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. Ignore the forecasts. No one knows anything about the future.

People pay far too much attention to experts who predict/forecast/comment confidently simply because confidence convinces. The audience is looking for a buy in and nothing helps get that more than the confidence of the expert talking.

Also, in these days of social media, many a time we are simply looking for confirmation of something that we already believe in. If the expert ends up saying something along those lines, he tends to become our go to man. Our echo chambers are really small.

People making a living out of the stock market (or any other market for that matter) have an incentive in saying that the future will be better than the present is. Many analysts make a living by simply doing this on the business news TV channels, on a regular basis.

The media, looking for bold headlines to run, laps it up. And the investors who are more like sheep ready to be slaughtered, follow the sheep in front of them.

https://vivekkaul.com/2021/03/15/on-confidence/

2. More people have SPACs than Covid!!

“People used to say that hedge funds are a compensation scheme masquerading as an asset class,” William A. Ackman, the famed hedge fund manager, told me. “You could say the same about SPACs.”

Mr. Ackman himself has a SPAC — in fact, the largest raised thus far. What makes his vehicle different, aside from its $4 billion size, is a unique arrangement that makes it tougher for him to score a big payday unless the subsequent merger is successful. “Every friend is launching a SPAC,” Mr. Ackman said. “It’s like everyone who had an internet company in 2000. It’s like, ‘Oh, yeah, I got one, too.’”

https://www.nytimes.com/2021/02/10/business/dealbook/spac-wall-street-deals.html

3. The fragrance of Kannauj

It is said that perfume flows through the drains of the ancient city of Kannauj in Uttar Pradesh. And this is no exaggeration.

In the perfume capital of India, which is home to about 300 small, medium and large distilleries, a pleasant fragrance constantly lingers in the air and the remnants of roses and other flowers are strewn across the city, including in the drains.

The centuries-old tradition of distilling perfumes or ‘attar’, also pronounced itr, in Kannauj dates back to the Mughal courts, and this legacy continues. The old-world perfumery still uses the traditional method of distilling perfumes that are based on essential oils and not alcohol.

Woodsy, floral, musky and androgynous, attars are markedly different from alcohol-based perfumes. They’re made from essential oils extracted from flowers and other ingredients, which are dissolved in water or oil rather than alcohol. And this makes them more fragrant and easily absorbent.

https://theprint.in/features/where-even-drains-smell-of-roses-inside-indias-perfumery-kannauj-on-world-fragrance-day/625571/

4. AI is the future of intelligence warfare

Since 9/11, America’s intelligence agencies have become hardwired to fight terrorism. Today’s threat landscape, however, is changing dramatically, with a resurgence of great power competition and the rise of cyber threats enabling states and non-state actors to spy, steal, disrupt, destroy, and deceive across vast distances — all without firing a shot. For the U.S. to avoid the risks and maximize the opportunities of this technological era, policymakers need to act swiftly to ensure the Intelligence Community adapts, integrating AI into all of its processes in ways that augment human capabilities and reflect American values.

Advances in technology like artificial intelligence tend to be a double-edged sword for intelligence collection and analysis: They generate opportunities for gain while also exposing the nation to new risks. Exponential improvements in pattern recognition and the optimization of digital weapons that AI makes possible mean that the United States as well as its competitors and adversaries are able to make better decisions, faster. With data and threats moving at the speed of networks, intelligence must rely on AI to help humans keep up.

https://www.hoover.org/research/moment-reckoning-ai-and-future-us-intelligence

5. Facebook helps spread misinformation

Stopping the spreading of false information has been the biggest challenge for Facebook, especially after the debacle of Cambridge Analytica. In late 2018 the company admitted that this activity had helped fuel a genocidal anti-Muslim campaign in Myanmar for several years. In 2020 Facebook started belatedly taking action against Holocaust deniers, anti-vaxxers, and the conspiracy movement QAnon. All these dangerous falsehoods were metastasizing thanks to the AI capabilities.

Over the last two years, the team has built out an original tool, called Fairness Flow. It allows engineers to measure the accuracy of machine-learning models for different user groups. They can compare a face-detection model’s accuracy across different ages, genders, and skin tones, or a speech-recognition algorithm’s accuracy across different languages, dialects, and accents.

