Weekend Reading

 

Intelsense Insights

The best performer in the last month across all smallcases. Quiver is a concentrated basket of stocks - only 10. It is a unique strategy using a trend-following, quant-based technofunda approach. To subscribe: https://smallcase.com/smallcase/quiver-INSMO_0005… Minimum investment: 5 lakhs

One investment style does not work all the time

This learning is continuous but the basic framework of what kind of stocks you like would not change, at least in me. Every style will have its own time, every style does not work throughout. In ten years the same style will never work. So styles will go out of favour. Like the same cricket team does not work, what was top of the charts last year are bottom of the charts this year! Look at IPL, the top two teams are the bottom two teams.   If you get deep bargains and that happens in chaotic markets like what happened in Covid times, then the whole thing gets dislocated. The earnings are not right. The companies which are hugely profitable, were not having sales, profits or losses and all and then the market gets confused about how to value the company.   That is the point of time when if you have superior understanding of the companies, you can pile on. Even managements lose faith. I know enough stories in Covid times where managements lost faith in their own companies and the investors and mutual fund managers had more faith in the story than the management themselves. https://economictimes.indiatimes.com/markets/expert-view/every-investing-style-does-not-work-throughout-but-odds-are-always-with-long-term-investors-raamdeo-agrawal/articleshow/93596464.cms

A legend on channeling her anger towards greatness

The winner of 23 singles Grand Slams, Williams is one of the greatest athletes the world has ever seen. She is also a black champion in an overwhelmingly white sport. A female champion in a space where the GOAT (Greatest of All-Time) discussion seems to be limited to three men, Roger Federer, Rafael Nadal and Novak Djokovic, all of whom have, so far, won fewer titles than her. In 2016, Williams said that almost all through her career she was “undervalued and underpaid”. Her greatness lies in the way she has been able to rise above, not just far above the competition but also the odds and the prejudices stacked against her.   “There were so many matches I won because something made me angry or someone counted me out,” she wrote in an essay for Vogue earlier this month, which served as her farewell note. “That drove me. I’ve built a career on channelling anger and negativity and turning it into something good.” https://lifestyle.livemint.com/news/big-story/how-serena-williams-transformed-tennis-111660660287300.html

If Lithium is the new oil, then the governments of producer countries want control

A few years ago, Chile was the world’s largest lithium producer, turning out slightly more than Australia. While Chile has expanded output at its existing operations by 80% since 2016 to about 140,000 tons annually, it hasn’t opened a new mine in about 30 years. It now produces about half as much as Australia, which has quadrupled its output in the past five years, according to the USGS.   Unlike oil, which is produced all over the globe, lithium is less common. South America, Australia and China are the key locations. Outside South America, it’s extracted from hard-rock. In the region, lithium is found in salty, underground water that is evaporated by the sun after being pumped into large man-made ponds. South America’s lithium is less expensive to produce, but miners say the drawback is it takes far longer to build a mine—about eight years.   With economies battered by the pandemic and people grappling with soaring inflation, officials in some Latin American nations say robust state control over lithium will help boost local development and pad public coffers. https://www.wsj.com/articles/electric-cars-batteries-lithium-triangle-latin-america-11660141017

Knowledge compounds

The benefits of recognizing just a tiny more knowledge and skill gradually compounds over time. To read, exchange ideas with others, ask questions, be curious and open for opposite/contracting arguments are all contributing to compounding. A boat sailing one degree off-course will over short distances hardly be noticeable, but over long distances the mistake compounds and the boat misses its destination completely.   The benefit is not immediate, but gradual.   To compound knowledge, we need to refrain from confirmation bias. It’s all too easy to seek a group of people who share the same views as you, be it in investing or politics. Our views need to be challenged and destroyed from time to time to remove our biases. It’s hard to learn from history, experience and knowledge if you don’t get challenged. Therefore, be skeptical of information that agrees with your viewpoint. Empirical evidence suggests that we are biased to accept conforming evidence (confirmation bias) more easily than conflicting evidence.   Most investors have biases which lead to “wrong” allocations and thus less total returns: confirmation bias, anchoring, a rigid mindset, not willing to have an open mind or inflexible for other ideas to name a few. https://seekingalpha.com/article/4294569-what-investors-can-learn-from-reading-annie-dukes-thinking-in-bets

