Tuesday, February 9, 2016

Technology Investing

In the last 7-8-years since we have been investing, we have invested in a very diverse range of companies, it has not just been limited to classifieds or one or two sectors alone.

We have got to a point where we are converging and focusing. So, for example, we are reluctant to do e-commerce although we have done ‘Happily Unmarried’ and that is tracking well and we continue to support that. But other than that we are most likely going to stay away from e-Commerce.

We have done 99labels earlier if you recall. We like the Information Arbitrage businesses, we like businesses that will have some technology build on IP we like Classified businesses, we like businesses where we enable handshakes we do not like businesses where we carry inventory and so on.

So there are patterns that we sort of follow, but having said that it is a good management team, good company scaling up well, good gross margins, high operating leverage, marketed on its space we would look at it, whether or not we have our internal competency in that area or not.

Source: Sanjeev Infoedge earnings call

Saturday, January 30, 2016

Past Cycle - Kenneth Andrade

How is the current cycle placed compared to what happened in the last two decades?
India pulled through in the last cycle because of the global recovery. The capacities [in the 1990s] around textiles, metals and other commodities gave companies the ability to price products in the international market in dollar terms. I remember steel prices going all the way down to $160 per tonne between 1998 and 2000 and then rally to $1,000 per tonne midway through the last decade. This, plus the rupee depreciation, helped these companies/assets become financially solvent in 2008, a recovery exactly a decade from where these assets got laden with financial excesses (high debt and low equity). Large commodity companies, notably Tata Steel, had RoEs in excess of 40 percent for almost two years, something they had not seen for a very large part of the company’s history.

In short, India depreciated itself out of the problem in the last cycle.

However, power and fertiliser plants set up in that era did not see as much benefit compared to export-oriented companies or firms which manufactured commodities, which linked their prices to landed costs. Power and fertilisers were sold in the local market which was rupee-denominated and they clearly could not make supernormal profits to get through the excesses of the ’90s. 

We have a larger part of the latter problem this time around. Infrastructure assets have to earn revenues based on the earning capacity of the domestic economy. They are rupee-linked. So even if there is depreciation of the currency, a lot of these companies will not see a rise in turnover or asset prices connected to the fall.  

Another thing that does not help is that India again had a number of commodity companies that acquired assets at the peak of the cycle, and all through debt. This plays out very negatively at a time when commodity prices have virtually halved in value.

Read more: http://forbesindia.com/article/investment-guide-2016/choose-the-volatility-you-are-happy-to-live-with-kenneth-andrade/42027/2#ixzz3yi03xxOy

Sunday, December 13, 2015

Business Operator Vs Investor

For many years now, I have had the good fortune of learning from a lot of good friends, who are giants in their own spheres. More recently,these discussions have become the fulcrum of long evening walks in the bylanes around my house. One such recent conversation with C, which got me thinking, is the discussion around Business Operator vs Investor. Whats interesting is, while C and I are both capitalists at heart with similar educational and socio-economic backgrounds, C went on to become business manager of a reasonably large-sized team, while I took to the financial investor route, trained primarily through first hand investing experience and surrogate learning by reading great investors. Following picture depicts the attitudes we have developed due to our differing career paths.


C being a business operator was stressing on 1) opening one's mind to exponential growth 2) being agnostic to nature of the business product/service and 3) optimism to drive investing. It is interesting to see Infosys's case study in that context:

Infosys was founded in 81 and after the first 10 years they reached a turnover of INR 8 Crores -  For an investor sitting in 92, it could have meant two things: 1) IT services space is not scalable or 2) the company could not grow because of external factors. C would have written off the company based on their inability to scale in a decade of existence.

Come March 1992, Founders were set on the path of listing the company after a decade of its existence. It is interesting to see that they set a target of reaching $ 100 MM (INR 250 crores) in revenue by 2000. This is 30 times the growth they achieved in the previous decade - It would have been tough for C or me to believe the growth expectations given the company's track record. In 1993, the company showed first signs of growth acceleration with revenues showing over 50% growth but nothing to ride home given the small base. On expected lines, it was tough to see the IPO sail thru primarily because it was a new industry and possibly because growth expectations were too rosy despite pricing at the issue at a TTM P/E of 13 x. This is where my investor hat might have helped, given that the company was priced moderately for the growth it was demonstrating including some confidence in mgmt's execution abilities, not their forecasting abilities. What they delivered over the next 8 years would have debunked both C's and my wildest forecasts.

