Intelsense Capital Blog: Weekend Reading

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Reading across disciplines is one of the best ways to improve our investment acumen. Here is a summary of some of the best articles I read this week. 

I especially try to not post Corona related articles as that is all one gets to read in all traditional media.

If you like this collection, consider forwarding it to someone who you think will appreciate.

Valuation is a sentiment indicator

Perhaps the most descriptive statement ever made about the stock market came from the late-great Sir John Templeton (whom I had the great pleasure of meeting on the set of Wall $treet Week With Louis Rukeyser): “Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.” Notice there is not a single reference to economic statistics, earnings growth, interest rates or valuations. The truth in the statement lies in those omissions, in that emotions and behavior are what actually drive markets—even if trends in the economy and earnings help shape those emotions. In fact, as I’ve often noted, investors think of valuation as a “fundamental” indicator in the sense that most valuation metrics—including P/E ratios—have quantifiable components. The reality is that valuation is more of a sentiment indicator than it is a fundamental indicator.

https://www.advisorperspectives.com/commentaries/2020/10/20/mixed-emotions-sentiment-telling-divergent-stories

This is the fascinating story of Adam Neumann, ex-CEO of WeWork

WeWork’s telegenic co-founder and former CEO, Adam Neumann—had once been known for turning an upscale co-working business into America’s most valuable private start-up, peddling vague kumbayas like This decade is the decade of “We.” But then WeWork filed paperwork to go public, revealing that the company had lost billions of dollars while enriching Neumann.

Among other extraordinary disclosures, it turned out that he had bought we-related trademarks, then charged WeWork $5.9 million to buy them. The press soon uncovered other details to fill out the portrait of a terrible little richling: Neumann’s practice of hotboxing chartered jets, whether his co-passengers liked it or not; his musings about becoming president of the world; his company-wide ban on meat that left executives puzzling over how to implement it.

https://www.theatlantic.com/magazine/archive/2020/11/wework-reeves-wiedeman-billion-dollar-loser/616477/

The rise of Chinese digital currency

The advent of various kinds of the digital currency creates a new state of affairs. Since the launch of Bitcoin, the world has seen a wave of monetary innovation. Cryptocurrencies have proliferated. Many of these, it is true, have been mere experiments. Some have been downright frauds. And maybe it will turn out that blockchain as a technology has more appropriate uses than money. But those who have written off digital money will soon look as silly as the people who said the Internet would never replace the fax machine.

The proof is in China, where digital payment systems established by Alibaba (Alipay) and Tencent (WeChat pay) have grown explosively. Phase 2 of this story is the overseas expansion of Chinese fintech. One emerging market at a time, China is building a global payments infrastructure.

History teaches us that power is inseparable from financial power. The country that leads in financial innovation leads in every way: from Renaissance Italy, through imperial Spain, the Dutch Republic, the British Empire, and the United States since the 1930s. Only lose that financial leadership — just ask poor Mr Pound, once worth $4.86 — and you lose your place as global hegemon.

https://www.bostonglobe.com/opinion/2019/09/16/the-ascent-digital-money/ulomGXDxbSAH6o1pLfxBPP/story.html

Investing is about our relationship with greed and fear

Housel believes the psychological side of investing is the most critical.

“You can be the best stock picker in the world, you can be the best economist in the world, you can have the best analytical abilities, the academic credentials of anyone else in the world,” he said. “But if you lose your cool, if you lose your temper, in March of 2020, or in 2008, or in 1999, none of that matters.”

Not for nothing, the other quote Housel includes in the epigraph is attributed to Napoleon: “A genius is a man who can do the average thing when everyone else around him is losing his mind.”

The reason why the behavioural side of investing is so important is that it can effectively short-circuit whatever analytical skills you may have. If you haven’t mastered the behavioural side of investing, all those analytical skills that take so long to develop are irrelevant.

The key takeaway: “Investing is not just about money,” he said. “Investing is about our relationship with greed and fear.”

https://blogs.cfainstitute.org/investor/2020/10/22/morgan-housel-on-greed-and-fear-frugality-and-paranoia/

Making enough is more rewarding at times

You’ll one day learn that money is one of these rewards people get for their work. While it’s important to understand that making money requires various tradeoffs of time and energy, just remember this: Making a lot of money doing something you hate will be far less rewarding than making enough money doing something you love. Freedom is achieved by clearly defining what “enough” means, and by keeping it there even after you’ve reached it. This allows curiosity – and not money – to be the guiding principle behind why you do the things you do.

https://moretothat.com/a-letter-to-my-newborn-daughter/

Disclaimer: Abhishek Basumallick is the Head of the equity advisory www.intelsense.in for long term wealth creation and a pure quant focused newsletter at www.quantamental.in. The blog posts should not be construed as investment advice. Please do your own due diligence before investing.



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Abhishek Basumallick
Abhishek Basumallick is the Head of the equity advisory www.intelsense.in for long term wealth creation.
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