Ten interesting things we read last week

Greatest risk in developing world, economics of music festivals, China's flourishing internet

Published: Dec 2, 2016

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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 December 02, 2016.

1) Invest like a girl [Source: Huffington Post]
“Warren Buffett invests like a girl”. While this statement might raise questions, it points towards basic tenets of investing - investing calmly, doing a lot of research, and exercising a lot of patience. The notion that men do better job at investing than woman is misplaced. Women, like men, bring some gender-linked qualities to investing that can actually help. Studies conducted on the styles of men and women investors often find that while men are usually more confident in investing, women are more focused on goals and trade less. Every single one of those attributes can be a strength in moderation and a weakness in excess. A 2015 KPMG report noted that women-owned and women-managed hedge funds have outperformed standard indices every year since 2007. Nevertheless, hedge funds run and managed by women have greater difficulty raising capital than male peers. Another report by Morningstar showed that women-run mutual funds, while small in number, have comparable returns over 3, 5, and 10 years. Interestingly, the same research showed that the mixed-gender teams outperformed those run by either men alone or women alone.

2) False memory, manipulation and the tooth fairy [Source: Financial Times]
Memory is a master magician, capable of tricking us into remembering falsehoods as truths and vice versa. We know this mostly thanks to Elizabeth Loftus, professor of law and cognitive science at the University of California, Irvine, who became embroiled in the “memory wars” of the 1990s when she began questioning the veracity of the recovered memories of abuse survivors. Loftus’ research showed that witness testimony could, after the fact, be shaped and altered by suggestion. Memories, according to her, feed into the narratives we choose for ourselves. Based on her work, academics have shown that individuals can be persuaded to recall an unpleasant incident from their childhood that had never happened. Fascinatingly, people who were given the false suggestion that they had once overdone the vodka said they were inclined to steer clear of it. Astonishingly, the imagined past then becomes a guide to future behaviour. This raises the possibility of memory being manipulated to achieve certain ends. Can a parent therefore implant a false memory in their child that he or she had once become sick after eating sugary or junk foods, and thereby prevent obesity?

3) The need to read [Source: WSJ]
Constant connectivity can be a curse, encouraging the lesser angels of our nature. Hyper connectivity in today’s era affects us in the form of constant comparisons and engagement. We compare our bodies to the artificial ones we see in magazines and our lives to the exaggerated ones we see on television. We keep up with hundreds of acquaintances but rarely see our best friends. We bombard ourselves with video clips and emails and instant messages. Books are uniquely suited to helping us change our relationship to the rhythms and habits of daily life in this world of endless connectivity. We can’t interrupt books; we can only interrupt ourselves while reading them. They demand our attention. And they demand that we briefly put aside our own beliefs and prejudices and listen to someone else’s. Socrates famously said that the unexamined life isn’t worth living. Reading is the best way one can learn about how to examine your life. Further, it is a solitary activity that connects you to others. Books remain one of the strongest bulwarks we have against tyranny—but only as long as people are free to read all different kinds of books, and only as long as they actually do so. Reading isn’t just a strike against narrowness, mind control and domination: it’s one of the world’s great joys.

4) China’s Zhongan sees scope for offbeat insurance [Source: Financial Times]
During the football World Cup in 2014, Shanghai-based Zhongan Insurance turned the traditional rules of medical insurance upside down by offering Chinese football fans a policy specifically for self-inflicted liver damage. It cost less than $1 and covered sports enthusiasts against alcohol poisoning for 30 days — paying out up to Rmb2,000 ($290) for hospital fees. Interestingly, this has not been Zhongan’s only foray into more specialist areas of China’s insurance market. Wayne Xu, chief operating officer, does not dispute the often light-hearted nature of some of its products — admitting that some are simply designed to “make people feel better”. He sees this as a radical approach in an industry that has long struggled to attract young people. His big three backers - Alibaba, Tencent and Ping An - see serious scope for valuable data gathering in the operations. When Zhongan underwrites its retail credit insurance products, it can tap into the personal credit scoring databases of the three Chinese internet groups — giving it one of the broadest views of credit data of any company in the country.

5) Ugly new world risks bringing even US back to emerging status [Source: Financial Times]
John Authers notes in this piece that ever since the US presidential elections, the scepticism seen towards emerging markets (as can be gauged by the relative performance of S&P500 vs. MSCI’s emerging market index) makes sense. Mr Trump’s promises of protectionism might well damage the US but they would certainly damage emerging markets more. He says that the deeper cause for the gap between the developing and emerging markets is their institutions. It is a weak institutional structure that keeps a country in emerging status. If democracy or the law is weak, if there is not a backbone of trust or an agreed route to combat corruption, development and growth are far harder. Lacking full shareholder protections, EM companies are likely to be controlled by families or founding institutions, or by the state. Companies with the widely dispersed ownership in the US are unusual. Family-owned EM companies, despite their governance issues, have outperformed world stocks over time — state-controlled enterprises seriously lag it. That said, developed world institutions are also fragile. If governments fail to deliver growing prosperity or — more importantly — even a sense of fairness, the critical institutions can weaken swiftly. That is the greatest risk in the developing world at present.

