Chaitanya Patel

So pulse prices have been going up and I get sticker shock everytime I go to buy dal. But apparently I should curse the state of Karnataka for hoarding pulses.

After the imposition of stock limits on pulses, any trader having more pulses than the limit will see the excess seized. Karnataka has seized the maximum amount of pulses from traders among states, as per a press release. Karnataka has seized 25,446 tonnes of pulses, where the next highest state in terms of seized pulses is Chattisgarh which is 1/5th lower at 5448 tonnes.

And yet, Karnataka has disposed only a piddly 371 tonnes of, or just 1.5% what they’ve seized!

Chattisgarh has gotten rid of about 30%, Madhya Pradesh about half, and Delhi and Rajasthan about 8-10%.

It’s no wonder we are seeing pulse prices spiralling – if they seize these pulses why don’t they get rid of them in markets fast?… (Read On...)

In Peter Thiel’s book, Zero to One: Notes on Startups, or How to Build the Future — more of an exercise in thinking about the questions you must ask to move from zero to one — there is a great section on the single best interview question you can ask someone.

Whenever Peter Thiel interviews someone he likes to ask the following question: “What important truth do very few people agree with you on?”

This question sounds easy because it’s straightforward. Actually, it’s very hard to answer. It’s intellectually difficult because the knowledge that everyone is taught in school is by definition agreed upon. And it’s psychologically difficult because anyone trying to answer must say something she knows to be unpopular. Brilliant thinking is rare, but courage is in even shorter supply than genius.

The most common answers, according to Thiel, are “Our educational system is broken and urgently needs to be fixed.” “America is exceptional.” “There is no God.”

These are bad answers.

The first and the second statements might be true, but many people already agree with them. The third statement simply takes one side in a familiar debate. A good answer takes the following form: “Most people believe in x, but the truth is the opposite of x.”

[…]

What does this contrarian question have to do with the future? In the most minimal sense, the future is simply the set of all moments yet to come.

We hope for progress when we think about the future. To Thiel, that progress takes place in two ways.

Horizontal or extensive progress means copying things that work— going from 1 to n. Horizontal progress is easy to imagine because we already know what it looks like. Vertical or intensive progress means doing new things— going from 0 to 1. Vertical progress is harder to imagine because it requires doing something nobody else has ever done. If you take one typewriter and build 100, you have made horizontal progress. If you have a typewriter and build a word processor, you have made vertical progress.

At the macro level, the single word for horizontal progress is globalization— taking things that work somewhere and making them work everywhere. … The single word for vertical, 0 to 1 progress, is technology. … Because globalization and technology are different modes of progress, it’s possible to have both, either, or neither at the same time.

Here is Thiel’s answer to his own question:

My own answer to the contrarian question is that most people think the future of the world will be defined by globalization, but the truth is that technology matters more. Without technological change, if China doubles its energy production over the next two decades, it will also double its air pollution. If every one of India’s hundreds of millions of households were to live the way Americans already do— using only today’s tools— the result would be environmentally catastrophic. Spreading old ways to create wealth around the world will result in devastation, not riches. In a world of scarce resources, globalization without new technology is unsustainable.

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Sponsored By: Greenhaven Road Capital: You think differently - now invest differently.

The post Poke the Box: Combine Ideas appeared first on Safal Niveshak.

    

Photo Credit: Lynn || Note: this picture was not picked for what its author wrote, that was a surprise to me

A while ago I wrote two pieces called “Easy In, Hard Out.”  The main idea was to illustrate the difficulties that the Federal Reserve will face in removing policy accommodation.   In the past, the greater the easing cycle, the harder the tightening cycle.  I don’t think this time will be any different.

In the last two pieces, I showed three graphs to illustrate how the Fed’s balance sheet has changed.  I’m going to show them again now, updated to 11/11/2015.  Here’s the graph showing the liabilities of the Federal Reserve — i.e. what the Fed eventually has to pay back, occasionally with interest:

I’ve added a new category since last time — reverse repurchase agreements (“reverse repos”) because it has gotten big.  In that category, you have money market funds (etc.) lending to the Fed to pick up a pittance in interest.

As you might note — as the balance sheet has grown, all categories of liabilities have grown.  The pristine balance sheet composed mostly of currency is no more — it is only around 30% of the liabilities now.  The biggest increase in reserve balances at the Fed — banks lending to the Fed to receive a pittance in interest, because they have nothing better to do for now.

I’ve considered doing an experiment, and I might do it over the next few weeks.  I went to my copy of AAII Stock Investor, and pulled out the contact data for 336 banks with market capitalizations of over $100 million.  I was thinking of calling 10 of them at random, and asking the following questions:

• What has the Fed’s ZIRP policy done to your business?
• Do you have a lot of money on deposit at the Federal Reserve?
• When the Fed raises the short-term interest rate, what do you plan on doing?
• Then, the same questions asking them about their competitors.
• Finally, who has the most to lose in this situation?

It could be revealing, or it could be a zonk.

One more interesting note: reverse repos and my “all other” category have become increasingly volatile of late.

Here’s my next graph, with the asset class composition of the Fed’s balance sheet:

The Fed has gone from a pristine balance sheet of 95% Treasuries to one of 60/40 Treasuries and Mortgage-backed securities [MBS].  MBS are considerably less liquid than Treasuries, particularly when you are the largest holder of them by a wide margin — I’ve heard that it is 25% of the market.  The moment that it would become public knowledge that you were a seller, the market would re-rate down in price considerably, until holders became compensated for the risk of more MBS supply.

