Equity Advisory

Are you looking for an honest, transparent and independent equity research and advisory? www.intelsense.in is run by Abhishek Basumallick for retail investors. Subscribe for long term wealth creation.

Friday, 11 June 2021

Weekend Reading

 


Reading across disciplines is one of the best ways to improve our investment acumen. Here is a summary of some of the best articles I read this week. If you like this collection, consider forwarding it to someone who you think will appreciate it.


1. Play your own game
If you view investing as a single game, then you think every deviation from that game’s rules, strategies, or skills is wrong. But most of the time you’re just a marathon runner yelling at a power lifter. So much of what we consider investing debates and disagreements are actually just people playing different games unintentionally talking over each other.

A big problem in investing is that we treat it like it’s math, where 2+2=4 for me and you and everyone – there’s one right answer. But I think it’s actually something closer to sports, where equally smart and talented people do things completely differently depending on what game they’re playing.

What you want might not be what I want.


2. From Facts to Fake News: How Information Gets Distorted
The scholars analyzed data from 11,000 participants across 10 experiments and concluded that news undergoes a stylistic transformation called “disagreeable personalization” as it is retold. Facts are replaced by opinions as the teller tries to convince the listener of a certain point of view, especially if the teller considers himself more knowledgeable on the topic than his audience.

The effect is amplified on social media. Followers don’t always click on shared content to read the original work for themselves, yet they often accept the conclusion or opinion proffered by the person who posted it.

Another disturbing result the researchers found was the trend toward negativity, even if the original story was positive, and stories tend to become more negative with each reiteration.

“The further removed a retelling is from the original source — again, think of the telephone game — the more negative and more opinionated it becomes,” Melumad said. “It’s really hard to turn this effect off, actually.”

3. The Psychological Benefits of Commuting to Work
Many people liberated from the commute have experienced a void they can’t quite name. In it, all theaters of life collapse into one. There are no beginnings or endings. In a 2001 paper, two researchers at UC Davis attempted to divine the ideal commute time. They settled on 16 minutes. To be sure, this was a substantial shortening of the study participants’ actual commutes (which were half an hour, on average). But it was not zero. In fact, a few wished for a longer commute. Asked why, they ticked off their reasons—the feeling of control in one’s own car; the time to plan, to decompress, to make calls, to listen to audiobooks. Clearly, the researchers wrote, the commute had some “positive utility.”

Consider the morning drive in. While superficially a matter of on- and off-ramps, it also initiates a sequence in which the feelings and attitudes of home life are deactivated, replaced by thoughts of work. This takes time, and if it doesn’t happen, one role can contaminate the other—what researchers call “role spillover.” 

Naturally, he has come up with some rituals to replace the commute and mark the beginning and end of each day. The ideas he’s proposed to clients include lighting variations, warm-up stretches, cell phone-free walks, and, as he demonstrated to me over Zoom, shrouding your computer in a fine blue cloth when you log off, as if it, too, needs a good night’s sleep.

“Rituals are friction,” he told me. Like the commute, “they slow us down. They’re so antithetical to most of our life, which is all about efficiency and speed.”


4. Control your attention instead of controlling your time
Despite the fact that we all have 24 hours a day, we realized that the way we spent those hours resulted in dramatic differences in outcomes. Person A and Person B both experience the same duration of day, but Person A may be much healthier, much wealthier, and much happier at the end of that day than Person B.

With this realization, we figured out how to hack time. How to temporarily cheat the expiration date that we all have. And it can summed up this way: Control your attention instead of controlling your time.

Time follows laws that we have no say over. An hour will be an hour, no matter what. Attention, on the other hand, can be stretched and contracted upon will. We have agency over how we use it, and it gives us a godlike ability to shift our perception of time. An hour may feel like a minute, or it may feel like a day. It all depends on how we use the hour in question.

By using our attention in innovative ways, we learned how to extract incredible value out of preset blocks of time. We used concentration as a tool to power technological progress. 

