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, we have been publishing our ‘Ten interesting things we read this week’ report since December 2015.
This report contains the best pieces that we have featured over the past eight months. 1. Life lessons from Original thinkers [Source: Financial Times] An outstanding piece from Simon Kuper in which he highlights that original thinkers tend to structure their careers in a similar manner. For instance, they tend to find their passions early and an early start helps them to "roll down" their chosen hill of career, accumulating knowledge, experiences and contacts. They also aim to build a zone of autonomy. Citing examples like Amy Winehouse, Jean Tirole and Arsene Wenger, Mr Kuper highlights that this fierce desire to be independent is crucial in defining the career paths of original thinkers.
2. Deep Work: The secret to achieving peak productivity [Source: Wharton school] The recent book by Georgetown University professor Cal Newport called ‘Deep Work: Rules for Focused Success in a Distracted World’, demonstrates how you can develop the skills necessary to focus at an optimum level and reach peak productivity. Using an example of Adam Grant, Wharton’s top rated and youngest tenured professor, he demonstrates how production at your peak level requires you to work for extended periods with full concentration on a single task free from distraction. Adam Grant practices this approach by ‘batching’ work. For instance, he stacks his teaching into the fall semester whilst turning his attention fully to research in the spring and summer to tackle this work with less distraction. Such an approach helps explain why some people are able to achieve better results with less effort. These people focus on intensity and concentration rather than the number of hours put in to improve the quality of their output.
3. The extraordinary technological innovations of the past century are unlikely to be repeated [Source: Prospect Magazine] This extract from Robert Gordon’s extraordinary book, ‘The Rise and fall of American Growth: The US Standard of Living since the Civil War’, says economic growth is not a steady process. Instead, economic growth waxes and wanes across centuries. For example, in the US, there was no growth before 1770, slow growth until 1870, then rapid growth until 1970 and then slower growth again since then. It says that the post 1870 economic revolution will be impossible to repeat. He provides three reasons for lower growth since 1970s - first, the pace of innovation has slowed. Second, rising inequality has meant that the fruits of innovation are no longer shared equally. Also, innovation is limited to spheres of entertainment and information technology whilst areas like food, shelter, clothing, transportation and healthcare have only seen moderate improvements.
4. How to learn to love to practice [Source: nautil.us] In interviews, famous people often say that the key to becoming both happy and successful is to “do what you love.” But mastering a skill, even one that you deeply love, requires a huge amount of drudgery. Anyone who wants to master a skill must run through the cycle of practice, critical feedback, modification, and incremental improvement again, again, and again. Some people seem able to concentrate on practicing an activity like this for years and take pleasure in their gradual improvement. Yet others find this kind of focused, time-intensive work to be frustrating or boring. The article discusses why this is so by referring work of Mihaly Csikszentmihalyi in his book ‘Flow’.
5. Super intelligent humans are coming [Source: nautil.us] This article describes how super humanIQ levels might be possible in the future with gene editing technologies similar to the recently discovered CRISPR/Cas system that has led to a revolution in genetic engineering in just the past year or two. It says that while super-intelligence may be a distant prospect, but smaller, still-profound developments are likely in the immediate future. Once predictive models based on hereditary information are available, they can be used in reproductive applications, ranging from embryo selection (choosing which IVF zygote to implant) to active genetic editing (for example, using CRISPR techniques). In the former case, parents choosing between 10 or so zygotes could improve the IQ of their child by 15 or more IQ points. This might mean the difference between a child who struggles in school, and one who is able to complete a good college degree.
6. How easy is it to set up in one of the world's favourite tax havens? [Source: Financial Times] Michael Stothard, the author of this piece, highlights his attempt in 2013 to gauge how easy it really was to set up an offshore company. Advising him was UK based “CFS International Formations” which offered him options in Belize, the British Virgin Islands, Cyprus, Delaware, Malta, Panama, Seychelles and the Cook Islands for just for a few hundred pounds – and all done online! He highlights the efficacy of the process by hiring a corporate intelligence firm which through its investigation was only able to find out the names of two companies Michael owned and where they were registered – nothing else.
7. For the rich, India is as good as a tax haven [Source: LiveMint] This piece highlights observations from the income tax data released by the Indian Government recently. First, India remains a low-tax country despite the acceleration of economic growth in the past decade, and second, income inequality has risen in the past two decades. It highlights that not only is India the country with the lowest tax-to-GDP ratio among countries with a similar per capita income on a purchasing power parity basis, but is also the country with the lowest expenditure-to-GDP ratio. Interestingly, during the period when the economy expanded at a rate of more than 8% per annum, our tax-to-GDP ratio remained almost stagnant. The current tax-to-GDP ratio of around 16.8% is roughly the same as it was at the beginning of economic reforms in 1991!
8. The stock market as monetary policy junkie! [Source: GMO] This outstanding paper by James Montier and Philip Pilkington of GMO delves into how the Fed’s policy making has been responsible for equity market returns in the past three decades. The authors’ counterintuitive finding is that it is not the low interest rates that are responsible for the markets’ high valuations. The high valuations according to them are a result of ‘broader’ role played by the Fed.
9. Why Stan Druckenmiller thinks it’s “The End game” for global equities [Source: zerohedge.com] Stan Druckenmiller did not have a single “down year” in his thirty year career in fund management. In this ‘Apocalyptic’ presentation made in May, the legendary fund manager – to the delight of the bears at Ambit – shreds the fantasy that we are in a secular bull market. Some of the most interesting snippets from his presentation highlight the how the Fed has ‘borrowed more from future consumption than ever before’ and how “ Since 2012 the Chinese banking sector has allowed credit to grow by the amount of the entire Brazilian GDP per year allowing in effect just supporting the otherwise insolvent borrowers. How else to explain the lack of NPL problem in heavy industries hit by lower prices and sales growth?”
10. The reason air travel is terrible and so few airlines are profitable [Source: HBR.org] Using the concept of disruption theory (which results in the incumbents chasing high-end customers while the low-end or middle-market consumers are served by disruptors), this article explains how instead of having a few companies in the aviation industry stagnate (because they don’t move upmarket), the entire industry has ended up in stagnation. Customers are receiving the same service as they did decades ago. Mere survival is considered success. Lack of disruption has led to a bunch of companies trapped in their customer layer and unable to grow in revenue – except through external means. This explains the three major trends we see in the airline industry today: 1) aggressive pursuit of efficiency through means like smaller seats to baggage fees to payable airplane food, 2) internationalization to maximize seat utilization through Global Airline Alliances (GALs) such as Oneworld and Star Alliance, and 3) mergers and acquisitions to buy growth when moving themselves upmaket is not an option.
- Saurabh Mukherjea is CEO (Institutional Equities) and Prashant Mittal is Analyst (Strategy and Derivatives) at Ambit Capital Pvt Ltd. Views expressed are personal.