Finally, here is the maturity graph for the assets owned by the Fed:

The pristine balance sheet of 2008 was very short in its interest rate sensitivity for its assets — maybe 3 years average at most.  Now maybe the average maturity is 12?  I think it is longer…

Does anybody remember when I wrote a series of very unpopular pieces back in 2008 defending mark-to-market accounting?  Those made me very unpopular inside Finacorp, the now-defunct firm I worked for back then.

I see three hands raised.  My, how time flies.  For the three of you, do you remember what the toxic balance sheet combination is?  The one lady is raising her hand.  The lady has it right — Illiquid assets and liquid liabilities!

In a minor way, that is the Fed now.  Their liabilities will reprice little as they raise rates, while the market value of their assets will fall harder if the yield curve moves in a parallel shift.  No guarantee of a parallel shift, though — and I think the long end may not budge, as in 2004-7.  Either way though, the income of the Fed will decline rapidly, and any adjustment to their balance sheet will prove difficult to achieve.

What’s that, you say?  The Fed doesn’t mark its assets to market?  You got it.  But cash flows don’t change as a result of accounting.

Now, there is one bit of complexity here that was rumored at the Cato Conference — supposedly the Fed doesn’t use a prepayment model with its MBS.  If anyone has better info on that, let me know.  If true, the average life figures which are mostly in the 10-30 years bucket are highly suspect.

As a result of the no-mark-to-market accounting, the Fed won’t show deterioration of its balance sheet in any conventional way.  But you could see seigniorage — the excess interest paid to the US Treasury go negative, and the dividend to its owner banks suspended/delayed for a time if rates rose enough.  Asking the banks to buy more stock in the Federal Reserve would also be a possibility if things got bad enough — i.e., where the future cash flows from the assets could never pay all of the liabilities.  (Yes, they could print money together with the Treasury, but that has issues of its own.  Everything the Fed has done with credit so far has been sterile.  No helicopter drop of money yet.)

Of course, if interest rates rose that much, the US Treasury’s future deficits would balloon, and there would be a lot of political pressure to keep interest rates low if possible.  Remember, central banks are political creatures, much as their independence is advertised.

Conclusion?

Ugh.  The conclusions of my last two pieces were nuanced.  This one is not.  My main point is this: even with the great powers that a central bank has, the next tightening cycle has ample reason for large negative surprises, leading to a premature end of the tightening cycle, and more muddling thereafter, or possibly, some scenario that the Treasury and Fed can’t control.

Be ready, and take some risk off the table.

We all go through psychological steps when we make big decisions. Some people call this the “existential cycle,” which really has four stages: doing, contemplating, preparing, and experimenting.

***

Echoing Tolstoy on regret avoidance, Sebastian Bailey and Octavius Black write in Mind Gym: Achieve More by Thinking Differently:

These four stages are much like exercises in risk management. No one wants to look back on his or her life at some point and say I wish I would have or If only I had.

While there are other ways, the existential cycle helps us make life changing decisions — like who to marry, where to work, and where to live.

The first stage, “doing,” is where you spend most of your life: It is your settled, equilibrium position. The doing may be all sorts of things— writing emails, riding horses, reading books, washing up, going to meetings, listening to lectures, cooking, dancing, running, sharing stories with friends, telling jokes, or making love. Of course, these are not done all at the same time (not unless you’re really talented). Whatever the activity may be, and however enjoyable or dull it is, you are doing it and it tends to keep you occupied.

Sometimes we get to “contemplating,” where we consider whether or how things would be different. What would life be like if you move to California? (Hint: It won’t make you happier.)

Then occasionally we move to “preparing.”

You search on the web for real estate agents in San Diego or Key West, find out what property prices are, check weather patterns, possibly even visit your preferred destination on your next vacation. You have moved beyond imagining how things could be different to investigating the practical options for how to make them different.

Finally you make the change.

You leave your job, buy a house, and move all your possessions. This stage is called “experimenting.” After you’ve settled in and started the beachside bar you’d dreamed about, this becomes your normal way of living, and you are once again in a state of doing.

The process isn’t overly complicated or hard. The challenge becomes moving through it at the right pace in a way that aligns with your principles.

The Doing Magnet

As you travel around your cycle, you will have conversations with yourself that stop you from moving on to the next stage and instead take you back to doing.

Sometimes these thoughts can be very sensible and prevent you from wasting time or following the wrong path. But sometimes, unfortunately, they prevent you from both spotting and taking opportunities that could dramatically improve your life. The trick lies in recognizing the internal conversations and being able to make an informed decision about whether to listen to them or to ignore them and move on.

When the Doing Magnet is Weak

Irrational exuberance are those people who are forever saying things like I wish I hadn’t rushed into that or If only I’d thought about it first. Rather than never crossing the Rubicon, they’re happy to head over far too easily— without ever considering the size of the army on the other side. In terms of the existential cycle, their doing magnet is relatively weak— the centrifugal momentum of the next new thing is stronger than the gravitational force of the status quo.

If you find that you can’t hold down a job, you can’t keep a relationship, you spend money on a whim, or you haven’t gotten around to making your home into a place you like living in, and you regret it, then you may be suffering from a form of irrational exuberance. The best advice in this situation is this: spend longer at the preparing stage before wading across your Rubicon.

