Weekend Reading - Some Interesting Stuff

This article is a compilation of 10 mega trends for India in 2030.

By 2030, it is on course to witness a 4x growth in consumer spend. It will remain one of the youngest nations on the planet and will be home to more than one billion internet users. The new Indian consumer will be richer and more willing to spend, and unlike her predecessors, she will have very specific preferences.

https://www.weforum.org/agenda/2019/01/10-mega-trends-for-india-in-2030-the-future-of-consumption-in-one-of-the-fastest-growing-consumer-markets/

Herb Wertheim may be the greatest individual investor the world has never heard of. He has accumulated over $2.3billion by buy-and-hold investing.

“My thing is,” Wertheim says as he reflects on his long career, “I wanted to be able to have free time. To me, having time is the most precious thing.”

https://www.forbes.com/sites/maddieberg/2019/02/19/the-greatest-investor-youve-never-heard-of-an-optometrist-who-beat-the-odds-to-become-a-billionaire

A fascinating tale of putting chips inside our bodies. These chips then become our credit cards, electronic keys and possibly health monitors. This is not a sci-fi article, it is what is happening today in real life.

http://fortune.com/longform/biochipping-biohax-microchip/

I have always followed the careers and lives of people. Chandra Kochhar's life is an instructive one, the ride up from nameless corporate employee to a celebrated woman-leader and the flag-bearer of ICICI Bank, to the fall from grace. Here is a recent timeline of the events.

https://www.businesstoday.in/top-story/chanda-kochhars-fall-from-grace-here-is-how-she-was-caught-step-by-step/story/321344.html

Food delivery apps have changed the way we eat. Here are two articles which give you two different perspectives on that space.

Uber is looking to sell its two-year-old UberEats business in India to cut down losses and Oyo Rooms is reportedly planning to buy FreshMenu to get into food delivery space!!

https://www.businesstoday.in/current/corporate/ubereats-on-sale-swiggy-zomato-competing-acquire-food-delivery-app-report/story/321164.html

https://www.businesstoday.in/current/corporate/oyo-rooms-freshmenu-oyo-freshmenu-deal-oyo-to-foray-into-food-delivery-space-in-talks-to-acquire-freshmenu-for-30-million/story/321191.html

Weekly Reading: Some Interesting Stuff

A super interesting experiment of living modern life without Amazon, Google, Facebook, Microsoft and Apple. An eye opening account of how big tech has taken over our lives.

https://gizmodo.com/i-cut-the-big-five-tech-giants-from-my-life-it-was-hel-1831304194

An article on how to live a life of intellectual freedom and not be chained by borrowed ideas.

Confusing models with reality is a cardinal sin of clear thinking. If you believe too strongly in your models of the world, you can start to ignore evidence that your model is wrong.

https://medium.com/the-polymath-project/a-few-principles-for-thinking-clearly-d18a74a2ebe9

I have a theory about why the notion of an arms race between human and machine intelligences is fundamentally ill-posed: the way to survive and thrive in an environment of AIs and robots is not to be smarter than them, but to be more mediocre than them. Mediocrity, understood this way, is an independent meta-trait, not a qualifier you put on some other trait, like intelligence.

In other words, evolution is survival, not of the most mediocre (that would lead to paradox), but survival of the mediocre mediocre.

https://www.ribbonfarm.com/2018/04/24/survival-of-the-mediocre-mediocre/

A long read on the platform economy and how network effects work and sometimes fail.

https://hbr.org/2019/01/why-some-platforms-thrive-and-others-dont

A compilation of learnings from the markets in the last 30 years from Jon Boorman of Broadsword Capital

https://www.broadswordcapital.com/things-ive-learned-last-30-years/

Weekly Reading - Some Interesting Stuff

A sneak into the past into an infamous fraudster who is now all but forgotten - the Chain Roop Bhansali story. How he opened a bank and a mutual fund and defrauded a large number of people.

https://www.outlookindia.com/magazine/story/the-anatomy-of-a-fraud/203687

When Seth Klarman speaks, you take note.