6) The new brain drain in science [Source: Project Syndicate]
Academics are well acquainted with the notion of “publish or perish.” They must publish their work in peer-reviewed journals increasingly often to climb the career ladder, protect their jobs, and secure funding for their institutions. Whether the work they are publishing has a measurable impact on their field of study is, sadly, too often a secondary concern. The incentives they face mean that quantity often comes before quality. This phenomenon has led to a twofold problem: academic journals have become disproportionately influential, and they have placed a premium on empirical research. Academics conducting empirical research have a big advantage over those carrying out qualitative work, because they can use efficient software and powerful computers to test their hypotheses quickly and account for different variables in data sets. While there is nothing wrong with scientific practices evolving along with technology, or with academics using richer data sets and better software, adoption of this quantitative approach should not be the single most important criterion for assessing scientific excellence and deciding career trajectories. Such a trend in science today is particularly problematic for developing countries, where data sets are scarce and often of poor quality. Thus, scientists working in developing countries face a dilemma: either work on rich-world problems for which there is abundant data, or risk career advancement by conducting qualitative work that will not make it into A-level journals.

7) China’s internet is flourishing inside the wall [Source: Financial Times]
In Beijing’s old hutong alleyway districts, an inner wall faces the door to every courtyard house. The wall is there to stop bad spirits from entering the inner sanctum. China’s internet has a similar design to its courtyard houses. The way is blocked to foreigners, such as Google and Facebook while Alibaba, Baidu and Tencent, the largest Chinese internet enterprises, have prime spaces. Cyber space is walled and divided. A few years ago, China’s government seemed to be in conflict with the very nature of the internet, struggling to censor bloggers with millions of followers on Weibo, the Twitter-like service. Since then, it has shown that censorship can coexist with a vibrant online culture, as ecommerce and entertainment have taken over from political debate and the sharing of sensitive information. While the limits on freedom of expression undermine Chinese people’s ability to exchange information uncensored and unmediated, which is one of the internet’s benefits, the compromise on censorship has unleashed innovation that has brought economic gains. With China lagging mature markets in the US and Europe in the quality of physical shops and availability of branded goods, the gap is being filled by apps, such as WeChat. In a short time, China has become not only the world’s biggest ecommerce market but also an innovator in mobile services. Its companies mix messaging, payments and online retailing better than any US rival.

8) Authenticity in the age of fake [Source: nautil.us]
When GE revealed the creation of synthetic diamonds in 1955, the stock of the De Beers diamond cartel in South Africa, which dominated the global market, plummeted. It seemed like a rare and precious commodity was about to be supplanted by an artificial form that could be fabricated by the ton. However, the fear didn’t quite play out. “Fake” diamonds are cheaper, and for industrial uses they have utterly eclipsed their natural counterparts. But at the luxury end of the market—gemstones for jewellery—artificial diamonds account for only 2% of global sales. This was so because when it comes to luxury and exotic materials, it’s not just about the technical, chemical similarity. There is a deeper level to it, which is about something very human and socially constructed: the concept and value of authenticity. The diamond industry, concerned that synthetic diamonds are starting to enter the high-end jewellery market launched a campaign to promote its products. The rhetoric—“Real is Rare”—speaks volumes about today’s distinctions between “real” and “fake”: If you really love someone, the campaign videos insist, you’ll settle for giving them nothing but a “real” gem. A fake gem becomes a sign of a faked affection. This distrust of the “fake” and reverence for the “real” and “authentic” is deeply ingrained in human nature. Psychological studies suggest that sense of personal authenticity inflects how we function in the world: our sense of autonomy and self-esteem, what goals we pursue, how we relate to others. We reject the fake smile, the insincere action; we disdain artifice and pretence. It’s entirely to be expected, then, that the policing of fakery is socially constructed. What matters is not so much how the object is constituted, what chemistry created it, what imperfections it has but rather what it says about us!

9) The economics of music festivals [Source: LiveMint]
Contrary to popular perception, music festivals in India are not money spinners. While industry punters estimate the size of the music festival market in India to be around Rs250-500 crore, the truth is far from it. “Rs150 crore is the highest estimate for the festival market today,” says Vijay Nair, CEO of OML, the company that organizes Bacardi NH7 Weekender. He adds “We’re the only profitable festival in the country, currently. That’s just a fact; having known every other festival and what they do, everybody is in debt at this point of time.” Most music festivals in the country have folded up in recent years. “Right now, music festivals won’t make money,” says Arpito Gope, former head of activation and events at Rolling Stone India. “You need strong financials, either funding from someone, or your dad has to have money, because people aren’t attending in large enough numbers yet to be able to support the music festivals.” Moreover, music festivals today are barely about the music—it’s about selling an experience. And this experience is expensive, with costs for space, décor, security, artists and insurance. Traditionally, festivals in the country have been structured around the sponsorship model, as opposed to a ticketing model as followed internationally. Sponsorships subsidize costs significantly, so organizers are not dependent on footfalls to bring in the revenue. Weekender is the prime example of this model, where up to 70% of income is from sponsors and 30% from ticket sales. On the other hand, Magnetic Fields festival in Rajasthan works on the ticketing model.

10) Ravi Ashwin: Chennai Super King [Source: Cricinfo]
To understand how today’s brightest cricketers use big data and big IQ to get an edge on the opposition, you have to read this essay on the world’s #1 bowler, Ravichandran Ashwin. Throughout 2014, Ashwin was in and out of the Indian test team. Especially during overseas tours he would struggle to get into the playing eleven. Those setbacks spurred the man to analyse and rework his bowling action: "it is about the positioning of your body, by which I mean the alignment, from the back foot to the front foot, from your back-foot impact to your front-foot impact. You're more likely to succeed if the alignment is towards the batter. Then you're perfectly balanced.” The article contains a super graphic showing this change and how his coach helped him make this change.

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