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: Technology (Rise of the financial machines), Meritocracy (How life has become and endless competition), Mathematical Biology (Math that tells cells what they are), Lifestyle (Can lawyers learn to go home and get some sleep?) and Gambling (Addition managed by the state). Here are the ten most interesting pieces that we read this week, ended October 11, 2019.1) The rise of the financial machines [Source: The Economist]
Technology has changed each and every sector, and finance is no different. Especially capital markets. There were days when traders used to shout and yell stock names in the trading room, but now that has vanished. Computers have taken place instead. Machines are taking control of investing. Funds run by computers that follow rules set by humans account for 35% of America’s stock market, 60% of institutional equity assets and 60% of trading activity.
Computers are gaining autonomy. Software programs using artificial intelligence (AI) devise their own strategies without needing human guidance. Also, the rise of computers has democratized finance by cutting costs. A typical ETF charges 0.1% a year, compared with perhaps 1% for an active fund. And you can buy an ETF on a phone, anytime, anywhere! But the rise of machine-dominated finance raises a few queries/worries. 1) Financial stability: Seasoned investors complain that computers can distort asset prices, as lots of algorithms chase securities with a given characteristic and then suddenly ditch them.
2) Concentrating wealth: Because performance rests more on processing power and data, those with clout could make a disproportionate amount of money. 3) Corporate governance: For decades, company boards have been voted in and out of office by fund managers on behalf of their clients. What if those shares are run by computers that are agnostic, or worse, have been programmed to pursue a narrow objective such as getting firms to pay a dividend at all cost? The computing revolution looks like as if it will make today’s rules look horribly out of date. Human investors are about to discover that they are no longer the smartest guys in the room. 2) Three Big Things: The most important forces shaping the world [Source: Collaborative Fund]
Every current event, big or small, has parents, grandparents, great grandparents, siblings, and cousins. Ignoring that family tree can muddy your understanding of events, giving a false impression of why things happened, how long they might last, and under what circumstances they might happen again. Viewing events in isolation, without an appreciation for their long roots, helps explain everything from why forecasting is hard to why politics is nasty. But, according to the author of this piece, the three big factors that are the root influencer of so many other topics are demographics, inequality, and access to information. These have powerful impact on economics, politics and returns for capital allocators.
1) Demographic: People like to talk about new technologies and innovations, because that’s fun. Demographics aren’t fun. But they’re going to be as important, if not more, to overall economic growth than most innovations over the coming decades. 2) Inequality: It is one of the most divisive topics that exists, because it pits capitalism against fairness in ways that feel zero sum – me vs. you, your gain is my loss, etc. It’s tribal in nature, and tribal debates can escalate into fights because you feel like your identity and dignity are on the line.
We’ll come up with all kinds of explanations for why these things changed. But the most likely is that income inequality of the early 2000s was a big thing that guided the subsequent decades, as it has for centuries. 3) Access to information: The greatest innovation of the last generation has been the destruction of information barriers that used to keep strangers isolated from one another. Another shift is the push toward meritocracy. People who have never had a voice can, practically overnight, have the biggest. These three factors will have a huge impact on the coming decades. 3) Are you sugarcoating your feedback without realizing it? [Source: HBR]
How the managers give feedback to their subordinates and how they understand is very crucial. And this article throws light on how managers tend to inflate the feedback they give to their direct reports, particularly when giving bad news. Previous research into this kind of feedback inflation has centered on the idea that managers deliberately sugarcoat tough messages for fear of retaliation, or to protect their employees from feeling bad about themselves. Managers’ assumption that their direct reports understand what they mean is due to a common cognitive bias called the ‘illusion of transparency’, in which people are so focused on their own intense feelings and intentions that they overestimate the extent to which their inner worlds come across to others.
