Three Longs & Three Shorts

Published on: 23 Dec, 2018

At the end of each week, we will share with you our favourite reads. We would be grateful if you could reciprocate. This week’s reads – which are disproportionately from the FT, which has been on a roll in the run upto Christmas – focus on Agritech, Passive investing, Dealing with Burnout, the congestion and pollution in Indian cities.

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1. Long read: FT Big read – Agritech – Disrupters take root
Author: Emiko Terazano
Source: Financial Times (https://www.google.co.in/amp/s/amp.ft.com/content/ee6fb294-edc3-11e8-8180-9cf212677a57)

A variety of Silicon Valley funded start-ups are bringing a range of innovations to bear upon the US farm sector with the goal of improving technology at the start of the food chain and “enhance the earning power of those working the land.”

For example, Farmers Business Network (FBN) founded by Amol Deshpande (ex Kleiner Perkins) and Charles Baron (ex-Google) is a digital platform dubbed as “Google for farmers”. Farmers can log-on and find what seeds will help them make money (the FT article profiles one such happy farmer from South Dakota). FBN farmers pay $600 per annum for data on “efficacy and yields of various seeds, fertilisers and pesticides in different soil types and geographies, helping them make buying and planting decisions.”

Other agrotech start-ups are innovating elsewhere. David Perry co-founded Indigo, a Boston-based agricultural microbes start-up. “Indigo hunts out naturally occurring organisms such as bacteria and fungi to coat the seeds of grains to aid plant growth. It has also created what it calls “farmers ebay”, an online marketplace which matches buyers and sellers of grains and oilseeds.”

Inspite of the rising interest in this sector, since Monsanto’s near $1bn purchase of Climate Corporation in 2013, there have been only two other large transactions in the sector: DuPont’s purchase of farm software group Granular for $300m and tractor maker’s Deere & Co’s $305m deal to buy Blue River, a start-up that makes machine learning tools for the industry.

2. Long read: Passive attack: the story of a Wall Street revolution
Author: Robin Wigglesworth
Source: Financial Times (https://www.ft.com/content/807909e2-0322-11e9-9d01-cd4d49afbbe3)

For those interested in knowing everything about arguably the greatest financial innovation of the past century – passive investing, this piece delivers it – from the origins to mass market commercialisation to the risks it might pose in the future. A balanced piece with some gems from the man himself, John Bogle, the founder of Vanguard (who according to the article was preceded by over a dozen pioneers ranging from Eugene Fama to Paul Samuelson, who contributed to the birth of passive investing). The common thread among these people was the belief that investing was science than anything else.

“Index funds have revolutionised investing, saving millions of people untold billions of dollars in fees that would otherwise have gone to fund managers with a dismal long-term record of actually beating the market. It is no exaggeration to say that the rise of passive investing is probably one of the most consequential financial inventions of the past half-century. It is rewiring markets and reshaping the finance industry….

…The University of Chicago and MIT were at the centre of this nascent financial-academic revolution. In 1965 Eugene Fama, the famed Chicago economist, first articulated his “efficient markets” hypothesis, which stipulated that securities fully reflect all known information, and the market cannot be beaten. But even for those who believe that markets are inefficient, there is a simple, inescapable mathematical truth: the market is made up of investors, so the average investor cannot do better than the market. For every one that beats it, someone else must fall short.

…And when the cost of trading and the fees charged by a fund manager are factored in, the average investor will, in fact, underperform the wider market, points out Burton Malkiel, the Princeton economics professor and author of A Random Walk Down Wall Street. Some skilled managers might beat the market in any given year — or maybe even over a decade — but identifying consistent stars has proven to be tricky both in theory and practice. “The intellectual case for indexing is airtight,” Malkiel says.

“He suggested that Mellon start an index fund, but his boss was underwhelmed. “He accused me of trying to turn his job into a science,” Fouse recalls. “So I fled.””

….(John)Bogle admits that he was a zealot. “It was a crusade. If you really believe in something, you have to become a preacher,” he says. “I believed the numbers would ultimately tell. The superiority of the index is guaranteed. The math will never let you down.” By the end of 1976, the Vanguard fund still languished with $14m. But in 1982, it crossed $100m. By 1988 the fund boasted $1bn. By 1996 it crossed $10bn. Today the now-renamed Vanguard 500 Index Fund manages more than $400bn…

…In a 2016 tribute to “a real f**king people’s hero”, the writer Hamilton Nolan said: “John Bogle founded a multitrillion-dollar investment firm and did not use it to make himself into a multibillionaire but instead used it to produce a good product at a fair price that saves money for everyone who uses it.”Bogle says he appreciated Nolan’s sentiment — if not the strong language — and bristles with pride over Vanguard, even if it didn’t bring him the financial rewards that other investment behemoths have brought their founders. “What do I need a private jet for? I need my wife to drive me around. It doesn’t do my psyche any good to know that I have more than someone else,” he says. “I’m very comfortable with what I’ve done for the world.”

“The sheer force of flows into these funds has been an important driver of the relative outperformance of indexed assets. When these flows reverse, or even pause, the effects could be just as impactful on relative prices, but in reverse, and possibly more abrupt and intense.”

Every great invention comes with side effects that should be recognised and addressed. Within the foreseeable future, they could hold a commanding vote in most major US public companies — a development that worries even Bogle.“Is that good for capitalism?” he questions. “It’s hard to know how big we can get, and the consequences. But it does raise issues that we need to address. We cannot ignore them. But to solve this we should not destroy the greatest invention in the history of finance.”

