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Thursday, 16 September 2021

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


1. The birth of the ubiquitous QR code

Denso engineer Hara Masahiro invented the QR code 25 years ago. Hara says that the company previously used barcodes to keep track of parts, but that the system was inefficient. “There were upward of ten barcodes on any one box,” Hara recounts. “Employees got tired of having to scan boxes multiple times, and this led us to come up with a code that would enable a large volume of information to be conveyed in a single scan.” From the need to keep better track of car parts sprang the QR code.

 

A QR code is characterized by a two-dimensional pattern of square black and white dots. With this pattern, it is possible to imbed 200 time more information than a standard barcode.

 

Hara explains that the inspiration for the technology came from his penchant for playing strategy games: “I used to play go on my lunch break. One day, while arranging the black and white pieces on the grid, it hit me that it represented a straightforward way of conveying information. It was a eureka moment.”

https://www.nippon.com/en/news/fnn20191214001/the-little-known-story-of-the-birth-of-the-qr-code.html

 

2. Steve Martin's method for greatness

Steve Martin is arguably one of the most important figures in 20th century comedy. In Martin’s recent memoir, Born Standing Up, we gain unprecedented insight into this process.

 

“Be so good they can’t ignore you.”

 

Forget all the frustration, the tricks, and the worry. Just focus on becoming good. Really damn good. Outstanding. Unlike anyone who has come before you. If you can figure out how to do this one thing, recognition will follow. It will, like it did for Martin, probably come so fast that it will overwhelm you.

 

The restless urge to understand then innovate led him to be outstanding. Without it, he would have just become another good comedian. Like hundreds of others.

 

Martin credits “diligence” for his success. Staying diligent in his interest in the one field he was trying to master; being able to ignore the urge to start working on other projects at the same time. If you don’t saturate your life in a single quest, you’ll dilute your focus to a point where becoming outstanding becomes out of reach.

https://www.calnewport.com/blog/2008/02/01/the-steve-martin-method-a-master-comedians-advice-for-becoming-famous/

 

 

3. Getting comfortable with uncertainty

We feel ambivalence when we simultaneously hold contradictory beliefs or opinions. In fact, we can lean both toward and against a decision, perhaps for the same reason or different reasons. Humans are funny this way. We often hold incongruous views that stir conflicting emotions, and this experience is uncomfortable. But our need for certainty means we jump to one side of the issue or another.

 

Surprisingly, we do this even when we don’t know the cause of our ambivalence. When experiencing discomfort, our focus is generally on stopping it rather than exploring its causes.

 

Getting unstuck and being more open to hearing points of view that don’t make sense to us requires us to build capacity to withstand cognitive discomfort.

 

By seeking out different challenges, greater nuance and care in how we characterize points of view that are different from our own, we expand our capacity to withstand the cognitive discomfort that comes from ambivalence. We become stronger and more flexible as both individuals and organizations.

 

And then we repeat the process the next day, and the next.

https://sloanreview.mit.edu/article/the-problem-with-certainty/

 

 

4. Perspective on life

If you had twenty five years left to live, how much time would you spend worrying about the daily ups and downs of the stock market?

If you had fifteen years left to live, how much time would you spend trying to buy or sell a specific stock at the perfect price?

If you had five years left to live, how much of it would you spend obsessing over financial news and its unforeseeable impact on your portfolio?

If you had one month left to live, with whom would you spend those final days? What activities would you pursue?

If you had 24 hours to live, what would you want the people who knew you to remember most?

How much time do you think you have left?

Take a guess….

Okay, let’s assume you’ve guessed right. Now what?

What do you want to do today?

https://thereformedbroker.com/2013/07/28/how-much-time-do-you-have/

 

 

5. Cement's effect on climate change

Not many want to fret over cement, the world’s second-most consumed material behind water, and how its use in this economic transition might prevent our society from achieving its climate goals. The Carbon Disclosure Project recently released a report, “Building Pressure: Which cement companies will be left behind in the low-carbon transition,” warning the cement industry — cement being the main binder in concrete — that “in its current form, it will not be compatible with” any nation’s commitment in the Paris agreement; and if radical changes do not occur the world will “risk missing [its] climate goals.”

 

According to the CDP report, the cement industry is the second-largest industrial emitter of carbon after the steel industry. And when accounting for its use in human-made structures, it is responsible for more than a third of the world’s carbon emissions.

 

For cement companies, lowering emissions would mean either developing a whole new material or investing in carbon-capture systems, a technology that can capture and store the carbon dioxide emitted by an industrial process. Yet the CDP found the industry to be unwilling or unable to finance the research required to develop a low-cost, low-carbon alternative to cement.

