Weekend Reading

 

Upfront

I had discussed four megatrends that will drive growth in businesses across the world in the next decade. It is worth revisiting this now to keep it at the top of the mind when looking for new investable ideas.

MegaTrends and Technofunda Outlook

1. The naïve realist

“Have you ever noticed that anybody driving slower than you is an idiot, and anyone going faster than you is a maniac?” The late comedian perfectly captured our tendency to attribute the world’s problems to other people and not ourselves. I’m the only good driver on the road. Everybody else should drive like me.   In a 2016 Ted Talk, Ross joked that people “believe that their take on the world is the objective one, and what has to be understood or explained is, ‘What is it about those other people that seem to get it wrong?’” Ross came to call this “naïve realism,” the tendency for people to think they see the world objectively, as it is, free from personal bias. Ross established three characteristics of the “naïve realist.”   First, the naïve realist believes that their perceptions are realistic and “objective.” Accordingly, other people (at least, reasonable other people) should share their beliefs, preferences, and convictions. Second, the naïve realist expects that any reasonable, open-minded person will be persuaded to agree with the naïve realist if there is disagreement between parties. If there is disagreement, and if the disagreeing party is a reasonable person, presenting the “real facts” should restore harmony. Third, anyone who disagrees with the naïve realist after the presentation of real facts is unreasonable, biased, or irrational. https://nautil.us/are-you-a-naive-realist-20403/

2. The longer your time horizon, the calmer life becomes.

Short time horizons may increase anxiety too. Consider the difference between a day trader and a buy-and-hold investor. The archetype of the day trader is something like Jordan Belfort from Wolf of Wall Street. He lives in a state of perpetual urgency, as his portfolio swings between immense highs and lows. Looking at my friends who used to trade, I swear their hairs have grayed a little faster. I contrast them with the buy-and-hold style of Warren Buffett, who is famous for sitting in his office and reading all day. Though he’s been investing for decades, his strategy’s never really changed: buy good companies at an under-valued price and hold them for a long time. Though his life is certainly more hectic than the one he projects, Buffett reminds us that a long-term outlook will narrow your emotional amplitude.   The cadence of your work shapes your temperament. When you’re a day trader, every phone notification matters. But when you’re a committed buy-and-hold investor, you can mostly ignore them. The longer your time horizon, the calmer life becomes. Zoom out far enough and once-gargantuan hurdles turn into tiny speed bumps on the road of life. https://perell.com/essay/hugging-the-x-axis/

3. Are mobile phones responsible for loss of memory?

Does having more memory in our pockets mean there’s less in our heads? Am I losing my ability to remember things – from appointments to what I was about to do next – because I expect my phone to do it for me? Before smartphones, our heads would have held a cache of phone numbers and our memories would contain a cognitive map, built up over time, which would allow us to navigate – for smartphone users, that is no longer true.   Smartphone use can even change the brain, according to the ongoing ABCD study which is tracking over 10,000 American children through to adulthood. “It started by examining 10-year-olds both with paper and pencil measures and an MRI, and one of their most interesting early results was that there was a relationship between tech use and cortical thinning,” says Larry Rosen, who studies social media, technology and the brain. “Young children who use more tech had a thinner cortex, which is supposed to happen at an older age.” https://www.theguardian.com/global/2022/jul/03/is-your-smartphone-ruining-your-memory-the-rise-of-digital-amenesia

4. Good procrastination

There are three variants of procrastination, depending on what you do instead of working on something: you could work on (a) nothing, (b) something less important, or © something more important. That last type, I’d argue, is good procrastination.   That’s the “absent-minded professor,” who forgets to shave, or eat, or even perhaps look where he’s going while he’s thinking about some interesting question. His mind is absent from the everyday world because it’s hard at work in another.   In fact, it may not be a difference in degree, but a difference in kind. There may be types of work that can only be done in long, uninterrupted stretches, when inspiration hits, rather than dutifully in scheduled little slices. Empirically it seems to be so. When I think of the people I know who’ve done great things, I don’t imagine them dutifully crossing items off to-do lists. I imagine them sneaking off to work on some new idea. http://paulgraham.com/procrastination.html

5. The greatest threat to results are boredom and impatience

The only way to become good at something is to practice the ordinary basics for an uncommon length of time. Most people get bored. They want excitement. They want something to talk about and no one talks about the boring basics. For example, we know that dollar-cost averaging into an index fund is likely to generate wealth, but cryptocurrency will give us a bigger thrill. Boredom encourages you to stop doing what you know works and do something that might work.   Another way to mess up a good thing is to try and accelerate the natural pace of things into an unnatural one. A good idea taken to the extreme is always a bad idea. Working out for 15 hours a day won’t make you healthier, it will get you injured. Investing with a lot of leverage won’t make you rich faster, it will wipe you out. A lack of patience changes the outcome. https://fs.blog/brain-food/may-22-2022/

Green Hydrogen (GH2) - The Next Frontier of Energy?