The Covid-19 pandemic has turned sewage into gold

People who are infected with the coronavirus shed the pathogen in their stool. By measuring and sequencing the viral material present in sewage, scientists can determine whether cases are rising in a particular area and which variants are circulating.   People excrete the virus even if they never seek testing or treatment. So wastewater surveillance has become a critical tool for keeping tabs on the virus, especially as Covid-19 testing has increasingly shifted to the home.   The institutions and localities that invested in wastewater surveillance over the last two years are discovering that it can be used to track other health threats, too. The Sewer Coronavirus Alert Network has already begun tracking the monkeypox virus in wastewater. https://buff.ly/3Avblk2

HitSpeak: Why Do Investors Fail?

 

This is a post by Dr Hitesh Patel, my friend and co-investor in Hitpicks at Intelsense Capital (www.intelsense.in)

I can think of the following factors contributing to poor/less than expected returns in case of investors investing on their own. Lack of knowledge. Most retail investors want free lunches. Very few of them even want to read basic investment books. To succeed in investing, you either have to have natural flair for investing by being street smart, or put in the hard yards and read some good books on investing and digest the learnings described in the book. This process of digestion would entail multiple times reading the book and trying to find where this knowledge is applicable while investing. So reading and re-reading is important. For the sake of repetition, I would like to put up a list of good books I found very useful. 1. One up on wall street by Peter Lynch. 2. Five rules for successful investing by Pat Dorsey. 3. How to make money in stocks by William O neil. 4. Zebra in Lion country by Ralph Vanger. 5. The Next Apple by Ivayly Ivanov. 6. Minervini books if you are into momentum investing. Not knowing yourself as an investor. To recognise which investment style is suited to your temperament is very important. And this has to be deciphered as early as possible in the journey. It’s difficult for investors to practice all investment styles at the same time. Over time, people do tend to evolve as investors, but after some time in the markets it should become apparent which is the style that resonates with you. Whether you are a value investor, growth investor, short term trader, momentum trader, long term investor, so on and so forth. Looking at bits and pieces. A lot of investors get stuck with only a few pieces of the puzzle while analysing a company and in the process miss the complete picture, or the big picture. Idea should be to be approximately right rather than precisely wrong. It’s important to focus on what is important and what is relevant and not get lost in details. Having preconceived notions. One of my close friends usually has a common dialogue while discussing a company… “ Is company ne to kuch nahi kiya hai… abhi tak” This is the easiest way to kill a multibagger in the womb itself. While looking at a company, the idea should be to be as objective as possible during the initial research. Once enough miles are covered, one can have some notions about the company and list investment arguments, or points against. Over analysis. Many people tend to analyse companies to such an extent that it paralyses them in terms of decision making. They get lost in a lot of irrelevant details. Idea should be to have a checklist of points in order of importance/relevance and take a call. Execution. A lot of people make beautiful write ups on companies with all the necessary details and still cannot pull the trigger when it comes to buying… They keep dilly dallying on making a decision to buy even when the prices are right. Many a times this is affected by market levels. An investor was scared to invest solely because Nifty was at 18000 or close to it. Or there could be a variety of reasons not to pull the trigger. Buying style can be different, with some people wanting to buy in a single shot, others wanting to spread out their buying, so on and so forth. But one has to execute the decision to buy within a stipulated time frame. Lack of Flexibility. Some investors are absolutely rigid in their views and their beliefs. They often fail to read the writing on the wall. Even in the face of enough evidence which is contrary to their view, they fail to change their views. e.g Someone who was very bearish at 15300, ( a lot of us also were, we were quite scared by the kind of fall and the newsflow at that point of time) failing to change his views even when Nifty rallied more than 500-1000 points and there was a broad based rally. Or to give a fundamental example, someone who keeps believing that the company is going to deliver in spite of many poor quarters and unacceptable explanations by management. Losing balance and poise at precisely the wrong time. Many investors tend to get scared by market corrections or dips, and seem to keep looking at SGX, or Dow Jones, or Nasdaq, or other such macro data, e.g Oil prices etc and lose sleep over these factors. We have to consider investing as a test match where the pitch tends to change its nature every session and we have to learn to deal with it and adapt accordingly. We often have to avoid getting scared out of our positions. Stocks often correct 10-20% from our purchase price without any rhyme or reason. If I am a purely fundamental investor, I should not get swayed by these moves. ( Technical guys will have different benchmarks) Lack of independent thinking. A lot of investors try to follow what XYZ or ABC investor has bought and try to base their decisions on these mundane things. While analysing a company, we should have our own template and take a call based on that. Instead of what Hitesh Patel thinks about the company, you should have your own views. My view might be wrong, or different from yours, As investors we have to learn to make our own calls and own up to them and accept our mistakes if the calls go wrong. One cannot and should not blame anyone else for their decisions. And most important of all, have faith in the ability of investments to create serious wealth. And work towards that with full efforts. Try to learn basics from good investors, but don’t go around looking for investment tips. This is a journey which is largely solitary and we have to learn, practice and earn. At the end of all above learnings, the most important thing is to put in enough money so that serious wealth is created. This can be staggered over a period of time, but the quantum has to be sufficient to be meaningful. I have some doctor friends who have monthly incomes of nearly 10 lacs rupees but have a portfolio of only 10 lacs. This kind of investment is hardly meaningful in the overall context of their finances. Regards Dr Hitesh Patel