https://www.nytimes.com/2019/01/22/business/dealbook/world-economic-forum-klarman.html

David Einhorn, a celebrated US hedge fund manager, has said that he is reopening his fund for public money as he sees no "risk" of outperforming the market. His fund has been underperforming the broader indices for over 7 years and AUM is down from $12 bn to $2.5 bn currently.

https://www.bloomberg.com/opinion/articles/2019-01-24/losing-money-reduces-the-risk-of-too-much-money

The recent volatility in global markets provides an important reminder: the price investors are willing to pay for a piece of a company can fluctuate significantly over a short period, despite few operational changes in the business. These highly emotional periods when prices tend to get far out of line with value can be a gift for a long-term investor.

https://www.burgundyasset.com/blog/price-vs-value/

Pigeons are making a comeback in military strategy.

Military pigeon forces are all but extinct, but yet the Chinese Army and French Army maintain small pigeon forces in the event that electronic warfare should disrupt or disable military communications.

https://warontherocks.com/2019/01/in-the-era-of-electronic-warfare-bring-back-pigeons/

Weekly Reading - Some Interesting Stuff

Why sunscreen is harmful for our overall well-being and we should all spend a fair amount of time outdoors.

Vitamin D now looks like the tip of the solar iceberg. Sunlight triggers the release of a number of other important compounds in the body, not only nitric oxide but also serotonin and endorphins. It reduces the risk of prostate, breast, colorectal, and pancreatic cancers. It improves circadian rhythms. It reduces inflammation and dampens autoimmune responses. It improves virtually every mental condition you can think of. And it’s free.

https://www.outsideonline.com/2380751/sunscreen-sun-exposure-skin-cancer-science

An article co-authored by Arvind Subramaian on why we all need to be careful of a slowing Chinese economy.

According to the International Monetary Fund, Chinese corporate, government, and household debt has increased by about $23 trillion in the last decade alone, and its debt-to-gross domestic product ratio has risen by around 100 percentage points, to more than 250 per cent. That is orders of magnitude above the level at which financial crises normally occur.

Malaysia, for example, has already had to cancel $22 billion worth of Chinese-backed projects. Sri Lanka has had to turn to the IMF for help, owing to the impact of excessive Chinese imports on its external accounts. And Pakistan may soon be forced to do the same. As more countries become wary of the BRI, they will borrow and import less from China.

Sooner or later, Chinese exceptionalism will give way to the laws of economics. The world should prepare itself. The consequences could be severe — and unlike anything experienced in recent history.

https://www.telegraphindia.com/opinion/facing-the-storm/cid/1670465

Credit markets are a better place to look for signs of impending trouble, in no small part because they have been at the core of most financial crises and recessions for hundreds of years. 

https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/a-better-way-to-anticipate-downturns

A conspiracy theory on the latest viral facebook challenge of putting up pictures ten years apart.

“Imagine that you wanted to train a facial recognition algorithm on age-related characteristics and, more specifically, on age progression (e.g., how people are likely to look as they get older). Ideally, you'd want a broad and rigorous dataset with lots of people's pictures. It would help if you knew they were taken a fixed number of years apart—say, 10 years,” said O’Neill.

https://www.forbes.com/sites/nicolemartin1/2019/01/17/was-the-facebook-10-year-challenge-a-way-to-mine-data-for-facial-recognition-ai/

Once or twice in every decade, we see a spectacular story of corporate greed and fraud. The latest one, which reads like the story of a Hollywood thriller, is the rise and fall of Elizabeth Holmes of Theranos. A wonderfully written book, "Bad Blood" by John Carreyrou gives a very good narrative of the entire saga.

https://www.gsb.stanford.edu/insights/what-can-we-learn-downfall-theranos

Resources to Learn Equity Valuation

This is a question I received today, "I am on my journey to study and understand value investing. Can you please suggest some good sources where I can build my skills in the mathematical part of value investing. I mean analyzing the numbers. The "how to" of value investing. As far as the mindset part is concerned, I read about behavioral finance. My weak link is the numbers part, since I don't have a formal background in accounting or finance." 