Fairness Flow also comes with a set of guidelines to help engineers understand what it means to train a “fair” model. One of the thornier problems with making algorithms fair is that there are different definitions of fairness, which can be mutually incompatible. Fairness Flow lists four definitions that engineers can use according to which suits their purpose best, such as whether a speech-recognition model recognizes all accents with equal accuracy or with a minimum threshold of accuracy. But testing algorithms for fairness is still largely optional at Facebook. None of the teams that work directly on Facebook’s news feed, ad service, or other products are required to do it. Pay incentives are still tied to engagement and growth metrics.

https://www.technologyreview.com/2021/03/11/1020600/facebook-responsible-ai-misinformation/amp/

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

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

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

Weekend Reading

Reading across disciplines is one of the best ways to improve our investment acumen. Here is a summary of some of the best articles I read this week. If you like this collection, consider forwarding it to someone who you think will appreciate it.

Baa Baa Black Sheep

Black sheep have been both loved and loathed in equal measure over the centuries. In terms of wool production, black sheep among a white flock were problematic. Black wool is difficult to dye, and so a black sheep in a white flock destined for cloth would have represented a financial loss. The coat color of wild sheep is usually a dark body with a pale tummy, but over the centuries shepherds strongly selected for a uniform white coat, which was easy to dye. The gene for dark fleece didn’t disappear, however; it is simply recessive—in other words, a white sheep can carry the black fleece gene within a flock, but you wouldn’t be able to tell which animal it was until it produces a black lamb.

The arrival of a black sheep from a white flock must have left ancient shepherds scratching their heads, bewildered by nature’s alchemy. And so perhaps it’s no surprise that black sheep became the target for superstitions and peculiar folk remedies.

https://www.laphamsquarterly.org/roundtable/feeling-sheepish

 

A ad-free search engine from one of the builders of google search

During his 15-year career at the search startup that became an Internet giant, Ramaswamy built, scaled and ultimately ran Google’s $115 billion advertising division. However, he finally left in 2018 after becoming disillusioned that Google’s obsession with growth was affecting everything from search quality to consumer privacy. Then the 54-year-old did the completely unexpected: Launching a startup to build an entirely new search engine from scratch — but this time without data tracking and without ads. In other words, without the things that make money.

Neeva users will pay between $5 and $10 a month to get the search results they want rather than what advertisers want them to see. The challenge, obviously, is getting folks to pay for something they are used to getting for free.

https://www.forbes.com/sites/martyswant/2021/03/08/after-building-googles-advertising-business-this-founder-is-creating-an-ad-free-alternative/

 

The secret of Nanda Devi

Elite climbers were trained by the CIA and paid huge sums of money to carry an atomic-powered spy gadget to the top of an undisclosed peak. The stage for the 007-esque drama was the Himalayas. Somehow this plutonium-powered device was lost or stolen, now either providing the fissile juice to a secret Pakistani nuke or threatening every man, woman and child in India with deadly radiation in the form of contaminated run-off into the Ganges River.

The peak ultimately chosen was Nanda Devi. The peak, India’s highest, rose from a pristine bowl of alpine meadow bordered by a jagged rim of summits. In 1965, at the start of the CIA field operation only six climbers from various expeditions had stood on Nanda Devi’s summit at a cost of three lives. Indeed, only as late as the 1930s did humans even penetrate the Sanctuary.

The CIA planned to intercept radio telemetry signals between the Chinese missiles and ground control. A transceiver, powered by a plutonium battery pack, would beam information to a CIA listening station, where data analysis would reveal the range, speed and payload of the Chinese missile.

https://rockandice.com/snowball/the-secret-of-nanda-devi/

 

"We will be watching you!!"