Weekend Reading

 

Intelsense Insights

The best performer in the last month across all smallcases. Quiver is a concentrated basket of stocks - only 10. It is a unique strategy using a trend-following, quant-based technofunda approach. To subscribe: https://www.smallcase.com/smallcase/quiver-INSMO_0005 Minimum investment: 5 lakhs

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How to decide what is the most important thing to work on?

Much of life boils down to figuring out a path for yourself and then getting yourself to actually walk it.   It’s easy to dismiss either half of the problem. If the path seems obvious, you might think everyone who fails to walk it is simply lazy. Or perhaps you can’t find the path, so it seems everyone walking forward is a delusional striver.   But both halves of the problem interact. We often fail to stick to our plans because we’re not confident in our chosen path. And we fail to find paths forward because we don’t try enough things to find our footing.   Decision and action are always combined. The challenge is taking the next step. https://www.scotthyoung.com/blog/2022/03/21/decide-what-work/

Know yourself

Investing, now more than ever, is about controlling the controllable. You can’t control the markets. You can’t control the coronavirus. You can control your own behavior, although that requires making accurate, honest predictions about yourself.   Controlling the controllable doesn’t just mean shrugging off whatever is out of your power. It also means putting some calm and serious thought into what is within your power. Your future success may depend less on what markets do—and more on spending a few quiet minutes figuring out who you are as an investor.   Will you be able to keep buying all the way down if the market goes down another 25%—or more? Will you even be able to hold on? Can you stand watching every dollar you had in stocks turn into 50 cents or less?   On the other hand, what if the panic subsides and stocks resume their climb—after you impulsively moved to the safety of cash and bonds that generate almost no income? How badly will you kick yourself over getting out of the market because of fears that didn’t fully materialize? https://www.wsj.com/articles/stocks-are-cratering-control-the-one-thing-you-can-11584055737

