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Ten interesting things we read this week
Some of the most fascinating topics covered this week are: Investing (How to do long term; The best shareholder letters nobody is reading), Sports (Evolution of an athlete), Work Life (Overwork is killing us!) and Technology (Current chip crisis could reshape the industry's global landscape)
Image: Shutterstock
Everyone, or at least most, in the investing world say that one needs to think long term. But, thinking and doing are two separate things. To do long term effectively you have to come to terms with a few points. 1) The long run is just a collection of short runs you have to put up with: Saying you have a 10-year time horizon doesn’t exempt you from all the nonsense that happens during the next 10 years. The longer your time horizon the more calamities and disasters you’ll experience. 2) Your belief in the long run isn’t enough. Your investors, coworkers, spouses, and friends have to sign up for the ride: An investment manager who loses 40% can tell his investors, “It’s OK, we’re in this for the long run,” and believe it. But the investors may not believe it. They might bail. 3) Patience is often stubbornness in disguise: The world changes, which makes changing your mind not just helpful but crucial. But changing your mind is hard because fooling yourself into believing a falsehood is so much easier than admitting a mistake. Doing long-term thinking well requires identifying when you’re being patient or just stubborn. 4) It’s hard to know how you’ll react to decline: What if the stock falls 30%. You might say that’s fine. But, what if the stock has fallen 30% because there’s a terrorist attack, or the banking system is about to collapse, or there’s a pandemic that might kill your whole family. You might feel different then. 5) Long term is less about time horizon and more about flexibility: A long time horizon with a firm end date can be as reliant on chance as a short time horizon. Far superior is just flexibility. Time is compounding’s magic whose importance can’t be minimized. 2) Abhinav Bindra: the evolution of an athlete [Source: Livemint]
Abhinav Bindra nowadays is engaging in a subject he enjoys. Talking about Olympic values. He wrote a piece partly about the Indian Premier League (IPL) in The Indian Express a month ago and wants to clarify something. “I didn’t have a problem with the event but you had to do it in a dignified manner. More quiet, more humble in many ways. It needed to contribute, to play a more direct and meaningful role. Cricket enjoys that privilege in this country.” In an Olympic summer, Bindra would rather talk about anything other than his own Olympic summer of 2008. “I don’t know that person,” he drawls about the champion shooter who inhabited his body. If you ask, he will say his life was narrow. If you push, he will venture that he didn’t realise his potential. The author also writes how Bindra isn’t the young man he was in 2019. Champions own a measure of conceit but real life is foreign territory not easily conquered. What is my purpose, he wondered. What life experience do I have to speak on anything? What should I stand for? So he learnt, he wandered, he read. He aided fellow shooter Niccolò Campriani’s project to take three refugees, who might never have seen a 10m air rifle, and make them eligible for selection to the Olympics. In extending his hand, he was recognising a truth. “I realised how lucky I have been to simply play sport. I hadn’t encountered their challenges, of not having an identity, or a nationality, or being driven away from a land and not knowing if I would survive a night. It taught me to be grateful.”
3) Pearls of Wisdom - The best shareholder letters nobody is reading [Source: toptal.com]
Equity analysts often leave out an important source of wisdom when analyzing companies—the annual shareholder letter. This article intends to elucidate the purpose and traits of good shareholder letters based on an analysis of the 601 companies in the S&P SmallCap 600 Index. The article will also direct readers to some of the best lesser-known shareholder letters to put on their annual reading list. There's a reason everybody reads Buffett and Bezos—they give insight into interesting financial concepts, economic outlooks, managerial insight that is far ahead of anything being taught in business school, and more. So, what are the traits of a best shareholder letter? Specifically, there are five: (1) Define the company and its strategy, (2) be candid, (3) educate, (4) tell a story (the investment thesis story), and (5) entertain. The shareholder letters have impact on stock price. Companies with the best shareholder letters outperformed the Index. If you skip through the corporate jargon phrases and pretty much skim the rest, it will hardly take about two minutes to go through it. A good chunk of companies won’t even have a letter. And the truly great letters could actually save you time in the long run. Who doesn’t want to save time and make better investments? 4) ‘Can we neuter Dogecoin?’: World’s most expensive joke keeps getting funnier. Investors in on it? [Source: Economic Times Prime]
