Three Longs & Three Shorts

Published on: 3rd Mar, 2019

This week’s reads focus on the influence of germs on psychology, the power of not caring in investing, job satisfaction, mind reading technology and the data science behind food delivery.

1. Long read: Germs in Your Gut Are Talking to Your Brain. Scientists Want to Know What They’re Saying
Author: Carl Zimmer
Source: New York Times (https://www.nytimes.com/2019/01/28/health/microbiome-brain-behavior-dementia.html)

Microbiomes are the trillions of microbes inside the healthy human body. This arresting New York Times article says that “Research continues to turn up remarkable links between the microbiome and the brain. Scientists are finding evidence that microbiome may play a role not just in Alzheimer’s disease, but Parkinson’s disease, depression, schizophrenia, autism and other conditions…
Scientists have long known that microbes live inside us. In 1683, the Dutch scientist Antonie van Leeuwenhoek put plaque from his teeth under a microscope and discovered tiny creatures swimming about. But the microbiome has stubbornly resisted scientific discovery…In the early 2000s, however, the science of the microbiome took a sudden leap forward when researchers figured out how to sequence DNA from these microbes…Few of them gave much thought to the brain — there didn’t seem to be much point. The brain is shielded from microbial invasion by the so-called blood-brain barrier. Normally, only small molecules pass through.
“As recently as 2011, it was considered crazy to look for associations between the microbiome and behavior,” said Rob Knight, a microbiologist at the University of California, San Diego.
He and his colleagues discovered some of the earliest hints of these links. Investigators took stool from mice with a genetic mutation that caused them to eat a lot and put on weight. They transferred the stool to mice that had been raised germ-free — that is, entirely without gut microbiomes — since birth.
After receiving this so-called fecal transplant, the germ-free mice got hungry, too, and put on weight.
Altering appetite isn’t the only thing that the microbiome can do to the brain, it turns out. Dr. Cryan and his colleagues, for example, have found that mice without microbiomes become loners, preferring to stay away from fellow rodents.
The scientists eventually discovered changes in the brains of these antisocial mice. One region, called the amygdala, is important for processing social emotions. In germ-free mice, the neurons in the amygdala make unusual sets of proteins, changing the connections they make with other cells.”
In fact, the link between microbiomes and the human brain is being seen in the most remarkable of human beings. “ Children with autism have unusual patterns of microbial species in their stool. Differences in the gut bacteria of people with a host of other brain-based conditions also have been reported.. If you hold a mouse by its tail, it normally wriggles in an effort to escape. If you give it a fecal transplant from humans with major depression, you get a completely different result: The mice give up sooner, simply hanging motionless.”

2. Long read: Not Caring – A Unique and Powerful Skill
Author: Morgan Housel
Source: Collaborative Fund (https://www.collaborativefund.com/blog/not-caring-a-unique-and-powerful-skill/)