Let your mind wander

Losing oneself in one’s thoughts or letting the mind wander is an underrated activity that is more rewarding the more it is practised, an academic study has claimed.   Psychologists who studied a group of more than 250 people encouraged to engage in directionless contemplation or free-floating thinking said that the activity was far more satisfying than the participants had anticipated.   They also revealed that – as previous studies have demonstrated – losing yourself in your thoughts can aid problem solving, increase creativity, enhance the imagination and contribute to a sense of self-worth.   Despite this, most people are more likely to let themselves be distracted than to delve into their own thoughts or just stare out the window. Smartphones have inevitably made it easier to seek and find distraction and have contributed to a loss of the habit of free thinking. https://www.theguardian.com/lifeandstyle/2022/aug/05/contemplation-can-help-problem-solving-and-boost-creativity-study-claims

The influencer's dilemma

Audience capture is an irresistible force in the world of influencing, because it’s not just a conscious process but also an unconscious one. While it may ostensibly appear to be a simple case of influencers making a business decision to create more of the content they believe audiences want, and then being incentivized by engagement numbers to remain in this niche forever, it’s actually deeper than that. It involves the gradual and unwitting replacement of a person’s identity with one custom-made for the audience.   When influencers are analyzing audience feedback, they often find that their more outlandish behavior receives the most attention and approval, which leads them to recalibrate their personalities according to far more extreme social cues than those they’d receive in real life. In doing this they exaggerate the more idiosyncratic facets of their personalities, becoming crude caricatures of themselves. https://gurwinder.substack.com/p/the-perils-of-audience-capture

Don't be afraid of failure, just get started

Inspiration, the admixture of genius and motivation, is sometimes described as a force that strikes us after some patient lull or waiting period. This idleness is a mistake. The Muse arrives to us most readily during creation, not before. Homer and Hesiod invoke the Muses not while wondering what to compose, but as they begin to sing. If we are going to call upon inspiration to guide us through, we have to first begin the work.   Failure is something you want to tempt. You should court it the way the bullfighter courts the bull. When I wish to learn something, I begin with this in mind. A meaningful first project should have sufficient difficulty that there is some real chance of failure. It is in approaching the edges of our abilities that we are really learning, and often simple projects feel more like delaying things, including delaying mastery. A chance of failure ensures your hands are firmly touching reality, and not endlessly flipping through the textbook, or forever flirting only with ideas. https://simonsarris.substack.com/p/start-with-creation

Weekend Reading

 

Intelsense Insights

Quantamental Q30

Quantamental Q30 has been around for more than 2 years and has seen the ups and downs of the Covid crash and rally, Ukraine-Russia war and the tech meltdown and recessionary fears in the US and its impact on the emerging markets. Yet, it has delivered a solid ~34% CAGR over this period. All it requires is 15 mins of time per month to execute. Embrace a completely hands-off systematic approach to investing. You can subscribe to it from here: Smallcase: https://intelsense.smallcase.com/smallcase/INSMO_0003 Directly: https://www.intelsense.in/#!/Subscription

Creating a new history on Wikipedia

Posing as a scholar, a Chinese woman spent years writing alternative accounts of medieval Russian history on Chinese Wikipedia, conjuring imaginary states, battles, and aristocrats in one of the largest hoaxes on the open-source platform.   One of her longest articles was almost the length of “The Great Gatsby.” With the formal, authoritative tone of an encyclopedia, it detailed three Tartar uprisings in the 17th century that left a lasting impact on Russia, complete with a map she made.   One article she tampered heavily with was on the deportation of Chinese in the Soviet Union in the 1920s and ’30s. It was so well-written it was selected as a featured article and translated into other languages, including English, Arabic, and Russian, spreading the damage to other language editions of Wikipedia.   The hoax started with an innocuous intention. Unable to comprehend scholarly articles in their original language, she pieced sentences together with a translation tool and filled in the blanks with her own imagination. “As the saying goes, in order to defend a lie, you must tell more lies,” she wrote. Before long, they had accumulated into tens of thousands of characters, which she was reluctant to delete. https://www.vice.com/en/article/pkgbwm/chinese-woman-fake-russian-history-wikipedia