Dogecoins’ total value (USD40 billion) is more than the market cap of Bharti Airtel, Asian Paints, and Maruti Suzuki, separately! The frenzy around the cryptocurrency, helped by Elon Musk, is building a false sense of assurance among naive investors. Reminiscent of a pump-and-dump scheme, people are happily ignoring the warning signs among the laughs. In the last one year, Dogecoin rallied 26,700% to an all-time high of USD0.67/Doge earlier in May, dwarfing the price appreciation in Bitcoin and Ethereum. Part of the reason is Elon Musk’s interest in cryptocurrency. While the Doge community has termed Musk as its lord and saviour, the Dogefather recently put out a tweet saying: “Please note Dogecoin has no formal organisation & no one reports to me, so my ability to take action is limited.” Given the influence Musk has had on Doge’s price movement, it’s a bit of an understatement to say that his ‘ability to take action is limited’. Nitin Sharma, partner, Antler Global and founder of blockchain investment network, Incrypt says, “Doge was started simply as a joke, and it isn’t clear yet whether it has serious developer mindshare like Ethereum or a roadmap to actual utility (store of value or payments) while balancing speed, scale, decentralisation, privacy and security. Or is it just a meme being willed into reality”. 5) How overwork is literally killing us [Source: BBC]
The current pandemic has made most of the employees world over work for long hours. Many are also finding themselves in ill health due to intense work schedules. New, sobering research – said to be the first-ever study to quantify the global burden of disease from working long hours – has shown how bleak the situation is. In a paper published 17 May, authors from institutions including the World Health Organization (WHO) and the International Labour Organization (ILO) suggest that, each year, three-quarters of a million people are dying from ischaemic heart disease and stroke, due to working long hours. In other words, more people are dying from overwork than from malaria. The current pandemic has intensified some work stresses while bringing new forms of workplace exhaustion. If trends continue in the same direction, overwork, and the associated health harms, will only increase. This is especially worrying, given how many societies glorify overwork to the point of burnout. And, as our work hours have ticked up during the pandemic, with few signs of stopping, those suffering from spending too many hours on the clock will only increase. There’s clearly a role for individual workers to reshape their attitudes to work as well – we can all try to push back against the pull of overwork that keeps so many of us glued to our phones late into the evening. The sooner workers do this, the better position they’ll be in. Ultimately, the problem of overwork, and the ill health it breeds, will continue if we don’t make changes in our working lives. 6) Amid bogus imports, the race to a “make-in-India” oxygen concentrator [Source: The Ken]
The second wave of Covid in India made us realise the cost of oxygen. There was shortage of oxygen everywhere. Hence, many individuals and companies started manufacturing them. “Almost 90% of the models flooding the market right now are “home-grade” concentrators, which don’t have a powerful compressor inside,” says Siddharth Dhawan, a Mohali-based medical device manufacturer. The Bureau of Indian Standards (BIS) is now planning to adopt an ISO standard for concentrators. Dhawan’s company, Walnut Medical, is one of the several manufacturers attempting to design and manufacture a make-in-India concentrator, of 5 and 10 litre/min capacity. Like Dhawan, many have started to manufacture these concentrators locally. But, these individual efforts, however, are only drops in the ocean. Also, challenges like maintaining the purity, sourcing raw materials, etc. remain. The efforts to build and deploy quickly are also marred by the circumstances created by the pandemic, says Praveen Ramamurthy, a materials professor at the Bengaluru-based Indian Institute of Science (IISc). “Team members are also constantly falling sick,” he says. Concentrators could become a staple feature, like air purifiers, should Covid-19 become an endemic, Indian disease. For that to happen though, standards, affordability, and a pliable manufacturing ecosystem have to become permanent fixtures. 7) The optimal amount of hassle [Source: Collaborative Fund]
Many get irritated if things don’t go their way. Some have zero tolerance. If you are one of them, if you are allergic to differences in opinion, personal incentives, emotions, inefficiencies, miscommunication and such, your odds of succeeding in anything that requires other people rounds to zero. You can’t function in the world, as Steven Pressfield, author of The Legend of Bagger Vance, says. The other end of the spectrum – fully accepting every incidence of nonsense and hassle – is just as bad. The world will eat you alive. A unique skill, an underrated skill, is identifying the optimal amount of hassle and nonsense you should put up with to get ahead while getting along. Every industry and career is different, but there’s universal value in that mentality, accepting hassle when reality demands it. Volatility. People having bad days. Office politics. Difficult personalities. Bureaucracy. All of them are bad. But all have to be endured to some degree if you want to get anything done. Likewise, many investors feel they should enjoy good returns year after year. That’s unrealistic. The huge majority of them won’t survive. Compounding is fueled by endurance, so sitting through market insanity is not a defect; it’s accepting an optimal level of hassle. Good advice for a lot of things is just, “Identify the price and be willing to pay it.” The price, for so many things, is putting up with an optimal amount of hassle. 8) How the current chip crisis could reshape the industry’s global landscape [Source: The Economic Times]