For example, consider one of these choices:

• Think through all the possible disadvantages of taking this course of action as well as the advantages— really make an effort to present the case for caution on this occasion.

• Contrast the allure of the new situation with how your existing life might improve even if you don’t make this big change. People who are always moving on to new jobs often fail to consider how their current jobs could get better. A new job may be attractive, but it is wrong to assume the old one will stay the same. New possibilities could open up. What happens when your boss moves on?

• Contemplate the bigger and better gains and pleasures you could have if you didn’t always go for instant gratification. Could the gratification get more gratifying?

• Consider any decisions you made in the past that led to situations you later regretted. What can you learn from these that will help you make a wiser decision this time.

If you Want to Improve, you have to Cross the Rubicon

“Do. Or do not. There is no try.” — Yoda

You have a choice in how you run your life. There is no “can’t,” only “will” and “won’t.” The trick is knowing why you are, or aren’t, moving around the existential cycle and, in particular, crossing your Rubicon. Like we’ve said, the right thing isn’t to always cross or always not cross. The right thing is to understand why you want to cross or don’t want to cross, and then make your decision.

Nevertheless, none of us want to live our lives in a constant state of doing. I might not be in good enough shape today to swim 2.4 miles, but that doesn’t mean I won’t be in the future. Plus, our reasons for remaining in one state may not be strong. At some point, in certain aspects of our lives, if we want to progress, we must cross the Rubicon.

A decision to not cross the Rubicon based on the wrong reasons— when catastrophic fantasies rule our mind-sets— is what causes people to look back on their lives and think If only. … All of us who have looked back and been proud of what we have done have crossed the Rubicon at least once and maybe many times.

There’s a famous Latin maxim, carpe diem, which translated means “seize the day.” The question you have to ask yourself is, When it comes to crossing Rubicons, just how much of a Caesar am I prepared to be?

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Sponsored By: Greenhaven Road Capital: You think differently - now invest differently.

It’s some time in 2010.

I went through months of serious introspection and stumbled upon a conclusion that there is no free will. Everything is determined. Call it destiny, god’s will or randomness; things happen on their own. If you ask me to prove my conclusion, I would not be able to do it. But I’ve strongly internalised this concept.

It is not that I’ve not felt this way before 2010. Even in mid nineties, when I used to regularly visit Ramanasramam, similar thoughts strongly used to occur and then fade away.

From 2010, it slowly and steadily started becoming a regular occurrence.

It has made my everyday life much better. To quote Sam Harris “Losing a belief in free will has not made me fatalistic—in fact, it has increased my feelings of freedom. My hopes, fears, and neuroses seem less personal and indelible. “

Though by design, I’m a believer in God; I started reading Sam Harris, Richard Dawkins and Christopher Hitchens after this change.

If you’re interested, please read ‘Free Will’ by Sam Harris. It’s a small, 83 pages and insightful book.

This faith in lack of free will has made me less religious and less ritualistic. It has also brought more compassion and depth.

In everyday life, I act as if both I and others have free will. My faith in lack of freewill and actions with a strong sense of free will may look contradictory to others. That is what I’m comfortable with. And it works well for me.

To quote Ramesh Balsekar:

“The human being lives on fictions. For example, the human being knows that the sun is stationery and that it is earth that is in movement but nonetheless in his daily life he accepts the fiction that sun rises and sets. So the understanding is that all this is an illusion and that you do not have free will, but in life you must act as if you have free will.”

I’ve shared with you in the past some quotes I like on this subject. I feel like sharing the same with you again.

1) “Everything is determined, the beginning as well as the end, by forces over which we have no control. It is determined for the insect as well as for the star. Human beings, vegetables, or cosmic dust, we all dance to a mysterious tune, intoned in the distance by an invisible piper.”- Albert Einstein

2) “Once you realize that all happens by itself, call it destiny, or the will of God, or mere accident, you remain as witness only, understanding and enjoying, but not perturbed. You are only responsible for what you can change. All you can change is only your attitude. There lies your responsibility.”- Nisargadatta

3)  “Whatever this body is to do and whatever experiences it is to pass through was already decided when it came into existence. This is not to be taught to all. Even if we tell them, it will lead to endless discussion.”- Ramana

4)   “If the moon, in the act of completing its eternal way around the earth, were gifted with self-consciousness, it would feel thoroughly convinced that it was traveling its way of its own accord on the strength of a resolution taken once and for all.  So would a Being, endowed with higher insight and more perfect intelligence, watching man and his doings, smile about man’s illusion that he was acting according to his own free will.”- Albert Einstein

5) “Whatever is happening is bound to happen. There is a series of events; a scenario is written down. So according to the scenario, things happen. There is no volition as far as an individual is concerned; things happen on their own. When that is seen, there is already a certain peace of mind.”- Nisargadatta

6)  “Whatever is destined not to happen will not happen, try as you may. Whatever is destined to happen will happen, do what you may to prevent it. This is certain. The best course therefore is to remain silent.”- Ramana

7)  “I do not believe in freedom of will. Schopenhauer’s words, ‘Man can indeed do what he wants, but he cannot want what he wants’, accompany me in all life situations and console me in my dealings with people, even those that are really painful to me. This recognition of the unfreedom of the will protects me from taking myself and my fellow men too seriously as acting and judging individuals and losing good humour.” – Albert Einstein

8)  “In reality things are done to you, not by you. Your desire just happens to you along with its fulfillment or non-fulfillment. You can change neither. You may believe that you exert yourself, strive and struggle. Again, it all merely happens, including the fruits of the work. Neither is by you and for you.”- Nisargadatta

9) “You can do what you decide to do—but you cannot decide what you will decide to do.” – Sam Harris

The US has new act: the Foreign Account Tax Compliance Act (FATCA) which will allow it to strong-arm foreign financial organizations (like mutual funds or banks) to report to them all of the financial dealings of US taxable entities outside the US.