 

As long as the world clamors to build, the cement industry has little incentive to disrupt the status quo.

https://theoutline.com/post/5124/are-we-stuck-with-cement-environmental-impact

 

Thursday, 9 September 2021

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


1. Get better at problem solving

  1. Be ever-curious - Natural human biases in decision making, including confirmation, availability, and anchoring biases, often cause us to shut down the range of solutions too early. Better—and more creative—solutions come from being curious about the broader range of potential answers.
  2. Tolerate ambiguity—and stay humble! - The real world is highly uncertain. We have to be comfortable with estimating probabilities to make good decisions, even when these guesses are imperfect.
  3. Take a dragonfly-eye view - Dragonflies have large, compound eyes, with thousands of lenses and photoreceptors sensitive to different wavelengths of light. They see multiple perspectives not available to humans. The idea of a dragonfly eye taking in 360 degrees of perception is an attribute of “superforecasters”—people, often without domain expertise, who are the best at forecasting events.
  4. Pursue occurrent behavior - In an emerging segment—such as electric cars or autonomous vehicles, where the market isn’t fully established—good problem solving typically involves designing experiments to reduce key uncertainties, not just relying on existing data.
  5. Tap into collective intelligence and the wisdom of the crowd - It’s a mistake to think that your team has the smartest people in the room. They aren’t there. They’re invariably somewhere else. Nor do they need to be there if you can access their intelligence via other means.
  6. Show and tell to drive action - start by being clear about the action that should flow from your problem solving and findings: the governing idea for change. Spell out the risks of inaction, which often have a higher cost than imperfect actions have.

https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/six-problem-solving-mindsets-for-very-uncertain-times

 

 

2. We are children of our times

Let’s say you have two people, Person A and Person B. They are both value investors who follow the strategy laid out by Benjamin Graham in the 1930s.

 

Person A was born in 1930. Person B was born seventy years later, in 2000. They both start applying the Graham investing strategy at a very early age, let’s say when they were 15 years.

 

Person A becomes Warren Buffett, once the richest man on earth, who experienced one of the biggest booms in value stocks when he was young. Person B loses half of their money because value stocks are out of favor in the 2010s. And picking winning value stocks is almost impossible.

 

Same strategy, same actions, different times, different outcomes. Becoming rich and famous is mostly a matter of luck.

 

Once we let go of outcomes, we can look inward and focus on the things that truly matter: To become a good person with values, who has character, and is good at what they do.

https://dariusforoux.com/rich-and-famous/

 

3. The Chinese Government key determinant of success in a Chinese venture

For the last two decades, China has been the dominant story for both the global economy and capital markets, as the country's immense growth and infrastructure investments have sustained commodity prices, and altered the balance of world economic power. That growth has come (or should have come) with the recognition that in almost every venture in China, public or private, the Chinese government is not just a player, but often the key player determining the venture's success and failure. Afraid of being shut out of the biggest, growth market in the world, companies operating in China have accepted limits and constraints that they would fight in almost every other part of the world, including in their own domestic markets.

http://aswathdamodaran.blogspot.com/2021/09/chinas-tech-crackdown-market-adjustment.html

 

4. Don't interrupt compounding unnecessarily

You don’t want to interrupt that compounding lightly. You better have a pretty darn compelling reason to sell a winning business just because the stock doubled in a year and looks “expensive.” Otherwise, your sale is going to look really costly some years later.

 

Trimming is one of those things that sounds so sensible, so smart. It also satisfies that itch to “do something.” Yet, if you own a really good business and take the long view, you’re probably better off leaving it alone.

 

There is a similar idea to trimming that sounds smart, but doesn't hold up if you’re a long-term investor. It goes like this: “X stock is too expensive, I need a 10% [or 20%] correction before I buy.”

 

If you’re a long-term investor, 10% or 20% is a rounding error.

https://www.woodlockhousefamilycapital.com/post/the-first-rule-of-compounding

 

5. Growth trumps over high PE over the long term

The reason that Wal-Mart produced a fantastic return from 1974 to now is not that it was cheap relative to its present or near-term future earnings.  By the standards of 1974, it was actually a growth stock–priced at almost twice the market multiple.  In the current market, an equivalent valuation would be something like 30 or 40 times earnings–for a business with uncomplicated earnings that had already been in operation in Arkansas for three decades.  It produced a fantastic return because it was a fantastic business, with miles and miles of growth still in front of it.

 

The next time we see an excellent business trading at 40 times earnings, or 75 times earnings, or 100 times earnings, or wherever, and we shy away, it might help to remember the example of Wal-Mart.  High multiples can be entirely justified, provided that the growth potential is real.

https://www.philosophicaleconomics.com/2014/03/wmt/

Tuesday, 7 September 2021

Doubt is Good

 


"Doubt goes with me everywhere - to the arena, to the practice range, it's there when I awake and when I sleep. Doubt is my enemy because it unnerves me, makes me overthink, but it's also, in some weird way, my friend because it helps me become a sharper shooter." ~ Abhinav Bindra.