5. Biodegradable mobile cover
Pivet is a new company that makes smartphone cases. You might think it's a crowded field, however, not only is Pivet a Black-owned business in an industry that has shown little progress with diversity, but its plastic cases are also unusual. Unlike most plastics that take hundreds of years to decompose, Pivet's cases can biodegrade in around two years, according to the company. 

The plastic in Pivet's cases is embedded with a proprietary material called Toto-Toa. This material is comprised of natural and non-toxic ingredients, but Pivet wouldn't specify those ingredients as it's currently seeking intellectual property protection. This mixture purportedly speeds up the natural biodegradation process by attracting micro-organisms when the case enters microbe-rich environments, like landfills or oceans. (No, it won't start to biodegrade when you're still using the case.) These microbes colonize on the surface of the case and then break the plastic down into its raw components.


For building a solid long term portfolio, look at subscribing to www.intelsense.in long term advisory.
For technofunda investing and positional trading, subscribe to our Hitpicks advisory service on www.intelsense.in
For momentum trend following systematic trading, subscribe to Quantamental at www.quantamental.in 

Our Quant systems are also found at https://intelsense.smallcase.com

Wednesday, 9 June 2021

Summary of Annual Reports



Ever since I left my full-time job and started investing full time, one of the most important things I have looked forward to is reading annual reports, especially of lesser-known companies. But I spent a lot of time in the last two years honing my skills in technical analysis and quantitative analysis.

This year my team at Intelsense and I have decided to read as many annual reports as well and summarize the main qualitative parts into 2-3 page documents. It will help in two ways:

  1. Increase the coverage of stocks and understand the stories behind a large number of companies
  2. Have an archive that can be referred to later for a quick review of what happened.

The reason I have focused on the qualitative side is that it is fairly easy to just look up the financials on screener.

I will be posting the summaries on the respective company threads on www.valuepickr.com and also on this blog. In case, the company thread does not exist on VP, I will put it on my catch-all thread (link here: https://forum.valuepickr.com/t/aa-abhisheks-attic-place-to-store-stuff-to-clear-my-head/26195)

If there is any particular AR that anyone is looking to read a summary of, do let me know on and I will try to put it in priority in the queue.

Saturday, 5 June 2021

Quantitative Thinking


Quantitative way of thinking is very critical in today's day and age. For example, if we say an industry has high returns on equity, it is technically a meaningless statement. We should dig deeper. How do we define high? Is high to be defined in absolute terms or relative terms. If relative, relative to what and for how long? The moment you start making an effort to quantify things, you will see a lot more clarity. You will need to spell out your assumptions. There is no place to hide behind vague terminology. 

There is a lot of discussion on the market being in bubble territory. Again, we should stop ourselves and ask, what is a bubble? How do we quantify a bubble? There are a lot of academic papers on quantifying bubbles but suffice it to say that there is no universal definition or quantifying methodology of a bubble. So, we should try and define what we would think a bubble would be in our own terms. A bubble is when a particular asset price goes up significantly over a short period of time without the underlying cashflow (if any) of the asset changing meaningfully. 

So, from a stock market perspective, we could think of a finding out how many stocks are trading say 2x-3x above their 200-day moving average. Another similar approach could be to look at the number of stocks that are above 3 standard deviations of their 200-day moving average. Couple that with a valuation metric like say 3 times PE or PEG or EV/EBIDTA over their mean for 3-5 years. And voila, you have a framework to understand what a bubble looks like. It may not be perfect, but you can keep refining it over time. But your understanding of markets will increase significantly more than listening to random people bandying such terms all over the place.


Thursday, 3 June 2021

Weekend Reading


Reading across disciplines is one of the best ways to improve our investment acumen. Here is a summary of some of the best articles I read this week. If you like this collection, consider forwarding it to someone who you think will appreciate it.


1. Neuroscience explains why social media makes us feel terrible about who we really are
Today, social media is implicated in an array of mental health problems. A report from the Royal Society for Public Health in 2017 linked social media use with depression, anxiety and addiction.