The US taxes all its citizens on worldwide income even if they are non-resident. Meaning, if you are a US citizen living in India, you have to report all income to the US and pay US taxes on such income. Some Indian tax benefits – like no long term capital gains tax for shares for example – will not apply in the US, so while you don’t pay tax in India, you will have to pay tax on this in the US.

Even US based Non Resident Indians (NRIs) that invest in Indian stocks or real estate need to declare their investments in the US. But it’s been difficult for the US to even know that such investments exist.… (Read On...)

The NSE’s Nifty has 50 companies. That index is the top 50 companies in India by market-capitalization (technically, free-float market cap, meaning shares that aren’t owned by the promoters)

If you add up the revenues and profits of these companies, and you compare the aggregate numbers with the aggregates of the previous year (of the same companies), you see how the performance is of the Index as a whole. Given that revenues and profits tend to be skewed towards the bigger producers, this does skew the index towards the biggies – for instance, an ACC has a quarterly profit of just Rs. 100 cr. or so, while TCS has a quarterly profit of over Rs. 6,000 cr.

However, the aggregate numbers will usually smooth out any smaller issues, and is a useful way to look at the index as a whole.

The problem? Well, we’ve had three lousy quarters now, of falling profits, and of falling revenues.… (Read On...)

Infographics expert Manuel Lima, who brought us the amazing The Book of Trees: Visualizing Branches of Knowledge, has a TED talk on how knowledge grows, which ends up being a fascinating history of visualizations as well as an insightful look into our cultural urge to map what we know.

For a long period of time, we believed in a natural ranking order in the world around us, also known as the great chain of being, or “Scala naturae” in Latin, a top-down structure that normally starts with God at the very top, followed by angels, noblemen, common people, animals, and so on. This idea was actually based on Aristotle’s ontology, which classified all things known to man in a set of opposing categories, like the ones you see behind me. But over time, interestingly enough, this concept adopted the branching schema of a tree in what became known as the Porphyrian tree, also considered to be the oldest tree of knowledge.

The branching scheme of the tree was, in fact, such a powerful metaphor for conveying information that it became, over time, an important communication tool to map a variety of systems of knowledge. We can see trees being used to map morality, with the popular tree of virtues and tree of vices, … with these beautiful illustrations from medieval Europe. We can see trees being used to map consanguinity, the various blood ties between people. We can also see trees being used to map genealogy, perhaps the most famous archetype of the tree diagram. … We can see trees even mapping systems of law, the various decrees and rulings of kings and rulers. And finally, of course, also a very popular scientific metaphor, we can see trees being used to map all species known to man. And trees ultimately became such a powerful visual metaphor because in many ways, they really embody this human desire for order, for balance, for unity, for symmetry.

However, nowadays we are really facing new complex, intricate challenges that cannot be understood by simply employing a simple tree diagram. And a new metaphor is currently emerging, and it’s currently replacing the tree in visualizing various systems of knowledge. It’s really providing us with a new lens to understand the world around us. And this new metaphor is the metaphor of the network. And we can see this shift from trees into networks in many domains of knowledge.

We can see this shift in the way we try to understand the brain. While before, we used to think of the brain as a modular, centralized organ, where a given area was responsible for a set of actions and behaviors, the more we know about the brain, the more we think of it as a large music symphony, played by hundreds and thousands of instruments. This is a beautiful snapshot created by the Blue Brain Project, where you can see 10,000 neurons and 30 million connections. And this is only mapping 10 percent of a mammalian neocortex. We can also see this shift in the way we try to conceive of human knowledge.

These are some remarkable trees of knowledge, or trees of science, by Spanish scholar Ramon Llull. And Llull was actually the precursor, the very first one who created the metaphor of science as a tree, a metaphor we use every single day, when we say, “Biology is a branch of science,” when we say, “Genetics is a branch of science.” But perhaps the most beautiful of all trees of knowledge, at least for me, was created for the French encyclopedia by Diderot and d’Alembert in 1751. This was really the bastion of the French Enlightenment, and this gorgeous illustration was featured as a table of contents for the encyclopedia. And it actually maps out all domains of knowledge as separate branches of a tree.

But knowledge is much more intricate than this. These are two maps of Wikipedia showing the inter-linkage of articles — related to history on the left, and mathematics on the right. And I think by looking at these maps and other ones that have been created of Wikipedia — arguably one of the largest rhizomatic structures ever created by man — we can really understand how human knowledge is much more intricate and interdependent, just like a network.

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Sponsored By: Greenhaven Road Capital: You think differently - now invest differently.

I watched half of Exodus: Gods and Kings last night (I’d DVRd it a few days back seeing it’s by Ridley Scott). The movie started alright, and the story was well told. Of Moses’s fight with Rameses, of Moses being found out, of his exile and struggle and love story and finding god on a mountain. All very nice and well within the realms of good mythology.

