Weekly Reading - Some Interesting Stuff

It is tempting to lay the blame for Nokia’s demise at the doors of Apple, Google and Samsung. Nokia had begun to collapse from within well before any of these companies entered the mobile communications market.

Nokia’s leaders were aware of the importance of finding what they called a “third leg” – a new growth area to complement the hugely successful mobile phone and network businesses. Their efforts began in 1995 with the New Venture Board but this failed to gain traction as the core businesses ran their own venturing activities and executives were too absorbed with managing growth in existing areas to focus on finding new growth.

Nokia also got trapped in its Symbian OS ecosystem. By 2009, Nokia was using 57 different and incompatible versions of its operating system.

Nokia’s decline in mobile phones cannot be explained by a single, simple answer: Management decisions, dysfunctional organisational structures, growing bureaucracy and deep internal rivalries all played a part in preventing Nokia from recognising the shift from product-based competition to one based on platforms.

Read more at https://knowledge.insead.edu/strategy/the-strategic-decisions-that-caused-nokias-failure-7766#XFxjbOup1fAv9Yyk.99

Interesting article on how China is looking more and more to become self-reliant and independent industrially. Its huge domestic market is becoming more important to Chinese growth. But beyond even that, Beijing’s entire economic strategy is designed to replace critical foreign technology and products with homegrown alternatives it can control. Simply, the Communist Party prefers Chinese to buy Xiaomi phones and Geely cars, not iPhones and Buicks.

That’s exactly what the much-feared “Made in China 2025” program is all about. The plan is to develop new, high-tech industries to compete with and eventually replace foreign rivals, at home and abroad. In that sense, it’s official policy to limit overseas involvement in the economy.

Read the full article at https://www.bloomberg.com/view/articles/2018-09-09/china-s-far-from-desperate-to-make-a-trade-deal-with-trump

Following the previous article, here is another one which takes a bleaker view of China's future.

On the macro level, China’s growth is likely to continue to decelerate, owing to rapid population aging, high debt levels, maturity mismatches, and the escalating trade war that the US has initiated. All of this will drain the CPC’s limited resources. For example, as the old-age dependency ratio rises, so will health-care and pension costs.

Like the Soviet Union, China is paying through the nose for a few friends, gaining only limited benefits while becoming increasingly entrenched in an unsustainable arms race. The Sino-American Cold War has barely started, yet China is already on track to lose.

Read the full article at https://www.project-syndicate.org/commentary/china-cold-war-us-competition-by-minxin-pei-2018-09

Very good coverage of Raghuram Rajan's letter to the Parliamentary committee on bank loans

Read the full article at https://www.thequint.com/news/india/raghuram-rajan-letter-on-bad-loans

A peek into how Google can fail. The reliance of Google on ads for revenue will meet a stumbling block when more and more searches move to voice and non-screen based devices like Alexa or Google Home.

https://hackernoon.com/how-google-collapsed-b6ffa82198ee

A wonderful walk down memory lane to look back over 30 years of making charts and maps for The Economist

https://medium.economist.com/data-visualisation-from-1987-to-today-65d0609c6017

Stock Story: Transpek Industry Ltd

Here is a short stock story on Transpek Industries.

Transpek Industry Ltd by abhishekbasumallick on Scribd

Book Review: Essentialism

Essentialism - The Disciplined Pursuit of Less is authored by Greg McKeown. I read this and Deep Work by Cal Newport in succession. (I will cover Deep Work in another post)

Like the name suggests, Essentialism talks about understanding what is essential to your life and then going ahead and concentrating to do it well. The author argues that following the Pareto Principle, most of the things in life are non-essential. 

I found this book to be a reminder for prioritizing the most important and valuable aspects and ignoring the rest. The concepts in the book are very valuable for an investor. Today, the biggest challenge for investors is not the access to information but on how to filter out the noise. There are hundreds of stock ideas floating around every day on WhatsApp groups, web forums, TV channels etc. Unless we are very clear on what to ignore, we will keep running from one thing to the other without being able to study and understand any one in depth.

Some points I found interesting in the book are as follows:

The pursuit of success can be a catalyst for failure. Put another way, success can distract us from focusing on the essential things that produce success in the first place.

In The Tao of Warren Buffett, Mary Buffett and David Clark explain: “Warren decided early in his career it would be impossible for him to make hundreds of right investment decisions, so he decided that he would invest only in the businesses that he was absolutely sure of, and then bet heavily on them. He owes 90% of his wealth to just ten investments. Sometimes what you don’t do is just as important as what you do.”