Here's a case (and mostly in almost all other cases) where India's best ever company was in the making and I would have completely missed the bus if I'd used the business operator's lenses. It appears that growth at reasonable prices and fear of the unknown are investor's good friends.  No wonder, business owners often miss predicting cycle changes because they have to be optimistic and gun for the jugular in all conditions. Same thing cannot be said about an investor, it perhaps pays to be cautious and follow Munger's maxim - " Tell me where I'm going to die and I won't go there"

Tuesday, December 8, 2015

Price declines and investor psychology

We ordinarily make no attempt to buy equities for anticipated favorable stock price behavior in the short term. In fact, if their business experience continues to satisfy us, we welcome lower market
prices of stocks we own as an opportunity to acquire even more of a good thing at a better price.”

[S]mile when you read a headline that says ‘Investors lose as market falls.’ Edit it in your mind to
‘Disinvestors lose as market falls but investors gain

We never take [one-year figures] very seriously. After all, why should the time required for a planet to circle the sun synchronize precisely with the time required for business actions to pay off

Wednesday, December 2, 2015

Book of Simple Living - Ruskin Bond

Being aware of smell of a rose, color of a lily, a purring cat, rustling leaves or a weathered banyan. Little joys

A good monk would be a mild sorta fela:), contented and all

Pursuit of happiness is precisely that

"Life hasn't been a bed of roses, And yet, quite often, I've had roses out of season":)

There is joy in the daily humdrum, take note

Forget and forgive at sunset, bury worry, sleep

See Trees, they are the hall marks of patience, generosity and resilience

Nothing in life is expensive except life

When all the wars are done, an ant will still be beautiful

Some of the best sounds are made by water

Good company on the road is the shortest cut

One sure way to lose the world is trying to grasp everything in it!

The world is the size of each man's head

If you want something very badly, don't try too hard, don't pursue - better still, don't want it badly

















Sunday, November 29, 2015

The myth of the teen brain

The Myth of the Teen Brain [Preview]

Its not only in newspaper headlines--its even on magazine covers. TIME, U.S. News & World Report and even Scientific American Mind have all run cover stories proclaiming that an incompletely developed brain accounts for the emotional problems and irresponsible behavior of teenagers. The assertion is driven by various studies of brain activity and anatomy in teens. Imaging studies sometimes show, for example, that teens and adults use their brains somewhat differently when performing certain tasks.

As a longtime researcher in psychology and a sometime teacher of courses on research methods and statistics, I have become increasingly concerned about how such studies are being interpreted. Although imaging technology has shed interesting new light on brain activity, it is dangerous to presume that snapshots of activity in certain regions of the brain necessarily provide useful information about the causes of thought, feeling and behavior.

Automatically assuming that the brain causes behavior is problematic because we know that an individuals genes and environmental history--and even his or her own behavior--mold the brain over time. There is clear evidence that any unique features that may exist in the brains of teens--to the limited extent that such features exist--are the result of social influences rather than the cause of teen turmoil. As you will see, a careful look at relevant data shows that the teen brain we read about in the headlines--the immature brain that supposedly causes teen problems--is nothing more than a myth.

Cultural Considerations
The teen brain fits conveniently into a larger myth, namely, that teens are inherently incompetent and irresponsible. Psychologist G. Stanley Hall launched this myth in 1904 with the publication of his landmark two-volume book Adolescence. Hall was misled both by the turmoil of his times and by a popular theory from biology that later proved faulty. He witnessed an exploding industrial revolution and massive immigration that put hundreds of thousands of young people onto the streets of Americas burgeoning cities. Hall never looked beyond those streets in formulating his theories about teens, in part because he believed in "recapitulation"--a theory from biology that asserted that individual development (ontogeny) mimicked evolutionary development (phylogeny). To Hall, adolescence was the necessary and inevitable reenactment of a "savage, pigmoid" stage of human evolution. By the 1930s recapitulation theory was completely discredited in biology, but some psychologists and the general public never got the message. Many still believe, consistent with Halls assertion, that teen turmoil is an inevitable part of human development.