And then Moses decides to hear god’s word and goes to Memphis to free his fellow Hebrews. There’s a conspiracy hatched. Sabotage begins. Standard guerrilla stuff that slaves ought to do to revolt against their masters. Up to that point in time I’d classified Exodus as a good movie.

And then things started getting bad. God told Moses that the latter wasn’t “doing enough” and god would do things his way. And so the Nile got polluted. Plants died. Animals died. Insects attacked. Birds attacked (like in that Hitchcock movie).  What had been shaping up to be a good slave-revolt story suddenly went awry. The entire movie could be described by this one scene in Indiana Jones and Raiders of the Lost Ark:

When you see the guy twirling the sword, you set yourself up for a good fight. And then Indiana just pulls out a gun and shoots him! As a subplot in that movie, it was rather funny. But if the entire plot of a movie centres around one such incident (god sending the plague to Egypt, in this case), it’s hard to continue watching.

Checking out the movie on IMDB, I realised that it has a pretty low rating and didn’t recover its investment. While this is surprising given the reputation of Scott, and how the first part of the movie is set up and made, looking at the overall plot it isn’t that surprising. The problem with the movie is that it builds on an inherently weak plot, so the failure is not unexpected.

It did not help that I was reading mythology, or a realistic mythological interpretation, earlier in the day – the English translation of SL Bhyrappa’s Parva. In that, Bhyrappa has taken an already complex epic, and added his own degrees of complexity to it by seeking to remove all divinity and humanise the characters. Each major character has a long monologue (I’m about a third into the book), which explores deep philosophical matters such as “what is Dharma”, etc.

While moving directly from humanised philosophical myth to unabashedly religious story might have prevented me from appreciating the latter, it still doesn’t absolve the rather simplistic nature of the latter myth. I admit I’m generalising based on one data point, not having read any Christian myth, but from this one data point, it seems Christian myth seems rather weak compared to Hindu or Greek or Roman myth.

My explanation for this is that unlike other myths, Christian myth didn’t have enough time to evolve before it was written down. While the oral tradition meant that much valuable human memory was wasted in mugging up stories and songs, and that transmission was never exact, it also meant that there was room for the stories to evolve. Having been transmitted through oral tradition for several centuries, Hindu, Greek and Roman stories were able to evolve and become stronger. Ultimately when they got written down, it was in much evolved “best of” form. In fact, some of these myths got written down in multiple forms which allowed them to evolve even after writing came by.

While writing saves human memory space and prevents distortions, it leaves no room for variations or improvisation. Since there is now an “original book”, and such books are determined to be “words of God”, there is no room for improvisation or reinterpretation. So we are left with the same simplistic story that we started of with. I hope this explains why Exodus, despite a stud director, is a weak movie.

Rs.1 lakh invested in Franklin India Bluechip Fund in December 1993 is worth Rs.83.17 lakhs in September 2015. Money multiplied by 87 times in 21+ years. This works out an annualised return of 22.43%.

Rs.1 lakh invested in HDFC Tax Saver in March 1996 is worth Rs.94.32 lakhs in September 2015. Money multiplied by 94 times in 19+ years. This works out an annualised return of 26.24%.

These are facts, not fiction.

In India, diversified equity funds (non sectoral, non thematic) have done very well over last 2 decades.

CRISIL AMFI Equity Fund Performance index has provided an annualised return of 22.74% over last 18+ years.

As pointed out in our previous posts, only around 2% of investors stay beyond 10 years in an equity fund. These are the people who enjoy the above kind of returns.

We would be completing 10 years in our profession next year. We have many investors who have been staying invested for 9 years, 8 years etc. In next couple of years, many of our investors would have held to their portfolio for 10 years or more.

I’m happy that you would all see power of compounding in your portfolio in next few years. Many are seeing even now and are happy with their decision.

Whatever we do; all our activities, interactions, meetings, tweets, blogs etc. are to reinforce and ensure that you stay the course. My goal is each one of you should be able to see for yourself, in your portfolios, the benefits of not churning the portfolio, staying the course without interruption, patience, power of compounding and long term investing.

Though doing nothing and sitting tight may be very boring and difficult, the results of the same would be extremely rewarding.

Think of equity as a multi decades and multi generational investment. You would get returns better than any other asset class. Not only that you would create huge wealth and be financially independent.

If you are not investing long term money into equity, it is a wasted opportunity.

As a country, we have a very long way to go and grow to be economically powerful.

Participate and benefit from the journey by investing in equity funds.

Note: The above data is from fund fact sheets duly verified with Valueresearch as well.

Consumer Price Inflation came in at 5% for October, the highest in four months. A good reason was the base effect – last year, the index had tapered off and the difference shows in the higher inflation numbers.

What we should really worry about is that if the slope of the inflation curve continues as is, we will easily see 7% inflation.

Components: They’re Starting To Go Up Again

While it’s not a major source of worry just yet, here’s how the Inflation numbers stack up on a component wise look – it seems like food is going back up, as are fuel costs, personal care, and even transport. Fuel costs are up largely due to higher taxes.

Rural Inflation Outstrips Urban

In the countryside there’s a much higher concentration of food prices in the commodity basket used, so a spike in food prices means higher inflation for the villagers.… (Read On...)

I will be in Los Angeles this weekend. There’s a “Regional Pravasi Bharatiya Divas” (regional non-resident Indian day) in LA. Details here.