HBR conducted a series of studies to learn more about this phenomenon as it relates to performance feedback. Their research points to several ways to combat the illusion of transparency. 1) Increase the frequency of feedback: As a manager, you can augment your annual appraisals with continuous reminders, ongoing training, and structured weekly or monthly “pulse checks” to break the discomfort that may be preventing you from communicating more clearly. 2) Encourage employees to ask: Firms should also promote a culture that encourages employees to request more candid feedback from their managers prior to appraisals. Failing that, firms can institute a formal process obligating them to do so.
3) Clarity and specificity of language are managers’ best tools: Use clear language and avoid phrases that could obscure your meaning. One phrase to avoid, for example, is “a real possibility,” which people interpret as conveying a likelihood of anywhere from 20–80%. Also, ask your employee to paraphrase what you’ve told them to make sure they fully understand your message. Employees themselves can dispel many incorrect assumptions by asking questions, or by requesting that managers use precise, explicit terms when delivering feedback. Being aware of the illusion of transparency will make sure your employees understand what they need to do from your appraisal.4) How life became an endless, terrible competition [Source: The Atlantic]
There have been numerous books written on meritocracy. And one of the authors to write on this topic is Daniel Markovits (The Meritocracy Trap). In this article, Mr. Markovits throws light on how meritocracy harms both poor and rich. Two decades ago, when he started writing about economic inequality, meritocracy seemed more likely a cure than a cause. Today’s meritocrats still claim to get ahead through talent and effort, using means open to anyone. In practice, however, meritocracy now excludes everyone outside of a narrow elite. Harvard, Princeton, Stanford, and Yale collectively enroll more students from households in the top 1% of the income distribution than from households in the bottom 60%.
Hardworking outsiders no longer enjoy genuine opportunity. According to one study, only one out of every 100 children born into the poorest fifth of households, and fewer than one out of every 50 children born into the middle fifth, will join the top 5%. Public anger over economic inequality frequently targets meritocratic institutions. Nearly three-fifths of Republicans believe that colleges and universities are bad for America, according to the Pew Research Center. Meritocracy has created a competition that, even when everyone plays by the rules, only the rich can win. We are accustomed to thinking that reducing inequality requires burdening the rich. But because meritocratic inequality does not in fact serve anyone well, escaping meritocracy’s trap would benefit virtually everyone.
Escaping the meritocracy trap will not be easy. Elites naturally resist policies that threaten to undermine their advantages. Also, it is simply not possible to get rich off your own human capital without exploiting yourself and impoverishing your inner life, and meritocrats who hope to have their cake and eat it too deceive themselves. How can that be done? For one thing, education—whose benefits are concentrated in the extravagantly trained children of rich parents—must become open and inclusive. Rebuilding a democratic economic order will be difficult. But the benefits that economic democracy brings, to everyone, justify the effort. And the violent collapse that will likely follow from doing nothing leaves us with no good alternative but to try. 5) The math that tells cells what they are [Source: Quanta Magazine]
This piece talks about how cells split and multiply. In 1891, when the German biologist Hans Driesch split two-cell sea urchin embryos in half, he found that each of the separated cells then gave rise to its own complete, albeit smaller, larva. Somehow, the halves “knew” to change their entire developmental program: At that stage, the blueprint for what they would become had apparently not yet been drawn out, at least not in ink.
Many experiments were conducted to get to the root. “Natural selection [seems to be] pushing the system hard enough so that it … reaches a point where the cells are performing at the limit of what physics allows,” said Manuel Razo-Mejia, a graduate student at the California Institute of Technology.
According to Jané Kondev, a physicist at Brandeis University, “As a physicist, you hope that the phenomenon of life is not just about the specific chemistry and DNA and molecules that make living things on planet Earth — that it’s broader,” he said. “What is that broader thing? I don’t know. But maybe this is lifting a little bit of the veil off that mystery.”6) Amitav Ghosh: ‘We Are Living in a Reality That Is Fundamentally Uncanny’ [Source: nymag.com]
With his book-length essay The Great Derangement: Climate Change and the Unthinkable, the Indian-born novelist Amitav Ghosh became something beyond the renowned author of Sea of Poppies — perhaps the most penetrating cultural critic of a new age defined by climate change and the strange, inadequate, and often self-deluding ways we process its transformations in our storytelling. His new novel, Gun Island, is a climate-change epic, one that fulfills many of the failings and missed opportunities he identified in the dizzying essay. In this interview, he talks about both books and what’s changed in between them.