There has been severe shortage of chips, squeezing global automakers. The shortage also reflects the effect of political uncertainties on business confidence and strategic decision-making, experts say. The shortage is on the radar screens of global leaders, elevating concerns about the risks of foreign supplies. Some experts estimated that Chinese automakers face a 10% to 20% shortfall in supplies of the microprocessors that control engines, transmissions, emission controls, automated driving features and other increasingly tech-heavy vehicle systems. Unlike previous rounds of such supply shortages, the current shortfall is lasting much longer with broader impacts, said Meng Pu, chairman of chipmaking giant Qualcomm China. The Covid-19 pandemic triggered the global chip shortage. Adding to that was escalating frictions between China and the U.S. that threatened Chinese tech giants’ access to advanced chips. With the shortage, the semiconductor industry is set for a major capacity expansion. According to the global industry association SEMI, at least 38 12-inch wafer fabrication plants will be built worldwide between 2020 and 2024, more than half of them on the Chinese mainland and in Taiwan. By 2024, global production capacity of 12-inch wafers will reach 7.2 million units a month, 30% higher than in 2019. Despite countries’ push for self-reliance, experts warned that pursuing completely independent chip supplies is unrealistic. The industry is so complicated and globalized that it can maintain innovation only through collaboration in the highly specialized world supply chain, said Goodrich at the Semiconductor Industry Association. 9) DotPe, Thrive, and the #OrderDirect movement hoping to eat Zomato-Swiggy’s lunch [Source: The Ken]
Many restaurants are frustrated with restaurant aggregators like Zomato and Swiggy. Restaurants have no clear picture of who their customers are or what their order histories look like. Nascent, and to an extent, still niche, direct ordering services offer an alternative to restaurants trying to break out of the grip of restaurant aggregators. The Mumbai-based Thrive takes a 3% cut. The commission for Gurugram-based DotPe is even lower—1%. Between these two and the up and coming Bengaluru-based Peppo, direct ordering platforms have scored some of India’s largest and most popular restaurants and fast-food chains as clients. Direct ordering will “enable them (restaurants) to sell more, sell directly, reducing dependence on tech aggregators,” the e National Restaurants Association of India (NRAI) said during a Facebook Live session on #OrderDirect. DotPe, Thrive, and Peppo are poster children for the #orderdirect campaign that the NRAI has been running on social media for sometime now. The body is pushing for restaurants to cut out the middleman and build a direct connection with the customers. According to the India Food Service Report published by NRAI in 2019, India’s food service market is worth a mammoth Rs 4,20,000 crore ($57.6 billion), with the organised sector placed at a size of Rs 1,48,000 crore ($20.3 billion). The delivery and takeaway is a comparatively smaller Rs 32,000 crore ($4.4 billion) market, out of which aggregators have carved out Rs 26,000 crore ($3.56 billion) for themselves. That’s just around 17% of the organised food service business in India. With direct ordering services, the ball now lies in the restaurants’ court and their ability to hook their customers in for life. 10) The world may be coming to an end, but market optimism refuses to die. What’s keeping it ticking? [Source: The Economic Times]
Last year in March/April, everyone felt like the world would end soon. But, that didn’t happen. A ravaging pandemic was killing people and the world had resorted to a shutdown. The markets collapsed. Economic growth was affected and a revival was far away. But the market bounced back by more than 100% from its lows and has been on a rise since then. So, should investors buy at a high Sensex PE of 32x when the average 10-year PE works out to 22x? “Indian markets have remained expensive for quite some time now and are still rallying on hopes that the economic growth may see an upturn. To that extent, there has been no negative news on earnings as far as the March quarter is concerned. We need to see how the June quarter pans out, given the lockdown in certain states. That said, markets are always forward-looking, and assuming things are getting better on the ground,” says Harsha Upadhyaya, CIO - equity, Kotak Mutual Fund. Also, a lot is happening in the unlisted space. Paytm is going for a listing and plans to raise USD1.5 billion ahead of its IPO slated in November 2021. Zomato has plans for a public float as well. Neelkanth Mishra, an equity strategist, says India has 100 unicorns across sectors valued at USD240 billion. Private capital is chasing these companies, but at some time, these guys will be due for listing in the market. While Covid-19 has been a disaster for the humankind, it seems we have taken a giant leap in a year, which has made us more of a survivor species on the planet. We have done enough innovation for a decade, and the stock market understands this. Like they say, it is better to put time in the market than timing the market. So should you invest in the market? Yes. Invest for the long term and stagger your investments.