The future is uncertain
Investing is based on what will happen in the future. The future is inherently uncertain and probabilistic. It can never be known with certainty. The most that people can do is to forecast based on their knowledge and pattern recognition abilities. Their knowledge, in turn, is based on their past experiences. Someone who has lost a lot of money in the stock market in the past is likely to see investing with a very different tinted lens from someone who has amassed a lot of wealth from it.

When you are investing there are so many questions that crop up. Is the market overvalued now? Should I wait for some time before investing? Is this company that I am investing in going to give me good returns? Is the price going to crash after I buy? It is already up so much, should I chase the price? It is down from previous highs, should I buy now? How will the US taper affect the Indian markets? Why are there no brokerage reports on this company? Is it a fraud? Do I know enough about the company? The industry has a major tailwind, so should all the stocks in this sector do well?

The questions go on and on...

And unfortunately, there are no definitive answers.

When I started investing, I used to feel that this doubt that I always have must be because I am not very knowledgeable. The more I know the less doubt I will get. But in reality, it turned out exactly the opposite. The more I learn and practice, the more doubts I get. And the root cause is simple - the future is unknowable.

Doubt is good

All the great investors I have been lucky to interact with are very doubtful about their picks. Rarely have I seen someone to be very sure. Even after holding a stock for many years, there are some niggling doubts that persist. Should I hold on? Should I add to my position? Should I sell and book profits? Should I sell partially?

Doubt comes mainly from three sources - macro concerns, stock-specific issues and our own past track record of investments, usually recent ones. And no amount of studying or interacting with management or channel checks can help you in removing your doubt. I have seen so many cases where even the management deludes themselves, perhaps unknowingly, about the future prospects of the business. It just goes to reiterate the basic point that the future is unknowable.

I have seen investor friends sitting on the sidelines with cash since 2017 citing the fact that the markets were overvalued or large macro investors taking large cash calls because a certain index level has been surpassed. Market timing in the face of an uncertain future adds a layer of complexity to the process (and is mostly wrong!!).

Using a Quant mindset to develop an end-to-end process
Then what is the way out? One simple way is to have a well-defined process. I have been a process-driven investor for most of the twenty odd years I have been at it. But my process was limited to a checklist, although it was quite extensive. That is what I got from reading a lot from the processes of great value investors. Then I chanced upon quantitative systems and investing. From there I picked up the notion that the process needs to be all-encompassing. It has to start from the universe selection. This simply means which stocks I will research and keep tabs on. Buffett calls it the circle of competence. Quants call it universe selection :-) It is the same thing.

The next is what stock to buy. 99% of the focus on investors are in this. Here you should be clear what time frame you are looking for investing, what is your risk appetite, how much drawdown can you withstand etc. Your fundamental or technical checklist fits in this step.

The next step is the most ignored or least thought through. It is about position management. You need a process for adding more or reducing your positions. This should not be a knee jerk reaction but a result of a thought-through process.

The next step is the sell decision. Again, having a well thought-through process is very important.

The last step, which is something I have never seen talked about by anyone, is should you retain the stock in your watchlist. There are pros and cons to it and it is also dependent on why you bought and subsequently sold the stock.

Doubt is good. It helps you focus on your process. In investing, you will never get it right all the time. You need to get probability on your side. And that's where having a well-defined process helps.

Thursday, 2 September 2021

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


1. Building new eyes in the lab

The human brain is one of the most ridiculously complex things nature has ever concocted, so to help us understand it better, scientists have been making miniature versions in the lab. Skin cells are taken from adult donors, reverted back into stem cells, and placed into a culture that mimics the environment of a developing brain, encouraging them to form different brain cells. The end result is a pea-sized, three-dimensional brain model that can be used to study development, disease or the effects of drugs.

 

Now, research led by the University Hospital Düsseldorf has taken it a step further. The team has grown brain organoids complete with optic cups, vision structures found in the eye where the optic nerve meets the retina. They grew symmetrically at the front of the mini-brain, giving the organoid a striking visage.

 

But most importantly, these optic cups were functional. They contained a diverse range of retinal cell types, which formed neuronal networks that actually responded to light and sent those signals into the brain. Lens and cornea tissue was also formed.

https://newatlas.com/biology/lab-grown-mini-brain-organoid-eye-see/



2. Will we eat our vaccines in the future?

Using plants as replacement biofactories started with a simple calculation: they’re cheap and easy to grow. Plants only require three things: light, water, and soil. Add in fertilizer if you’re feeling fancy. Greenhouses, if needed, are still far more economical than stainless steel bioreactors.

 

With thousands of years of collective agricultural know-how under humanity’s belt, it’s relatively easy to gauge the best way to grow an antibody-producing tobacco leaf, antitoxin potato, or herpes vaccine-making soybean.

 

Add in the recent boom in gene editing tools, and molecular farming is on a roll. The process is similar to genetically modified (GM) crops. It starts with introducing a vector into the whole plant or plant cells, which carries the genetic code to make a protein or a vaccine. Depending on the type of vector, the new DNA can integrate into the plant’s own genome—something called “stable expression”—or it can float around for just long enough for the plant to carry out its protein-making instructions.

