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 the collection this consider forwarding it to someone who you think will appreciate.

Stop using old models to understand a new world

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

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

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

 

Rise of Livestream Shopping

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

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

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

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

 

Robinhood investing is here

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

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

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

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

 

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

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

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

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

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

 

Newton's Law of Productivity

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

https://jamesclear.com/physics-productivity

Disclaimer: Abhishek Basumallick is the Head of the equity advisory www.intelsense.in for long term wealth creation and a pure quant focused newsletter at www.quantamental.in. The blog posts should not be construed as investment advice. Please do your own due diligence before investing.

 

Good, Bad & Ugly! How Covid-19 can churn winners on Dalal Street

My article in Economic Times today:

https://economictimes.indiatimes.com/markets/stocks/news/good-bad-ugly-how-covid-19-can-churn-winners-on-dalal-street/articleshow/76338091.cms

The full text below:

The Journey to be a Full-Time Investor

Since I turned into a full-time investor, I keep getting a lot of questions on how, when and what to do to quit a salaried job. I don’t have a prescription. But I can share what I thought and did. I hope it helps.

#1 – Not running away from your job

The most important determinant for leaving my full time job was to have a passion that I wanted to follow. If there is nothing to run towards, I figured that the day to day life would become very boring after the initial few days or weeks, even if I had enough money to sit and do nothing. A meaningful occupation or passion is the most important factor for deciding to call it quits.

Luckily for me, investing is my passion. It is something I would do even if I did not make any money from it.

#2 – Make sure your family is onboard with your decision

Leaving a professional career was not easy. It took me 2 years to convince my family that it is not an end of the world if I did not get up in the morning and go to a corporate job. Since, I come from a very typical middle class Bengali family, with practically all extended family members working as professionals or in corporate jobs, there supposedly was a “social” problem if I had no job! My family members were worried about simple things like what would they say if relatives asked what I did for a living.

The most critical aspect, in my experience, was the uncertainty of not having the month-end sms announcing your salary credit! That is something which is not very easy to get over. That leads me to my next point.

#3 – Make sure you get your basic expenses covered from fixed income

This was something that my friend Aveek Mitra told me a few years back. He said if I was planning to be a full time investor it is important to make sure that my investing capital is never ever required for my monthly expenses and that I should be able to run the household expenses from fixed deposits.

I strictly adhered to this. And this made the decision to quit all the more easy. Because it does not really matter at the end of the month if your salary is coming from a company you work for or from a bank FD you have.

This also helped in eliminating the uncertainty of leaving a job that I was accustomed to for nearly two decades.

I understand that this criteria makes it very difficult to consider quitting because it necessitates a fairly large corpus to be put aside for fixed deposits. Unfortunately, quitting a job, in Indian context is more or less a permanent decision. It is very difficult to be able to find a job after a couple of years in case it’s required by financial exigencies. Best to be conservative than to be repent it.

Of course, if you have a spouse who can contribute to covering part of the monthly expenses, then you are in a considerably better situation.

#4 – Think about what you will do with your time

Being a fulltime investor sounds very cool and sexy. But it’s not. It is a lonely pursuit. Unless you love sitting and reading for hours every day, it is very easy to get bored very easily. It is best if you do not work from home. I have found working from home as a full time investor to be very difficult. My family thinks I don’t do anything and keep interrupting!! This wasn’t the case when I was working in my job. Have a network on friends who are also full time investors who you can speak to during the day because most of your other friends or family will be occupied in their own jobs and businesses. It is also important to have a hobby for time-diversification. As long as you are working, investing was possibly your hobby. But once your job is done with, you need something else to fall back on to divert your mind and relax.

#5 – Build a daily routine and be disciplined

Once you are a full time investor, you need to have a routine which you follow. Else you run the risk of slowly falling into chaotic stupor. I, for example, break up my work day into 2-3 big blocks of 1-2 hours each. I spend reading (books, magazines, articles, blogs), listening to concalls or videos or podcasts, stock specific work, moderation work and going through threads in ValuePickr, researching quant ideas etc. I will take each of these and put them on my calendar for each day.

#6 – Enjoy the journey

This is perhaps the most important and most overlooked. Unless you enjoy the process of investing and love the learning process, just running after the returns will be very boring and unrewarding. Only if you love what you are doing and feel energized every day, will it really be all worthwhile.

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. Nothing in the article should 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 the collection this consider forwarding it to someone who you think will appreciate.

Systems Thinking - a deep dive (Must Read!!)