Sharp Eyes is one of a number of overlapping and intersecting technological surveillance projects built by the Chinese government over the last two decades. Projects like the Golden Shield Project, Safe Cities, SkyNet, Smart Cities, and now Sharp Eyes mean that there are more than 200 million public and private security cameras installed across China. China’s 2016 five-year plan set a goal for Sharp Eyes to achieve 100% coverage of China’s public spaces in 2020. What gets reported to police by the Sharp Eyes program isn’t just limited to crime. One Pingyi resident in the state media article spoke of reporting a collapsed manhole cover, while another mentioned that they had suspected a multilevel marketing scheme happening in a nearby building. The MLM organization was reported to the police, who allegedly broke it up with warnings and fines.

Though the system primarily relies on facial recognition and locally broadcast CCTV, the city of Harbin, for instance, published a notice that it was looking for predictive policing technology to sweep a person’s bank transaction data, location history, and social connections, as well as make a determination as to whether they were a terrorist or violent.

https://onezero.medium.com/chinas-sharp-eyes-program-aims-to-surveil-100-of-public-space-ddc22d63e015

 

The devil is in the zipper!

A ‘pro tip’ for evaluating the quality of a piece of gear is to look at the small details, such as zippers and stitching. Cheap-minded manufacturers will skimp on those details because most people just don’t notice, and even a cheap component will often last past a basic warranty period, so it’s an easy way to increase profits without losing sales or returns.

If a designer does bother to invest in quality components, that’s a tried-and-true sign that the overall product is better than the competition.

Zippers are a classic example when looking at backpacks, clothing, and similar gear. And although there are a few other fine zipper brands out there, the king is YKK Group — to the point that the first thing some gear reviewers look for is the “YKK” branding on the zipper pull tab.

https://theprepared.com/blog/why-ykk-zippers-are-the-brown-mms-of-product-design-look-at-the-little-details-to-judge-overall-gear-quality/

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

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

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

Life as a full-time investor

 

Once upon a time, I had a full-time job. I used to go to the office and do the “office work” and in the evenings and weekends, I used to hone my investing skills. After about 15 years of such existence and having reached a semblance of financial independence, I started toying with the idea of leaving my job and becoming a “full-time investor”, and FTI, in short.

In the investor circles, there is a perceived highbrow feeling that I get whenever I spoke to an FTI. In conversations, the FTIs would make me feel that unless you were part of the FTI crowd somehow you were not a serious investor. Which of course is really stupid. I know so many great investors who are happy and probably better off because they are part-time investors. Having a stable income from a job can be a very liberating thing. You can focus on identifying a handful of companies every year and then let those investments work the magic for you. Of course, if you yearn to be a day trader, having a job is not going to work.

As a full-time investor, the first thing that hits you is the amount of time you have at your disposal. And unless you are disciplined it can derail your efforts very quickly. Distractions in the form of Whatsapp, Twitter (ever notice how many so-called investors tweet so many tweets during the day?? I wonder what they actually do for work or is it all just an exercise in social media outreach) can take you down a rabbit hole and you realise that you have spent a few hours and accomplished nothing.

But having this additional time can be a boon. You get time to reflect on different businesses. You get a lot of time to learn different things. I focused a fair bit on reading much more diversely. You can slow down and learn things slowly, at your own pace. Macroeconomics, quantitative theory, technical analysis, geopolitics were topics I started picking up slowly.

My strategy is to break up my work into three distinct parts. I had two till some time back and added the third (will come to that shortly). Here are my parts of work:

• Passive (reading, monitoring portfolio and watchlist stocks, learning new things, listening to podcasts)
• Active (Writing, Coding, creating summaries of stuff which I have read or listened to, running screeners)
• Thinking (the new addition)

I wasn’t keeping aside time for thinking. And the challenge was unless I actively keep aside time for thinking about making decisions like if I want to make a switch in my portfolio, I was leaving it aside for it to come and hit me while I was pursuing my active work like writing about my portfolio picks.

I started marking my days of the week based on themes of study. So, Monday and Tuesday are for Quant & technical analysis, Wednesday is earmarked for general reading including macro, geopolitics etc, Thursday and Friday are kept aside for looking at interesting businesses and business models. These theme-based days help in focusing attention and making progress in each area.

