At Ambit, we spend a lot of time reading articles that cover a wide gamut of topics, ranging from zeitgeist to futuristic, and encapsulate them in our weekly ‘Ten Interesting Things’ product. Some of the most fascinating topics covered this week are Sports (Relationship of Michael Schumacher and Ferrari), Science (How beauty is making scientists rethink evolution), Business (Why some platforms thrive and some don’t), Neuroscience (Neuroscience of creativity), Leadership (Not knowing is better than knowing) and Markets (Dabba trading in India) among others.
Here are the ten most interesting pieces that we read this week, ended January 18, 2019.
1) Why ‘Michael Schumacher-Ferrari’ is a one-off in Formula 1 [Source: Livemint]
Between 1996 and 2006, Schumacher spent 11 consecutive seasons at Ferrari. In a sport that is calculative in nature, and can resemble the technology industry in its shifts, that’s the longest stretch any driver has had with an F1 team. Before Schumacher, it was nine seasons. And, among current drivers, Lewis Hamilton’s six seasons at Mercedes are the most. It’s befitting then that on 3 January, Ferrari did something they have not done for any other driver who stepped into its F1 cars. It unveiled an exhibition on Schumacher’s years at Ferrari at its museum in Maranello, Italy, on the occasion of his 50th birthday.
Ferrari and Schumacher wasn’t just a meeting of a top driver and a top team. This was a turnaround story that revived Ferrari—in results, reputation and spirit—and Schumacher was the beating heart of that renaissance. Over 11 seasons, Ferrari went from being a bumbling midfield team to a slick front-running outfit. In 1994 and 1995, Schumacher won the driver’s championship with Benetton, and things were looking good. But lured by an FI project dripping with ambition and the biggest paycheck in F1 history, Schumacher moved to Ferrari in 1996. The biggest name in F1 had not won a title since 1979.
There have been other long driver-team combinations in F1, but none as unique as Schumacher-Ferrari. Some were long, but they neither operated at the top end nor yielded similar returns. Or, there were relatively shorter stretches that were impressive in their success—Lewis Hamilton’s ongoing stint at Mercedes and Sebastian Vettel’s previous stint at Red Bull—but they were bereft of the turnaround arc that fused an element of romance to the Ferrari-Schumacher narrative. At the current pace, there’s only one person who could overhaul Schumacher. And that’s Hamilton. If he keeps winning, Hamilton could even reset many records that Schumacher had lifted to astonishing levels in his Ferrari run.
2) Morgan Housel: Naked Brands Interview Series [Source: perell.com]
David Perell, founder of North Star Media, is writing a book about Naked Brands. And for this book, he plans to conduct many interviews with writers, influencers, and entrepreneurs. The first person who he interviews is Morgan Housel, a partner at Collaborative Fund. In this interview, they discuss how the internet shapes consumer values, the power of shows like Chef's Table, the sudden rise of Vanguard, under-reported insights from Warren Buffett and Howard Marks, and the ideas that drive Mr. Housel’s writing.
On legendary investors Warren Buffet and Howard Marks, Mr. Housel says that they used content to instill trust, trust gave them permanent capital, and permanent capital gave them a massive financial advantage over other investors. When asked about brand and identity and the future of identity-driven brands, Mr. Housel says it's not just consumers but also employees and investors who want to be aligned with organizations whose values are the same as their own. But, what changed about the world to make having an identity be a part of a brand so important? Mr. Housel feels that people don’t want to follow a company, they want to follow people.
But there are some minuses too. If something happens to a big personality, it will negatively impact the entire company. So, how would you think about diversification and reducing risk without minimizing your upside for reward? Mr. Housel says, “I don't know if there is a solution for the company other than realizing that people that have brand influence have way more power than companies might think so, and they should treat those employees and compensate them accordingly.”
3) How beauty is making scientists rethink evolution [Source: NY Times]
Some birds are very colourful, like the flame bowerbird. Scientists have reasoned it and to reconcile such splendor with a utilitarian view of evolution, biologists have favored the idea that beauty in the animal kingdom is not mere decoration — it’s a code. According to this theory, ornaments evolved as indicators of a potential mate’s advantageous qualities: its overall health, intelligence and survival skills, plus the fact that it will pass down the genes underlying these traits to its children. Although he co-discovered natural selection and devoted much of his life to demonstrating its importance, Charles Darwin never claimed that it could explain everything. Ornaments, Darwin said, evolved through a separate process he called sexual selection: Females choose the most appealing males “according to their standard of beauty” and, as a result, males evolve toward that standard, despite the costs.