Morgan Housel may not come up with radically original thinking in everything he writes but he does have a special skill in making lateral connections and  bringing out the profundity in seemingly prosaic concepts. A timely piece – when there are so many moving parts in the world, when sources of distraction are aplenty, knowing to differentiate between the signal and noise becomes the only source of differentiation in our profession. Actually, more than just knowing, mustering the courage to act on your belief when everyone else around you says otherwise, is indeed the hardest thing in our profession. And because it is so hard, it becomes the most critical success factor. Morgan highlights the point that IQ or intelligence do not matter beyond a point as lucrativeness of the profession attracts enough smart people to it for it become an edge.
“Jiddu Krishnamurti was an Indian philosopher. His message became more candid as he aged. In one famous moment during a talk, he asked the audience if they wanted to know his secret. He leaned forward, and whispered: “You see, I don’t mind what happens.”
This is a unique and powerful skill if you can actually do it. Almost 600 people ace the SATs each year. Another 7,000 come within a handful of points. There are a lot of smart people. And they’re getting smarter. Average IQ scores have risen 10 points per generation for decades. A field as competitive as investing can only repeatedly reward skills that are truly unique. And any skill that others can be taught is not unique, because this industry is so lucrative that thousands of people will move mountains to learn it. The extreme tails of intelligence are rewarded. But merely high intelligence rarely is because there are many so smart people chasing the same thing – outperformance – with intelligence learned from the same schools and firms. Smart is not a unique skill. That’s why so many smart people don’t outperform.
What is unique?
One of the most unique and valuable skills in this industry is Jiddu’s secret: not minding what happens. Not in a flippant way. You have to care about eventual outcomes, the people you work with, etc. But if you can remain dispassionate about what people think of you while you’re trying to get that outcome, or about the noise around you during the process, you have an advantage that I doubt one in a hundred thousand has in this industry. There are two drivers of enduring investment performance: Doing something others don’t. Doing something others do but during a time they don’t want to. Every investor done well over a long period of time can put their success into one or both of those buckets. And both require some degree of not caring what happens.
A few things that help you get there.
1. Not caring about looking dumb when you’re confident others are being dumber. Peter Kaufman once told a story of a conversation he had with Warren Buffett. Kaufman told Buffett he had a theory about why he was the greatest investor in the world. It was 1999. “During the bubble, everybody said you’re an idiot, behind the times. You’ve lost it, you don’t understand technology.” Kaufman said…..
2. Not caring about having an imperfect portfolio.
Some problems can never be solved because the world they live in is always adapting and changing. Portfolio construction is one of them. Incredible amounts of effort are devoted to finding the optimal level of diversification and position sizing. There are critical elements to both. But some level of “good enough” can be ideal for most people. The factors that determine future returns are still out of your control no matter how many spreadsheet tabs your model uses, and when you let go of caring about having a perfect portfolio you have fewer knobs to fiddle with, which reduces the chances of regrettable decisions. A rule of thumb is to prefer the strategy that’s likely to get you closest to your goal with the fewest number of decisions needed along the way.
3. Not caring about the reputational hit that comes from changing your mind. If you’re right about one thing, people will pay attention to you. You’ll become an expert in that one thing, asked to make predictions about what it will do next. Then, if you change your mind about that thing, a wave of people who gave you attention because they wanted to believe in the thing will flee and discount your wisdom, since they can no longer use you to confirm their views. Not caring about that demotion is a gift. There are things that never change, but underneath them are trends, industries, companies, countries, and strategies that come and go. The ability to let go of past beliefs when they’re no longer valid, or you realize you were wrong to begin with, is indispensable in this field. The only thing more dangerous than a view that changes on a dime is a view that hasn’t changed in decades.
4. Not caring about not having no explanation for the majority of events. There’s two types of “I don’t know.” One is, “I don’t know, but I’m trying to figure it out.” The other is, “I don’t know and don’t care because it doesn’t matter to what I’m doing.”
The latter one is underrated and more important, because it forces you to acknowledge factors that do, and don’t, make a difference to your strategy. The thing about statements like “Stocks fell amid news of slower economic growth” is not just that we don’t know whether it’s correlation or causation. It’s that even if we did know it’s causation it may not matter. Would you do anything different if you knew exactly why stocks fell today? Would it change your strategy? Maybe not. Probably not. Hopefully not. A lot of events fit this category. Einstein’s alleged quip of “Not everything that can be counted counts” holds true for maybe 98% of what happens in financial markets. And if you can put that idea to use you free up time to focus on the 2% that does count. Figure out what you can control and obsess over it. Identify what doesn’t matter and ignore it. Determine what you’re incapable of and stay away from it.”

3. Long read: Wealthy, Successful and Miserable
Author: Charles Duhigg
Source: The New York Times Magazine (https://www.nytimes.com/interactive/2019/02/21/magazine/elite-professionals-jobs-happiness.html )

A superb piece from Charles Duhigg about what leads to job satisfaction. Charles, a Pullitzer prize winner and the author of the brilliantly researched book – The Power of Habit, brings out the importance of meaning and purpose when it comes to our professional lives. “…a job is usually more than just a means to a paycheck. It’s a source of purpose and meaning, a place in the world”
“..One classmate described having to invest $5 million a day — which didn’t sound terrible, until he explained that if he put only $4 million to work on Monday, he had to scramble to place $6 million on Tuesday, and his co-workers were constantly undermining one another in search of the next promotion. It was insanely stressful work, done among people he didn’t particularly like. He earned about $1.2 million a year and hated going to the office.“I feel like I’m wasting my life,” he told me. “When I die, is anyone going to care that I earned an extra percentage point of return? My work feels totally meaningless.” He recognized the incredible privilege of his pay and status, but his anguish seemed genuine. “If you spend 12 hours a day doing work you hate, at some point it doesn’t matter what your paycheck says,” he told me. There’s no magic salary at which a bad job becomes good. He had received an offer at a start-up, and he would have loved to take it, but it paid half as much, and he felt locked into a lifestyle that made this pay cut impossible.”
So why do people even in such highly respected professions feel a constant sense of discontent? ”…the answer comes down to oppressive hours, political infighting, increased competition sparked by globalization, an “always-on culture” bred by the internet — but also something that’s hard for these professionals to put their finger on, an underlying sense that their work isn’t worth the grueling effort they’re putting into it.”
So what does bring fulfilment?
“…What’s interesting, however, is that once you can provide financially for yourself and your family, according to studies, additional salary and benefits don’t reliably contribute to worker satisfaction. Much more important are things like whether a job provides a sense of autonomy — the ability to control your time and the authority to act on your unique expertise. People want to work alongside others whom they respect (and, optimally, enjoy spending time with) and who seem to respect them in return.
And finally, workers want to feel that their labors are meaningful. “You don’t have to be curing cancer,” says Barry Schwartz, a visiting professor of management at the University of California, Berkeley. We want to feel that we’re making the world better, even if it’s as small a matter as helping a shopper find the right product at the grocery store. “You can be a salesperson, or a toll collector, but if you see your goal as solving people’s problems, then each day presents 100 opportunities to improve someone’s life, and your satisfaction increases dramatically,” Schwartz says.
One of the more significant examples of how meaningfulness influences job satisfaction comes from a study published in 2001. Two researchers — Amy Wrzesniewski of Yale and Jane Dutton, now a distinguished emeritus professor at the University of Michigan — wanted to figure out why particular janitors at a large hospital were so much more enthusiastic than others. So they began conducting interviews and found that, by design and habit, some members of the janitorial staff saw their jobs not as just tidying up but as a form of healing. One woman, for instance, mopped rooms inside a brain-injury unit where many residents were comatose. The woman’s duties were basic: change bedpans, pick up trash. But she also sometimes took the initiative to swap around the pictures on the walls, because she believed a subtle stimulation change in the unconscious patients’ environment might speed their recovery. She talked to other convalescents about their lives. “I enjoy entertaining the patients,” she told the researchers. “That is not really part of my job description, but I like putting on a show for them.” She would dance around, tell jokes to families sitting vigil at bedsides, try to cheer up or distract everyone from the pain and uncertainty that otherwise surrounded them. In a 2003 study led by the researchers, another custodian described cleaning the same room two times in order to ease the mind of a stressed-out father.
To some, the moral might seem obvious: If you see your job as healing the sick, rather than just swabbing up messes, you’re likely to have a deeper sense of purpose whenever you grab the mop. But what’s remarkable is how few workplaces seem to have internalized this simple lesson. “There are so many jobs where people feel like what they do is relatively meaningless,” Wrzesniewski says. “Even for well-paid positions, or jobs where you assume workers feel a sense of meaning, people feel like what they’re doing doesn’t matter.” That’s certainly true for my miserable classmate earning $1.2 million a year. Even though, in theory, the investments he makes each day help fund pensions — and thus the lives of retirees — it’s pretty hard to see that altruism from his window office in a Manhattan skyscraper. “It’s just numbers on a screen to me,” he told me. “I’ve never met a retiree who enjoyed a vacation because of what I do. It’s so theoretical it hardly seems real.”