My biggest challenge was that I simply overworked and overstimulated myself. Previously, office work and investment study were different. With now both coinciding, I ended up doing investment work for 12-14 hours a day without a break, seven days a week.

For twenty years, my “hobby” or “passion project” was investing. Now that is the primary focus. So, after many years, the search is on for building a new hobby. Reading fiction, watching movies, sports have started taking up more time in the day which provides a mental break from investment work. Hopefully, once the pandemic is behind us for good, then I can resume playing again. Losing the battle of the bulge for the last twenty years, seriously considering taking up some sports or activity that will focus on the health and fitness aspect.

Looking back I feel lucky I started the advisory because it gives me some purpose and work to do. Otherwise, I would probably have just sat the whole day reading and writing!! Running the advisory, interacting with investors, reading and responding to their questions gives me an immense amount of pleasure and most of the time helps me in my learning process as well.

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.

Why Valuations Probably Won’t Matter For a While

• Markets are in an uptrend
• Easy money is here to stay for a while
• The government isn’t going make the same mistake it made following the last crisis by pushing for austerity
• The consumer is in better shape even after a pandemic-induced recession
• Housing prices are on fire
• And there is a light at the end of the Covid tunnel.

On the other hand, valuations are stretched, we are coming off a 10+ year bull market that never truly got reset during the pandemic plunge and there is a speculative frenzy among investors that hasn’t been seen since the dot-com bubble.

Markets, in many ways, are insane right now.

Yes, fundamentals will always matter eventually when it comes to the markets but the next 18-24 months is setting up to be one of the better economic environments we’ve seen in some time. But there is just so much money sloshing around that it seems like any correction will see buyers step in.

https://awealthofcommonsense.com/2021/02/why-valuations-probably-wont-matter-for-a-while/

 

Is Tiny Cars the future of EVs?

Having decided that the future of mobility is electric, the Chinese government has subsidized sales of standard electric cars since 2010. With close to 1.18 million sold in 2019, China accounts for just over half of electric-vehicle sales globally. The country has set a top-down target for electric vehicles to make up 40% of car sales by 2030. Tiny cars, which first began appearing in the early 2010s, have more than double the sales of regular electric cars but have never benefited from subsidies. Nor do advertisements for them air on television. As they don’t technically require licenses, tiny cars tend to be popular with migrant workers, who struggle to pay for driving lessons and other car-related costs. The elderly, too, find tiny cars attractive since, up until October of last year, people over 70 could not apply for a driving license in China. They’re also convenient for anybody who wants a car to pick up groceries or their kids from school: No tiny car is longer than 1.5 meters, and their speed tops out at between 40 and 56 kilometers an hour. They’re for the short trips of daily life, not for traveling from one side of the city to another.

https://restofworld.org/2021/tesla-vs-tiny-cars/

 

The next big risk

A few years back that some hackers managed to get a hold of the Swift credentials of Bangladesh Bank, the central bank of Bangladesh, and caused several tens of millions of dollars to disappear from Bangladesh Bank’s master account at the Federal Reserve Bank of New York. Some of the money was recovered, but some of it seems to have disappeared into casinos in Macau—walked out the door and was never recovered. In this case it was not a failure of the Federal Reserve. Someone managed to get access to the Swift credentials of a bank that had an account at the Federal Reserve, and they drained that bank’s master account.

As we discovered in the pandemic, there’s a lot of systemically important companies. It suddenly became obvious to everybody. Without Amazon or Google or our internet service provider, our problems would become even greater.

https://www.bloomberg.com/amp/news/articles/2021-01-12/what-do-wall-street-leaders-think-is-the-next-big-risk

 

What's the dumb thing you can do here?

In a new interview, billionaire Thomas Tull — who runs a holding company called Tulco modeled in part after Buffett's — described just a piece of advice from Buffett that shifted his approach to investment decisions. At a meeting in Buffett's office in Omaha, the legendary investor shared the lesson during a two-hour conversation, which Tull said he'll "treasure for the rest of my life." The lesson involved an approach taken by Buffett and his longtime business partner, Charlie Munger.

 

"There was a moment," Tull says. "Where I was describing and talking through the business model [of Tulco] and how I thought about something."