I thought I would reply back to the person concerned. But then figured that this could possibly be a question that a lot of other investors, who may be starting out on their investing journey, may have. So, why not put it in a post so that it helps more people. 

So, here goes some good references, which I have found useful.

1) Aswath Damodaran course on valuation is available free on youtube (- https://www.youtube.com/watch?v=znmQ7oMiQrM&list=PLUkh9m2BorqnKWu0g5ZUps_CbQ-JGtbI9)

This is really great and helps navigate through the world of valuation through short and to-the-point videos. As Aswath Damodaran is a professor, his ability to convey his ideas through words is very good. Highly recommended.


2) Financial Statement Analysis and Reporting from IIT Roorkee  - https://www.youtube.com/channel/UCw4SlTWA7bpiUK-b6FssPlg

The next one I would suggest is a more detailed and involved course. This is from Prof A.K Sharma of IIT Roorkee and he explains in great detail. This is like doing a full course on the topic. I suggest one should take this as an actual course and make a disciplined study routine to go through this series. For example, I used to go through 2 videos a week.

3) Financial Statement Analysis and Security Valuation by Stephen Penman (https://amzn.to/2TVeYb4)

If you are better at learning by reading a book, then Stephen Penman is arguably the best you can get. 

4) Investment Valuation (https://amzn.to/2RwF1sp)

Aswath Damodaran also has many books on valuations, but his arguably the best one is


Happy Learning!

Weekly Reading: Some Interesting Stuff

As I mentioned in my last article in Economic Times, parts of the world is increasingly turning ultra-right-wing politically. This long-read from New Yorker is about Viktor Orbán, the Prime Minister of Hungary, who has been building a wall around his country and increasing his domestic popularity.

Posters throughout Hungary read, “If you come to Hungary, you must respect Hungarian culture!” All the posters were in Hungarian. That summer, Orbán’s government began to construct a fence along Hungary’s borders with Serbia and Croatia, essentially halting immigration to the country. Der Spiegel declared him “the political victor” of the immigration crisis, and, since then, each new terrorist attack at a Christmas market in Berlin or Strasbourg seems to bolster his standing.

https://www.newyorker.com/magazine/2019/01/14/viktor-orbans-far-right-vision-for-europe

I have been flirting with this idea of going back to the "dumb phone", but am finding it incredibly difficult. Mobile phone has become addictive and habit-forming for me as I use it for many different purposes. Here is an interesting piece on why should be looking to get back to the dumb phone.

https://www.theverge.com/2017/1/31/14450710/bring-back-the-dumb-phone

A superb article by James Grant of the famous Grant's Interest Rate Observer on how huge government debt is impacting the US. The lessons apply to India as well.

It took the United States 193 years to accumulate its first trillion dollars of federal debt. We will add that much in the current fiscal year alone.

All told, the government owes $21.5 trillion, give or take a few careless tens of billions—that works out to $65,885 for each American.

https://www.weeklystandard.com/james-grant/congress-is-plenty-bipartisan-when-it-comes-to-ignoring-the-national-debt

An interesting account of how Coca-Cola influnced scientific study and public policy making in China to the detriment of people and led to an major increase in obesity.

https://www.npr.org/sections/goatsandsoda/2019/01/10/683919100/study-coca-cola-shaped-chinas-efforts-to-fight-obesity

Today's cloud storages and cheap hard drives mean we keep collecting all sorts of things, from emails, to files, photos, videos and keep them mostly because we think we may need it at a future date. An interesting story on how we have become digital hoarders.

http://www.bbc.com/future/story/20190104-are-you-a-digital-hoarder

ET Article: The Year Gone By

As we head into the new year, here is a look back to the year that was.