“You have to look at every opportunity and say, ‘Well, no … I’m sorry. We’re not going to do a thousand different things that really won’t contribute much to the end result we are trying to achieve.’ ”

“I think it’s critical to set aside time to take a breath, look around, and think. You need that level of clarity in order to innovate and grow.” The demands of each day kept him from really stepping back to get perspective.

As with choice, people tend to think of focus as a thing. Yes, focus is something we have. But focus is also something we do.

“In the age of his celebrity, Newton was asked how he had discovered the law of universal gravitation. ‘By thinking on it continually’ was the reply.… What he thought on, he thought on continually, which is to say exclusively, or nearly exclusively.” In other words, Newton created space for intense concentration, and this uninterrupted space enabled him to explore the essential elements of the universe.

The faster and busier things get, the more we need to build thinking time into our schedule. And the noisier things get, the more we need to build quiet reflection spaces in which we can truly focus.

Our highest priority is to protect our ability to prioritize.

Likewise, in your life, the killer question when deciding what activities to eliminate is: “If I didn’t have this opportunity, what would I be willing to do to acquire it”. 

Peter Drucker believed that “people are effective because they say no”. “We need to learn the slow ‘yes’ and the quick ‘no.’ ”

Weekly Reading - Some Interesting Stuff

Here are some articles I read during the week which I found interesting, useful or amusing. Have a great weekend.

Beliefs are almost invincible – the more they’re repeated, the more they’re believed, and the more they’re challenged, the more they’re believed. Thus, the only way to weaken a belief is to let it be – to leave it alone. The longer it’s disregarded the weaker it gets. Any attention, positive or negative, acts as fuel for the fire.

https://bigthink.com/wikimind/youre-being-polarized-how-social-media-strengthens-your-beliefs-good-bad

How to de-clutter your mind and keep things simple

https://the-ken.com/story/tsundoku-mental-clutter/

Though meant for the iPhone users, this is a great guide on how to minimize distractions from your mobile phone

http://www.tristanharris.com/2016/01/distracted-in-2016-welcome-to-mindfulness-bootcamp-for-your-iphone/

Extraordinary article on China’s decline from a self-absorbed great empire to an abject victim of global powers was one of the swiftest and most psychologically devastating in history, and it remains a driving force behind the country’s modernization. And all of it began with the Opium War. [requires free login]

https://www.project-syndicate.org/onpoint/drugs-gunboats-and-china-s-score-to-settle-by-minxin-pei-2018-08

Thinking about providing a recurring service required by people can help convert transactions to the subscription model.

https://www.gsb.stanford.edu/insights/why-every-business-will-soon-be-subscription-business

How AI is helping model human behaviour in a religious and cultural setting

https://medium.com/the-atlantic/artificial-intelligence-shows-why-atheism-is-unpopular-c6931a2da660

How Oslo is working to be a model EV city

https://www.weforum.org/agenda/2018/08/the-oslo-model-how-to-prepare-your-city-for-electric-vehicles

Book Review: What Works on Wall Street

Since I started investing in 2000, I have read literally thousands of books related to investing, business, biographies, history, behavioural psychology and economics. I have written about a few books on my blog before. Recently, a very close friend asked me to suggest to him a list of 52 books that he would read one a week. In my endeavour to pick some great books across genres, I thought I will start posting book reviews from my notes of some of the books I read, liked and disliked over the years. 

I also intend to add a page to this blog for a ready list of the books. If anyone has any great books they have read and loved, please let me know the name and why you loved it and I will try to add it to my reading list. Happy reading.

Today I will start by posting a brief of a book on quantitative investing that I read this year. I highly recommend this book for all serious investors.

What Works on Wall Street by James O'Shaughnessy.

James O'Shaughnessy was the founder and now Chairman of O'Shaughnessy Asset Management. Patrick O'Shaughnessy, his son, is the host of the extremely good and popular podcast Invest Like the Best (this podcast is a must-listen in my opinion).

The author is one of the pioneers of quantitative investing and has run his firm successfully through multiple market cycles that have proved that his strategies work.

Now to the book. The author starts with traditional active fund management does not work. His approach is to build "indices" or portfolios by various quantitative methods and calculating the performance of the portfolio accurately. He also mentions that it is important to be able to "backtest" his quant strategies over an extended period of time (preferably many decades) to check its reliability across market cycles and events.