 

Hydrogen is slowly emerging as a key source of fuel for the future. Green hydrogen (or GH2) has attracted a great deal of interest from AA (Ambani-Adani). Mukesh Ambani started off with an announcement of $10bn into green energy which was upped by Gautam Adani at $20bn. Ambani then announced a $75bn investment in the entire ecosystem of electrolyser manufacturing to solar panels. ACME just announced a 52K cr investment in India. GAIL is getting into manufacturing electrolysers, Oil India is looking to build a GH2 plant in Assam, and NTPC is looking to set up H2 fuel stations across India. This is an effort to understand at a very high level and in simple terms what the whole GH2 is all about.

The Green Hydrogen Opportunity

India plans to manufacture around five million tonnes of green hydrogen per annum by 2030 according to the power ministry. Solar and other forms of renewable energies are now available at cheaper rates in India, making producing green energy a cheaper and climate-sensitive decision. Green hydrogen energy models are substituting coal in the steel industry. With shortages of coal across the country the demand for green hydrogen might increase. Green Hydrogen is expected to capture the fertiliser production to substitute natural gas. Customers of green hydrogen arise from various industries. Steel, Fertilisers, Transport, retail consumption etc. India has the highest growth in demand for energy resources and green hydrogen has the potential to meet the market needs. Industrial Gas (IG) companies have core competencies in managing networks, distribution, providing storage, liquefaction technology, and the ability to sell oxygen that will be generated along with hydrogen and backup supply.

Hydrogen Fuel

Hydrogen fuel is a clean fuel alternative whose by-product is only water and not CO2 It can act as a carrier to deliver energy from other sources Can be produced from Natural gas, Biomass, Nuclear power and renewable energy like sun and water. Can be categorised into grey, blue and green hydrogen based on the carbon emission incurred  Grey Hydrogen: production results in emissions of large volumes of Carbon dioxide. Produced from natural gases and are widely used as of now. Blue Hydrogen:  A cleaner version whose carbon emissions can be stored or reused, Green Hydrogen: Pure fuel which emits no carbon and is energy efficient. However, it is expensive to produce and store due to its highly inflammable nature.

Green Hydrogen Production Process

Production Methods:

Electrolysis Creation of hydrogen from water by passing a current through an electrolyser. Expensive process Thermal Processes Steam reforming where steam reacts with hydrocarbon fuel to produce hydrogen Hydrocarbon fuels which can be reformed include natural gas, diesel, renewable liquid fuels, gasified coal or gasified biomass 95% of hydrogen is produced by reforming Natural gas. Biological processes Uses microbes such as bacteria and green algae to produce hydrogen Microbes surviving and feeding off of wastewater produce hydrogen as a by-product.  In photobiological processes, the microbes use sunlight as the energy source. Expensive and limited resources available Solar processes Using light to produce hydrogen Photobiological as explained above Photoelectrochemical processes use specialised semiconductors to separate water into hydrogen and oxygen Solar thermochemical hydrogen production uses concentrated solar power to drive water splitting reactions often along with other species such as metal oxides. Present technology doesn’t facilitate large-scale production using this method.

Pros and Cons of Hydrogen Fuel

Pros of using hydrogen fuel Renewable Readily available Zero carbon byproduct meaning it doesn’t harm the environment More powerful and efficient compared to traditional fossil fuels No noise, visual pollution Cons of using hydrogen fuel Infrastructure to transport highly flammable hydrogen Extraction of hydrogen Costs involved Regulatory issues Storage

Use of Hydrogen Powered Vehicles

Hydrogen cars require a generator within the chassis to bring the rotational movement whereas in the case of EV the battery provides the charge required to move directly. The reason why hydrogen cars are less popular is because of the same reason. In future, hydrogen can be used to produce the electricity used in EVs

Commercial Uses

Commercial uses of hydrogen can be seen in  Health Care, Food and beverages - hydrogen is required in medicines and pharmaceuticals. Example hydrogen peroxide and the creation of margarine and similar foods, where unsaturated fatty acids are hydrogenated from oils to form a solid product. Metallurgy - in production processes of steel, and aluminium. Space operations require higher power which is provided by hydrogen Power Generation.