Today teens in the U.S. and some other Westernized nations do display some signs of distress. The peak age for arrest in the U.S. for most crimes has long been 18; for some crimes, such as arson, the peak comes much earlier. On average, American parents and teens tend to be in conflict with one another 20 times a month--an extremely high figure indicative of great pain on both sides. An extensive study conducted in 2004 suggests that 18 is the peak age for depression among people 18 and older in this country. Drug use by teens, both legal and illegal, is clearly a problem here, and suicide is the third leading cause of death among U.S. teens. Prompted by a rash of deadly school shootings over the past decade, many American high schools now resemble prisons, with guards, metal detectors and video monitoring systems, and the high school dropout rate is nearly 50 percent among minorities in large U.S. cities.

But are such problems truly inevitable? If the turmoil-generating "teen brain" were a universal developmental phenomenon, we would presumably find turmoil of this kind around the world. Do we?

In 1991 anthropologist Alice Schlegel of the University of Arizona and Herbert Barry III, a psychologist at the University of Pittsburgh, reviewed research on teens in 186 preindustrial societies. Among the important conclusions they drew about these societies: about 60 percent had no word for "adolescence," teens spent almost all their time with adults, teens showed almost no signs of psychopathology, and antisocial behavior in young males was completely absent in more than half these cultures and extremely mild in cultures in which it did occur.

Even more significant, a series of long-term studies set in motion in the 1980s by anthropologists Beatrice Whiting and John Whiting of Harvard University suggests that teen trouble begins to appear in other cultures soon after the introduction of certain Western influences, especially Western-style schooling, television programs and movies. Delinquency was not an issue among the Inuit people of Victoria Island, Canada, for example, until TV arrived in 1980. By 1988 the Inuit had created their first permanent police station to try to cope with the new problem.

Consistent with these modern observations, many historians note that through most of recorded human history the teen years were a relatively peaceful time of transition to adulthood. Teens were not trying to break away from adults; rather they were learning to become adults. Some historians, such as Hugh Cunningham of the University of Kent in England and Marc Kleijwegt of the University of WisconsinMadison, author of Ancient Youth: The Ambiguity of Youth and the Absence of Adolescence in Greco-Roman Society (J. C. Gieben, 1991), suggest that the tumultuous period we call adolescence is a very recent phenomenon--not much more than a century old.

My own recent research, viewed in combination with many other studies from anthropology, psychology, sociology, history and other disciplines, suggests the turmoil we see among teens in the U.S. is the result of what I call the "artificial extension of childhood" past the onset of puberty. Over the past century, we have increasingly infantilized our young, treating older and older people as children while also isolating them from adults and passing laws to restrict their behavior [see box on next page]. Surveys I have conducted show that teens in the U.S. are subjected to more than 10 times as many restrictions as are mainstream adults, twice as many restrictions as active-duty U.S. Marines, and even twice as many restrictions as incarcerated felons. And research I conducted with Diane Dumas as part of her dissertation research at the California School of Professional Psychology shows a positive correlation between the extent to which teens are infantilized and the extent to which they display signs of psychopathology.

The headlines notwithstanding, there is no question that teen turmoil is not inevitable. It is a creation of modern culture, pure and simple--and so, it would appear, is the brain of the troubled teen.

Dissecting Brain Studies
A variety of recent research--most of it conducted using magnetic resonance imaging (MRI) technology--is said to show the existence of a teen brain. Studies by Beatriz Luna of the Laboratory of Neurocognitive Development at the University of Pittsburgh, for example, are said to show that teens use prefrontal cortical resources differently than adults do. Susan F. Tapert of the University of California, San Diego, found that for certain memory tasks, teens use smaller areas of the cortex than adults do. An electroencephalogram (EEG) study by Irwin Feinberg and his colleagues at the University of California, Davis, shows that delta-wave activity during sleep declines in the early teen years. Jay N. Giedd of the Child Psychiatry Branch at the National Institute of Mental Health and other researchers suggest that the decline in delta-wave activity might be related to synaptic pruning--a reduction in the number of interconnections among neurons.

This work seems to support the idea of the teen brain we see in the headlines until we realize two things. First, most of the brain changes that are observed during the teen years lie on a continuum of changes that take place over much of our lives. For example, a 1993 study by Jsus Pujol and his colleagues at the Autonomous University of Barcelona looked at changes in the corpus callosum--a massive structure that connects the two sides of the brain--over a two-year period with individuals between 11 and 61 years old. They found that although the rate of growth declined as people aged, this structure still grew by about 4 percent each year in people in their 40s (compared with a growth rate of 29 percent in their youngest subjects). Other studies, conducted by researchers such as Elizabeth Sowell of the University of California, Los Angeles, show that gray matter in the brain continues to disappear from childhood well into adulthood.