 

The latter, dubbed “transient expression,” is especially tantalizing for its rocket speed. It’s possible to extract vaccines and therapeutic proteins within weeks. The other benefit came as a surprise. Plant-produced vaccines and monoclonal antibodies—for example, those used to treat severe Covid-19 cases—are far more potent.

So far, monoclonal antibodies produced by plants against HIV and Ebola showed very few side effects, with the most common ones being a low fever in three clinical trials.

 

Perhaps the most tantalizing promise of molecular farming in the near future is crops that contain a vaccine.

https://singularityhub.com/2021/08/17/the-next-vaccine-could-be-edible-and-grown-in-a-plant/

 


3. How to get lucky

You might think of serendipity as passive luck that just happens to you, when actually it’s an active process of spotting and connecting the dots. It is about seeing bridges where others see gaps, and then taking initiative and action(s) to create smart luck. Serendipity is a guiding force in great scientific discoveries but it’s also present in our everyday lives, in the smallest of moments as well as the greatest life-changing events. It’s how we often ‘unexpectedly’ find love, a co-founder, a new job, or a business partner – and it’s how inventions such as Post-it Notes, X-rays, penicillin, microwaves and many other innovations came about.

 

To be lucky, it’s often essential to be open and alert to the unexpected. Although being alert to the unexpected is vital for creating smart luck, there is another key factor: preparation. reparation is about developing the capacity to accelerate and harness the positive coincidences that show up in life.

https://psyche.co/guides/how-to-open-up-to-serendipity-and-create-your-own-luck



4. Entrepreneurship is hard grinding work

Netflix co-founder Marc Randolph says that the "glorification of entrepreneurship" has given many aspiring entrepreneurs a mistaken perception about the true reality of building a company. "They think it's all pitching, going to parties and launches - it is not. It's a very, very repetitious, grinding, scary and sometimes disappointing career, where you're doing things that don't work over and over and over again. It becomes problematic however, when people start to believe that this education alone is sufficient to launch a business.

He said it's the equivalent to people thinking they can learn how to play golf simply by watching YouTube videos and reading books.

https://www.businessinsider.in/tech/news/netflix-cofounder-marc-randolph-said-the-glorification-of-entrepreneurship-has-set-up-a-mistaken-perception-of-what-it-takes-to-launch-a-business/articleshow/85690435.cms

 


5. The history of food processing

From the moment one innovative ancient human decided to cook their meat on a fire at least 400,000 years ago, to the advent of agriculture 10-15,000 years ago, people have processed foods. Our ancestors fermented (essential for alcohols and dairy products), milled and baked (breads and pasta), and worked out how to preserve meat by salting or brining. The early history of food processing was both useful and tasty.

 

Food processing was essential to the expansion of human civilization. It’s very difficult for our bodies to extract anything useful from a kernel of wheat, but ferment it into beer or mill it into flour and you can make a calorie-rich food. Techniques like salting or pasteurisation make foods safer and last longer. This allowed humans to travel further and survive cold winters or harsh famines.

 

Much of food processing is about making foods safer and longer-lasting, which is better for the environment as it means less food waste.

https://www.bbc.com/future/article/20210608-what-were-the-first-processed-foods

Thursday, 26 August 2021

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


1. 95% of traffic accidents are predictable
Traffic accidents are a misnomer. In fact, over 95% of what happens on roadways is perfectly predictable. 

According to Stefan Heck, PhD, CEO of Nauto, a leader in AI-powered advanced driver assistance systems. With the belief that fully autonomous driving is still years away, Heck's answer to the mounting number of collisions and fatalities in 2020 is to help drivers, not replace them. To that end, Nauto's technology underpins sophisticated safety systems for hundreds of the world's top large-scale fleets, and customers are achieving up to an 80% reduction in a collision loss. The company estimates that has translated into over $300 million in savings.

By far, the biggest cause of collisions in commercial fleets (or, in fact, any vehicle) are distractions. We see about 70% of all collisions happen to drivers that are frequently distracted. Fleets with long distances or hours also see large numbers of collisions due to fatigue and drowsiness, often at the end of a long gruelling day of physical labour -- e.g. installations, package delivery. Speeding gets a lot of attention but is actually mostly an amplifier of damage, not the primary cause of collisions.

In 10 years, we will begin to see significant adoption of both EVs (electric vehicles) and AVs (semi-autonomous or what is known as level 2/3 or fully autonomous known as level 4/5) will become much more common. But AV adoption will not be evenly spread. First, they will remain expensive, so they remain a luxury item.


