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At Ambit, we spend a lot of time reading articles that cover a wide gamut of topics, including investment analysis, psychology, science, technology, philosophy, etc. We have been sharing our favourite reads with clients under our weekly ‘Ten Interesting Things’ product. Some of the most interesting topics covered in this week’s iteration are related to ‘How quants are changing the Wall Street’, ‘Sad state of healthcare in India’ and ‘Need for a relook at India’s statistical institutions’.
Here are the ten most interesting pieces that we read this week, ended May 27, 2017.
1) The quants run Wall Street now [Source: WSJ]
Up and down Wall Street, algorithmic-driven trading and the quants who use sophisticated statistical models to find attractive trades are taking over the investment world. In just one sign of their power, quantitative hedge funds are now responsible for 27% of all US stock trades by investors, up from 14% in 2013. At the end of the first quarter, quant-focused hedge funds held $932 billion of investments, or more than 30% of all hedge-fund assets. In 2009, quant funds held $408 billion, or 25% of all hedge-fund assets. Quants have been helped by two transformative forces. Regulatory scrutiny has made it hard for investors to obtain an edge through methods, such as prodding company executives for information or tapping expert networks that included employees of public companies. Even more importantly, investors now have at their fingertips an expanding ocean of data about the global economy and financial data, such as changes in earnings estimates and accounts receivable. The next frontier is tapping data from drones and other cutting-edge sources to help understand companies and the economy in real time.
2) Doctors are scapegoats for India’s failing health systems [Source: Financial Times]
In March, a doctor at a government hospital in the town of Dhule was badly beaten by a patient’s relatives, who were infuriated that there was no CT scan machine available at the facility. Punched and kicked repeatedly, the doctor suffered multiple fractures. The attacks on doctors are a symptom of a bigger public health crisis. India suffers from an acute doctors’ shortage, with just one physician for every 1,800 people. The Government is also miserly, about its public health spending, allocating just 1.4% of gross domestic product, compared with 3.1% in China. As a result, India’s public healthcare system — on which working-class and poor Indians still rely — has neither the manpower nor equipment to provide a reasonable standard of care for the seriously ill and injured patients seeking treatment. Yet public expectations of hospitals are rising. “They are used to watching TV medical shows like House MD and Scrubs — and seeing the awesome facilities available,” says Dr. Roshan Radhakrishnan, a 36-year-old anaesthetist in southern India. “Come to a public healthcare centre and you will see in an outpatient department, we can’t spend more than 10 minutes per patient,” he says. “Obviously that man is going to be disgruntled with us if we try to speed the process so the next six guys can come in.” The collision of expectations with reality is often explosive, especially as many patients arrive at hospital accompanied by large groups.
3) Why India needs another statistical revolution [Source: Livemint]
In many ways, the Indian state is perhaps much more data-rich than it has ever been before, with detailed biometric data about an overwhelming majority of its citizens available through the Aadhaar system. It will soon have detailed records of company-level commercial transactions through the Goods and Services Tax Network (GSTN). Yet, in many other ways, its statistical systems are failing to fulfil the needs of 21st century policymaking, with even basic data on industrial output, and gross domestic product, or GDP, being routinely questioned by policymakers and analysts. This piece describes the evolution of Indian statistical institutes and what plagues them today.
4) Picking right stocks no easier with greater levels of information [Source: Financial Times]
In this piece, James Montier of GMO, a fund manager, observes there is a near universally accepted idea in finance that more information is always more desirable than less. This belief, he argues, is in part driven by a broader faith in the efficient market hypothesis. If markets have already priced in all known information, to then beat the market the investor has to search out new information that has not yet been discovered by everyone else to gain an edge. But is having more information, more analysis and more opinion actually as helpful as we might think? Citing historical studies Montier opines that the need for critical judgment cannot be replaced. He notes “We should devote time to working out what we should really be looking at. What are the five most important things we should know about any stock we are about to invest in?” Picking those will remain as tricky as ever, no matter how many trillions of data points we have at our fingertips.
5) Petrol cars will be obsolete in 8 years says US report [Source: stuff.co.nz]
No more petrol or diesel cars, buses, or trucks will be sold anywhere in the world within eight years. The entire market for land transport will switch to electrification, leading to a collapse of oil prices and the demise of the petroleum industry as we have known it for a century. This is the futuristic forecast by Stanford University economist Tony Seba in his deceptively bland titled report Rethinking Transportation 2020-2030. Prof Seba's premise is that people will stop driving altogether. They will switch en masse to self-drive electric vehicles (EVs) that are 10 times cheaper to run than fossil-based cars, with a near-zero marginal cost of fuel and an expected lifespan of 1mn miles. Only nostalgics will cling to the old habit of car ownership. The rest will adapt to vehicles on demand. It will become harder to find a petrol station, spares, or anybody to fix the 2000 moving parts that bedevil the internal combustion engine. Dealers will disappear by 2024. He also says that cities will ban human drivers once the data confirms how dangerous they can be behind a wheel. This will spread to suburbs, and then beyond. There will be a "mass stranding of existing vehicles".