Second, I have not been able to find even a single study that establishes a causal relation between the properties of the brain being examined and the problems we see in teens. By their very nature, imaging studies are correlational, showing simply that activity in the brain is associated with certain behaviors or emotions. As we learn in elementary statistics courses, correlation does not even imply causation. In that sense, no imaging study could possibly identify the brain as a causal agent, no matter what areas of the brain were being observed.

Is it ever legitimate to say that human behavior is caused by brain anatomy or activity? In his 1998 book Blaming the Brain, Elliot S. Valenstein, now psychology professor emeritus at the University of Michigan at Ann Arbor, deftly points out that we make a serious error of logic when we blame almost any behavior on the brain--especially when drawing conclusions from brain-scanning studies. Without doubt, all behavior and emotion must somehow be reflected (or "encoded") in brain structure and activity; if someone is impulsive or lethargic or depressed, for example, his or her brain must be wired to reflect those behaviors. But that wiring (speaking loosely) is not necessarily the cause of that behavior or emotion.

Considerable research shows that a persons emotions and behaviors continuously change brain anatomy and physiology. Stress creates hypersensitivity in dopamine-producing neurons that persists even after they are removed from the brain. Enriched environments produce more neuronal connections. For that matter, meditation, diet, exercise, studying and virtually all other activities alter the brain, and a new study shows that smoking produces brain changes similar to those produced in animals given heroin, cocaine or other addictive drugs. So if teens are in turmoil, we will necessarily find some corresponding chemical, electrical or anatomical properties in the brain. But did the brain cause the turmoil, or did the turmoil alter the brain? Or did some other factors--such as the way our culture treats its teens--cause both the turmoil and the corresponding brain properties?

Unfortunately, news reports--and even the researchers themselves--often get carried away when interpreting brain studies. For instance, a 2004 study conducted by James Bjork and his colleagues at the National Institute on Alcohol Abuse and Alcoholism, at Stanford University and at the Catholic University of America was said in various media reports to have identified the biological roots of teen laziness. In the actual study, 12 young people (ages 12 to 17) and 12 somewhat older people (ages 22 to 28) were monitored with an MRI device while performing a simple task that could earn them money. They were told to press a button after a short anticipation period (about two seconds) following the brief display of a symbol on a small mirror in front of their eyes. Some symbols indicated that pressing the button would earn money, whereas others indicated that failing to respond would cost money. After the anticipation period, subjects had 0.25 second to react, after which time information was displayed to let them know whether they had won or lost.

Areas of the brain that are believed to be involved in motivation were scanned during this session. Teens and adults were found to perform equally well on the task, and brain activity differed somewhat in the two groups--at least during the anticipation period and when 5 (the maximum amount that could be earned) was on the line. Specifically, on those high-payment trials the average activity of neurons in the right nucleus accumbens--but not in other areas that were being monitored--was higher for adults than for teens. Because brain activity in the two groups did not differ in other brain areas or under other payment conditions, the researchers drew a very modest conclusion in their article: "These data indicate qualitative similarities overall in the brain regions recruited by incentive processing in healthy adolescents and adults."

But according to the Long Island, N.Y., newspaper Newsday, this study identified a "biological reason for teen laziness." Even more disturbing, lead author James Bjork said that his study "tells us that teenagers love stuff, but arent as willing to get off the couch to get it as adults are."

In fact, the study supports neither statement. If you truly wanted to know something about the brains of lazy teens, at the very least you would have to have some lazy teens in your study. None were identified as such in the Bjork study. Then you would have to compare the brains of those teens with the brains of industrious teens, as well as with the brains of both lazy and industrious adults. Most likely, you would then end up finding out how, on average, the brains in these four groups differed from one another. But even this type of analysis would not allow you to conclude that some teens are lazy "because" they have faulty brains. To find out why certain teens or certain adults are lazy (and, perforce, why they have brains that reflect their lazy tendencies), you would still have to look at genetic and environmental factors. A brain-scanning study can shed no light.

Valenstein blames the pharmaceutical industry for setting the stage for overinterpreting the results of brain studies such as Bjorks. The drug companies have a strong incentive to convince public policymakers, researchers, media professionals and the general public that faulty brains underlie all our problems--and, of course, that pharmaceuticals can fix those problems. Researchers, in turn, have a strong incentive to convince the public and various funding agencies that their research helps to "explain" important social phenomena.

