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Friday 28 June 2019

Weekly Reading - Some Interesting Stuff


1) One business where Amazon failed
Amazon plans to shutter its four-year-old Amazon Restaurants delivery service in the US this month. Amazon started the food-delivery service as on-demand meals were becoming big business for tech startups, with companies like Postmates, DoorDash, Caviar, and Uber Eats competing to deliver food from restaurants to consumers. Others, like Sprig and Maple, went further, vying to both prepare and deliver freshly cooked meals. In the US, Amazon Restaurants was available for free to customers with a $119-a-year Prime account.
Restaurants aren’t the first delivery-based business to evade Amazon, which is otherwise a master of logistics. The company has famously struggled to make online grocery-delivery work, with Amazon Fresh still a niche player more than 10 years after its launch.
Food delivery is a tough business with complex logistics, labor practices that are often poor, and notoriously thin margins. Many of the hottest delivery companies in Silicon Valley just a few years ago have since gone out of business.


2)  A real simple guide to the controversial paper by Arvind Subramanian
This is a very well-articulated, yet simple article on what Arvind Subramanian has talked about in his paper on GDP mis-representation. A must-read.


3) Chennai is facing an unprecedented water crisis; and it can spread to all of India, unless we start acting fast
Rains have become more erratic because of climate change. That, coupled with a delayed arrival of the seasonal monsoon, which usually comes in June, has all but dried up Chennai's water supply. Government data show that the storage level in the four lakes combined is less than one-hundredth of what it was at this time last year. A severe heat wave gripping most of India, including Chennai, has aggravated conditions.
What's happening in Chennai could easily happen anywhere across India
Public institutions are suffering. Hospitals and nursing homes are charging more for services to cover the increased cost of water, according to the local press. There are also reports that toilets at schools are dirty due to a lack of water.
One thing that could have possibly averted this acute water shortage? Rainwater harvesting.
In 2002, the government of Tamil Nadu passed legislation that mandated rainwater-harvesting structures on all buildings, including private homes, in the city. The goal: to capture rainwater and store it for later use. It was a revolutionary idea. When the city got hit with heavy monsoon rains a few years later, rainwater harvesting raised the water table enough to last the city until 2016.


4) Understanding the psychological drivers behind the mistake made by Bill Ackman on Herbalife
Although this article does not deal with the psychology, it does provide the narrative of what happened in the Herbalife deal. I was thinking on the errors made by Bill Ackman. Incentive caused bias, endowment bias, commitment and consistency bias scream at me. That is why it is never a good idea to take a public stand on a stock and make its success a matter of one's own ego.


5) JP Morgan's view on how to navigate a cycle which may be peaking
JP Morgan is not suggesting that US is getting into a recession yet believe that investors should start taking precautions. Moving to higher quality bonds and equities is the first and most important step. Looking at investments from a yield perspective and moderating capital appreciation expectations is the next. The third is to look where the growth is. Trade war, global manufacturing slowdown and liquidity in markets are all marked as risks.

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Tuesday 18 June 2019

[ET Markets video ] Things to look at before buying a stock

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Friday 14 June 2019

Weekly Reading - Some Interesting Stuff


1) No more laundry - how will detergent companies handle this disruption??!!
Unbound is part of a broader wave of startups designing clothes that require less laundering. An eco-friendly brand called Pangaia, which launched late last year and already counts celebrities like Jaden Smith and Justin Bieber as fans, creates $85 seaweed fiber T-shirts that are treated with peppermint oil to keep the shirts fresher longer between washes. The brand estimates that this will save about 3,000 liters of water over the course of a lifetime, compared to a regular cotton T-shirt. Then there is menswear label Wool & Prince, which creates everything from $128 oxford shirts to $42 boxer briefs out of wool, all designed to be washed infrequently. Last year, the company launched a sister womenswear brand called Wool& that makes dresses that can be worn for 100 days straight without washing.

2) Alpha in investing is derived from behavioral psychology
Alpha is finance-geek speak for an investor’s skill that allows her to outperform an index. In a sense, all alpha is behavioral. Whether you follow an algorithm (set of automatic rules) to select investments, decision rules, gut feeling or all three. It is a human who is making the trading decisions. (Even an algorithm is programmed by humans, with all their biases and skills.)
The most direct thing individuals can do to reduce their negative alpha, is to trade as little as possible, minimize costs and above all, keep it simple. Behavioral alpha is about building our skills and knowledge about both the financial markets and our own decision-making processes. The first job is to avoid the costly mistakes.