3. Long read: How to avoid burnout this Christmas
Author: Josh Cohen
Source: Financial Times (https://www.ft.com/content/ea0ea4cc-0320-11e9-9d01-cd4d49afbbe3)

Looking for a New Year’s resolution? Embrace aimlessness, suggests Josh Cohen, a psychoanalyst and professor of modern literary theory at Goldsmiths, University of London. In this piece which is a brief introduction to his upcoming book ‘Not Working: Why We Have to Stop’, Josh explores the paradoxical pleasures of inactivity. Josh starts with the typical schedule for the Christmas break where most of us tend to stuff in so much activity that we end up needing another holiday to recover. He extends this to normal everday life where unrelenting busyness pervades yet the culture looks down upon inactivity or idleness. Josh highlights the need to rekindle the dying art of doing nothing for it remains a key ingredient for imaginative freedom and creativity. Looking forward to carving out time for some daydreaming in 2019.

“The German-American psychologist Herbert J Freudenberger employed the term “burnout” in 1974 to describe the growing phenomenon of “physical or mental collapse caused by overwork or stress”. Freudenberger observed workers drained of positive commitment to their own role and to those around them, running on empty and depleted of all but the most minimal internal resources. Burnout is the ultimate experience of that impossible bind: a yearning for a state of rest alongside the sense that it cannot be attained, a sense that some demand or anxiety or distraction won’t let us go.So how might we evade this fate, individually and collectively? This question seems especially important for our children, in whom anxiety disorders and feelings of academic and physical inadequacy are reportedly proliferating. If children are under perpetual pressure to achieve learning targets (just as their parents are cajoled into meeting productivity targets), the antidote is surely to cultivate in them — and even in ourselves — the capacity for aimlessness, for letting the mind wander without specific goal or purpose.”

4. Short read: Blade sets course for congested cities in India
Author: Simon Mundy
Source: Financial Times (https://www.google.co.in/amp/s/amp.ft.com/content/775424f2-f6fa-11e8-af46-2022a0b02a6c)

Blade, a helicopter rides app, is expanding into India, its first non-US market. Blade has done some number crunching which shows what those of us stuck in traffic jams in Mumbai have known all our lives:

“Constrained by its peninsular geography, Mumbai is India’s most congested city, with about 1500 registered vehicles per kilometre of road. Blade said the traffic problem made it the logical first foreign market for the company.

To gauge potential demand for the route, “we tend to look at the ratio of the helicopter flight time to the average drive time,” said Will Heyburn Blade’s head of corporate development. “We’ve just never seen metrics like we’ve seen in India. You’re talking about 40-minute helicopter rides that are replacing four-to-eight hour drives.”…One of the company’s first two routes will be the 190km between Mumbai and Shirdi, a pilgrimage site. The second will allow business travellers to….[travel] between Mumbai and industrial hub of Pune, 120km south-east.” [Brackets are ours.]

5. Short read: FT big read – India: The most polluted place on earth
Author: Steven Bernanrd & Amy Kazmin
Source: Financial Times (https://ig.ft.com/india-pollution/)

This graphics rich FT article shows why those who live in India (especially those of us who are raising our children in India) need to be alive to the biggest threat to public health in this country.

“The FT collated NASA satellite data of fine particulate matter (PM2.5), a key standard for measuring air quality, and mapped it against population density data from the European Commission…those breathing air contaminated with particulates that multiple times over the level deemed same – 10 micrograms of PM2.5 – by the WHO. More than 4.2bn people in Asia are breathing air many times dirtier than the WHO limit…Historically China has grabbed most headlines for poor air quality. But the data on PM2.5 pollution between 1996 and 2016 show India is now in a worse state than its larger neighbour ever was….At least 140mn people in India are breathing air 10 times or more over the WHO safe limit. A study published in The Lancet estimates that in 2017 air pollution killed 1.24mn India. The 10 most polluted cities in the world are all in northern India….The biggest causes are vehicular pollution, industrial emissions, thermal power plants, construction dust, waste burning and millions of poor households’ use of cheap and dirty fuels…” [Emphasis in bold is ours.]

6. Short read: What Our Elitist Reaction to the Zomato Delivery Man Tells Us About Our Lack of Empathy
Author: Arre
Source: Dushyant Shekhawat (https://www.arre.co.in/social-commentary/zomato-rider-reaction-twitter-delivery-boy/)

A video uploaded on Twitter showed a Zomato delivery rider eating the customer’s order before proceeding with his delivery. This lead to Zomato users reacting with rage – ‘how could the rider do this?’ they asked. Predictably, the rider was fired. The author says that the incident highlights the growing disparity in Indian society. The average delivery rider earns Rs 19K per month. The riders earn Rs 60 per ride and then with that money “Riders also have to bear all the expenses for fuel, and pay out of their own pocket for any damaged food items.” The typical order he delivers is north of Rs 700, implying that the typical order is out of his reach financially. Furthermore, given how unsafe India’s roads, these riders don’t exactly have a “safe” job – “In August this year, two Zomato delivery executives died in road accidents in Nagpur.”

Note: the above material is neither investment research, nor financial advice. Marcellus is not authorized to provide either. Marcellus does not seek payment for or business from this email in any shape or form. Marcellus Investment Managers is regulated by the Securities and Exchange Board of India as a provider of Portfolio Management Services.

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