Many of the things that you believe right now are utterly wrong

At various times throughout the history of humankind, our most brilliant scientists and philosophers believed many things most eight-year-olds now know to be false: the earth was flat, the sun revolved around the earth, smoking cigarettes was good for digestion, humans were not related to apes, the planet was 75,000 years old, or left-handed people were unclean.   Around 100 years ago, doctors still thought bloodletting (that is, using leeches or a lancet to address infections) was useful in curing a patient. Women were still fighting for the right to vote, deemed too emotional and uneducated to participate in democracy, while people with darker skin were widely considered subhuman. The idea that the universe was bigger than the Milky Way was unfathomable, and the fact the earth had tectonic plates that moved beneath our feet was yet to be discovered.   It is challenging to accept the fact that much of what we believe right now will, in 20, 100, 500, or 1,000 years, seem as absurd as some of the ideas above. But it would take a great deal of arrogance to believe anything else. https://www.persuasion.community/p/misinformation-is-here-to-stay-and

The biggest lesson in investing

The biggest lesson is to stay the course and be focused on the long-term. And, when you might have an economic downturn or downturn in markets to think far enough ahead to see that as an opportunity and stay invested. Often the times when you feel most like getting out of the markets is the time when you shouldn’t.   And, when you look back on it, you can barely see Black Monday in terms of the long term chart of equity investment. It will have been many people on that day who decided that investing in equities wasn’t for them, and they will have lost out on a great deal.   So, the biggest lesson I’ve learned is not to panic in the short term. But, try to stay focused and invested and the moments when you feel really, really sick to your stomach, that is almost always the right time to be buying more and getting more exposure to equities in the long term. https://www.livewiremarkets.com/wires/2-the-biggest-lesson-from-35-years-of-investing

On clear thinking by Danny Kahneman

What gets in the way of clear thinking is that we have intuitive views of almost everything. So as soon as you present a problem to me, I have some ready made answer. What gets in the way of clear thinking are those ready made answers, and we can’t help but have them.   We have beliefs because mostly we believe in some people, and we trust them. We adopt their beliefs. We don’t reach our beliefs by clear thinking, unless you’re a scientist or doing something like that. There’s a fair amount of emotion when you’re a scientist as well that gets in the way of clear thinking. Commitments to your previous views, being insulted that somebody thinks he’s smarter than you are. I mean lots of things get in the way, even when you’re a scientist. So I’d say there is less clear thinking than people like to think.   Very quickly you form an impression, and then you spend most of your time confirming it instead of collecting evidence. https://fs.blog/knowledge-project-podcast/daniel-kahneman/

First synthetic embryos created

Researchers have created the world’s first “synthetic embryos” in a groundbreaking feat that bypassed the need for sperm, eggs and fertilisation.   Scientists at the Weizmann Institute in Israel found that stem cells from mice could be made to self-assemble into early embryo-like structures with an intestinal tract, the beginnings of a brain, and a beating heart.   Known as synthetic embryos because they are created without fertilised eggs, the living structures are expected, in the near term, to drive deeper understanding of how organs and tissues form during the development of natural embryos.   But researchers believe the work could also reduce animal experimentation and ultimately pave the way for new sources of cells and tissues for human transplantation. For example, skin cells from a leukaemia patient could potentially be transformed into bone marrow stem cells to treat their condition. https://www.theguardian.com/science/2022/aug/03/scientists-create-worlds-first-synthetic-embryos

Weekend Reading

 

Upfront

Interested in investing in a concentrated portfolio of stocks that help you remain ahead of the curve? One which has outperformed even during the toughest of times? Look no further than the Quiver smallcase from Intelsense. https://intelsense.smallcase.com/smallcase/INSMO_0005