Summary

Green hydrogen is the fuel of the future. It only produces water as a by-product. It is renewable but requires fossil fuels and coal for the separation of hydrogen. Research is now being done to eliminate the requirement for fossil fuels in producing hydrogen fuel.

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.

Upfront

I shared my thoughts on the IT industry.

Global गिरावट के बीच IT Sector से कितनी उम्मीद ? Abhishek Basumallick | Swadesh Hours

Life may not get better. So learn to make the most of it.

You feel overwhelmed by an extremely long to-do list. But it’s worse than you think! You think the problem is that you have a huge number of tasks to complete, and insufficient time, and that your only hope is to summon unprecedented reserves of self-discipline, manage your time incredibly well, and somehow power through. Whereas in fact the incoming supply of possible tasks is effectively infinite (and, indeed, your efforts to get through them actually generate more things to do). Getting on top of it all seems like it would be really hard. But it isn’t. It’s impossible.   We can’t ever get free from the limited and vulnerable and uncertain situation in which we find ourselves. But when you grasp that you’ll never get free from it, that’s when you’re finally free in it – free to focus on the hard things, instead of the impossible ones, and to give this somewhat preposterous business of being a human everything you’ve got. https://ckarchive.com/b/75u7h8hkk9g9e

Investing is an emotional competition

Investing can be looked at as an emotional competition – your emotions and ability to control them versus the emotions of those you buy or sell securities from and to. A primary function of investment strategy is to counteract emotional impulses and thus survive (and take advantage of) adverse market developments. Investment performance is mostly determined by patience, risk management, a willingness to study, and what you do when things go differently than you anticipated. Those factors are personality driven.   In addition to having a clear concept of what their competitive advantage is over others, successful investors, I’ve learned, incorporate into their investment strategy clear concepts of acceptable risk, what constitutes an acceptable level of inactivity and length of holding period after funds are committed. And successful investors stick to their strategy. That strategy – for instance sitting on cash, sitting on losing positions, sitting on winning positions — must be based on self-knowledge. If the strategy is out of sync with the personality, it won’t work, no matter how well it has worked for others. https://microcapclub.com/2015/05/i-passed-on-berkshire-hathaway-at-97-per-share/

And then what happens?

We’re not very good at predicting the future.   We’re very good at being aware of the urgency of the moment, and familiar with our need to deal with emergencies.   Before we react, though, it might be worth asking “and then what happens,” five times.   Five steps from here to there…   If any of the steps involve, “and then a miracle happens,” or “we’ll deal with that later,” it might be worth taking a few more moments to reconsider the first step. https://seths.blog/2022/06/and-then-what-happens-2/

Don't blame the media if you feel they only publish bad news

Life tends to look gloomy between the pages of a newspaper. Journalists are often accused of chasing bad news because it sells papers and attracts viewers. This may be partly true, but researchers have shown that readers are naturally drawn to calamitous tales and are more likely to share them with others. Rumours about potential dangers – even if they are unlikely – spread among people far more readily than rumours that could be beneficial.   In one study, scientists at McGill University in Canada, used eye-tracking technology to study which news articles volunteers paid most attention to. They found that people often chose stories about corruption, set-backs, hypocrisy and other bad news, in preference to positive or neutral stories. People who were more interested in current affairs and politics were particularly likely to choose the bad news, and yet when asked, these people said they preferred good news. https://www.bbc.com/future/article/20220624-why-criticism-lasts-longer-than-praise

Getting wealthy versus being wealthy

I think for a lot of people the process of becoming wealthier feels better than having wealth.   If it’s wealth we were after, most of us would feel great, because most of us are unfathomably wealthier than we were a generation or two ago. Or ten years ago. Or five years ago. Or two years ago!   What feels great is being on an upward path. That’s when dopamine takes over. That’s when you can extrapolate it and assume it goes on forever, and compare yourself to where you were before, and feel like nothing can stop you.   When that path declines – even if it happens when you have a level of wealth you couldn’t fathom a few years ago – the whole sensation shatters. The problem is that an occasional downward path is inevitable in investing. Outside of fraud, it’s completely unavoidable. The reason markets can go up a lot in the long run is because they make you pay the cost of admission of going down a lot in the short run. https://www.collaborativefund.com/blog/wealth-vs-getting-wealthier/

Weekend Reading

 

Upfront

I shared some thoughts with Ajaya Sharma, Senior Editor-Markets, Anchor- ET NOW on how the economy is looking and which industries are shaping up to do well. For those who prefer reading, here is the link to the transcript.