3) A new digital bank in Brazil is shaking up the traditional banking industry
Not many people are familiar with Nubank, a digital bank that has become the most valuable startup in Latin America by extending credit cards to the unbanked and challenging the financial system of one of the world’s biggest markets, Brazil. Brazil is a particular opportunity — 55 million people there don’t have access to a bank, primarily in the country’s poorest households. Even Brazil’s own government has criticized the country’s banks for gouging locals for “excessive” profits, with the country’s economic chief saying this week that insufficient competition had led to a “cartelized” economy. The top five banks in Brazil, led by Itaú Unibanco, control about 82 percent of assets that are banked. Nubank announced last month that it was expanding to Mexico, where it plans to launch credit cards later this year. The company envisions serving millennial customers all across Latin America and possibly could represent a way for younger, internet-connected customers to avoid the bureaucracy found commonly in their home countries.

4) I have been wondering why I see a lot more bearded men all around these days. Two interesting articles giving a perspective on this.
The razor industry nervously recorded a 5 percent decline in sales last year as men’s shaving frequency has continued to decline; producers of shaving accouterments have tried to cut prices and diversify into new grooming products, having apparently accepted that our beards are here to stay.
We can thank the Global War on Terror and the reluctance of military leaders to impose discipline on special operations forces.The war on terror widened, and more tactical operators—Green Berets, Seals, Rangers—got explicit or tacit approval from military higher-ups for their beards while on missions in the Middle East and Southwest Asia, once-unheard-of exceptions to the services’ longstanding grooming regulations, which had posited that facial hair might run counter to good order and discipline. The evidence of this is the proliferation of beards in the military, which now extends to civilian society. We worship the post-9/11 military operator.

5) An investigative report on Eros International
Eros’s key Indian operating subsidiary had its credit rating lowered 10 notches to “default” by CARE ratings, the second largest Indian ratings agency. The issue, according to CARE was “a slowdown in collection from debtors”.
After extensive on-the-ground research in India, interviews with multiple former employees, and a detailed review of Indian private company filings, we believe the underlying problem is that a significant portion of Eros’s receivables don’t actually exist.
We have uncovered details of highly irregular related-party transactions. For example, Eros has directed $153 million to a supposed production company based in tiny office located in a residential Mumbai slum. The entity is operated by the brother-in-law of Eros’s Chairman and CEO.
We have also documented what we believe to be multiple undisclosed related-party transactions that appear designed to hide receivables.
It is hard to imagine Eros’s equity makes it out of this scenario intact. We expect the price of both the BSE and NYSE stock to end up worthless, barring some sort of bailout from a friend of Eros’s leadership.
In our opinion, this situation has arisen due to a complete failure of Eros’s auditor, Grant Thornton, to apply even basic scrutiny to Eros’s financials.

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Thursday 6 June 2019

Weekend Reading - Some Interesting Stuff

1) The chocolate we eat is produced by child labour and no one is doing anything about it
Mars, Nestlé and Hershey pledged nearly two decades ago to stop using cocoa harvested by children. Yet much of the chocolate you buy still starts with child labor. The farms in Ivory Coast  form the world’s most important source of cocoa and are the setting for an epidemic of child labor that the world’s largest chocolate companies promised to eradicate nearly 20 years ago.
About two-thirds of the world’s cocoa supply comes from West Africa where, according to a 2015 U.S. Labor Department report, more than 2 million children were engaged in dangerous labor in cocoa-growing regions.
One reason is that nearly 20 years after pledging to eradicate child labor, chocolate companies still cannot identify the farms where all their cocoa comes from, let alone whether child labor was used in producing it.


2) Puncture-proof tires, at last
Michelin is developing a tire called the Uptis (or Unique Puncture-proof Tire System), which is a tire that cannot ever go flat or blow out because it doesn’t require oxygen to stay rigid. Instead, the Uptis features an internal system of flexible spokes that support the tire.
Airless tires are not an entirely new idea. They already exist in the world of cycling, and even Michelin sells something called the Tweel for lawnmowers. The Tweel looks a whole lot like a mini version of the Uptis, with the same rubbery spokes in the middle of the tire. As the Tweel’s marketing materials explain, those spokes don’t merely replace the need for air, they work like mini shock absorbers, deforming to bumps to ensure a smoother ride than a bouncier, inflated tire offers today. Yet the car industry has been shy to adopt airless tires because, when properly contained, air is in many ways the perfect material for a tire. Air is virtually weightless, so it doesn’t impact a vehicle’s performance and efficiency. Air can also be hit with bump after bump and it doesn’t lose any structural integrity. After all, it’s just air.