The second key concept in the book is that quant strategies help in taking away behavioural biases of the investor. Even the best of investors, often times "goes by the gut" and can make mistakes. He stresses on building models based on "factors" which better determinants of value. He discusses a number of ratios in the book and how to use them in models including their deficiencies.

The book then goes on to explore multi-factor models to improve performance. He also discusses using bringing value and growth factors together in his models, understanding base rates and worst-case scenarios of the strategy that is built.

Some snippets of his wisdom:

If you can’t use strategies, and are inexorably drawn to the stock of the day, your returns suffer horribly in the long run.

The point is that, at some other time in the future, any of the strategies in this book will underperform the market, and it is only those investors who can keep their focus on the very long-term results who will be able to stick with them and reap the rewards of a long-term commitment. Nevertheless, you should always guard against letting what the market is doing today influence the long-term investment decisions you make.

Always focus on strategies whose effectiveness is proven over a variety of market environments. The more periods you can analyze, the better your odds of finding a strategy that has withstood a variety of stock market environments.

There is no point in using the riskiest strategies. They will sap your will, and you will undoubtedly abandon them, usually at their low. Given the number of highly effective strategies, always concentrate on those with the highest risk-adjusted returns.

Unless you’re near retirement and investing only in low-risk strategies, always diversify your portfolio by investing in several strategies.

Note: There are 2 comments about this book that I will make before closing. 
1. This is not an inexpensive book. However, the way I personally think about it is that I am getting the entire lifetime's experience of the author for a couple of thousand rupees. That to me is a bargain.
2. This book may not gel well with "value investors" at first due to its approach. However, it is important to understand the concept of strategies and factors. This book is worth a read just to understand these two concepts.

Sweden is Going Cashless

I was reading an interesting piece on how Sweden is expected to go cashless by 2023. Some interesting snippets from it are below:

This is possible in Sweden because even though cash is a legal tender, contract laws have a higher precedence than banking and payment laws here. If a store puts up a sign that it does not accept cash, then you, as a customer, have entered a contract or an agreement with that store that they don’t accept cash. But in other countries, like Denmark for instance, payment laws have higher precedence than contract laws. In those countries, if something is a legal tender, then according to the law a store must accept it. This is one of the key reasons why Sweden is more cashless than other countries — because of its legal framework.

... in the early 2000s, the central bank decided to outsource its printing and distribution of cash. The central bank said it didn’t see cash as its core business.

Something unique to Sweden was a spate of robberies which resulted in the unions of various organizations like bank employees, bus drivers, cab drivers and others pushing for a cash-free society in order to protect their members. In 2007, in an effort to transform black-market work to white-market work, the government introduced tax deductions for domestic services like home repairs, baby-sitting, laundry and so on. This meant that people did not need to keep cash to pay for these services. It led to a dramatic drop in the need for cash. 

In 2015 to 2017, Sweden replaced its existing notes and coins with new ones. When this happened, cash was deposited into accounts but not all of it was taken out. 

An advantage of a cashless society is that it will be easier to trace criminal activities and we might be able to block some of them. The disadvantage is that everyone can be traced. We will be more traced than we are today. We will lose our privacy.

Read the full article here - http://knowledge.wharton.upenn.edu/article/going-cashless-can-learn-swedens-experience/

Weekly Reading: Some Interesting Stuff

A sneak peak into Elliot Management, the company which came to the notice of Indian investors, because of their activism in Cognizant Technology Services.
https://www.newyorker.com/magazine/2018/08/27/paul-singer-doomsday-investor

A very useful article on the different aspects of taking notes.
https://www.lifehack.org/794683/note-taking-tips

An interview of Joel Greenblatt
https://seekingalpha.com/article/4201803-joel-greenblatt-interview-magic-formula-stock-market-investing

The risk of China in steel sector
https://www.livemint.com/Money/4OJl6hqGXjrRkH5gwK7EwL/The-steel-industry-is-on-top-but-China-is-a-risk-in-waiting.html

A little bit of learning from and about David Einhorn. First an interview, followed by the problems that he faces these days.
https://acquirersmultiple.com/2017/12/david-einhorn-theres-one-rule-of-investing-that-has-served-us-well/
https://www.institutionalinvestor.com/article/b1875gtp13qqyq/what-exactly-happened-to-david-einhorn