Concerns around social media have become mainstream, but researchers have yet to elucidate the specific cognitive mechanisms that explain the toll it takes on our psychological well being. New advances in computational neuroscience, however, are poised to shed light on this matter. The architecture of some social media platforms takes the form of what some scientists are now calling ‘hyperstimulators’ – problematic digital delivery systems for rewarding and potentially addictive stimuli. According to a leading new theory in neuroscience known as predictive processing, hyper stimulants can interact with specific cognitive and affective mechanisms to produce precisely the sorts of pathological outcomes we see emerging today.


2. The future look into Google from the man who runs the search
I want to be able to get to a point where you can take a picture of hiking boots and ask, “Can these be used to hike Mount Fuji?” We have to make enough sense of the physical world and the online world to be able to answer a question like that with fidelity.

I think the real competition is among the people who are going to reimagine search, in the way we just described—who will let the user be far more expressive and who will do a much better job than today. Today everybody is analyzing the world's information and making sense out of it. My goal is to make sure that we are unparalleled in the understanding of the world.

I want our maps to be built on by far the best model of the 3D world around us, that we interact with every single day. For example, we now bring AR into maps. That's an instance where the experience we provide to you is far richer than the plain old map that we had 15 years ago, which was essentially a paper map stuck on a screen. ut the rightness of that information is critical. Is it crowded there now? Is it open for takeout? During Covid, we had to make literally millions of updates to maps just on opening hours. We've done that through a variety of techniques. 


3. Noise and how to avoid it in the market
Noise is ever-present in the marketplace. It does not vanish simply by holding a company for ten years. It will be present again, and again, and again.

The noise only tends to become weaker when observed in hindsight, as narratives are born and old ones fade in a continuous, repetitive, fashion. In reality, the noise is there throughout the holding period.

If you read the headlines, then there will always be a reason not to invest in something. Even after a decision to take a stake in a company, there will always be a reason to sell. It’s almost as if headlines and media cycles are designed to capture the attention of the reader.

Conviction is born from understanding what you own. An investor’s reaction to an earnings report, an acquisition, or some other event, should first come from their own independent thought. The primary reaction to some event should come from yourself first, and then later can be tested, questioned, or shared, in an attempt to learn. If your first reaction is guided by others, then there is a lack of independent thought, and neglecting your independent thoughts could prove costly.


4. Speculation is a game you can’t easily win
Realized gains feel like penalties when they’re interpreted as missed opportunities. Walking away with a great 10x return will make you feel terrible if that came at the expense of a future 100x return. If the top turned out to be much further out than you thought, then you can’t help but to be unhappy with the gains you actually did realize (no matter how good they were). This reinforces the dynamic that what you earn is never enough.

That speculation is a game you can’t win. On one hand, there’s the burden of regret resulting from selling too early (or from selling too late at a realized loss). On the other, there’s the schadenfreude you embody by selling right on time. Whichever path the asset ends up taking, there’s a mental tax to be paid on top of any monetary result, and that’s what makes this such a difficult game to internalize.


5. Markets are crazy. Crazy is normal.
Markets don’t stay within the limits of sanity, and why they always overdose on pessimism and optimism. They have to. The only way to know we’ve exhausted all potential opportunities from markets – the only way to identify the top – is to push them past not only the point where the numbers stop making sense, but beyond the stories people believe about those numbers.

Always been the case, always will be.

One is acceptance that an insane market doesn’t mean a broken market. Crazy is normal; beyond the point of crazy is normal. Every few years there seems to be a declaration that markets don’t work anymore – that they’re all speculation or detached from fundamentals. But it’s always been that way. People haven’t lost their minds; they’re just searching for the boundaries of what other investors are willing to believe.


For building a solid long term portfolio, look at subscribing to www.intelsense.in long term advisory.
For technofunda investing and positional trading, subscribe to our Hitpicks advisory service on www.intelsense.in
For momentum trend following systematic trading, subscribe to Quantamental at www.quantamental.in 
Our Quant systems are also found at https://intelsense.smallcase.com