 

"I said, 'What we're trying to do is be smart about,' and [Buffett] stopped me and said, 'I gotta be honest, for years, Charlie and I have always asked, 'What's the dumb thing we could do here?'"

 

"I kind of laughed, and he said, 'No, I'm dead serious. We always ask. We don't want to be in the clever pile. What what could we do here that would be the dumb thing, and how do we avoid it?'" Tull says. "Honestly, it actually has had a fair amount of impact on the way that I assess and think about situations."

https://finance.yahoo.com/news/warren-buffett-advice-thomas-tull-142946500.html

 

The future of education is online

In 2011, Stanford professor Andrew Ng—along with the help of Daphne Koller—posted videos of his course on machine learning. Within weeks, there were over 100,000 learners who viewed it.  To put things into perspective: Ng’s on-campus course would involve about 400 students per year. This meant that he would have to teach for 250 years to get the same levels achieved on Coursera.

In today’s economy in which the skills needed to succeed are rapidly evolving, education is becoming more important than ever. As automation and digital disruption are poised to replace unprecedented numbers of jobs worldwide, giving workers the opportunity to upskill and reskill will be crucial to raising global living standards and increasing social equity. Online education will play a critical role, enabling anyone, anywhere, to gain the valuable skills they need to earn a living in an increasingly digital economy. In 2019, the spending on global higher education was $2.2 trillion. As for the online degree category, it was $36 billion in 2019 and is forecasted to hit $74 billion by 2025.

https://www.forbes.com/sites/tomtaulli/2021/03/06/its-ipo-time-for-coursera/

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

Weekend Reading

Reading across disciplines is one of the best ways to improve our investment acumen. Here is a summary of some of the best articles I read this week. If you like this collection, consider forwarding it to someone who you think will appreciate it.

 

Slow down to make better decisions

When the product of your job is your decisions, you might find yourself wanting to be able to make more decisions more quickly so you can be more productive overall. Chasing speed is a flawed approach. Because decisions—at least good ones—don’t come out of thin air. They’re supported by a lot of thinking.

You’re still going to need to schedule time to do nothing but think. You can’t force yourself to think faster. Our brains just don’t work that way. The rate at which you make mental discernments is fixed. Speeding up often results in poor decisions that create future problems. The reason more pressure doesn’t mean better productivity is that the rate at which we think is fixed. We can’t force ourselves to start making faster decisions right now just because we’re faced with an unrealistic deadline.

https://fs.blog/2021/03/thinking-rate-fixed/

 

The dilemma of CRISPR

The Berkeley biochemist had helped to invent a powerful new technology that made it possible to edit the human genome—an achievement that made her the recipient of a

Nobel Prize in 2020. The innovation was based on a trick that bacteria have used for more than a billion years to fight off viruses, a talent very relevant to us humans these days. In their DNA, bacteria develop clustered, repeated sequences (what scientists call CRISPRs) that can recognize and then chop up viruses that attack them. Dr. Doudna and others adapted the system to create a tool that can edit DNA—opening up the potential for  curing genetic diseases, creating healthier babies, inventing new vaccines, and helping humans to fight their own wars against viruses.

The supposed promise of CRISPR is that we may someday pick which of these traits we want in our children and all our descendants. It took nature millions of years to weave together three billion base pairs of DNA into a complex—and often imperfect—way to permit all the wondrous diversity within our species. Are we right to think that we should now edit that genome to eliminate what we see as imperfections? Will we lose our diversity? Our humility and empathy? Will we become less flavorful, like our tomatoes?

https://www.wsj.com/articles/what-gene-editing-can-do-for-humankind-11613750317

 

Lower your expectations for a happier life

In the book Engineering Happiness, economists Manel Baucells and Rakesh Sarin cite the fundamental equation of wellbeing: happiness equals reality minus expectations. I'm sure you've all heard this notion before.

• If you expect more from life than you currently have, you'll be unhappy.
• Conversely, if your current experience exceeds your expectations, you'll be happy.