Systems thinking is holistic; it attempts to derive understanding of parts from the behavior and properties of wholes, rather than derive the behavior and properties of wholes from those of their parts. Disciplines are taken by science to represent different parts of the reality we experience. In effect, science assumes that reality is structured and organized in the same way universities are.

This is a double error. First, disciplines do not constitute different parts of reality; they are different aspects of reality, different points of view. Any part of reality can be viewed from any of these aspects. The whole can be understood only by viewing it from all the perspectives simultaneously.

Second, the separation of our different points of view encourages looking for solutions to problems with the same point of view from which the problem was formulated.

https://thesystemsthinker.com/a-lifetime-of-systems-thinking/

 

100,000 year old extinct bird come back

The Aldabra white-throated rail bird was declared extinct, a victim of rising sea levels almost 100,000 years ago.

However, the flightless brown bird has recently been spotted – leaving scientists scratching their heads as to how – and why – the species has come back to life.

According to research in the Zoological Journal of Linnean Society, the re-incarnated Aldabra bird is a product of ‘iterative evolution’. That’s when old genes thought to have died out re-emerge at a different point in time.

While iterative evolution has previously occurred in species such as turtles, it has never been seen in the realm of birds.

“We know of no other example in the rails, or of birds in general, that demonstrates this phenomenon so evidently,” said paleobiologist David Martill, in a statement.

“Only on the Aldabra, which has the oldest palaentological record of any oceanic island within the Indian Ocean region, is fossil evidence available that demonstrates the effects of changing sea levels on extinction and recolonization events.”

https://www.esquireme.com/content/46133-an-extinct-bird-just-evolved-itself-back-into-existence

 

The rise and rise of TikTok

TikTok has become the best way to create and consume short videos on mobile. It rode the wave of AirPods and audio memes to over 1 billion DAU’s (Daily Active Users), and is likely worth ~$200 billion. This would make it not only the world’s most valuable "startup” but one of the world’s most valuable companies, period.

https://turner.substack.com/p/the-rise-of-tiktok-and-understanding

 

Journey to take back control of your info on the internet

Deciding to delete your information online is the easy part. The hard part is figuring out where to start.

For many, the obvious answer would be focusing on consumer-facing services such as Facebook and Google, where we willingly -- if not always consciously -- hand over data about ourselves on a daily basis.

https://edition.cnn.com/2020/05/21/tech/deleting-personal-data-online/index.html

 

Take a few deep breaths

He started small by taking three deep breaths each time he sat down at his desk.  He found it helped him relax. After three breaths became a habit, he expanded to a few minutes a day. He found he was more patient, calmer, more in the moment. Now he does 30 minutes a day. It restores his perspective while enabling him to take a fresh look at a question or problem and come up with new solutions. Deep breathing exercises have been part of yoga practices for thousands of years, but recent research done at Harvard’s Massachusetts General Hospital document the positive impact deep breathing has on your body’s ability to deal with stress.

https://hbr.org/2013/11/reduce-your-stress-in-two-minutes-a-day

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.

 

Expand your mind

No, my worry is that, especially now that you’re out of college, you won’t put enough really excellent stuff into your brain. I’m talking about what you might call the “theory of maximum taste.” This theory is based on the idea that exposure to genius has the power to expand your consciousness. If you spend a lot of time with genius, your mind will end up bigger and broader than if you spend your time only with run-of-the-mill stuff.

The theory of maximum taste says that each person’s mind is defined by its upper limit—the best that it habitually consumes and is capable of consuming.

https://www.theatlantic.com/ideas/archive/2020/05/commencement-address-too-honest-have-been-delivered-person/611572/

 

Branded face masks coming!

Disney is selling cloth face masks featuring Anna and Elsa, Woody and Buzz Lightyear and Baby Yoda, among other characters. Sports leagues like the NBA and NFL are also selling licensed face masks with team logos.

One startup, MaskClub.com, even offers a monthly subscription service that launched in early April for reusable cloth face masks featuring a few thousand licensed designs such as Betty Boop, NASA and images from iconic TV hits like Beverly Hills 90210.

https://edition.cnn.com/2020/05/19/business/face-masks-wellness-licensed-brands/index.html

 

Is medicine good for us?