I have never been to one. I am going to this one to basically check out what the tamasha is all about. Many years ago I had attended the mother of all tamashas — a PanIIT meeting.

“What’s PanIIT?” you say. It’s a meeting of a group of completely self-absorbed engineers from IITs with very inflated egos who congratulate themselves on how astonishingly amazing they are and how they are the almighty’s gift to humanity, if not the entire creation. Go read my report on the 2006 PanIIT meeting that was held in Mumbai. Also see my thoughts on the 2008 PanIIT where I talk about the funding of new IITs.

Prime Minister Narendra Modi’s visit to the UK is generating a lot of enthusiastic support from many, as expected. I don’t waste time on following the hoopla. It’s all a sideshow that wastes real resources that India can ill afford but gets done because those who enjoy the pomp and circumstance don’t bear the costs. Indian taxpayers — which we must remember are not just those who pay income tax but it includes even the poorest of the poor — pay for the politicians, bureaucrats and their hangers-on to live it up. It is another symptom of the deep malady that inflicts India: Colonial rule.

Rulers Changed, not the Rules

All this present bonhomie between the two nations — the colonizer and the colonized — conceals the fact that the British raped India. There’s no polite way to put it. They raped, pillaged and looted India. And that’s not the worst of the tragedy. The worst bit is that although the British left, Indians did not become free. I claim that if India was not free before Aug 1947, then India continued to be just as not free even after Aug 1947. Read the constitution of India and you will find that it is at its essence a set of rules which empowers the government (and its immense bureaucracy) to rule Indians.

The racial composition of the rulers changed. There was no change in the fact that the government was still the master and the people were its servants. The rulers changed, not the rules.

The British made those rules. Therefore they were good for the British rulers and bad for Indians. That the rules the British made for ruling India were bad is really an understatement. But from the point of view of the colonizers, the British, it was the most rational thing to do. Put yourself in the position of a colonial ruler. What kind of policies and rules would you put in place?

The most rational set of rules for a colonial power is to have extractive and exploitative rules. What’s the point of colonizing if not to extract and exploit? You don’t colonize a far-away foreign land with hundreds of millions of people on a lark. You do it for profit. And to do that, you have to be ruthless. Your goal is not development. Your goal isn’t even to cause misery. The misery and poverty that follows is a side-effect, an unintended consequence even.

“I hate Indians. They are a beastly people with a beastly religion.”

Let me give you just two examples. The Bengal Famine of 1943. It was almost entirely due to the British that around 4 million people starved to death. Countries offered to donate food and help. For example, Canada wanted to give 100,000 tons of wheat. And the United States made a similar offer.

But Mr Winston Churchill (Mr David Cameron’s predecessor, Prime Minister 1940-45 and 1951-55) refused to have the food sent to India. He said, “I hate Indians. They are a beastly people with a beastly religion.” The famine was their own fault, he said “for breeding like rabbits.” At the same time that people were starving, food was being exported out of Bengal to support British troops.

(Reference: Churchill’s Secret War: The British Empire and the Ravaging of India during World War II. The Ugly Briton.)

Dirty Business

Mr Churchill’s hate for Indians was not remarkable at all. It was the general attitude of the English. Judging by the things that they did, it is easy to see that the English despised Indians. In a sense, they had to probably hold their noses as they went about stealing from India. Their disgust was overcome only by avarice.

There were a few thousand British expatriates in India to run the colonial government of India. These expats had to be induced to be in India and were given a “hardship allowance”. Britishers in the Indian Civil Services (the IAS is the new name for it) were the highest-paid civil servants in the world. Those high salaries for paid for by the “beastly people with a beastly religion”. Thieving from filthy people is a dirty business but someone has to do it, and for that they need to be paid more than usual.

The theft that India suffered under the British is hard to estimate. It will probably run in trillions of dollars in today’s terms. But here’s just one very tiny example.

Grand Theft, not Petty Larceny

The SS Gairsoppa was a British merchant ship. It left Calcutta bound for England in 1941. It’s cargo? Among other things such as tea, it carried 240 tons of silver for the British mint. German u-boats sank it in the Atlantic. It was discovered 70 years later in 2011. That silver was valued at over $200 million in 2012. As per international maritime law, finders keepers.

(Reference: New York Times.)

The main thing to remember here is that India is not just poor, it has been impoverished. India has been made poor.

A rapacious colonial government can only make rules that benefit itself, and not the people it rules over. The tragedy of India is that India inherited the rules that the British had made — and that is a major part of the problem of underdevelopment that India faces today.

The British laid the foundation for India’s poverty, and the post-independence governments of India built on that foundation a nation that hosts the world’s largest number of illiterates, the largest number of desperately poor people, etc. And those in government have a wonderful time.

It’s all karma, neh?

The Index of Industrial Production (IIP) for Sep 2015 hits a snag as it falls to a low 3.6% year on year growth. This is much lower than August.

Manufacturing Disappoints Big Time

While Electricity went up a lot, mining declined to just 3%. The big disappointment though was the fall in Manufacturing IIP where we saw it plummet to 2.6%.

This is very disappointing, as we were supposed to see Manufacturing carry the India story forward.

If you look at the Use based indexes:

(Click to enlarge)

Nearly all of the indexes are looking downwards.

Our View: Lousy Manufacturing Data

Was September a really bad month? It wasn’t apparent then. But IIP data is remarkably unreliable so we shouldn’t rush to make a lot of conclusions just yet. All we know is that the recent high in growth numbers was temporary, especially in the Manufacturing sector.