3) We are eating microplastics!
Every day we are ingesting tiny, often microscopic pieces of plastic -- "microplastics" -- with our food, beverages and with the very air we breathe.
Those who exclusively drink bottled water rather than tap water can add up to 90,000 plastic particles to their estimated annual total.
The full impact on our health isn't known. Research shows some particles are small enough to enter our tissues, where they can trigger an immune reaction, or release toxic substances and pollutants absorbed from the environment, including heavy metals.


4) Overtourism is a new phenomenon
Late in May, the Louvre closed. The museum’s workers walked out, arguing that overcrowding at the home of the Mona Lisa and the Venus de Milo had made the place dangerous and unmanageable.
This phenomenon is known as overtourism. That has led to environmental degradation, dangerous conditions, and the immiseration and pricing-out of locals in many places.
The root cause of this surge in tourism is macroeconomic. The middle class is global now, and tens of millions of people have acquired the means to travel over the past few decades. International-tourist arrivals around the world have gone from a little less than 70 million as of 1960 to 1.4 billion today: Mass tourism, again, is a very new thing and a very big thing.
A number of places have implemented or expanded or proposed tourist taxes, among them Amsterdam, Bali, Edinburgh, Ireland, Rome, and Venice. These levies on hotels and day trips both reduce the number of visitors to a given place and provide it with revenue to improve infrastructure and defray the damage that tourists inevitably cause. Governments are also rolling out regulations, such as bans on tour buses in Rome and gating-and-ticketing in Barcelona.


5) Away, creating Instagram-friendly luggage, bets on the overtourism boom
The startup world has a new unicorn, and its name is Away. Away joins the ranks of other “unicorns” — private companies worth over $1 billion— like Slack and WeWork.
The global industry for luggage will be worth nearly $55 billion by 2025, according to one estimate by Hexa Research.
Away boasts a direct-to-consumer model that helps them stay out of the red. “We’re profitable on each suitcase that we sell,” Rubio told Yahoo Finance. In just over 3 years in business, Away has sold over a million suitcases— and is on track to make $300 million in revenue this year. It has plans to open 50 more stores in the next few years.


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Friday 31 May 2019

Weekend Reading - Some Interesting Stuff


1) Can cancer be treated by bioelectricity?
The human body—including the brain—runs on electricity - the movements of mostly positively charged ions of elements like potassium, sodium, and calcium.
Two recent meta-analyses concluded that amplifying the natural wound current with electrical stimulation prevented them all from getting worse, and even healed some of the worst ones completely. Electrical stimulation almost doubles their healing. Similarly intriguing results have been obtained for non-healing diabetic wounds—the kind that lead to the amputation of limbs, which usually leads within a few years to death.
Cancer is beginning to be viewed increasingly as a failure of communication; a misregulation of the field of information that orchestrates individual cells’ activities towards functioning as part of a normal living system. Individual cells “forget” they are part of a larger whole and treat the rest of the body as an environment whose resources can be exploited to feed themselves.
In 2013, Levin’s group showed that they could prevent or reverse some tumors in tadpoles by using drugs to target their bioelectric signaling. The same drugs could turn cancer on and off at a distance, by treating the environment, not the cells themselves.
The broader implication still is that within the next decade, we could learn enough about bioelectricity to change how cell networks communicate and make decisions about how they grow and develop. New computational modeling tools will be a major factor here.


2) China's food delivery app boom has an odd fallout - plastic
The astronomical growth of food delivery apps in China is flooding the country with takeout containers, utensils and bags. And the country’s patchy recycling system isn’t keeping up. The vast majority of this plastic ends up discarded, buried or burned with the rest of the trash.
Scientists estimate that the online takeout business in China was responsible for 1.6 million tons of packaging waste in 2017, a ninefold jump from two years before. That includes 1.2 million tons of plastic containers, 175,000 tons of disposable chopsticks, 164,000 tons of plastic bags and 44,000 tons of plastic spoons.
More plastic enters the world’s oceans from China than from any other country. Plastic can take centuries to break down undersea.


3) Sustainable growth is more important than PE multiple
The reason that Wal-Mart produced a fantastic return from 1974 to now is not that it was cheap relative to its present or near-term future earnings.  By the standards of 1974, it was actually a growth stock–priced at almost twice the market multiple.  In the current market, an equivalent valuation would be something like 30 or 40 times earnings–for a business with uncomplicated earnings that had already been in operation in Arkansas for three decades.  It produced a fantastic return because it was a fantastic business, with miles and miles of growth still in front of it.