So, just as you can increase your saving rate by improving income and/or lowering expenses, you can deliberately increase your happiness by improving your circumstances and/or lowering your expectations. But it's usually easier to lower your expectations.

https://www.getrichslowly.org/the-power-of-low-expectations/

 

And maybe, just maybe, interest rates don’t matter as much as we all think

It may come as a shock to investors in the day-and-age of low and even negative interest rates that this growth stock orgy of Nifty Fifty blue-chip stocks in the early-1970s took place in an environment of high and rising interest rates. The 10-year yield was moving higher for much of the Go-Go Years in the 1960s and averaged more than 5% from 1962-1972. And it’s worth noting, inflation was moving ever-higher during this period as well. Interest rates were even higher during the dot-com bubble of the mid-to-late 1990s.

There are so many other factors at play that determine why investors do what they do with their money — demographics, demand, risk appetite, past experiences and a whole host of psychological and market-related dynamics.

Sure, it’s certainly possible investors could freak out because interest rates have been so low for so long.

Just because stocks have done fine when rates have risen in the past doesn’t mean it will happen in the future. But interest rate levels, in and of themselves, aren’t the sole cause of every market movement. They are just one factor among many that impact how people allocate their assets.

https://awealthofcommonsense.com/2021/02/what-if-interest-rates-dont-matter-as-much-as-we-think/

 

You have to be on your toes, even if you are a very long term investor

Good businesses by definition earned good returns on capital, but the names of those businesses change over time. So when I look back and think about a company that actually fits the test of being a good business today, with the way that the world is changing and the way that the pace of change is accelerated and the forces unleashed by technological change, there are businesses that were fine businesses five, 10, 20, 30 years ago that aren’t anymore.

So you always need to be on your toes and you always need to be thoughtful about what businesses are in fact fit that definition of good businesses or not, because returns on capital typically don't go straight line. They’re either getting better or they’re getting worse.

https://acquirersmultiple.com/2021/01/tom-gayner-four-lenses-for-finding-the-best-opportunities/

 

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

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

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

Of course, it's going to be difficult - The wisdom of Charlie Munger

Charlie Munger has been one of the guiding lights in my life. A hero for me. Not in investing but generally on how I should go about leading my life. I have gained immensely over the years from listening to his advice. He is one of the few great thinkers alive. Recently, he spoke at the Daily Journal Annual Meeting. Below are my notes from the talk. Things that resonated with me.

Q. Please share your thoughts on the recent WallStreetBets GameStop short squeeze. It seems to involve a lot of your standard causes of human misjudgment.
A. Well, it certainly does and that's the kind of thing that can happen when you get a whole lot of people who are using liquid stock markets to gamble the way they would in betting on racehorses. That's what we have going in the stock market. The frenzy is fed by people who are getting commissions and other revenues out of this new bunch of gamblers. 
I think you should try and make your money in this world by selling other people things that are good for them. If you're selling them gambling services where you rake profits off of the top, like many of these new brokers who specialize in luring the gamblers in, I think it's a dirty way to make money and I think that we're crazy to allow it.

Q. What do you think of all of the SPACs and the promoters pushing them?
A. I don't participate at all and I think the world would be better off without them. I think this kind of crazy speculation in enterprises not even found or picked out yet, is a sign of an irritating bubble. It's just that the investment banking profession will sell shit as long as shit can be sold.

You get crazy booms. Remember the .com boom? When every little building in Silicon Valley rented at a huge price and a few months later, about a third of them were vacant. There are these periods in capitalism and I've been around for a long time and my policy has always been to just ride them out and I think that's what shareholders do.

Well, it's most egregious in the momentum trading by novice investors lured in by new types of brokerage operation, like Robinhood. I think all of this activity is regrettable. I think civilization would do better without it. You'll remember that when the first big bubble came, which was the South Sea bubble in England, back in the 1700s, it created such havoc, eventually, when it blew up, that England didn't allow hardly any public trading in securities of any companies for decades thereafter. It just created the most unholy mess. So human greed and the aggression of the brokerage community creates these bubbles from time to time and I think wise people just stay out of them.