Problems arise because of a few structural features of medicine. A prominent one is the profit incentive. The pharmaceutical industry is extremely profitable, and the fantastic financial gains to be made from selling drugs create incentives to engage in some of the practices above. Another prominent feature of medicine is the hope and the expectation of patients that medicine can help them, coupled with the training of physicians to actively intervene, by screening, prescribing, referring or cutting. Another feature is the wildly complex causal basis of many diseases, which hampers the effectiveness of interventions on those diseases – taking antibiotics for a simple bacterial infection is one thing, but taking antidepressants for depression is entirely different.

https://aeon.co/ideas/how-gentle-medicine-could-radically-transform-medical-practice

 

Do less to achieve more

We’ve been taught that if we want more — money, achievement, vitality, joy, peace of mind — we need to do more, to add more to our ever-growing to-do list. But what if we’ve been taught wrong? What if the answer to getting more of what we want isn’t addition at all, but subtraction?

As it turns out, evidence supports that if we want to ramp up our productivity and happiness, we should actually be doing less.

We need to identify what not to do. But this determination can’t be random.

https://hbr.org/2020/05/want-to-be-more-productive-try-doing-less

 

Tech for tomorrow

A reasonably detailed, yet high-level view of the changes happening in the tech world.

https://medium.com/software-is-eating-the-world/what-s-next-in-computing-e54b870b80cc

 

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

Weekend Reading

Here come the Bots

Miquela, the digital avatar and music artist created by an L.A.-based entertainment company has signed as CAA’s first virtual client.

Miquela, aka “Lil Miquela,” launched on Instagram in April 2016 without explanation — and today she has 2.2 million followers, plus almost 550,000 on TikTok. The freckle-faced, CGI-generated teen robot is the invention of startup Brud, which positions her as a “Gen Z tastemaker” and has inked brand partnerships for Miquela with companies including Samsung, Prada, Calvin Klein and YouTube.

CAA said it will work with Miquela (pronounced “mih-KAY-lah”) in all areas, including TV, film, and brand strategy and commercial endorsements, raising the prospect of a movie or show featuring the character.

https://variety.com/2020/digital/news/miquela-virtual-influencer-signs-caa-1234599368/

 

Buffett says, "I don't know"

Between the lines of “You can bet on America” were warnings not to be overconfident in predicting what the future might hold.

His positivity, even during difficult economic moments, always radiated with a clear sense of certainty. After all, he is known as the Oracle of Omaha.

That’s why it was unsettling on Saturday to hear him repeatedly say “I don’t know.” He was careful to say the markets would improve in the long term — though his time frame for certainty was decades, not months or not even necessarily years from now.

He said the $137 billion he had on hand “isn’t all that huge when you think about worst-case possibilities.” Let that seep in. He added: “We don’t prepare ourselves for a single problem, we prepare ourselves for problems that sometimes create their own momentum.” That’s coming from the same man who once famously said, “Every decade or so, dark clouds will fill the economic skies, and they will briefly rain gold. When downpours of that sort occur, it’s imperative that we rush outdoors carrying washtubs, not teaspoons.”

https://www.nytimes.com/2020/05/03/business/dealbook/warren-buffett-berkshire-hathaway.html

 

Reinventing the supply chain to optimise security

Industrial machine producers, of the kind that make a huge contribution to the German economy, have begun shifting priorities from making the supply chain as cheap as possible to making it as secure as possible.

When it comes to the use of robotics in industrial production, Germany is among the world leaders, behind such countries as Singapore and South Korea. Even mid-sized companies like Arburg are increasingly embracing them. They can be used around the clock, they don't get sick and they don't have to go on vacation. They also don't have to stay 1.5 meters away from each other in times of pandemic. In short, they make it possible for production to continue in Germany.

https://www.spiegel.de/international/world/future-of-our-global-economy-the-beginning-of-de-globalization-a-126a60d7-5d19-4d86-ae65-7042ca8ad73a

 

China is starting to face a backlash from Europe

If 2019 was the year when Europeans began having serious doubts about Beijing’s geopolitical intentions, 2020 may go down in history as the moment they turned against China in defiance. The EU’s diplomatic service assembled a report on the disinformation campaigns being waged by China and that other usual suspect, Russia. China promptly made a bad situation worse, leaning on the publication’s authors to tone it down. At this, members of the European Parliament took even more umbrage and demanded assurances that the EU will not self-censor under Chinese pressure.

Even before the pandemic, Europeans were becoming disappointed by the one-sided nature of these “partnerships,” both economically and politically. China’s largest trading partner in Europe, Germany, has also put up its guard after several Chinese companies took stakes in German technology firms ranging from a robot maker to a power company. Last year, Berlin tightened the rules on such sensitive acquisitions. The EU followed suit, with a common investment-screening approach taking effect this year. Meant to preserve Europe’s technological and industrial autonomy, it implicitly aims to keep China at bay.

https://www.bloomberg.com/opinion/articles/2020-05-07/from-france-to-sweden-china-is-losing-europe

 

A short history of who owns the roads - cars or pedestrians?