Animals, Darwin believed, could appreciate beauty for its own sake. Many of Darwin’s peers and successors ridiculed his proposal. Darwin’s theory of beauty was largely abandoned. Now, nearly 150 years later, a new generation of biologists is reviving Darwin’s neglected brainchild. Beauty, they say, does not have to be a proxy for health or advantageous genes. Sometimes beauty is the glorious but meaningless flowering of arbitrary preference. Animals simply find certain features — a blush of red, a feathered flourish — to be appealing. These biologists are not only rewriting the standard explanation for how beauty evolves; they are also changing the way we think about evolution itself.
Unlike natural selection, which preserved traits that were useful “in the struggle for life,” Darwin saw sexual selection as exclusively concerned with reproductive success, often resulting in features that jeopardized an animal’s well-being. Darwin’s peers embraced the idea of well-armed males dueling for sexual dominance, but many scorned the concept of animal aesthetics, in part because it was grounded in animal consciousness and female desire. After more than 30 years of searching, most biologists agree that although these benefits exist, their prevalence and importance is uncertain. A few compelling studies of frogs, fish and birds have shown that females who choose more attractive males typically have children with more robust immune systems and a greater chance of survival. What we call beauty is not simply one thing or another, neither wholly purposeful nor entirely random, neither merely a property nor a feeling. Beauty is a dialogue between perceiver and perceived.
4) Why some platforms thrive and some don’t [Source: hbr.org]
Didi, world’s largest ride-sharing company, after pushing Uber out of the Chinese market got another competition in the form of Meitun. Meituan is a giant player in online-to-offline services such as food delivery, movie ticketing, and travel booking. It launched its own ride-hailing business in Shanghai. Meituan didn’t charge drivers to use its platform for the first three months and afterward took only 8% of their revenues, while Didi took 20%. In April, Didi struck back by entering the food delivery market in Wuxi, a city close to Shanghai. What followed was a costly price war, with many meals being sold for next to nothing because of heavy subsidies from both companies. But, why hadn’t Didi’s immense scale shut down its competition for ride services in China? Why wasn’t this a winner-take-all market, as many analysts had predicted?
The answer to this question is because lasting competitive advantage hinges more on the interplay between the platform and the network it orchestrates and less on internal, firm-level factors. The reason that some platforms thrive while others struggle really lies in their ability to manage five fundamental properties of networks: 1) Network effects: The importance of network effects is well known. Economists have long understood that digital platforms like Facebook enjoy same-side (“direct”) network effects: The more Facebook friends you have in your network, the more likely you are to attract additional friends through your friends’ connections. 2) Clustering: It’s possible to strengthen a network by building global clusters on top of local clusters. While Craigslist, a classified ad site, primarily connects users and providers of goods and services in local markets, its housing and job listings attract users from other markets. 3) Risk of disintermediation: Disintermediation, wherein network members bypass a hub and connect directly, can be a big problem for any platform that captures value directly from matching or by facilitating transactions. 4) Vulnerability to multi-homing: Multi-homing happens when users or service providers (network “nodes”) form ties with multiple platforms (or “hubs”) at the same time. 5) Bridging to multiple networks: In many situations the best growth strategy for a platform may be to connect different networks to one another. In any platform business, success hinges on acquiring a high number of users and amassing data on their interactions.
5) The Neuroscience of Creativity: Q&A with Anna Abraham [Source: Scientific American ]
What is going on in our brains when we are creating? How does our brain look different when we are engaging in art vs science? How does the brain of genius creators differ from the rest of us? What are some of the limitations of studying the creative brain? In this Q&A session with Scott Barry Kaufman, psychologist at Barnard College, Anna Abraham answers all this questions. Starting with her interest in the subject of neuroscience, she says, she has always been curious about creativity. In particular, she hoped to find out what makes some people more creative than others. When she saw an opportunity to pursue a PhD in Neuroscience in the early 2000s in any topic of her choice, she went all in.
When asked what is creativity, the challenges of defining it and whether it can be measured, she says there is a surprising level of unanimity in the field when it comes to a boilerplate definition. And one of the central challenges is to have a definition that can be satisfactorily applied across all manifestations of creativity regardless of whether the ‘object’ being judged is a work of art or a scientific theory or a public policy strategy (and so on). Also, some aspects of creativity can be measured. The problem is we don’t have nearly enough tools even for this purpose.