2. Federer's legacy - as a businessman
Federer  was on his way to becoming one of the few athletes in history to earn $1 billion during his playing career, a milestone he reportedly surpassed this year, joining Tiger Woods, Floyd Mayweather, LeBron James, Cristiano Ronaldo and Lionel Messi. Federer’s two decades of on-court achievements only begin to account for that stunning total: About $130 million of Federer’s earnings has come from official prize money, a figure that puts him second on the all-time list in tennis to Djokovic’s $152 million. The rest has come through sponsorships, endorsements, appearance fees at tournaments and lucrative exhibition events around the world. Federer’s performance in this domain has been every bit as impressive as his performance on court — perhaps even more so when you consider the disadvantage he started with. Sponsorships and endorsements tend to be easier to acquire if a tennis player comes from a major market like the United States, Britain or France. 

Beyond Federer’s lucrative individual pursuits, the Laver Cup has been the primary focus of Team8, the boutique management firm that Federer and Godsick left IMG to form back in 2013. It is an event that, if it prospers, could serve as both a legacy for Federer and a vehicle for him to remain involved in the game as a team captain or organizer. 

3. The Art of Reading
Consuming information is not the same as acquiring knowledge. No idea could be further from the truth.

Learning means being able to use new information. The basic process of learning consists of reflection and feedback. We learn facts and concepts through reflecting on experience—our own or others’. If you read something and you don’t make time to think about what you’ve read, you won’t be able to use any of the wisdom you’ve been exposed to.

Active reading is thoughtfully engaging with a book at all steps in the reading process. From deciding to read right through to reflection afterwards, you have a plan for how you are going to ingest and learn what’s in the book.

Books don’t enter our lives against a blank slate. Each time we pick up a book, the content has to compete with what we already think we know. Making room for the book, and the potential wisdom it contains, requires you to question and reflect as you read.

4. The Paradigm for Success
Today’s CEO isn’t just a name and a face; they’re a brand. And they’re encouraging others to be brands too. We’re becoming a society known for what our brand is, not what our character is. And that’s often where hubris — confidence that has morphed into arrogance — begins.

One success after another builds greater self-confidence. But in the same way, increased achievement can skew healthy self-confidence into hubris. Hubristic people can easily become hooked on their own egos, so confident in their own self-importance that they assume they can do no wrong. Naturally, the more wins an individual with the Midas touch accumulates, the less open they are to critical feedback: Why would a winner need feedback when they already have the code to success?

Additionally, as fans and minions (descriptors some celebrity CEOs use to define other people) continue to cheer them on, hubristic individuals typically seek to feed their self-glorifying adulation tendencies. They become intensely focused on repeating their successes, seeking to make the next one ever bigger and better. Finally, the individual ascends (in their own mind) to godlike status, above any rule or order.

Whatever you choose as a marker of success, remember Rory Vaden’s Rent Axiom: Success is never owned; it is merely rented, and the rent is due every day. What price are you willing to pay for success?

5. Happiness and a sense of humour
Researchers have theorized that a sense of humor is made up of six basic variables: the cognitive ability to create or understand jokes, an appreciation and enjoyment of jokes, behavior patterns of joking and laughing, cheerful or humorous temperament, a bemused attitude about life, and a strategy of using humor in the face of adversity. A sense of humor, then, can mean either being funny or enjoying funny things.

Consuming humor brings joy and relieves suffering. However, the type of humor you consume and share matters. Humor can be positive, when it’s not intended to belittle or harm others, or when one laughs at one’s own circumstances. It can also be negative, when it attacks others or when one belittles oneself. Positive humor is associated with self-esteem, optimism, and life satisfaction, and with decreases in depression, anxiety, and stress. Negative humor follows the exact opposite pattern: While it can feel good in the moment, it exacerbates unhappiness.

Laughter itself is what brings a lot of humor’s benefits, not necessarily making other people laugh. Laughter also acts as a social lubricant, making interactions easier even when there is no humor involved. 

Sunday, 22 August 2021

Hit Speak - Time to be Prepared, Not Worried

The markets have continued to follow the same trend of large-cap outperformance versus small and midcaps underperformance that we have seen for quite a few weeks now.  We alluded to that in our last blog post on 10 August 2021.   The frothy rally in the small and midcaps seen still remains something in the past. Broader markets have yet to find consistent strength. 

The question of how to position ourselves keeps vexing a lot of investors.  Our view remains the same as before.  And that is to be in sectors that have shown strength/resilience in the past few weeks in terms of price action. And in companies with strong earnings visibility over the next few quarters. 

Overall our sense is that the small and midcaps space is taking a much-needed breather after the strong and often frothy rallies seen in the past.  All this while the large caps are doing their bit to carry Nifty higher.

Some of the pockets that have shown good strength in the last few weeks have been the index heavyweight large caps. Besides these, FMCG and consumer staples also seem to be showing good strength. I will be discussing some interesting charts to drive home our assumptions.

The FMCG index seems to be showing good signs of a strong breakout. Stocks from this sector have been relative underperformers over the past few weeks and months. But now most of them seem to be breaking out/on the verge of breakouts.

Nestle chart has broken out above all time highs. 



