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Thursday, 21 January 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.

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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Jimmy Wales - The father of Wikipedia

With the benefit of hindsight, it may seem inevitable that someone, at some point, would have invented a platform like Wikipedia. But in truth, the creation of this online marvel was not predestined. Its creation required the determined efforts of an unconventional, original thinker: Jimmy Wales.

Wales was not a computer scientist or technology specialist, though he did learn to code. Through his involvement with user-generated content, two developments really caught his attention. First, the possibilities of mass participation: While playing the first generation of online fantasy games — such as Zork and Myst — Wales saw the power of computer networks to fuel large-scale, collaborative projects. Second, he saw the possibilities of idea exchange within communities. As email usage grew, Wales became a frequent contributor to early online discussion forums.



Who are the best investors of all time?

You probably thought of Warren Buffett or Peter Lynch or John Templeton or other renowned money managers, past and present. But did you think of the Walton family, the Rales brothers or Jeff Bezos? Why not?

Yes, we tend to think of them as entrepreneurs. But they do own stakes in public companies just like any of those other investors. In this case, the public companies are Walmart, Danaher and Amazon, respectively. The returns on these stocks have been, well... let’s just say they would be the envy of nearly any traditional money manager you care to name.

Investors put too much weight on factors a business owner does not. A business owner seems to have a different set of concerns, focused instead on the “central engine of success” of the business and the culture that keeps it alive and thriving.

I’d say as long as the business continues to generate strong returns on capital and grows and seems likely to do it for years yet… probably best to leave it alone. You want to put as much capital as you can stand in these kinds of businesses.



On the importance of good writing

You have five seconds to get people’s attention. Books, blogs, emails, reports, it doesn’t matter – if you don’t sell them in five seconds you’ve exhausted most of their patience.

Writing looks like a soft skill, so it’s easy for people in technical fields to ignore. But in every field, the person with the best story wins. Not the best idea, or the right answer, or the most useful solution. Just whoever tells the most persuasive story. A lot of good ideas are killed with bad writing.

Writing is an art, and art is subjective. Novelist William Maughan said there are three rules to good writing. “Unfortunately no one knows what they are.” I actually think there’s one: write the kind of stuff you like to read. Writing for yourself is fun, and it shows. Writing for others is work, and it shows.



An in-depth look at Indian real estate sector

2020 was a bad year for real estate. Having said that, sales during October to December 2020 picked up and 58,914 units were sold, which was 68% more in comparison to the number of units sold during July to September 2020. In comparison to October to December 2019, sales were down 27%, during the period.

Of course, the real estate sector wants us to believe that demand is back and all is well with the sector. Nevertheless, this jump in sales can be because of pent up demand. Whether it sustains in the months to come remains to be seen.

More than the stamp duty cut, a substantial drop in prices, especially for homes priced at more than Rs 2 crore, is the main reason for the sales in the city picking up.

One reason for a fall in prices is the fact that businessmen who run small and medium enterprises have been facing a tough time since covid broke out. And they are looking at alternate avenues to raise money to keep their businesses going. This includes selling the real estate assets they have accumulated in the past. There is some distress sale as well.



Investing in a bubble

People have been calling for a bubble for a number of years now and frankly, they’ve been wrong. In fact, Grantham himself went bubble-hunting in 2014, predicting the cycle would run its course with a bubble by 2016 at an S&P 500 target of 2,250.

The S&P is currently above 3,800 and up more than 130% on a total return basis since those initial warnings.

It’s possible Grantham’s expertise in predicting bubbles is a case of the old saying that to a man with a hammer every problem looks like a nail. To be fair, the timing of these types of calls is basically impossible.

Bubbles are driven by human nature and human nature is impossible to predict in terms of when it’s going to turn.



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