Intelsense Insights - Weekend Reading

 

Intelsense Insights

I shared some thoughts on ET NOW this week on sectors which look interesting and on the overall market & economy. You can watch it on YouTube or if you prefer reading, below is the link to the transcript.

Interesting sectors to invest in

abhishek basumallick: Can't rule out 5-8-10% corrections over next couple of months; market to be stronger by Diwali: Abhishek Basumallick - The Economic Times “ We cannot rule out some 5-8-10% corrections over the next couple of months but somewhere, close to the end of September-October, we should see better inflation numbers coming in primarily because of base effect. The narrative also will start changing. We are more likely to see a much stronger market by Diwali time.” economictimes.indiatimes.com

Thinking clearly and independently

By definition, we’re blind to what we can’t see. When looking for answers, we’re like the proverbial drunk who only looks for their keys in places where the light is shining. This Spotlight Effect distorts our thinking and limits the ideas we can discover.   Jumping to conclusions limits your ability to discover the truth, because you can’t jump to conclusions outside the spotlight. By law, you can say just about anything. But that’s not the case in practice. There’s a frame around the range of acceptable opinions, which allows for lively debate only within that range. That’s how thought control happens. The assumptions of a culture determine the aperture of mainstream thinking. Knowing that axioms will mold the ultimate shape of an idea, good philosophers tend to critique the premise of an idea—the frame—instead of the conclusion.   F. Scott Fitzgerald, who wrote The Great Gatsby once said: “The test of a first-rate intelligence is the ability to hold two opposing ideas in mind at the same time and still retain the ability to function.” https://perell.com/essay/how-philosophers-think/

Use inversion for better outcomes in life

The Stoics believed that by imagining the worst case scenario ahead of time, they could overcome their fears of negative experiences and make better plans to prevent them. While most people were focused on how they could achieve success, the Stoics also considered how they would manage failure. What would things look like if everything went wrong tomorrow? And what does this tell us about how we should prepare today?   This way of thinking, in which you consider the opposite of what you want, is known as inversion.    Inversion is a powerful thinking tool because it puts a spotlight on errors and roadblocks that are not obvious at first glance. What if the opposite was true? What if I focused on a different side of this situation? Instead of asking how to do something, ask how to not do it. https://jamesclear.com/inversion

How to be happy?

Happiness is your responsibility, not Mother Nature’s. That means you need to curtail your worldly appetites, and instead pursue what truly brings enduring happiness: a faith or life philosophy, family relationships, real friendship, and meaningful work.   You can’t choose how much love you will get, but happiness depends more on how much you give. And what you give your love to matters just as much. To be happy, a person “neither loves what he ought not love, nor fails to love what he ought to love.” Here’s a handy formula to go by: Happy people love people and use things; unhappy people use people and love things.   Happy feelings are evidence of happiness, which is a combination of enjoyment, satisfaction, and purpose. Improvement in these areas requires commitment and effort, like anything else that is worthwhile. But if you do the work, you will most definitely see substantial results. https://www.theatlantic.com/family/archive/2022/07/pillars-of-happiness-from-100-lessons-on-how-to-be-happy/670586/

Observe the shift in industry dominance on football jerseys

Sponsoring a football club is about using the world’s most watched sport to promote your brand. Getting your company’s logo on the shirt of a team like Liverpool or Real Madrid means tying your brand to a global icon. And for decades, it’s been a route taken by emerging tech companies, flush with cash to burn and a name to earn.   But these sponsorships actually reveal something about the tech industry as a whole: when you trace the history of these commercial deals across the decades, patterns emerge. Entire sectors of the industry — from cars to consumer tech to gambling websites — seem to jump into the sport at once, signalling their rise to, or the desire to, dominate global markets where football is also part of everyday life.   Japanese consumer electronics brands were among the first tech companies to dive into shirt sponsorship. Their logos adorned the shirts of clubs from England to Italy across the ’80s and ’90s, mirroring the rise of those companies in the wider world.   Believe it or not, Samsung Mobile was a small player in the world of handsets when their deal began with Chelsea in 2005. By the time it ended in 2015, Samsung was the biggest smartphone maker in the world. https://restofworld.org/2022/football-shirt-tech-sponsorship/

Don't play the game of life

While relationships are complex, at their core all healthy fulfilling relationships require genuine mutual affection. Simply put, you should be rooting for the people in your life to succeed, happy if they get a promotion or their kid gets into Harvard. This is next to impossible if you view your life as a competition and the people in it as competitors.   When you view life as a game, you want others to fail — or at least to be slightly less successful than you are. Viewing life as a competition converts friends and family from people you care about to these uneasy, ambiguous relationships where you’re partially rooting for these people…but simultaneously also trying to beat them at the game of life.   You’re a unique individual, with your own strengths and weaknesses, your own goals and preferences. The good life is about trying to live according to your values and make the trade-offs that maximize your happiness. This simply isn’t possible when you abide by what the game values: money, consumption, academic prestige, youth athletic excellence. The moment you enter the game, you’ve surrendered your autonomy and are prioritizing what others deem important. You’re chasing life goals that you had no role in formulating but which now you’re pursuing for the sake of “winning.” https://www.getrichslowly.org/life-is-not-a-game/

Weekend Reading

 

Intelsense Insights

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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