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 favorite 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 ‘rules governing corporate gaffes’, ‘Hidden Champions in Germany’ and ‘similarity between brain and cosmic web’.
Here are the ten most interesting pieces that we read this week, ended August 04, 2017.1) Fluent in flannel: a guide to mastering the method [Financial Times] Lucy Kellaway in this piece highlights her top eight corporate guff picks and the (hypothetical) rules that seem to govern them. The rules range from ‘never use a short word when a long one will do’ wherein an HR manager running an off-site meeting warned attendees to “be cognizant of the optics of your personal brand”, essentially asking them to ‘tuck shirts in’ to using ‘everyday euphemisms’ wherein negatives are spun, so no one need take full blame for anything. This rule is especially handy when companies sack people. The latest euphemism comes from an investment management company that recently described sackings as going “into the gym . . . inducing cell renewal and thus making the company fit for profitable growth”. 2) Why Germany still has so many middle class manufacturing jobs? [Source: HBR] Only about 1.1% of the world population is German. However, 48% of the mid-sized world market leaders come from Germany. These firms, which the author calls “Hidden Champions,” have created 1.5 million new jobs; have grown by 10% per year on average; and registered five times as many patents per employee as large corporations. In the last 25 years no more than 10% of them disappeared or were taken over, a distinctly lower percentage than for large corporations. Moreover, Hidden Champions have also contributed to the sustainment of the German manufacturing base, and it is in large part thanks to them that nearly a quarter of the German gross domestic product continues to come from manufacturing. The percentage in most other highly industrialized countries such as the U.S., the UK, or France is only about half of this. He discusses the reasons for success of these “Hidden Champions.
3) Aswath Damodaran on Crypto Currency: Future of money or speculative hype? [Source: Valuewalk] The list of crypto currencies keeps increasing day by day but even as the crypto currencies emphasize their differences, the most successful ones share a base architecture, the block chain. A block chain is a shared digital ledger of transactions in an asset where the validation of transactions is decentralized. Damodaran lists a few reasons for why crypto currencies have failed to garner wider acceptance: a) Inertia: Fiat currencies have been the default currency for many years and it may take a while, especially for older consumers and retailers, to accept a digital currency. That said, the speed with which consumers have adapted to ride sharing services and taken to social media suggests that inertia cannot be the dominant reason holding back the acceptance of crypto currencies b) Price volatility: Crypto currencies have seen and continue to see wild swings in prices - not a good characteristic for a currency. A retailer or service provider who prices his or her goods and services in bitcoin will constantly have to reset the price and consumers have little certitude of how much the bitcoin in their wallets will buy a few hours from now c) Competing crypto currencies: The crypto currency game is still young and the number of competitors will decline as buyers and sellers pick eventual winners. It is possible that until this happens, transactors will hold up, for fear of backing the wrong horse in the race. However he does blame the creators for not doing enough to market the product to transactors, but rather to traders in the currency (who naturally love the price volatility). He goes on to highlight why there’s a divergence between the market price rise of bitcoin and the increase in the number of transactions involving bitcoin.
4) Silence breaks through the noise of success [Source: Financial Times] The author of this piece, Margaret Heffernan talks about the importance of thinking time in organizations. However, most organizations manage time poorly. They devote resources to managing money but little thought to managing time, which is the more precious resource Executives are paid to think. It is the most important thing they do, but they almost never have time. They slam from one meeting into another, interlaced with phone calls, emails and corridor conversations, trying to make mental notes that they hope to assemble when they get time, which never arrives. Thinking time is a rare and precious commodity that few organisations value. Managers cling to the power to interrupt and being busy is a surrogate marker of status. All of this is disruptive and destructive.
5) The strange similarity of neuron and galaxy networks [Source: nautil.us] The authors of this piece - an astrophysicist and a neuroscientist joined forces to quantitatively compare the complexity of galaxy networks and neuronal networks. The first results show that not only are the complexities of the brain and cosmic web actually similar, but so are their structures. In total, the number of galaxies within the observable universe should be on the order of 100 billion. The balance between the accelerating expansion of the fabric of spacetime and the pull of self-gravity gives this network its spider-web-like pattern. Ordinary and dark matter condense into string-like filaments, and clusters of galaxies form at filament intersections, leaving most of the remaining volume basically empty. The resulting structure looks vaguely biological. And interestingly enough, the total number of neurons in the human brain falls in the same ballpark of the number of galaxies in the observable universe. While to the eye a similarity between images of the cosmic web and the brain is pretty evident – the authors recommend being mindful of the human tendency to perceive meaningful patterns in random data. Remarkably though, this is not the case in this comparison. Statistical analysis shows these systems do indeed present quantitative similarities.