When asked how he sees climate storytelling having changed since he wrote the Great Derangement in 2016, Mr. Ghosh said that there’s been a dramatic change. “How often did you see a book about climate fiction in The New York Times Book Review? Or The New York Review of Books. Almost never. They were just treated as marginal. He thinks that Richard Powers’s Overstory was a major turning point — not just because it is a great book, which it is, but because it was taken seriously by the literary mainstream.”
Talking about his novel, Gun Island, he says that it didn’t begin necessarily as a book about all that’s in it right now. But it was impossible that it wouldn’t impress those things, simply because they were so urgent to him. By the time he finished writing The Great Derangement, there were two or three things that were clear to him about the only ways we can write about today’s world. They cannot be these individual stories of adventure. That they cannot be local. And they have to confront the aspect of the uncanny in a literary sense really. That is our great resource, the uncanny, which somehow has come down to us even through the 19th century.7) Can lawyers learn to go home and get more sleep? [Source: Financial Times]
Being a lawyer is a high-paying, but a stressful job. “All law firms say they have an issue with stress,” says Geoff Bird, a cognitive neuroscientist at Oxford University in the UK. He is a frequent visitor to law firms, where he gives talks on the impact of sleep deprivation on both mental health and physical wellbeing. Research published in June by Newcastle University’s law school in the UK found that working in the legal profession was “anxiety-inducing” and recommended that “wellbeing, mental health and anxiety should be seen as a core business issue for law firms”.
Intense competition, long hours, new technology and highly ambitious employees all contribute to the pressure. Competition from US firms has prompted UK law firms to raise pay for junior associates, offering salaries worth over £100,000. Such high levels of pay make it hard to resist large workloads. With such high level of stress, law firms have woken up and taken steps to curb this. Aside from talks, some law firms have launched initiatives ranging from mindfulness apps and mental health first aid training to on-site therapists. Senior partners and managing directors have been encouraged to share their own stories of stress and anxiety. This can change the organisational culture, says Prof Bird.
Law firm Hogan Lovells has introduced Project Respect, which includes workshops and trained advocates, to encourage employees who prefer not to take their problem to human resources to speak out about harassment and bullying. In October 2018, law firms Pinsent Masons and Addleshaw Goddard and in-house lawyers at Barclays bank unveiled the Mindful Business Charter, a set of 22 principles designed to tackle long hours and alleviate stress. Since then other organisations, including law firms and clients, have signed up to the charter. While these are some of the steps that the law firms are taking, the employees also need to proactively take care of their mental and physical health. 8) The dark side of Techno-Utopianism [Source: The New Yorker]
This piece throws light on mass printing, publishing platforms and how they have evolved over the years, and also encouraged free speech. And also how big technological shifts have always empowered reformers. They have also empowered bigots, hucksters, and propagandists. In the twentieth century, as early packet-switching networks evolved into the Internet, a generation of futurists and ted talkers emerged, explaining the new system to the laity in a spirit of wide-eyed techno-utopianism. They compared it to a superhighway, to a marketplace of ideas, to a printing press. Anyone who was spending a lot of time on the Internet knew that many parts of it felt more like a dingy flea market, or like a parking lot outside a bar the moment before a fight breaks out. The techno-utopians must have been aware of those parts, too, but they didn’t mention them very often.
For centuries, the meaning of free speech had been refined and reinterpreted in universities, in legislatures, in the courts, in the press. In the early days of Silicon Valley, however, weighty decisions about free speech were more likely to be made in the course of an afternoon, in a cramped conference room full of complimentary snacks, by a small team of harried computer engineers. Since Facebook’s launch, in 2004, Zuckerberg had portrayed himself as a Robin Hood figure, snatching power from the gatekeepers and redistributing it to the people. Until recently, Zuckerberg insisted that Facebook was a platform, not a publisher.
