feel guilty about this tendency, and would strive to only buy new books once I had finished the ones I owned. However, the concept of the antilibrary has completely changed my mindset when it comes to unread books. Unread books can be as powerful as the ones we have read, if we choose to consider them in the right light.

The goal of an antilibrary is not to collect books you have read so you can proudly display them on your shelf; instead, it is to curate a highly personal collection of resources around themes you are curious about. Instead of a celebration of everything you know, an antilibrary is an ode to everything you want to explore.

Remember that knowledge is a process, not a possession. In addition, building an antilibrary is an investment in yourself which should stay within your means. Even if you only have 3-5 books you haven’t read on your shelf, this is already a great step in expanding your intellectual horizon.

https://nesslabs.com/antilibrary

The story of Suguna Foods

B. Soundararajan, chairperson of Suguna Chicken, talks about building a billion-dollar company. Suguna Foods Pvt. Ltd is the largest company in commercial poultry farming in India, with an annual revenue of nearly a billion dollars.

https://lifestyle.livemint.com/news/big-story/how-two-brothers-from-coimbatore-created-india-s-biggest-poultry-company-111603377035018.html

Are vitamins a marketing a scam?

Today, there’s an explosion of vitamin startups that operate on the idea that vitamins can work their wonders for most anyone. Vitamins are vital, but most of us get the ones we need in our own diets. 

Eliseo Guallar, a professor at Johns Hopkins, sees vitamins as offering most people a “false sense of protection” and marvels at Americans’ commitment to taking them despite a lack of evidence that they should. 

Most are probably neither helpful nor harmful (he says, though, that some can be iffy in high doses, like vitamin E, which might increase the risk of prostate cancer).There are also many instances of supplements containing unapproved and potentially harmful ingredients.

https://slate.com/human-interest/2019/03/vitamins-careof-marketing-not-necessary-wellness-evidence.html

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The markets are at an all time high, should I invest now or wait?

Running an advisory for the last year and a half, I have had the opportunity to interact with a lot of investors. One question that keeps cropping up from time to time and has increased in the last few days is, “The markets are at an all-time-high, should I invest now or wait for it to fall?”

Here is what I usually tell them:

Mismatch of timeframes

One of the biggest mistakes we make is looking at the market through a short term lens when we are trying to invest for the long term. We say we want to invest for the long term, implying atleast five to ten years but keep looking at the markets on a day to day basis.

Two main drivers – FOBI & FOMO

Investors are driven by two primary thoughts – i) the fear of loss (FOBI – fear of being invested) and ii) fear of missing out (essentially greed).

When markets are falling people are scared about losing money in their investments. They try to look the other way or panic into selling at the most inopportune time.

When the markets are rising people become greedy and scared at the same time. Greedy because they want to participate in the gains. Scared because of their past experience of losing money in the markets, they are afraid it would be the same again.

Future is uncertain and unknowable

No one knows what tomorrow brings. All the great gurus use different techniques to interpret the conditions of the present and try to extrapolate to the future. They can use varying tools to do this – fundamental analysis and technical analysis are the two most prominent ones. People do use other tools as well, like macro analysis, astrology, numerology etc. The main point is no one knows.

Just as an example, when Bajaj Finance was at 2000 in late May 2020, investors were waiting for it to go to 1000. Or that they will buy it when it went to 1200-1400. Neither prices came. Today it is 4000+.

Invest regularly

If that is the fundamental truth, then the best course of action is to be conservative, prudent and systematic. That is why I like the concept of SIP (systematic investment plan). You invest NOW. You don’t wait for a better day. Because you never know if tomorrow will be a better day or worse.

Need an advisory?

• For building a solid long term portfolio, look at subscribing to www.intelsense.in long term advisory.
• For technofunda investing and positional trading, subscribe to our Hitpicks advisory service on www.intelsense.in
• For momentum trend following systematic trading, subscribe to Quantamental at www.quantamental.in

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.

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.

