Ten interesting things we read last week

At Ambit we spend a lot of time reading articles that are not directly relevant to Indian stocks. However, since the Indian economy is now umbilically linked to its global counterparts, the articles that we come across have relevance for Indian stocks and the Indian economy. In that context, this report contains the ten most interesting pieces that we read this week.

Here are the ten most interesting pieces that we read this week, ended October 21, 2016.

1) The many shades of caste inequality in India [Source: Livemint]
A super piece that discusses how the overall statistics (on an average or median basis) often hide the more nuanced information a data represents. It talks about how there are huge variations in the socio-economic status and clout of different ‘backward’ classes and caste groups. For instance, while the Scheduled Tribes (STs) and Scheduled Castes (SCs) still lag other castes on most socio-economic criteria, the Other Backward Classes (OBCs) are almost at par with other social groups (read upper castes) on several parameters. Further, while aggregate data for different social groups tell us about the differences in well-being of different social groups, such as OBC and SC/ST from each other, there are significant intra-group differences as well. In a 2009 article, psephologist-turned-political activist, Yogendra Yadav, underlined the fact that while a section of OBCs matches upper castes in terms of socio-economic indicators, the socio-economic status of several sections within the OBCs was even worse than SCs

2) How to cope when robots take your job [Source: Financial Times]
Simon Kuper in this brilliant piece uses the takeaways from his own industry to throw insight on how to cope with the increasing automation and resultant job loss in industries worldwide. He starts by describing how journalism was a pretty cushy business around 1995 when even mediocrities and alcoholics could have long, well-paid journalistic careers. It all changed though when Microsoft introduced Internet Explorer and suddenly made news available online for free. Having watched many former journalists stumble into new lives, he assembled some tips on how to cope with technological destruction: 1) Don’t make your job your identity; 2) Accept that your career isn’t building up to anything. In fact, it probably isn’t even a career; 3) While your industry is still paying you, don’t get attached to money or status symbols; 4) Enjoy the fleeting moments. Just don’t expect them to last; 5) Don’t try to hang on in a dying industry as a freelancer; 6) Think of ways to monetise your skills in face-to-face situations in which nobody wants a computer; 7) Don’t blame yourself. You are just a statistic, crushed beneath the wheels of history; 8) Expect to work in unsatisfying jobs until you are about 75.

3) The paradox of choice [Source: nautil.us]
In today’s world, there’s an abundance of options available for just about everything under the sun. Whether its information, food, clothes or even dating, having choices is something humans have long considered desirable. This interesting piece discusses whether having a lot of options really does lead to an optimal final outcome. According to Professor Barry Schwartz of Swarthmore College, in contrast to general expectations, it’s limiting our options that consistently lead to better outcomes. He thinks too much choice overwhelms us and makes us unhappy—a phenomenon he calls the paradox of choice. He explains that when you have more options, you tend to put more pressure on yourself to make the perfect choice—and you feel more let down when it doesn’t turn out to be perfect. Research has shown that humans tend to shortlist options when faced with abundance almost unconsciously. Given this backdrop, this article sheds light on how having a well-defined framework can go a long way in reaching an effective decision.

4) Bubbly finance and low inflation spark alarm [Source: Financial Times]
A strong piece that highlight how the current economic scenario (low rates and low inflation) is very similar to the one faced by formed Fed Chairman Alan Greenspan a dozen years ago. It also highlights some frightening similarities in the indecisiveness shown by Greenspan’s Fed then and by the central banks today. From an unworldly presumption that those who sound a warning about bubbles must prove their case conclusively to want action to the tendency to shifting blame for bubbly finance on to an external villain, central banks then and now shied away from acting against a bubble in a decisive manner. While the central banks currently face an excruciating dilemma they must remember that it is always easy and tempting to find reasons not to act against bubbles. But financial stability matters at least as much as price stability. In today’s distorted markets, savers are paying borrowers for the privilege of lending, pension and insurance funds can’t earn the returns they need, and banks struggle to earn profits. All of which may threaten growth as much as very low inflation.

5) How Maharashtra is changing the way farmers sell their produce [Source: LiveMint]
Maharashtra is witnessing a wave of reform in the way the farm produce is sold to the eventual customers through farmer–consumer markets that operate outside the purview of APMC markets. There are three key differences between the APMC markets and farmer-consumer markets. One, at the APMC markets, farmers do not sell directly to consumers. Two, the produce is handled at multiple levels. Three, farmers have to pay 10-20% of the value of their produce as market fees, commission, and charges for loading, unloading, and weighing. In contrast, at the farmer-consumer markets, it is the farmer who is directly selling his produce to the consumer, cutting out all these steps. There are no levies either. The produce is transported fresh from the farm with least handling, which helps it retain freshness. In the national context, the reforms in Maharashtra are a representative case. In July 2015, the Union Cabinet approved setting up of a National Agriculture Market (NAM) between 2015-16 and 2017-18 with an estimated budget of Rs200 crore. The scheme proposes developing a common e-market platform that would be deployed in 585 regulated agriculture wholesale markets across the country.