Views on Markets & Investing

Endurance is the key for long term returns

The most important investing question is not, “What are the highest returns I can earn?”   It’s, “What are the best returns I can sustain for the longest period of time?”   Compounding is just returns to the power of time. Time is the exponent that does the heavy lifting, and the common denominator of almost all big fortunes isn’t returns; it’s endurance and longevity. “Excellent returns for a few years” is not nearly as powerful as “pretty good returns for a long time.” And few things can beat, “average returns sustained for a very long time.”   That’s the biggest but most obvious secret in investing: Average returns for an above-average period of time leads to magic. https://www.collaborativefund.com/blog/keep-it-going/

How fund managers talking their book is actually trying to get you to buy their holdings

While other firms go out of their way to hide their investments, ARK is an open book. This is also uniquely tailored to our current market environment. It’s effectively pushing a press release to the entire world every day. The financial media eats it up, while it dominates social media. They remain in the conversation every single day.   That simple push of numerical information catalyzes an army of investors, all looking for guidance, affirmation, and just something to think about, to think about your stocks. Every day you manage to live, as the saying goes, rent-free in all of our heads.   It’s become pretty clear in the past decade there’s a correlation between power and the space you occupy in our collective consciousness. This is even more applicable in financial markets (than, say, politics) as this kind of feedback loop can result more directly in a desirable outcome. Cathie Wood’s sole job is to get others to buy the stocks she owns, and with one email push, it’s magically done. https://www.readmargins.com/p/cathie-wood-and-content-strategy

Road Wirelessly Charges Electric Cars as They Drive

Stellantis isn’t exactly a household name as far as car makers go, but it’s the parent company for iconic brands like Jeep, Chrysler, Dodge, Ram, and even Maserati. It recently unveiled a unique new test track in Chiari, Italy, called the “Arena del Futuro” circuit (Arena of the Future) that could potentially allow EVs to run laps forever without ever needing to stop and charge.   Along with a handful of partnering companies, they have embedded a series of coils just below the track’s asphalt surface as part of a system called Dynamic Wireless Power Transfer, or DWPT. It’s more or less a similar approach to the charging pad that lets you simply set your smartphone down to charge its battery without having to plug anything in, with DWPT using a long chain of coils to transfer power while a vehicle is still in motion.   To take advantage of the track’s power-sharing capabilities, an EV simply needs to be upgraded with a special receiver that sends the power directly to its electric motor. In testing, a Fiat New 500 was able to maintain highway speeds while circling the track without having to use any of the power stored in its batteries. https://gizmodo.com/wireless-charging-road-electric-cars-street-stellantis-1849058448

Is cultured meat the next step in the evolution of meat-eating?

Cultured meat—not to be confused with plant-based meat—is grown from animal cells and is biologically the same as meat that comes from an animal. The process starts with harvesting muscle cells from an animal, then feeding those cells a mixture of nutrients and naturally-occurring growth factors (or, as Good Meat’s process specifies, amino acids, fats, and vitamins) so that they multiply, differentiate, then grow to form muscle tissue—in much the same way muscle grows inside animals’ bodies.   “Cultivated meat matters because it will enable us to eat meat without all the harm, without bulldozing forests, without the need to slaughter an animal, without the need to use antibiotics, without accelerating zoonotic diseases,” Tetrick said.   Meat can be “harvested” (their word, not mine) just four to six weeks after initiating the growth process—but it’s not a matter of plucking a ready-to-package breast from a vat and shipping it off to the grocery store. Besides going through safety and regulatory reviews, the harvested cells need to be turned into something resembling traditional meat. Good Meat says it uses 3D printing, extrusion cooking, and molding to refine the shape and texture of the product. https://singularityhub.com/2022/06/01/the-worlds-biggest-cultured-meat-factory-will-soon-be-built-in-the-us/

Peter Lynch’s Rule for Dealing with Mistakes

Lynch has a rule for dealing with his mistakes. The instant he realizes he’s made a mistake, he gets out.   Unfortunately, many investors turn one mistake into many. They compound the problem.   Our first reaction toward losses is to make the money back. So the next mistake starts with wanting to get back to even. Which rarely goes as planned. Instead, we turn a small loss into a bigger loss. But that’s compounded by the opportunity cost of putting those dollars to work somewhere else.   So Lynch’s rule is difficult to follow but the best solution for mistakes is to sell immediately. Cut your losses. Learn from it, if you can. Move on.   It’s never easy to deal with mistakes but the goal with any mistake is to limit the damage. https://novelinvestor.com/peter-lynchs-rule-for-dealing-with-mistakes/