Words of wisdom from Seth Klarman

“I think it’s good to step back from the moment-by-moment noise. Investors sometimes get caught up in the noise, but it’s really important to step back. Investors just should always want to be thinking about their own thinking…we all know we deal with enormous amounts of information we need to filter it down to the useful information.”   “After you buy something you paid for, it doesn’t matter. People cling to the idea that at least they should get their money back; maybe there is bad news, and you should sell before it goes lower; maybe put it into something else where you get your money back, but people prefer to make it back where they lost it. People anchor numbers in their heads, and they hold on to them.”   “A very significant part of my philosophy has to do with managing your psychology. Markets are about the psychology of others.”   “When you focus on return at the exclusion of risk, you try to take more risk to get the return; you get the risk but may or may not get the return. If you focus first on the risk and mitigate or avoid or reduce the risk, then you’ve protected the downside, and then maybe you get the return.” https://thetranscript.substack.com/p/seth-klarman-interview

Make friendship your first priority

Alongside your family, making, cultivating and keeping close friendships may be your life’s most important work.   Yeah, to help your career; building a network is more critical than ever. (I’m the LinkedIn guy, I’m not gonna tell you otherwise). But more than that, friends will be absolutely central to your sense of happiness, connection, and meaning.   Like you, I was able to get a great education, with brilliant faculty teaching enlightening classes. Yet right away it was clear that what would matter much more to me, were my fellow students.   When there’s something important you don’t know, real friends will tell you about it. They might even help you learn it. Your friends can help you see what you can’t see. They’ll help you, you’ll help them, you’ll all do better and go further.   You have a team. Some of your key teammates are your friends. And the ones you share your dreams, fears, and hopes with are the people most able to help you get where you should be going. Because, again: Friends will tell you not what you want to hear but what you need to hear. https://greylock.com/greymatter/reid-hoffman-the-importance-of-friendship/

Timber trading is soaked in blood of the impoverished

Illegal logging destroys habitats, contributes to erosion and the propagation of invasive species, hurts indigenous communities, and interferes with carbon sequestration and the production of fresh air. It’s also extremely lucrative. Timber trafficking generates $50 to $150 billion each year. Around 10 to 30 percent of the international trade in timber is estimated to be illegal; in the tropics, the figure is closer to 90 percent. The business is violent, often tied up with drug smuggling, game poaching, money laundering, and the persecution of indigenous leaders and environmentalists. As U.S. Customs and Border Protection puts it, “The illegal timber trade is soaked with blood.”   Although it is big business, tree poaching is deeply tied to poverty. The forest offers a last-ditch haven for those whom society has failed. https://harpers.org/archive/2022/08/tree-sleuths-how-dna-is-transforming-the-fight-against-illegal-logging

Master the basics

Everyone wants advanced knowledge. But it’s typically the basics that matter most.   Most math is arithmetic, not algebra. Running a business is largely a matter of keeping revenues above costs. Good writing is the product of clear ideas and clean sentences.   All skills break down into elemental components–coding has commands, painting has brushstrokes, comedy has jokes. Mastery of the performance results from mastery of the parts.   We ignore the basics, not because they’re hidden, but because they’re so obvious. Thoughtlessness saves effort but inhibits improvement. Bringing attention back to the basics doesn’t come automatically. We adjust our habits only when they fail to deliver results. https://www.scotthyoung.com/blog/2022/07/25/basics/

One more step towards reducing obesity medically

Wegovy, made by Danish drugmaker Novo Nordisk, is the first in what is shaping up to be a new generation of obesity treatments, which use a hormone to regulate appetite.   Wegovy arrived on the market amid a global obesity crisis. Almost half of Americans are expected to be obese by 2030, a Harvard study found, and that could account for up to 18 per cent of healthcare spending on related conditions, ranging from heart disease and stroke to osteoarthritis. Worldwide obesity rates have tripled since 1975, with 650 million adults obese in 2016, according to the World Health Organization.   When we eat, cells in the small intestine secrete GLP-1, causing the release of insulin, which in turn tempers fluctuations in blood sugar levels. While experimenting with how to create a new hormone, GLP-1-based drug, in the 1990s, Novo Nordisk lab scientists noticed their mice and rats began to lose weight. The hormone’s effect on the brain, they discovered, is to reduce appetite and create a feeling of fullness. https://www.ft.com/content/96a61dc0-249a-4e4e-96a2-2b6a382b7a3b