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 September 30, 2016.
1) The return of Bollywood’s unconventional hero [Source: LiveMint] This piece highlights how our audiences have evolved over the last couple of decades which has led to unconventional actors bagging lead roles and enjoying stardom. Such an evolution has happened on the back of audiences wanting to see characters who looked and behaved like them, people who lived in commonplace Indian settings rather than in fancy houses abroad. As per the article, this transformation is a result of a) multiplex explosion in India that allows for smaller theatres and niche audience b) new breed of directors coming in from various parts of India to tell their stories and c) longevity enjoyed by content-driven high-concept films that have a shelf life far beyond the films made primarily for money.
2) Banks face $5bn hit to research teams as asset managers cut spending [Source: Financial Times] As per this piece, asset managers intend to cut their analyst research budgets by 30 per cent, heaping more pain on the investment banking industry that has already been forced to make thousands of people redundant on the back of falling profitability. The sharp reduction in how much fund houses are willing to pay for research will be felt most strongly in Europe, where asset managers plan to halve how much they spend on sell side research. The cuts to research budgets, which are estimated to be worth $15bn a year, will trigger further job cuts for analysts and the potential elimination of entire research divisions.
3) Driverless cars and MIT’s test of the crowdsourcing morality [Source: Financial Times] Anjana Ahuja in this piece talks about the Moral Machine — a public experiment being run by MIT — which looks at whether aggregating public opinions on ethical dilemmas is an effective way to endow intelligent machines, such as driverless cars, with limited moral reasoning capacity. She argues that given the diverse opinions of people it would be extremely difficult to reach a consensus on the ethics of driverless cars. 4) German consumers hit the ‘sweet spot’ [Source: Financial Times] Germans have a well-earned reputation for thrift, but in the past year they have turned into uncharacteristically big spenders thanks to a combination of record high employment, rising wages, low inflation and near-zero interest rates. Private consumption is growing at about 2 per cent — a rate Germany has not seen since the dotcom boom of the late 1990s. Germany’s earlier model of relying on exports has also started changing. The slowdown in emerging markets has tamed demand for German exports. As a result, companies are investing less but German domestic demand is kicking in and taking up the slack, creating a more balanced economy. 5) How Kickstarter became one of the biggest powers in publishing crowdfunding [Source: The Guardian] Kickstarter - a platform that puts people who want to produce books in touch with others all over the world who want to support their projects - has an impressive tally of books published. At 2,967 literary projects it features among publishing’s “Big Four”: Penguin Random House, Harper Collins, Hachette and Simon & Schuster. In 2015, pledges totalled $35.2m and already in 2016 more than $20m has been pledged for more than 1,500 projects. The article showcases how this platform has been ideal place for projects that aimed to bring forward the “ideas that ignited the imaginations of a community, creators providing greater access to their creative process, and voices that are often underrepresented among the most commercial success stories”. Literary journals raised more than $200,000 on Kickstarter in 2015, while poetry received almost $300,000. Anthologies brought in almost $500,000, while art books picked up more than $4m.
6) What goes wrong in the brain chemistry of a gambling addict [Source: nautil.us] This piece uses the case study of a compulsive gambler at slot machines to study the reasons why we humans tend to get addicted to certain activities with skewed risk-reward profiles which are not in our favor – like gambling. It touches upon the research of B. F. Skinner, who laid out the fundamental principles of learning through reward and punishment in the mid-20th century. His research found that we humans like animals tend to push more as rewards profile becomes random. Gambling addiction rests on intermittent reinforcement alone—the experience of risk, the fact that there will be either loss or gain, creates excitement and the more unpredictable the outcome, the more compelling it becomes. This is another reason why compulsive gamblers continue whether they win or lose—the high is in expecting an outcome, desiring that outcome, imagining it, not in its fulfillment.
7) How important is a company’s patriarch? [Source: horizonlinetics.com] This piece touches upon an important point missed by many investors around the world – the role of patriarch of a company. He use the case of American automobile industry and highlights how the companies in this group have probably have one of the lowest survivability ratios of any industry one can imagine, which probably explains why there isn’t an automobile ETF right now. In searching for a common denominator in the failure of so many of these companies that had previously enjoyed periods of success, the common element that emerges is the demise of the patriarch. 8) Wells Fargo reaches the end of its journey [Source: Financial Times] Wells Fargo’s homely and customer centric reputation has been tarnished by the revelation that its winning ways with customers owed as much to the intense pressure it placed on employees to hawk products as to its friendly culture. Managers pressed “stores” (Wells Fargo’s term for branches) to hit daily targets, leading to the faking of as many as 2m accounts. It has since dismissed 5,300 miscreant staff and been fined $185m. The article describes how cross selling became the route to profitability the bank: its retail customers now have an average of more than six products and it gains almost as much revenue from fees and commissions as from interest on loans.
9) What NASA could teach Tesla about Autopilot’s limits [Source: Scientific American] Ever since the recent incident involving Tesla’s Model S which led to driver Joshua Brown’s death (when the car’s Autopilot system failed to recognize a tractor-trailer turning in front of the vehicle) came to light, the public has been debating where the fault lies: with the driver, the company or the automation technology itself. This piece describes how NASA’s experience with autopilot can serve some important lessons for the automobile company. 10) The free time paradox in America [Source: The Atlantic] In 1930, the economist John Maynard Keynes forecasted a future that would be governed by a different set of expectations than today. The 21st century’s work week would last just 15 hours, he said, and the chief social challenge of the future would be the difficulty of managing leisure and abundance. The rich were meant to have the most leisure time. The working poor were meant to have the least. But 60 years later, it seems more true to say that it is not leisure that defines the lives of so many rich Americans. It is work. The article describes three reasons why the elites are working more whereas the unemployed poor are enjoying leisure time.
- Saurabh Mukherjea is CEO (Institutional Equities) and Prashant Mittal is Analyst (Strategy and Derivatives) at Ambit Capital Pvt Ltd. Views expressed are personal.