6) Elliot brings a ‘prosecutorial’ approach to activist investing [Source: Financial Times]
For the past two years, Hitachi’s planned takeover of Ansaldo STS has been under a multi-pronged legal attack, orchestrated by Paul Singe’s Elliott Management that has included multiple complaints to the Italian markets regulator, a complaint to the country’s auditing board and a lawsuit. For Elliott, this is business as usual. The $32.8bn fund and its billionaire Republican donor founder are an anomaly among activist hedge funds because of their readiness for a very protracted fight and the very broad legal tools they employ to win. Elliott is battling on multiple fronts. It is demanding, among other things, that BHP Billiton spin off its US petroleum business, Akzo Nobel accept a takeover offer and Samsung break itself up. The string of victories includes claiming back more for holders of Argentine sovereign debt or pushing Klaus Kleinfeld out as chief executive of metals group Arconic. But Elliott’s belligerent legal strategies and bellicose public language mask a patient strategising that reflects Mr Singer’s early career as a lawyer. One rival activist calls it a “prosecutorial” approach; Mr Singer himself has called it “using every tool in the tool chest”. This piece discusses this approach and its effects.
7) Why you should have (at least) two careers [HBR]
Kabir Sehgal, the author of this piece talks about how it’s not uncommon to meet a lawyer who’d like to work in renewable energy, or an app developer who’d like to write a novel, or an editor who fantasizes about becoming a landscape designer. Maybe some of us also dream about switching to a career that’s drastically different from our current job. In his experience however, it’s rare for such people to actually make the leap. The costs of switching seem too high, and the possibility of success seems too remote. But the answer isn’t to plug away in your current job, unfulfilled and slowly burning out. He believes the answer is to do both. Two careers are better than one. And by committing to two careers, you will produce benefits for both. He uses his own example: he’s a corporate strategist at a Fortune 500 company, US Navy Reserve officer, author of several books, and record producer. In this piece he explains how working many jobs makes him happier and leaves him more fulfilled.
8) Uber Has Now Started Charging Fares Based On How Much It Thinks Particular Passengers Can Afford [offficechai.com]
Uber has already brought about a revolution in way taxi rides are priced. Before it had been founded, taxi rides cost a simple multiple of the distance travelled; Uber sought to upend this system by bringing about demand and supply into the equation. Uber started charging surge prices in areas where taxis were scarce, and dropped prices when they were more plentiful. But now, the company is looking to extend its differential pricing in a radical new way. Uber has said it’s testing out a new fare system in certain cities called “route-based pricing”, which charges customers based on what Uber predicts they’re willing to pay. In Economics terms, it’s called capturing the consumer surplus. It does it through the vast array of data it has at its disposal — someone traveling from a wealthy neighborhood to another prime spot, for instance, might be asked to pay more than another person heading to a poorer part of town, even if demand, traffic and distance are the same.
9) India’s first ‘Unicorpse’ [Source: The Ken ]
The final nail hasn’t been hammered into the coffin yet. It isn’t official. But it is common knowledge that Snapdeal’s goose has been cooked – it is just a matter of now deciding who gets to devour which piece and how much will they pay for this pleasure. However, despite its inglorious demise (or maybe because of it?), Snapdeal is a fascinating story. It is an outlier in so many ways that attempting to draw any generic lesson from its fate is a contrived exercise. Yet, there are still enough gleanings. Some of them are presented in this piece.
10) Rich, cultured and lonely: How India’s rising class looks for love now [Source: qz.com ]
In urban India’s new cultural hierarchy, the top rung is reserved for the global Indian: The foreign-educated, career-oriented, well-read, well-paid, well-travelled and socially savvy men and women who are held up by an increasingly aspirational society as the embodiment of success. The deeper the idea of money not being able to buy everything sets in urban psyche, the bigger the rise in the social stock of people who had the foresight to cultivate “class.” They are the taste-makers and trendsetters, pursued by gourmet restaurants, adventure travel companies and peddlers of holistic living. The more you observe their rise, the more they seem to have everything going for them. Except love. The reasons: They have too much work, too little time, saturated social circles, few outlets to meet new people like themselves, cultural baggage, and too many expectations. Given their social prominence, it was only a matter of time before new-age entrepreneurs realised the market potential of helping India’s professional elite pair off. Over the past five years, a dozen gated singles’ networks have sprung up in the big cities—Delhi, Mumbai, Bengaluru, Pune—to serve the social group they refer to as “cultured professionals.” This piece is a sneak peek into this phenomenon.
- Saurabh Mukherjea is CEO (Institutional Equities) and Prashant Mittal is Analyst (Strategy and Derivatives) at Ambit Capital Pvt Ltd. Views expressed are personal.