6) Theranos and the dark side of storytelling [Source: HBR]
An interesting piece on the ills of using storytelling as a mode of communication. It considers the case of medical technology company Theranos, founded by Elizabeth Holmes, which seems to be reaching the end of an epic flameout. Theranos, a company once valued at $9 billion, apparently got as far as it did mainly on the strength of “a preternaturally good story.” Holmes constructed an inspiring hero narrative starring herself, a precocious girl-genius who, at nineteen years of age, began pioneering medical technologies that could potentially save millions of lives around the world. Despite abundant warning signs, and the Silicon Valley company’s refusal to provide real evidence that their technology worked, investors kept putting in money just on the basis of the story. This episode highlights how storytelling makes us a lot more gullible. This is the reason why a powerful, emotion-drenched story is at the heart of every con job. And it’s also the reason that academic journals exclude storytelling technique from scientific reports. Scientists understand that storytelling dials up emotion and dials back rationality, clouding objective analysis.

7) Index funds are fuelling out of whack CEO pay packages [Source: HBR]
An interesting piece that talks about how these days, most firms’ most powerful shareholders tend to benefit more from the performance of the entire industry than the performance of an individual firm. This is so because nowadays, the same handful of large, diversified asset management companies control a significant proportion of US corporations. These large asset managers appear to co-ordinate many corporate governance activities, including those regarding compensation. This sweeping development known as “common ownership,” the same firms owning the competing firms in the same industry, is relatively new. Research shows that common ownership has had a significant impact on the structure of executive compensation. In industries with high common ownership concentration, top executives are rewarded less for the performance of their own firm but rewarded more just for general industry performance. There are economic reasons not to incentivize competition among firms they own. After all, their revenue and their investors’ wealth depend on the total value of the portfolios they hold. As a result, it is not in their interest that one portfolio firm competes vigorously against another firm in their portfolio, such as engaging in a price war.

8) Bet on the jockey, not the horse! [Source: LiveMint]
It is an accepted fact that the smart money should be on the entrepreneur, rather than the idea. While both academics and practitioners agree on this point, is there an empirical evidence for this? A recent research study on angel investors focuses on identifying the specific start-up characteristics that are important to investors in early-stage firms. The results reveal that the average investor responds more strongly to information about the founding team than marketplace evidence, such as customer demand. Equally important, the researchers show that investing based on team information is a rational strategy for early-stage investors. Additionally, the approach that characterizes successful early-stage entrepreneurs is very different from those of successful managers. In established businesses, the typical manager is asked to focus on clearly defined goals, and is expected to identify and select the best means to achieve the goals. In sharp contrast, the successful entrepreneur begins with a given set of means, and the goal emerges over time, based on interactions with the marketplace, potential customers and experts, as well as on the team’s imagination and creativity.

9) Unisex loos are no refuge for a gossip [Source: Financial Times]
This piece discusses how segregation of loos by gender is now threatened by the rise of the gender-neutral toilet. And this time it has nothing to do with equality of men and women. It is because if you are a transgender, it is not clear which loo you should go for! In California, a law was passed this month insisting that any single-stall toilet must be gender neutral. Companies like Starbucks and Barnes & Noble have started introducing this concept. But are unisex loos a good idea at work? The author says that she finds that in her study the big divide on this issue is less by gender than by age. While the millennials had no qualms about his, older workers were less keen. The men mostly said they did not like the idea but could not say why. The women were more forthcoming. Variety of reasons ranging from discomfort in wearing make-up in front of male colleagues to ladies loo being the perfect place to cry or to gossip were given.

10)The rise of yoga pants has brought an existential crisis for the old-fashioned blue jeans [Source: qz.com]
The denim jeans as we’ve known it is undergoing a major change. Jeans are getting the stretch treatment; becoming softer, stretchier and more versatile. Consumers are looking at options that are more comfortable, that fit better with their active lifestyles and take advantage of the performance benefits offered by the latest synthetics. While on a global scale, sales of jeans are still on the rise, lifted by growing middle classes in countries, such as China, in some of their long-time bastions and biggest markets, they have been ceding ground. In Western Europe, sales of jeans fell almost 10%, and in the US, where blue jeans originated, they dropped more than 16%. The unnamed threat that looms over denim’s dominance is a growing category called ‘athleisure’. Active, stretchy bottoms, such as yoga pants and sweats, have been eating into the profits of more rigid clothing. While jeans has increased its penetration in our everyday lives since they were invested in 1873, the issue it faces now is, it is moving up the scale of formality and creating room for more competition at the casual end.

- Saurabh Mukherjea is CEO (Institutional Equities) and Prashant Mittal is Analyst (Strategy and Derivatives) at Ambit Capital Pvt Ltd. Views expressed are personal.