I think everybody is willing to hold stocks at higher price earnings multiples when interest rates are as low as they are now. So I don't think it's necessarily crazy that good companies sell at way higher multiples than they used to. On the other hand, as you say, I didn't get rich by buying stocks at a high price earnings multiples in the  midst of crazy speculative booms, and I'm not going to change. I am more willing to hold stocks at high multiples than I would be if interest rates were a lot lower, everybody is.

I think all good investing is value investing, and it's just that some people look for values in strong companies and some look for values in weak companies, but every value investor tries to get more value than her pays for.

I don't think I know exactly what the future of banking is, and I don't think I know how the payment system will evolve. I do think that a properly run bank is a great contributor to civilization, and that the central banks of the world like controlling their own banking system and their own money supplies. So I don't think Bitcoin is going to end up as the medium of exchange for the world. It's too volatile to serve well as a medium of exchange. And it's really an artificial substitute for gold. And since I never buy any gold, I never buy any Bitcoin. And I recommend that other people follow my practice.

I'm constantly making mistakes where I can, in retrospect, realize that I should have decided differently. And I think that that is inevitable because it's difficult to be a good investor. I'm pretty easy on myself these days. I'm satisfied with the way things have worked out and I'm not gnashing my teeth that other people are doing better. I think that the methods that I've used, including the checklist, are the correct methods. And I'm grateful that I found them as early as I did and that the methods have worked as well as they have. And I recommend that other people follow my example. 

It's natural for people to think their own civilization and their own nation is better than everybody else, but everybody can't be better than everybody else. You're right, China's economic record among the big nations is the best that ever existed in the history of the world. And that's very interesting. A lot of people assume that since England led the industrial revolution and had free speech early, that free speech is required to have a booming economy, as prescribed by Adam Smith. But the Chinese have proved you don't need free speech to have a wonderful economy. They just copied Adam Smith and left out the free speech, and it worked fine for them.

If you stop to think about it, business success long-term is a lot like biology and in biology, what happens is the individuals all die and eventually so do all the species and capitalism is almost as brutal as that. Think of what's died in my lifetime. Just think of the things that were once prosperous that are now in failure or gone. Whoever dreamed when I was young that Kodak and General Motors would go bankrupt? It's incredible what's happened in terms of the destruction. 

I think I'm not really equipped to comment on any subject until I can state the arguments against my conclusion better than the people on the other side. If you do that all the time, if you're looking for disconfirming evidence and putting yourself on a grill, that's a good way to help remove ignorance.

I think Warren and I are better at buying mature industries than we are at backing startups like Sequoia. The best venture capital operation, probably in the whole world, is Sequoia's. They are very good at this early stage investing. I would hate to compete with Sequoia in their field. I think they'd run  rings around me. So I think for some folks, early stage investing is best. For other folks, what I've done in my life is best.

A lot of the old moats are going away, and of course, people are creating new moats all the time. That's the nature of capitalism. It's like evolution in biology. New species are created and old species are dying. Of course it's hard to negotiate in such a field. But there's no rule that life has to be easy on the mental side. Of course, it's going to be difficult.

Well, happy life is very simple. The first rule of a happy life is low expectations. That's one you can easily arrange. And if you have unrealistic expectations, you're going to be miserable all your life. And I was good at having low expectations, and that helped me. And also, if when you get reverses, if you just suck it in and cope, that helps if you don't just fretfully stew yourself into a lot of misery. Always tell the truth and never lied to anybody about anything. 

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.

How to save the world?

Currently, the concentration of carbon dioxide in Earth’s atmosphere is around 414.68 parts per million (ppm) – there is consensus that, once the level reaches 450ppm it will raise the global temperature above 2 degrees Celsius, triggering extreme weather events and irreversible, catastrophic change. While some advocates of change suggest that the target should be 2030, Mr. Gates believes that’s unrealistic – carbon is too deeply woven into the fabric of everything we do – and could provide a distraction to the more significant goal of zero emissions by 2050.