I would like to have a look at the medium term chart of Reliance Inds. I have put up a GMMA (guppy multiple moving averages chart)  weekly chart of RIL.  As shown in the chart,  we can see a breakout from a flag like consolidation on this chart.  If the pattern plays out, RIL can be a big leader going forward and can lead Nifty to much higher levels.   Blue lines indicate longer-term moving averages and usually indicate an investor mindset.  It offers support during short term market corrections.  Red lines indicate shorter-term moving averages and indicate trader mindset.  Best setups are those where longer term moving averages are consistently moving up and shorter-term moving averages are coming out of compressions and breaking out on the upside. Something similar is being seen in RIL.



Another good company to look at is Schaeffler India. The company has shown very good growth and strong management commentary post the June quarter results. Its stock price shows a good breakout past all time highs of around 6000 and now consolidation above that level.



HDFC Ltd has broken out above its 6 month highs of 2690 and is managing to stay above that level since past few trading sessions.



To conclude,  I feel that if we are invested in small and midcaps it makes sense to be careful and follow strict stop losses or be very choosy to be in fundamentally good companies.    There does not seem to be any panic bells yet, but it always helps to be prepared and have a plan ready in case things go awry. 


Regards
Dr Hitesh Patel

Thursday, 19 August 2021

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

1. The Nvidia CEO you saw presenting was a deepfake!!
Earlier this year, Nvidia CEO Jensen Huang stood in his kitchen and delivered a press conference for the company's latest technology. But although one particular part of the keynote looked identical to the rest, it was very different: The kitchen, the CEO and even his leather jacket were entirely computer generated.

Like many companies, Nvidia has switched to online "virtual" press conferences during the coronavirus pandemic. Huang has broadcast several announcements from his kitchen, which meant no one saw anything different in April's GTC keynote presentation discussing the Nvidia Omniverse system. 

Known for its graphics cards, the company used the keynote event to show off its Omniverse tools for creating 3D virtual worlds. Engineers did a full face and body scan of the CEO to create a 3D model of Huang, then programmed it to mimic his gestures and expressions. This CG clone delivered part of the keynote speech, seamlessly transitioning from the real thing.

2. The Metaverse is coming
The word "metaverse" is a portmanteau of the prefix "meta" (meaning beyond) and "universe"; the term is typically used to describe the concept of a future iteration of the internet, made up of persistent, shared, 3D virtual spaces linked into a perceived virtual universe. Currently, you can only experience the internet when you go to it, but with new connectivity, devices and technologies, we’ll be able to experience it all around every single day. 

Today, the metaverse is a shared virtual space where people are represented by digital avatars. The virtual world constantly grows and evolves based on the decisions and actions of the society within it. Eventually, people will be able to enter the metaverse, completely virtually (i.e. with virtual reality) or interact with parts of it in their physical space with the help of augmented and mixed reality.

Companies will need to transition their marketing strategies from online ad buys to existing in a shared, virtual economy. Companies will need to do market research on their new customers in the metaverse. How people act and what their preferences are in the metaverse could be totally different than how they behave and what they shop for in real life. Add to that the layer of business to robot to consumer, where virtual assistants and robots own the relationship with the consumer and it all starts to make sense. 

3. Dental cavities are a transmissible, infectious disease!!!
Mouth bacteria are connected to cavities because of the tiny creatures’ digestive process. Cavity bugs feed on bits of sugar and carbs stuck to your teeth. The bacteria ferment those things, creating natural acids that start to dissolve the tooth enamel, similar to how water combines with carbon dioxide to dissolve limestone in a cave.

“You can take an animal that naturally develops cavities and feed it a high-sugar diet, and it will get cavities. And if you house it with animals that seem to be naturally resistant to cavities, they will then develop cavities,” he said. Cavities, in other words, are a transmissible, infectious disease.

Scientists know a handful of surefire ways to make your oral microbiome healthier. You have to brush twice a day, floss, use mouthwash and eat a diet low in sugars and refined carbohydrates. Those activities change the pH levels in your mouth making an environment that is less acidic and more friendly to the kinds of bacteria that aren’t associated with cavity formation. Decreasing the acidity also helps promote remineralization — basically the process of your teeth fixing themselves. The opposite of this advice — eating a lot of sugar and not reliably cleaning your teeth — creates an environment that is more friendly to streptococcus mutans and its buddies. 


4. Saving and spending less may be easier than trying to earn more
Investment returns have a lot of potential to make you rich and achieve your goals. But whether a strategy will work, and how long it will work for, and whether markets will cooperate, is always a question.

Personal savings and frugality – finance’s conservation and efficiency – are parts of the money equation that are largely in your control and have a 100% chance at being as effective in the future as they are today.

If we have the same assets and I can earn an 8% annual returns, and you can earn 12% annual returns, but I need half as much money to be happy while your lifestyle compounds as fast as your assets, I’m better off than you are. I’m getting more benefit from my investments despite lower returns.