October’s numbers will be good.… (Read On...)

One was the belief that combining all types of finance into one institution would drive costs down — and the larger the institution the more efficient it would be. We now know that there are very few cost efficiencies that come from the merger of functions — indeed, there may be none at all. It is possible that combining so much in a single bank makes services more expensive than if they were instead offered by smaller, specialised players.

The second thing we were wrong about has to do with culture — and this turns out to be very serious. Mixing incompatible cultures is a problem all by itself. It makes the entire finance industry more fragile. This is what I mean by an unstable cultural balancing act at the core of universal banking and, the restructurings and management changes we are now seeing in European financial institutions.
As is now clear, traditional banking attracts one kind of talent, which is entirely different from the kinds drawn towards investment banking and trading. Traditional bankers tend to be extroverts, sociable people who are focused on longer term relationships. They are, in many important respects, risk averse. Investment bankers and their traders are more short termist. They are comfortable with, and many even seek out, risk and are more focused on immediate reward. In addition, investment banking organisations tend to organise and focus on products rather than customers. This creates fundamental differences in values. 

I’ve ranted a fair bit about both grocery and restaurant delivery on this blog. I’ve criticised the former on grounds that it incurs both inventory and retail transportation costs, and the latter because availability of inventory information is a challenge.

In terms of performance, grocery delivery companies seem to be doing just fine while the restaurant delivery business is getting decimated. Delyver was acquired by BigBasket (a grocery delivery company). JustEat.in was eaten by Foodpanda. Foodpanda, as this Mint story shows, is in deep trouble. TinyOwl had to shut some offices leading to scary scenes. Swiggy is in a way last man standing.

Yet, from a fundamentals perspective, I’m more bullish on the restaurant delivery business than the grocery delivery business, and that has to do with cost structure.

There are two fundamental constraints that drive restaurant capacity – the capacity of the kitchen and the capacity of the seating space. The amount of sales a restaurant can do is the lower of these two capacities. If kitchen capacity is the constraints, there is not much the restaurant can do, apart from perhaps expanding the kitchen or getting rid of some seating space. If seating capacity is the constraint, however, there is easy recourse – delivery.

By delivering food to a customer’s location, the restaurant is swapping cost of providing real estate for the customer to consume the food to the cost of delivery. Apart from the high cost of real estate, seating capacity also results in massive overheads for restaurants, in terms of furniture maintenance, wait staff, cleaning, reservations, etc. Cutting seating space (or even eliminating it altogether, like in places like Veena Stores) can thus save significant overheads for the restaurant.

Thus, a restaurant whose seating capacity determines its overall capacity (and hence sales) will not mind offering a discount on takeaways and deliveries – such sales only affect the company kitchen capacity (currently not a constraint) resulting in lower costs compared to in-house sales. Some of these savings in costs can be used for delivery, while still possibly offering the customer a discount. And restaurant delivery companies such as Swiggy can be used by restaurants to avoid fixed costs on delivery.

Grocery retailers again have a similar pair of constraints – inventory capacity of their shops and counter/checkout capacity for serving customers. If the checkout capacity exceeds inventory capacity, there is not much the shop can do. If the inventory capacity exceeds checkout capacity, attempts should be made to sell without involving the checkout counter.

The problem with services such as Grofers or PepperTap, however, is that their “executives” who pick up the order from the stores need to go through the same checkout process as “normal” customers. In other words, in the current process, the capacity of the retailer is not getting enhanced by means of offering third-party delivery. In other words, there is no direct cost saving for the retailer that can be used to cover for delivery costs. Grocery retail being a lower margin business than restaurants doesn’t help.

One way to get around this is by processing delivery orders in lean times when checkout counters are free, but that prevents “on demand” delivery. Another way is for tighter integration between grocer and shipper (which sidesteps use of scarce checkout counters), but that leads to limited partnerships and shrinks the market.

It is interesting that the restaurant delivery market is imploding before the grocery delivery one. Based on economic logic, it should be the other way round!

How is it that some people come back from crushing defeats while others simply give in? Why does adversity make some people and teams stronger and render others ineffective?

These are the questions that George Everly Jr., Douglas Strouse, and former Navy SEAL Dennis McCormack explore in their book Stronger: Develop the Resilience You Need to Succeed.

According to them, there are five factors of personal resilience.

1. Active Optimism. Optimism is more than a belief, it’s a mandate for change. It’s the inclination to move forward when others are retreating. This mandate can be so strong that it can become a self-fulfilling prophecy.

2. Decisive Action. Optimism is not enough. You must be decisive and act in order to rebound. As Clare Boothe Luce observed, “Courage is the ladder on which all the other virtues mount.” You must acquire the courage to make difficult decisions.

3. Moral Compass. Use honor, integrity, fidelity, and ethical behavior to guide your decisions under challenging circumstances.

4. Relentless Tenacity, Determination. Persistence can be omnipotent. As comedian Jonathan Winters once quipped, “If your ship doesn’t come, swim out to meet it!” Be persistent, while at the same time knowing when to quit.

5. Interpersonal Support. Who has your back?

Resilience, as you’d expect, has a biological as well as psychological background.

Before you can develop resilience, however, you need to know yourself.

Sun Tzu, the Chinese military strategist, wrote, “He who knows the enemy and himself will never in a hundred battles be at risk.”