How do our brains process when operating in a creative mode vs. an uncreative mode? She says, a lot about what triggers a creative mode as opposed to an uncreative mode is situational. The creative mode is called for in contexts that are unclear, vague and open-ended. The opposite is true of the uncreative mode. Talking about brain plasticity, the neuroscientist says that it is a fact. Our brains change throughout our lifespan and this is readily evidenced by the everyday observation that we never stop learning. The extent of brain plasticity is harder to define and hasn’t been systematically examined.
6) Ted Talk: I don’t know - Peter Bregman [Source: YouTube]
In this riveting Ted Talk by Peter Bregman, he emphasizes on how “I Don’t Know” is a painful place to be in. He shares how he got the answer to everything and became a pro at answering questions from campers, with his set of 4 answers. These answers would come in handy all the time, and his favourite answer was, “What do you think?” This would get both thinking.
But one day, when he had to organize a course for 150 eight-graders, all his knowledge fell short of pleasing them. His was in the state of “I Don’t Know” what to do. And that’s when he learnt his most important lesson. He feels “I Don’t Know” is the reality of life. But, the most engagement, the most creativity, the most innovation comes not from knowing things but from not knowing things. When you say I don’t know, that’s when ideas come in.
He did a research with a client in distinguishing between strong and mediocre leaders. What distinguishes great leaders with mediocre leaders? When asked leaders why it makes them great leaders, most of them said many different things, but when asked followers, all had a unanimous answer. My leader should ask me for help. If my leader knows everything, then there’s no need of me. Innovation, creativity, engagement comes from the room of not knowing.
7) The inside story of Sebi crackdown on dabba trading [Source: Livemint]
This article talks about G.N. Bajpai’s latest book, A Game Changer’s Memoir and how Securities Exchange Board of India (Sebi) unraveled dabba trading. Mr. Bajpai was the chairman of Sebi between 2002 and 2005. One morning in July 2003, Sebi raided the Byculla, Mumbai office of Bansal Sharevest Securities Pvt. Ltd. for dabba trading. As the name suggests, dabba trading is nothing but hoax trading or fake transactions. Dabba trading was simply betting on stock movements. If the anticipated movement went in your favour, you gained money, and if it did not you lost money. Since it was not a transaction, there was absolutely no transaction cost. Most of the time, the investors were willing participants in the dabba trade. Sometimes the broker did the dabba trading without the knowledge of the investor and even on his own behalf.
At times brokers would speculate on a stock themselves by creating false client accounts to show that some genuine work was happening at their terminals. So, what was the impact of dabba trading? 1) Lakhs of crores of rupees were being betted, but hardly any of it was happening through the exchanges, and many authorities (the exchanges, Sebi, the revenue department, etc.) were being deprived of thousands of crores of rupees in revenue. 2) dabba trading was akin to pure gambling, which is prohibited in India. Brokers and investors often made trade bets, risking crores of rupees without having the adequate amount with them for backing their bets, as anyway the bets were off market and there were no margins in reserve.
When questioned about his activities, Sunil Kalyan, a Kolkata-based dabba trader, made the following statement in a leading daily: “Whatever I am doing is a gainful economic activity for a lot of individuals. Investors who come to my office do it willingly. There is no truth in your statement that they have been cheated in the process.” It was estimated that the average turnover from dabba trades amounted to Rs2,000 crore daily; whereas formal trades were in the range of Rs4,000-8,000 crore in turnover at the time. So dabba trades constituted about a third of overall market trades. At the end of the raid on Bansal Sharevest, computers and note books were seized and the employees and promoters taken for questioning.
One raid led to the names of many other dabba traders, and over time, many illegal traders were nabbed; others shut down overnight on hearing of Sebi’s operations against their lot. In the end, highest penalties possible under the Sebi Act 1992 were imposed, debarring the involved persons from the market and cancelling the licences of the brokers involved in dabba trading.
8) Apple CEO Tim Cook speaks with CNBC's Jim Cramer [Source: cnbc.com]
Apple CEO Tim Cook talked to CNBC's Jim Cramer about iPhone sales, the Chinese economy and the future of Apple. Mr. Cook laid out why he is optimistic about both Apple's future and Chinese trade talks with the U.S. Mr. Cramer told how her daughter loves her iPhone 5 and she refuses to upgrade, no matter what. And Mr. Cook is happy about it because that’s what they strive to do. Make their customers happy.