In 2018, markets have seen a strong correction, especially in the mid and small cap space, which is not visible in the index numbers. This has meant that most investors have lost money during the year. We can attribute the fall to many reasons. In my opinion, it was high valuation, lack of growth in earnings and money outflow that contributed majorly to the fall. FIIs sold throughout the year ending the year with outflows of 23,769 cr from equity and 51,328 cr from debt markets. This resulted in pressure on the currency. The rupee fell from 63 to about 70 to the dollar during the year and touching 74 in between. Oil prices spiked during the year scaring a lot of investors and economists spelling doomsday, but eventually came down lower to around $50 / barrel from the beginning of the year when it was around $65 / barrel.

We also saw some very important moves during the year. The bankruptcy code got implemented. The progress has been slow but hopefully will lead to long-term changes in the promoter behaviour as they stand to lose their companies in case they do not service their debt on time. We also saw a beginning of PSU bank mergers with the SBI merging the associate banks into itself and the announcement of the Bank of Baroda, Dena Bank and Vijaya Bank. The migration of banking from PSU to private banks is a consistent and long-term process and in future may end up with only 3-4 large PSU banks able to survive and the rest to be merged into them. SBI, Bank of Baroda, PNB seem the most likely candidates in that list.

The year also will perhaps be remembered, atleast for some time, for financial misdemeanours of the PNB scam and IL&FS collapse, resulting in a large sentiment change for the NBFCs. The NBFC space had heated up with a lot of new entrants starting their own NBFC businesses in the last couple of years. 2018 saw an end to those adventures. From now on only the strong, well capitalised, prudent and niche lenders would be able to thrive and grow their business.

Globally, FAANG stocks have seen an interesting year.  Apple and Amazon touched a trillion dollar market cap before correcting significantly by the end of the year. Apple is slowly going downhill, as they are not able to create any new products. For the first time, their reluctance to share new release product sales highlights the fact that their sales are losing steam. They are holding on to their margins by increasing prices, a strategy which has a low shelf life. Buffett's large sized bets, first on IBM and now Apple, shows, that he was probably right in avoiding tech stocks all these years as they were outside his circle of competence!!

Facebook has had a tumultuous year, with issues regarding piracy and data access to platforms like Cambridge Analytica. Regulatory risk seems to be very high for Facebook at this time.

Netflix continues to invest humungous amounts of money, 2018 budget was close to $8 billion, with around 85% pumped into original content. Being personally a movie and TV series binge watcher, I have a vested interest in their doing well!!

Google continues to be perhaps the only "irreplaceable" company for now. It is fully integrated into our lives. Search, YouTube, Maps, Android, Chrome are all de-facto choices for most people across the globe. The inflexion point will be when they try to monetise their non-search products like YouTube. That is when we will truly know the brand pull or if people are quick to migrate away to another similar product.

Back home Reliance Jio has completely disrupted the telecom space by ushering in dirt cheap data. This new data access is already changing behaviour patterns for a lot of people. I see people around me consume a lot more entertainment on their mobile devices now than ever before. A lot of my younger friends have completely moved away from watching TV. We have already seen completely new industries like food delivery and taxi apps come up over the last few years which has piggy-backed on this convergence of cheap data and smartphones. Over time, this behaviour will pick further momentum and a lot of industries will have to adapt themselves to the new way of doing business.

Another factor unfolding over the last few years and which took a spotlight in 2018, was what I term "hyper-nationalism". Leaders like Trump epitomise this phenomenon. This is a long shift and takes decades to fully play out. The world is now becoming more and more "selfish" as resources like jobs become fewer and the world population continues to grow. Countries and people will become more and protectionist and pandering to their local polity. And it may take years to reverse this trend. This will redraw corporate and trade structures as we know it. Expect to see lot more legislation and rules which will pause the free-flowing globalization of the last 2-3 decades.

Coming to the Indian markets, 2019 looks a promising year, as do all years. As the famous Chinese saying goes, may we live in interesting times!

 This article appeared first in Economic Times on 7-Jan-2019 at https://economictimes.indiatimes.com/markets/stocks/news/learnings-from-a-year-when-even-buffett-was-caught-on-wrong-foot/articleshow/67417855.cms