Increasing Decisiveness and Taking Personal Responsibility

The authors talk about how to overcome indecision and increase personal responsibility.

1. Problem: Paralyzing fear of failure

Solution: Never forget this simple guiding principle: Anything worth having is worth failing for. And don’t forget the words of Friedrich Nietzsche: “What does not kill me makes me stronger.”

As I wrote in my post on mistakes: “Just because we’ve lost our way doesn’t mean that we are lost forever. In the end, it’s not the failures that define us so much as how we respond.”

2. Problem: Fear of ridicule for being different. It’s no fun to be laughed at.

Solution: Most people ridicule what they do not understand. In his 2008 bestselling book Outliers, author Malcolm Gladwell makes a cogent argument that extraordinary success is often predicated upon being different. Gladwell describes people who were not only different but possessed what many thought of as liabilities.

3. Problem: Procrastination. Waiting too long to act. The desire to wait until the moment of absolute certainty before making a decision can be compelling.

Solution: What we too often fail to understand is that almost all opportunities come with time limits. As we wait for that moment of absolute certainty, we also see the window of opportunity become smaller, until the opportunity is lost. In the words of Mark Twain, “I was seldom able to see an opportunity until it had ceased to be one.”

If you are procrastinating because a task seems overwhelming, simply use the “Swiss cheese” technique. This is a method recommended by time management expert Alan Lakein in his book How to Get Control of Your Time and Your Life. Rather than avoiding something because it seems overwhelming, break it into smaller, more manageable, component tasks and do the more manageable tasks at a time. (Also see my webinar on how to be way more productive.)

I’ll skip a few and hit on information overload.

6. Problem: Being overwhelmed by too much information, too wide a scope, or too little time.

Remember the 80/20 Rule: 80 percent of your problem comes from 20 percent of the potential sources. It’s a derivation of the skewed (non-Bell-shaped) distribution of Power Law statistics. For example, 80 percent of all healthcare costs come in the last 20 percent of your life. Eighty percent, or more, of polluting vehicle emissions come from only 20 percent of all vehicles. Eighty percent of casualties in a terrorist attack will be psychological as opposed to physical. You get the point. So rather than view problems as being universal and paralyzing, search for the applicability of the 80/20 Rule. Focus on the minority of potential sources that may account for the majority of the problem. Then, if appropriate, apply your resources to the 20 percent. Malcolm Gladwell concludes that if you use this approach, you may actually be able to solve a problem rather than simply palliatively manage it.

Try practicing Occam’s razor (a.k.a. the law of simplicity): When faced with competing alternative courses of action or competing conclusions, choose the one that rests upon the fewest assumptions.

Also consider whether the problem is a mystery or a puzzle.

In the end the authors sum up the lessons they’ve learned on human resilience.

The seven characteristics of highly resilient people are:

1. Optimism
2. Decisive action
3. Honesty
4. Tenacity
5. Interpersonal connectedness
6. Self-control
7. Calm, innovative, nondogmatic thinking.

The authors spend a great deal of time on the first 5 factors which they see as sequential.

Coming back full circle to the five factors they now re-write them:

1. Active Optimism. Active optimism is more than a hope or a belief. It’s a mandate to bounce back, to be successful, to avoid being a victim. Active optimism is the belief that you can be an agent of change. Optimism breeds self-confidence that can become a self-fulfilling prophecy when it is honed with a dose of realism. Optimistic people are often viewed as more attractive to others than are pessimists. But the optimistic mandate to be resilient alone is not enough. It must lead to …

2. Decisive Action. You must act in order to rebound. You must learn to leave behind the comfort of the status quo and make difficult decisions. To paraphrase Mark Twain, if all you do is sit on the right track and wait for something to happen, it will. You will get run over. Or, perhaps at least an opportunity will be lost. Being decisive is hard. That’s why it’s rare. But by being decisive you distinguish yourself from others, usually in a positive way. As such you may then become the beneficiary of the halo effect, a lasting positive regard in the eyes of others. Making hard decisions to act is made easier when based upon a …

3. Moral Compass. There are four points to our moral compass: honor, integrity, fidelity, and ethics. Use them to guide your decisions under challenging circumstances. Simply do what is right and just. Your actions always have consequences. Consider the consequences of your actions not just for you but for others as well. Once your decisions have been made, employ …

4. Relentless Tenacity, Determination. In 1989 Woody Allen was credited with proffering the notion that about 80 per cent of success is showing up. We can modify that notion somewhat and say success often comes to those who not only show up but tenaciously show up. Show up and carry with you a relentless defiance of failure (but keep in mind that success may have to be redefined occasionally). Marine General Oliver Smith is quoted in Time magazine about his change of direction during the Korean War’s Battle of Chosin Reservoir. He said, “Retreat, hell! We’re not retreating, we’re just advancing in a different direction.” To find hidden opportunities and aid in physical and psychological energy, rely upon . . .

5. Interpersonal Support. Remember, no person is, nor ever should be, an island. Great strength is derived from the support of others. Going through life alone means no one has your back. Surround yourself with those of a compassionate heart and supportive presence. Knowing when to rely upon others is a sign of strength and wisdom. Supportive relationships are most commonly earned, however. Give to others. Be supportive without any expectation of a return. It will be the best external investment you can ever make.

Stronger: Develop the Resilience You Need to Succeed goes on to explore these five aspects in greater detail.

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