The hard part is becoming satisfied with spending less. It’s not easy. It’s a behavioural trait, not analytical skill, and investing attracts more of the latter. 

5. Try on clothes on your digital avatar
AR clothing try-on, both more complicated and more lucrative than its counterparts in cosmetics and accessories, has been elusive. After years of development, that’s now changing, and fast. For fashion brands, this could unlock digital clothing sales, increase conversions and decrease e-commerce returns. 

AR clothing try-on generally refers to the ability for three-dimensional digital clothing to automatically appear on a person as they move in real time, usually either via their phones but also via laptop or other devices. Unlike a static image that is retroactively fitted in a digital garment, it behaves the same way as Snapchat face filters: when your body moves, the item reacts in sync, responding to the wearer’s movements, measurements and environment in a way that appears to be realistic.

Recent examples offer a glimpse of just how far this has come on the design side. This month, during Paris Couture Fashion Week, designer Clara Daguin “wore” a digital version of her Jacquard by Google-imbedded designs on Instagram, created through a partnership with digital clothing marketplace DressX. 

Wednesday, 18 August 2021

The Four Pillars of Future Business ~ Megatrends in the Making


“The only function of economic forecasting is to make astrology look respectable” said John Kenneth Galbraith. And he was right. One of the reasons economic forecasting, as well as financial market forecasting, is fraught with such a high degree of risk is because it operates in a complex adaptive system. One small change in one small component somewhere and there could be a large impact in a completely different system in an entirely different place and time.


However, looking at the future does require some amount of understanding of the present, trend-following characteristics and understanding of potential disruptions. With this in mind, I have tried to analyse the major pillars of future business change. Below are the four pillars of my mental framework for the future of businesses:

1. China + 1
2. Climate Change
3. Digital & Tech
4. Health & Wellness

A) China + 1:
With the battle lines drawn between China and the Western world, there is a definite possibility of a Cold War 2.0 ensuing in the next few years. Some experts say it is already underway. Global corporations will be forced to de-risk their sourcing and move away from their dependence on China as their sole supplier. Global supply chains may have to reorganise to reduce and remove the domination of a single point of failure.

However, China + 1 is not just reducing dependence on China. It is a complete overhaul of the decades of policy of super-efficient supply chain systems. The just-in-time delivery model is also likely to take a back seat as companies build inventory and build in some slack in their supply lines to take care of unforeseen events.

With increasing automation and the use of technology, manufacturing is also shifting back to developed economies as labour costs start mattering less and less in the overall scheme of things. In addition, we also see a rise of nationalistic fervour across the world and politicians will be more likely to promote companies that create jobs in their countries even at the cost of maximum efficiency.

B) Climate Change:
The 2030 Paris agreement and other such agreements will force countries to regulate agents of climate change and take corrective actions. We have already seen China act on this by banning chemical factories and other highly polluting plants. This is likely to become more of a trend. As more and more developed and slowly developing nations understand the true cost of climate change (increased weather disruptions and natural disasters), they will be forced to take action.

Governments and corporations will have to focus on better sanitation, clean water and clean air. We are already seeing the beginning of this. Increasingly difficult emission norms for automobiles and their resultant switch to cleaner fuel and EVs; large water treatment and desalination plants; efforts towards rainwater harvesting; solar and wind energy adoption and many more such initiatives are picking up across the world.

We are also seeing a thrust towards biodegradable products, banning of plastic use, recycling of products including the right to repair (something new for the developed world which we have been doing forever!!) .

C) Digital & Tech:
What can I say about this that has not been talked about already by everyone? Technology has become ubiquitous in our lives. Online classes for students, mobile games, the rise of esports, 101 apps for every conceivable activity are now a part of our lives.

Next is the Metaverse. You may be able to travel to Alaska without ever leaving your sofa, or do your online shopping by walking through the virtual store and pick products, just with a VR set.

Companies will increasingly be dependent on tech to not only move ahead of their competition but just to survive! The better a company is at using tech, the more competitive it will be.

D) Health & Wellness:
Sitting indoors due to a pandemic, people across the world seemed to have realised the value of health and wellness. People and governments across the world have fallen short in managing the pandemic and the scars of this will take a very long period to heal. So, there is likely to be increased focus on healthcare spending across the board - governments, corporates and households.

The entire spectrum of health and wellness - diagnostics, online consultations, e-pharmacies, online health records, medical insurance, preventive health care will fall in this ambit. Mental health has emerged as a subject that people have openly started discussing and it is likely that a lot more focus will be in this area as well. Companies in these areas would definitely have a tailwind for the next few decades.

Companies will get both positively and negatively impacted by one or more of the four pillars. Business strategy will require thought and investments in these four pillars. As investors, we need to evaluate how one or more of these four pillars affect the business that we own and how they are addressing these issues as corporates.

This article first appeared in The Economic Times.