The Truth about Teens
If teen chaos is not inevitable, and if such difficulty cannot legitimately be blamed on a faulty brain, just what is the truth about teens? The truth is that they are extraordinarily competent, even if they do not normally express that competence. Research I conducted with Dumas shows, for example, that teens are as competent or virtually as competent as adults across a wide range of adult abilities. And long-standing studies of intelligence, perceptual abilities and memory function show that teens are in many instances far superior to adults.

Visual acuity, for example, peaks around the time of puberty. "Incidental memory"--the kind of memory that occurs automatically, without any mnemonic effort, peaks at about age 12 and declines through life. By the time we are in our 60s, we remember relatively little incidentally, which is one reason many older people have trouble mastering new technologies. In the 1940s pioneering intelligence researchers J. C. Raven and David Wechsler, relying on radically different kinds of intelligence tests, each showed that raw scores on intelligence tests peak between ages 13 and 15 and decline after that throughout life. Although verbal expertise and some forms of judgment can remain strong throughout life, the extraordinary cognitive abilities of teens, and especially their ability to learn new things rapidly, are beyond question. And whereas brain size is not necessarily a good indication of processing ability, it is notable that recent scanning data collected by Eric Courchesne and his colleagues at the University of California, San Diego, show that brain volume peaks at about age 14. By the time we are 70 years old, our brain has shrunk to the size it had been when we were about three.

Findings of this kind make ample sense when you think about teenagers from an evolutionary perspective. Mammals bear their young shortly after puberty, and until very recently so have members of our species, Homo sapiens. No matter how they appear or perform, teens must be incredibly capable, or it is doubtful the human race could even exist.

Today, with teens trapped in the frivolous world of peer culture, they learn virtually everything they know from one another rather than from the people they are about to become. Isolated from adults and wrongly treated like children, it is no wonder that some teens behave, by adult standards, recklessly or irresponsibly. Almost without exception, the reckless and irresponsible behavior we see is the teens way of declaring his or her adulthood or, through pregnancy or the commission of serious crime, of instantly becoming an adult under the law. Fortunately, we also know from extensive research both in the U.S. and elsewhere that when we treat teens like adults, they almost immediately rise to the challenge.

We need to replace the myth of the immature teen brain with a frank look at capable and savvy teens in history, at teens in other cultures and at the truly extraordinary potential of our own young people today.

(The Author)
ROBERT EPSTEIN is a contributing editor for Scientific American Mind and the former editor in chief of Psychology Today. He received his Ph.D. in psychology from Harvard University and is a longtime researcher and professor. His latest book is called The Case against Adolescence: Rediscovering the Adult in Every Teen (Quill Driver Books, 2007). More information is at www.thecaseagainstadolescence.com

(Further Reading)

Blaming the Brain: The Truth about Drugs and Mental Health. Elliot S. Valenstein. Free Press, 1998.
The End of Adolescence. Philip Graham. Oxford University Press, 2004.

Wednesday, November 18, 2015

Confirmation Bias

As Austrian-British philosopher Karl Popper says, the only way of testing a hypothesis is to form a view and to spend the rest of the day looking for evidence that proves you are wrong, a process known as falsification. Good decision-makers should consciously seek out diverse views that challenge their existing opinions


The root cause of confirmation bias is self-gratification, a constant need to feel right about the choices we make, because intrinsically we all tend to believe that our choices are a manifestation of our 1) character or 2) persona or 3) ability. Self-gratification is an aftermath of over-confidence or under-confidence and a self-driven confusion between cause and effect, often times wrongly attributing higher weights to the outcome than the process. The cure to this issue is active self-quarantine and a sense of scepticism in every observation, which by nature is very difficult because to err is afterall human

Sunday, November 15, 2015

Andy grove and CEOs

Later, in 2001, I met with Andy again and I asked him about a recent run of CEOs missing their numbers despite having told investors that their businesses were strong. The bubble had burst for the first wave of Internet companies nearly a year prior, so it surprised me that so many many of them had not seen this coming. Andy replied with an answer that I did not expect: "CEOs always act on leading indicators of good news, but only act on lagging indicators of bad news."

"Why?" I asked him. He answered in the style resonant of his entire book: "In order to build anything great, you have to be an optimist, because by definition you are trying to do something that most people would consider impossible. Optimists most certainly do not listen to leading indicators of bad news