4) The way to master more things is to simply focus on one thing right now
When you begin practicing a new habit it requires a lot of conscious effort to remember to do it. After awhile, however, the pattern of behavior becomes easier. Eventually, your new habit becomes a normal routine and the process is more or less mindless and automatic.
The counterintuitive insight from all of this research is that the best way to change your entire life is by not changing your entire life. Instead, it is best to focus on one specific habit, work on it until you master it, and make it an automatic part of your daily life. Then, repeat the process for the next habit.


5) Walk 5000 steps a day, not 10,000 for the health benefits
There's nothing magical about the number 10,000.
In fact, the idea of walking at least 10,000 steps a day for health goes back decades to a marketing campaign launched in Japan to promote a pedometer. And, in subsequent years, it was adopted in the U.S. as a goal to promote good health.
In fact, women who took 4,400 steps per day, on average, were about 40 percent less likely to die during the follow-up period of about four years compared with women who took 2,700 steps.
The benefits of walking maxed out at about 7,500 steps. In other words, women who walked more than 7,500 steps per day saw no additional boost in longevity.

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Monday 27 May 2019

An Overview Of The Markets

Some time back I shared this with the members of the Intelsense advisory services. 

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Friday 24 May 2019

Weekly Reading - Some Interesting Stuff


1) Finland is teaching school students how to identify fake news (and we should follow suit)
As the trolling ramped up in 2015, President Sauli Niinisto called on every Finn to take responsibility for the fight against false information. A year later, Finland brought in American experts to advise officials on how to recognize fake news, understand why it goes viral and develop strategies to fight it. The education system was also reformed to emphasize critical thinking.
“It’s not just a government problem, the whole society has been targeted. We are doing our part, but it’s everyone’s task to protect the Finnish democracy,” Toivanen said, before adding: “The first line of defense is the kindergarten teacher.”
The students broke off into groups, grabbing laptops and cell phones to investigate their chosen topics – the idea is to inspire them to become digital detectives, like a rebooted version of Sherlock Holmes for the post-Millennial generation.
Her class is the embodiment of Finland’s critical thinking curriculum, which was revised in 2016 to prioritize the skills students need to spot the sort of disinformation that has clouded recent election campaigns in the US and across Europe.

2) The slow building of the second iron curtain - China and US fight it out with Huawei caught in the crosshairs
The worries about Huawei have historically stemmed from the fact that the company’s founder, Ren Zhengfei, was a technician for the People’s Liberation Army prior to founding Huawei — not to mention the tens of billions of dollars the Chinese government has invested in the company. Fears have been exacerbated in the wake of China’s passage of its National Intelligence Law and other cybersecurity laws in 2017, which, according to Lake, “compel corporations to assist in offensive intelligence operations” instead of just requiring them to cooperate with law enforcement on national security matters.

3) India starts spending meaningfully for solar energy
India's investments in renewable sources are now outpacing those in fossil fuels. The falling costs of bringing solar power online as well as favourable government policies have seen solar’s star rise in recent years. At a time when other nations are curbing coal use, India is bucking the trend and the vast majority of the country is still powered by fossil fuels, mostly coal.

4) One of the oldest industries (meat industry) is about to be disrupted by factory produced meat
In the foothills of a mountain in a rural part of Japan northwest of Tokyo, a farm called Toriyama painstakingly breeds and raises cattle to make Wagyu beef–delicately marbled meat that sells for around $100 a pound. In a lab in San Francisco, food scientists now plan to recreate Toriyama’s meat in a bioreactor.
The best way to deal with the meat challenge is just to make better meat without all the issues associated with killing animals today.” Those aren’t just issues of animal ethics; the meat industry is also one of the world’s largest contributors to climate change. The basic techniques aren’t new and have been used in medical research for decades–for example, in tissue engineering of organs for drug discovery. The company still has major challenges ahead. After researchers figure out how to make cells grow quickly enough to address cost issues, it will move its focus to flavor; the nutrients fed to the cells can be tweaked to affect the taste of the meat.

5) How could auditors miss the issues in IL&FS?
There are a host of allegations against the auditors, from missing out on the sprawling IL&FS subsidiary empire and not highlighting the asset-liability mismatch on the company’s books, to inappropriate valuation of assets, poor recognition of non-performing assets (NPAs), and non-detection of circular rotation of funds between group entities.
The glaring failures prompted the government to set an example with this case. “Do the auditors work for the management or for stakeholders. Can auditors blindly accept the version of the management and rely on comfort from management?" asked a senior SFIO officer.

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