Thursday, 12 August 2021

Weekend Reading

 




WEEKEND READING

1. Focus only for four hours a day

You almost certainly can't consistently do the kind of work that demands serious mental focus for more than about three or four hours a day.

The real lesson – or one of them – is that it pays to use whatever freedom you do have over your schedule not to "maximise your time" or "optimise your day", in some vague way, but specifically to ring-fence three or four hours of undisturbed focus (ideally when your energy levels are highest). Stop assuming that the way to make progress on your most important projects is to work for longer. And drop the perfectionistic notion that emails, meetings, digital distractions and other interruptions ought ideally to be whittled away to practically nothing. Just focus on protecting four hours – and don't worry if the rest of the day is characterised by the usual scattered chaos.

https://www.oliverburkeman.com/fourhours


2. The extraordinary story of Michael Dell

Nine years ago, Silicon Valley and Wall Street alike had written off Dell, the person and the company, both tethered to the then-cratering personal computer market, as en route to the same technological irrelevance as Palm or BlackBerry. He enlisted private equity firm Silver Lake and its billionaire co-head Egon Durban to sidestep the public cynicism, taking his company private for $24.9 billion in 2013. 

The results have been remarkable. Automobiles, telecommunications, energy grids, hospitals and logistics networks have all become digital businesses, producing ever-increasing reams of data that need to be managed and stored. Dell now sits at the helm of the world’s largest infrastructure provider for this activity. In turn, Dell Technologies, at $75 billion, is worth more than four times what it was before it went private.

Soon Dell will sit at the helm of two separate public companies: Dell Technologies, his personal computer and IT infrastructure giant, and its spinoff, VMware, a mainstay in cloud-computing infrastructure. Both will hold manageable debt levels and a valuable currency for growth and acquisitions. 

“Everybody’s eyes are on Amazon, Microsoft and Google,” says billionaire Marc Benioff, the cofounder of Salesforce and a friend of Dell’s. “They don’t realize that Dell has quietly amassed the market share in enterprise technology.” 

https://www.forbes.com/sites/antoinegara/2021/08/03/deal-of-the-century-how-michael-dell-turned-his-declining-pc-business-into-40-billion-windfall/


3. Climate change is here, and unless drastic action is taken, it will only get worse

The Intergovernmental Panel on Climate Change (IPCC), the United Nations’ climate science research group, concluded in a major report that it is “unequivocal” that humans have warmed the skies, waters, and lands, and that “widespread and rapid changes” have already occurred in every inhabited region across the globe. Many of these changes are irreversible within our lifetimes.

This is the first report of its kind in eight years, and a lot has changed. Scientists have backed away from many of the best-case scenarios. They’re more confident than ever that human-caused climate change is already worsening deadly weather events, from flooding to heat waves. And they’re investigating culprits of climate change that warm the planet even more than carbon dioxide.

The report warns that the world is likely to overshoot 1.5 degrees Celsius of warming compared to pre-industrial temperatures — one of the goalposts of the Paris climate agreement — within the next 20 or 30 years, even under scenarios where greenhouse gas emissions fall significantly.

Those effects of climate change continue to ripple across the planet, amplifying disasters like the massive wildfires in California, deadly flooding in China and Europe, and record heat in Siberia. Climate change is here, and unless drastic action is taken, it will only get worse.

https://www.vox.com/22613027/un-ipcc-climate-change-report-ar6-disaster


4. You have to earn your trust

Your truth and the truth are not always the same thing. The truth is a fact. Your truth is just an opinion. Nobody values somebody who is honest about their opinions if their opinions always suck. Knowing when to offer your truth and keep your mouth shut is a rare quality. The line between thoughtful dialogue and disrespectful disagreement is razor-thin.

If you cross the line, you lose somebody’s confidence. There are countless ways to do this, and once you do, it’s hard to go back. My parents taught me that all you have is your word. Lose this, and you’ve lost everything.

Trust is the most valuable currency on the planet. And it’s something you can’t buy. You have to earn it.

It takes time to earn somebody’s trust. You can’t force it. You can’t even be deliberate about it. It just has to show with every action you take. Eventually, your bank will fill, and you’ll have something that most people don’t.

https://theirrelevantinvestor.com/2021/07/29/something-you-cant-buy/


5. Getting better with deliberate practice

While regular practice might include mindless repetitions, deliberate practice requires focused attention and is conducted with the specific goal of improving performance. The greatest challenge of deliberate practice is to remain focused. In the beginning, showing up and putting in your reps is the most important thing. But after a while we begin to carelessly overlook small errors and miss daily opportunities for improvement.

This is because the natural tendency of the human brain is to transform repeated behaviors into automatic habits.

Mindless activity is the enemy of deliberate practice. The danger of practicing the same thing again and again is that progress becomes assumed. Too often, we assume we are getting better simply because we are gaining experience. In reality, we are merely reinforcing our current habits—not improving them.

https://jamesclear.com/beginners-guide-deliberate-practice


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