After more than a decade, the most powerful social-media entrepreneurs, now businessmen in their thirties, finally seem to understand that their imagined techno-utopia is not going to materialize. This realization may be a sign of maturity; it may be a calculated response to internal pressure from investors or a strategy to stave off regulation; or it may be a simple defense mechanism, a reaction to being shamed. Within just a few years, the general public’s attitude toward social media has swerved from widespread veneration to viral fury.9) Who needs moonshots? How former Hollywood mogul Barry Diller built a $4.2 billion tech fortune out of underdog assets [Source: Forbes]
They call him the underdog, but Barry Diller has had a magnificent career in media and technology. This former Hollywood mogul has built an online conglomerate, InterActiveCorp (IAC), that has grown to a value of $20 billion after a tenfold surge in its stock over the past decade, yielding Diller a $4.2 billion fortune, good for No. 168 on The Forbes 400 list of richest Americans. In a former life, he was one of the most powerful hired hands in Hollywood, heading Gulf & Western’s movie studio, Paramount Pictures, from 1974 to 1984 before leaving to build Rupert Murdoch’s Fox Broadcasting into the fourth national network. His string of blockbusters includes Saturday Night Fever, Grease and Raiders of the Lost Ark at Paramount and The Simpsons at Fox.
“Barry’s had one of the most unusual careers of anybody in America,” says David Geffen, a close friend and former colleague, now worth $7.9 billion himself. “When he decided he was going to take over QVC I was shocked. I didn’t think that was good enough, or big enough, or important enough, or classy enough for Barry.” Since he took control of IAC’s predecessor in 1995, he’s produced 14% compound annual returns for shareholders, outperforming Berkshire Hathaway and trouncing both the S&P and Hollywood giants like Disney, CBS and Viacom.
To understand Diller, it’s important to realize that he relishes being an underdog. When it comes to acquisitions, he tends to buy misfits that others dismiss. In 1992, QVC was put up for sale, and Diller says that with the backing of Comcast’s Roberts family he invested $25 million and took control of the company. He promptly tried to buy Paramount, but got in a bidding war with Viacom’s Sumner Redstone and lost the $9.6 billion prize. Then, in 1994, on the eve of a planned merger with CBS, the Roberts bought QVC out, earning Diller a $130 million windfall. But not every deal has worked out as planned. In 1999, Diller tried and failed to buy Lycos, an early search engine. That’s probably a good thing given that a small company named Google had been founded a year earlier. But he still managed to waste nearly $2 billion in search, buying the also-ran Ask Jeeves in 2005.10) Gambling addiction in Finland [Source: The Economist]
Gambling has been a ritual in Finland for decades. The proceeds from the lottery draw that used to happen every Saturday would be channelled to good causes. But, things have changed. Nowadays, around a third of adults gamble every week. A survey in 2016 found that 83% had gambled at least once in the past year. The lottery was legalised as long ago as the 1920s to discourage Finns from playing Swedish lotteries, and from sending money to their former rulers.
Veikkaus, the state agency that holds the exclusive right to operate all gambling in Finland, is well thought of. In 2017 its earnings of over $1.1bn were redistributed, half of them to sports, physical education, science, arts and youth works, and most of the rest to health and social welfare. The Finnish state has come to rely on gambling money. The former centre-right government, formed in 2015, slashed the budgets of social and health-care services, in the expectation that Veikkaus would help make up the difference through backing good causes. Gambling revenues rose by over 30% between 2006 and 2016.
The Finland Government is final taking steps to curb the gambling problem. Following a public outcry over a controversial radio ad perceived to encourage gambling, Veikkaus said in August that it would establish an ethics board. The prime minister has hinted at reform, and an online petition asking for the removal of some of the country’s 20,000 slot machines from stores and restaurants, among other places, has garnered over 30,000 signatures.
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