Mr. Cramer also asked about the China market and how patriotism can get in between Apple’s success in China. If one can get a Huawei with a subsidy, why will he buy an Apple that's conspicuously American? The Apple CEO says, “I think here's what we saw in China in specifically. The Chinese economy, it seemed to us, began to slow, maybe, in the second half of the year. And it was on some sort of rational trajectory. We believe, based on what we saw and the timing of it, that the tension, the trade-war tension with the U.S. created this more-sharp downturn. I believe that's temporary. Because I think that, when you really look at it, it's in both countries' best interests to come to an agreement. It is a complex, very complex trade agreement. And it needs to be updated. But as I've said before, I'm very optimistic that this will happen.”
Mr. Cook also feels that the Apple story isn't well understood. He thinks Apple is not well understood in some of Wall Street. For example, he thinks there are several people that believe the most important metric is how many iPhones are sold in a given 90-day period or what the revenues is. Also, Mr. Cook believes that their contribution in healthcare is immense and it will in future as well, as they believe in enriching people’s lives.
9) The three elements of China’s innovation model [Source: Factor Daily]
What drives innovation in China? The question that China’s march towards becoming a “country of innovators” raises is whether a political system that prioritises control can foster genuine innovation. Answering this requires an understanding of the key elements of the Chinese model of innovation. And there are three components to it: 1) Political and State support: Party-state focus on science and technology development dates back to the early 1960s, with the articulation of the four modernisations—agriculture, industry, defense, and science and technology. The framework returned into prominence with the ascent of Deng Xiaoping after the death of Mao Zedong, as the leadership focused on economic development.
2) Competition and systems approach: The intense competition for survival in the Chinese marketplace has fostered innovation by Chinese enterprises. Tencent and Bytedance’s battles in a Beijing court in 2018 are an example of this intense and often ugly competition. 3) ‘Bird Cage’ theory: A reimagination of the bird-cage. This refers to the theory propounded by Chen Yun in the early 1960s, in which he likened the free market to a bird calling for the state to build a cage of planning as opposed to either letting it free or holding it too tight. Viewed from a present-day lens, this is essentially what the party-state is attempting to do and perhaps even struggling to manage.
This takes us back to the big question: Can a political system that prioritises control foster genuine innovation? China’s entry into the 2018 Global Innovation Index’s top 20 most innovative economies list perhaps helps answer one part of it. But can China lead? It seems like we’ll have to wait and watch.
10) Universal Basic Income can be funded by reducing subsidies to the rich [Source: Indian Express]
In this piece, Pranab Bardhan, Professor of Graduate School at the Department of Economics at the University of California, Berkeley, elaborates on the Universal Basic Income Supplement (UBIS). UBIS avoids the problem of deciphering who is poor and who is not, which is an intricate problem in India — the India Human Development Survey found that in 2011-12 about half of the officially poor did not have the BPL card, while about one-third of the non-poor had it. Mr. Bardhan feels that minimum economic security is every citizen’s right. While most countries have recognized it, India is yet to.
Since UBIS is to be given to the rich and the middle classes as well, it can be expensive. So, how is it feasible? He suggests funding it from reducing some of the subsidies that are at present enjoyed mainly by the better-off, also taking a bit from the various tax concessions mostly to business (called “revenues foregone” in the Central Budget), and taxing the currently exempt wealth, inheritance, and long-term capital gains, and collecting more taxes from the currently under-assessed and under-taxed property values.
Mr. Bardhan thinks packaging a significant UBIS with a simultaneous increase in the taxes on the rich will help macro-economic stability, apart from assuaging the poor who will face some of the price rise in commodities or services, when subsidies are withdrawn. But, there are some challenges as well. 1) How do you reach everybody in India when many people still do not have bank accounts or access to banking agents?; 2) Aadhaar or some other form of identification will be necessary, but the horror stories one has heard about the poor being denied PDS because of the lack of Aadhaar authentication make one wary of bureaucratic callousness in this respect.
3) UBIS needs to be transparently linked right from the beginning to some cost of living index; 4) UBIS could be different for adults and children, but one probably should not go that way because in the absence of proper age records it may give an opportunity to some corrupt officials. 5) How should the grant money be allocated between the Centre and the states? UBIS needs serious attention and deliberation as it’s not something to do for angry voters just before elections.