When asked on betting on a single breakthrough happening in the next decade that really was a game changer, he says, “Well, part of the point of the book is that [we can’t rely on a] single breakthrough, we need artificial meat, we need lithium... But I would say, if you can get super-cheap green hydrogen, it sits in terms of the industrial economy at the peak. So, if you pencil in ridiculously low-cost hydrogen, then I can tell you how to make clean fertiliser and clean steel, and even clean aviation fuel.” Lastly, he says that he is optimistic about the world being net zero in terms of carbon emission by 2050.

https://www.wired.co.uk/article/bill-gates-interview-climate-crisis

 

AI in financial research

Technologists at Morgan Stanley have developed a virtual assistant that helps people throughout the organization plumb useful information from the 50,000 research reports the investment bank generates every year. “Our research reports can be many, many pages long,” said Eden Kidner, global head of research technology at Morgan Stanley. “And now we’re getting to the ability to actually find specific charts and paragraphs within the reports that answer questions.” The AskResearch bot is an example of banks ramping up the use of AI in different parts of their business.

“What we are seeing on the AI side, especially in natural language processing, is really amazing,” said Brad Bailey, research director for capital markets at Celent. “One aspect is the ability to get content from all types of structured and unstructured data and leverage that in numerous ways is a competitive edge and a huge benefit to client service.” The bot uses machine learning and natural language processing to become better at answering questions over time, Kidner said. The bot can retrieve earnings-per-share estimates for any company, or any of 50 other fundamental metrics the bank tracks or forecasts. It understands abbreviations like GDP (gross domestic product), so they don’t have to be spelled out, and synonyms. It understands multiple ways of asking questions.

“Trying to enable the bot to be able to find a specific paragraph, a chart or something that sits deep within that research and distill it up — that's where the high value of this bot is," Kidner said. "It’s also the biggest challenge to solve for." In the past, it typically took 10 minutes to go to the research portal and find a piece of research, he said. With the bot, the task takes less than a minute.

https://www.americanbanker.com/news/morgan-stanley-creates-bot-that-does-junior-analysts-work-faster

 

Can Shopify beat Amazon at its game?

Shopify isn’t doing what Amazon does - it isn’t competing directly and it wouldn’t fit inside a competition lawyer’s market definition. But it challenges Amazon at a very basic point of leverage by doing something different, but relevant. This is very often what competitive threats look like in technology. In markets with strong network effects or winner-takes-most effects, it’s very hard to displace a new incumbent directly, but pretty common to address an underlying customer need in another way. So, Google doesn’t think about Bing nearly as much as it thinks about Amazon and Facebook, and Amazon thinks about Shopify, because they change what the businesses might be, and offer your customers a different way to solve their problem.

https://www.ben-evans.com/benedictevans/2021/2/17/shopify

 

You are as good as your team

The legend of Steve Jobs is that he transformed our lives with the strength of his convictions. The key to his greatness, the story goes, was his ability to bend the world to his vision. The reality is that much of Apple’s success came from his team’s pushing him to rethink his positions. If Jobs hadn’t surrounded himself with people who knew how to change his mind, he might not have changed the world.

For years Jobs insisted he would never make a phone. After his team finally persuaded him to reconsider, he banned outside apps; it took another year to get him to reverse that stance. Within nine months the App Store had a billion downloads, and a decade later the iPhone had generated more than $1 trillion in revenue.

https://hbr.org/2021/03/persuading-the-unpersuadable

 

Jeff Bezos - the greatest tech CEO ever?

What is clear, though, is that any attempt to understand the relentlessness of the company redirects to their founder, Jeff Bezos, who announced plans to step down as CEO after leading the company for twenty-seven years. He is arguably the greatest CEO in tech history, in large part because he created three massive businesses, all of which generate enormous consumer surplus and enjoy impregnable moats: Amazon.com, AWS, and the Amazon platform (this is a grab-all term for the Amazon Marketplace and Fulfillment offerings; it is lumped in with Amazon.com in the company’s reporting). These three businesses are the result of Bezos’ rare combination of strategic thinking, boldness, and drive, and the real world manifestations of Amazon’s three most important tactics: leverage the Internet, win with scale, and being your first best — but not only — customer.

https://stratechery.com/2021/the-relentless-jeff-bezos/

 

 

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

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

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