Valuation is a sentiment indicator

Perhaps the most descriptive statement ever made about the stock market came from the late-great Sir John Templeton (whom I had the great pleasure of meeting on the set of Wall $treet Week With Louis Rukeyser): “Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.” Notice there is not a single reference to economic statistics, earnings growth, interest rates or valuations. The truth in the statement lies in those omissions, in that emotions and behavior are what actually drive markets—even if trends in the economy and earnings help shape those emotions. In fact, as I’ve often noted, investors think of valuation as a “fundamental” indicator in the sense that most valuation metrics—including P/E ratios—have quantifiable components. The reality is that valuation is more of a sentiment indicator than it is a fundamental indicator.

https://www.advisorperspectives.com/commentaries/2020/10/20/mixed-emotions-sentiment-telling-divergent-stories

This is the fascinating story of Adam Neumann, ex-CEO of WeWork

WeWork’s telegenic co-founder and former CEO, Adam Neumann—had once been known for turning an upscale co-working business into America’s most valuable private start-up, peddling vague kumbayas like This decade is the decade of “We.” But then WeWork filed paperwork to go public, revealing that the company had lost billions of dollars while enriching Neumann.

Among other extraordinary disclosures, it turned out that he had bought we-related trademarks, then charged WeWork $5.9 million to buy them. The press soon uncovered other details to fill out the portrait of a terrible little richling: Neumann’s practice of hotboxing chartered jets, whether his co-passengers liked it or not; his musings about becoming president of the world; his company-wide ban on meat that left executives puzzling over how to implement it.

https://www.theatlantic.com/magazine/archive/2020/11/wework-reeves-wiedeman-billion-dollar-loser/616477/

The rise of Chinese digital currency

The advent of various kinds of the digital currency creates a new state of affairs. Since the launch of Bitcoin, the world has seen a wave of monetary innovation. Cryptocurrencies have proliferated. Many of these, it is true, have been mere experiments. Some have been downright frauds. And maybe it will turn out that blockchain as a technology has more appropriate uses than money. But those who have written off digital money will soon look as silly as the people who said the Internet would never replace the fax machine.

The proof is in China, where digital payment systems established by Alibaba (Alipay) and Tencent (WeChat pay) have grown explosively. Phase 2 of this story is the overseas expansion of Chinese fintech. One emerging market at a time, China is building a global payments infrastructure.

History teaches us that power is inseparable from financial power. The country that leads in financial innovation leads in every way: from Renaissance Italy, through imperial Spain, the Dutch Republic, the British Empire, and the United States since the 1930s. Only lose that financial leadership — just ask poor Mr Pound, once worth $4.86 — and you lose your place as global hegemon.

https://www.bostonglobe.com/opinion/2019/09/16/the-ascent-digital-money/ulomGXDxbSAH6o1pLfxBPP/story.html

Investing is about our relationship with greed and fear

Housel believes the psychological side of investing is the most critical.

“You can be the best stock picker in the world, you can be the best economist in the world, you can have the best analytical abilities, the academic credentials of anyone else in the world,” he said. “But if you lose your cool, if you lose your temper, in March of 2020, or in 2008, or in 1999, none of that matters.”

Not for nothing, the other quote Housel includes in the epigraph is attributed to Napoleon: “A genius is a man who can do the average thing when everyone else around him is losing his mind.”

The reason why the behavioural side of investing is so important is that it can effectively short-circuit whatever analytical skills you may have. If you haven’t mastered the behavioural side of investing, all those analytical skills that take so long to develop are irrelevant.

The key takeaway: “Investing is not just about money,” he said. “Investing is about our relationship with greed and fear.”

https://blogs.cfainstitute.org/investor/2020/10/22/morgan-housel-on-greed-and-fear-frugality-and-paranoia/

Making enough is more rewarding at times

You’ll one day learn that money is one of these rewards people get for their work. While it’s important to understand that making money requires various tradeoffs of time and energy, just remember this: Making a lot of money doing something you hate will be far less rewarding than making enough money doing something you love. Freedom is achieved by clearly defining what “enough” means, and by keeping it there even after you’ve reached it. This allows curiosity – and not money – to be the guiding principle behind why you do the things you do.

https://moretothat.com/a-letter-to-my-newborn-daughter/

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.