6) ‘Urgent wake-up call’ for male health as sperm counts plummet [Source: Financial Times] The sperm count of men in the western world has fallen by more than half over a period of 40 years, according to an international study described by its authors as “an urgent wake-up call” about declining male health. “Decreasing sperm count has been of great concern since it was first reported 25 years ago,” said senior author Shanna Swan of Icahn School of Medicine at Mount Sinai, New York. “This definitive study shows . . . that the decline is strong and continuing.” The researchers, led by Hagai Levine of Hebrew University of Jerusalem, screened 7,500 sperm studies carried out worldwide between 1973 and 2011. The results, published in Human Reproduction Update, show declines of 52.4 per cent in sperm concentration and 59.3 per cent in total sperm count among men in North America, Europe, Australia and New Zealand. Although the study does not examine likely reasons for the decline, “previous studies have associated low sperm count with environmental and lifestyle influences, including prenatal chemical exposure, adult pesticide exposure, smoking, stress and obesity,” said Dr Levine. But there is little hard evidence available to disentangle possible factors. In northern Europe today more than 15 per cent of young men had a sperm count low enough to impair their fertility. The combination of declining male sperm counts and a growing delay in couples trying for a baby — often until the woman is in her 30s and her own fertility is declining created “a double whammy” for natural conception in modern western societies.
7) Researchers shut down AI that invented its own language [Digital Journal] An artificial intelligence system being developed at Facebook has created its own language. It developed a system of code words to make communication more efficient. Researchers shut the system down when they realized the AI was no longer using English. The observations made at Facebook are the latest in a long line of similar cases. In each instance, an AI being monitored by humans has diverged from its training in English to develop its own language. The resulting phrases appear to be nonsensical gibberish to humans but contain semantic meaning when interpreted by AI "agents." The AI apparently realised that the rich expression of English phrases wasn’t required for the scenario. Modern AIs operate on a "reward" principle where they expect following a sudden course of action to give them a "benefit." In this instance, there was no reward for continuing to use English, so they built a more efficient solution instead.
8) The risks of World war III [Source: Independent] The prospect of a global conflict – World War III if you like – appears somewhat unthinkable but then so was the case in the earlier two wars. First World War had been preceded by a prelude of serenity – the long 19th century of relative peace and stability. The great powers of Edwardian Europe had been engaged in diplomacy and trade prior to the onslaught of carnage. During the 1930s, the major powers were keen to avert another war hence the policy of appeasement, the initial reluctance of the US to become involved and the Nazi-Soviet pact. Throughout the Cold War, the concept of a third world war was inextricably associated with nuclear war and the MAD doctrine of Mutual Assured Destruction. Yet it is possible that future conflict between the great powers may take the form of another cold war or even a conventional (as opposed to thermonuclear) hot war. In the 21st century, there are three key fronts emerging as the loci for future wars. The first is the Europe-Russia front with a new cold war triggered by the Ukrainian conflict. The second is the Middle East cauldron centred around Isis and the Syrian war. The third is the Asia-Pacific front with a face-off between the United States and China.
9) RBI checks out credit checker Perfios [Source: The Ken] It can take anywhere between three days to several weeks before a loan is sanctioned. But there is a class of companies called ‘account aggregators’ –AAs–that digitise this process, reducing it to a few minutes, or hours for a complex job. But if it’s so easy why haven’t more banks adopted the digital route? Because instant approvals come with risks. In fact, it is a wonder that a full-blown security disaster hasn’t happened as yet. Perfios says it is India’s largest online AA and the firm assesses the creditworthiness of loan seekers by scouring bank statements to create an intelligent report for the lender. It also has a personal finance management tool that lets users see all their financial relationships in one place. Both services –quickening loan issues with fewer people involved, and a personal finance management product for borrowers– are good to have. But the manner in which companies such as Perfios collect data has made some banks and consumers reluctant to use them. AAs take the client’s user and password details and access their bank accounts, and if that isn’t discomfiting enough, they create duplicate screens in a software-assisted process called ‘screen scraping’. The company says it takes security precautions by encrypting data and runs a two-page disclaimer asking the user’s consent for accessing their bank statements. This process however is an open invitation to hackers. So, it is a good sign the Reserve Bank of India (RBI) issued directions in September 2016. These new rules say these entities are to be licensed under a new class of companies called NBFC AA.
10) Palantir: the ‘special ops’ tech giant that wields as much real world power as Google [Source: The Guardian] Palantir, is a CIA-backed startup. To keep its information within safe, its defence systems include advanced biometrics and walls impenetrable to radio waves, phone signal or internet. Its data storage is blockchained: it cannot be accessed by merely sophisticated hacking, it requires digital pass codes held by dozens of independent parties, whose identities are themselves protected by blockchain. So what is Palantir protecting? In 2004, Peter Thiel – the billionaire PayPal co-founder created Palantir alongside Nathan Gettings, Joe Lonsdale, Stephen Cohen and Alex Karp. Their intention was to create a company that took Big Data somewhere no one else dared to go. In 2013, Karp, Palantir’s CEO, announced that the company would not be pursuing an IPO, as going public would make “running a company like ours very difficult”. Palantir watches everything you do and predicts what you will do next in order to stop it. As of 2013, its client list included the CIA, the FBI, the NSA, the Centre for Disease Control, the Marine Corps, the Air Force, Special Operations Command, West Point and the IRS. Palantir is at the heart of the US government, but with its other arm, Palantir Metropolis, it provides the analytical tools for hedge funds, banks and financial services firms to outsmart each other.
- Saurabh Mukherjea is CEO (Institutional Equities) and Prashant Mittal is Analyst (Strategy and Derivatives) at Ambit Capital Pvt Ltd. Views expressed are personal.