"In the early days of the automobile, it was drivers' job to avoid you, not your job to avoid them," says Peter Norton, a historian at the University of Virginia and author of Fighting Traffic: The Dawn of the Motor Age in the American City. "But under the new model, streets became a place for cars — and as a pedestrian, it's your fault if you get hit."

One of the keys to this shift was the creation of the crime of jaywalking. Here's a history of how that happened.

This was also part of the final strategy: shame. In getting pedestrians to follow traffic laws, "the ridicule of their fellow citizens is far more effective than any other means which might be adopted," said E.B. Lefferts, the head of the Automobile Club of Southern California in the 1920s. Norton likens the resulting campaign to the anti-drug messaging of the '80s and '90s, in which drug use was portrayed as not only dangerous but stupid.

Thoughts on Markets

Tussle between Bulls and Bears

Currently, there is a boxing match going on between liquidity & low-interest rates on one hand and business and economic uncertainty on the other. In March, round one had gone to uncertainty and in April, in round two, liquidity won. So, right now, round wise we are 1-1 but uncertainty had struck heavier blows and has more points (the market is down more than up)! 

Just to understand the liquidity situation, let’s look at what is happening around the world.

• US: $5 trillion stimulus package announced. Roughly, 25% of GDP.
• UK: GBP 500 billion stimulus package announced. Roughly, 25% of GDP.
• Eurozone: Euro 3.2 trillion stimulus package announced. Roughly, 24% of GDP.
• US: Yen 108 trillion stimulus package announced. Roughly, 20% of GDP.

So, both sides are strong and it is not very clear who will win the next few rounds. 

The central banks globally are using their 2008 playbook and have jumped in very quickly to the rescue. That is why even Warren Buffett is sitting holding his 130+ billion dollars of cash. But no one is calling to offer him great deals that he got in 2008 because the guys who need the cash have now got it from the central banks in some roundabout way.

Compare this with what the Indian government and RBI has done for the industry – practically nothing. And unless some significant measures come in, India is going to have to pay for the consequences for a long time. 

The Way Forward

I am of the opinion after speaking to a large number of business owners over the last few weeks that the next 1-1.5 years will be extremely tough. The level of uncertainty is only going to go down as and when a vaccine is found and is delivered to the masses and is effective in preventing a further outbreak. Till then we are going to be wary of the circumstances. The more the duration of the lockdown goes on and the more social distancing norms gets mainstreamed, the more persistent behaviour changes are likely to be. The scars of this event will be there for a fairly long period in my opinion.

The urban salaried and business class are likely to be badly affected with reduced income from salaries or businesses. This is likely to have a negative impact on discretionary spending. So, sectors like real estate, both residential and commercial; 4 wheelers, luxury items, leisure travel are likely to be hit much longer than people are currently factoring in. 

Another area of concern for me is how the startup space will play out. The “thin-air” valuation model is likely to come under severe scrutiny and make way for more profitable and cashflow oriented business models. The concern is that in the last few years, the bulk of incremental jobs in India, especially at the lower end of the spectrum, has come from these “non-profitable” enterprises (the likes of Oyo, Swiggy, Zomato, Ola, Uber, Flipkart, Amazon, Paytm etc). Impact to such businesses would mean a chain reaction and lead to joblessness. 

Civil Distress

History tells us that severe economic contractions most of the time lead to social unrest, civil wars and even full-scale wars between countries. I am not suggesting we would have it this time around, but we need to be aware of such an outcome. Already social tensions have started rising and with more duress in daily life, it is likely to escalate. The government does have a significant role to play in this through various social schemes. 

Silver Lining

Some areas which give me comfort is that a very large section of Indians depends on agriculture and that has been the least impacted in the crisis. With, hopefully, a good monsoon, we should be able to see rural demand coming back.

Another silver lining is the reset in labour laws that states are now resorting to. Times of crisis such as these are great opportunities for policy reset which is particularly difficult to get done during normal times. Labour and land reforms are the two most critical issues that have been holding back Indian industry and any progress on these should be welcomed. 

In times like this, it is better to remain cautious. There are 3 positions an investor can take in the market at any time – i) be a buyer, ii) be a seller and iii) wait outside. 

Now seems a good time to be waiting outside.