4. Short read: Mind reading technology poses ethical questions
Author: Anjana Ahuja
Source: Financial Times (https://app.ft.com/content/8bf0a3d4-2541-11e9-b20d-5376ca5216eb?sectionid=stream/ba3d9036-6155-43e5-b892-eb155267b943)

Scientists have now revealed a technology that can one day speak for us (rather than us having to do the talking). “Researchers at Columbia University have developed a “vocoder” that could eventually decide, purely from brain activity, what a person wants to say it and channel it through a speech synthesiser. Their aim is to give an artificial voice to patients who, through injury or disease, have lost their own…the technology could one day be right, but there is no guarantee that user intent will stay benign. While Brain Computer Interfaces (BCIs) are primarily designed to help the sick, they have the potential to be misused on the healthy…In 2017, scientists in Beijing progressed further down the mindreading road: they were able to tell crudely, what people were looking at, simply by analysing neural signals. All work on the same principle: every human utterance, perception and action has its beginnings in the messy crossfire of brain signals. The goal of BCIs is to detect the signals, decode them using algorithms, and then send relevant commands to a device that acts on the patient’s behalf….”
Lots of people would be able to abuse such technology. “Advertisers might spot the power of mindreading technology ….Employers may wish to more accurately measure compliance and dissent” among employees.
“One focus of concern is a well-studied…signal called the P300. This ‘aha’ spike, distinctive for each person, is generated when the brain registers something worth paying attention to, such as a familiar face in the crowd…or a PIN number…It forms the basis of “brain fingerprinting”, a contentious technique that purports to identity, for example, when a suspect recognises a weapon…While mind-reading technologies may be cumbersome for now…next generation devices might acquire the capacity for covert detection.”

5. Short read: Why living experimentally beats taking bets
Author: Tim Harford
Source: Financial Times (https://www.ft.com/content/c60866c6-3039-11e9-ba00-0251022932c8)

A year ago, former Poker world champion, Annie Duke, published a superb book where she warned against the dangers of “resulting” – our habit of seeing the world on the basis of results rather than assessing the underlying process (and the probabilities embedded in the process). For example, if I drive drunk from one end of Mumbai to another and reach my destination safely, it does not mean that driving drunk is a good idea or advisable. It just means that I am lucky. Duke went on to say in the book that we should think of our steps and strategies in life in terms of probabilities and in terms of bets.
In this piece, Tim Harford highlights two issues with Duke’s mode of thinking:
(1)    “One quibble is that games have a much more tightly defined spectrum than reality does. Edward Thorpe, a mathematician who achieved considerable success at blackjack and as a hedge fund manager, found that the true risks he faced at the casino were not an unlucky turn of the card but crooked dealers and poisoned coffee. Not for nothing does Nassim Taleb, author of the “Black Swan” warn of the “ludic fallacy” – treating the unknown risks of life as though they were known risks of a game of chance.”
(2)    “Some big decisions are by their nature irreversible Each big poker hand is a one-shot proposition that does not offer much scope for experimentation. The same could be said of some investments….”
Harford says that a better way to live in an uncertain world is to use experiments wherein you gradually, gingerly walk across the stream – a step at a time – by gingerly feeling the pebbles underneath your feet. “…other decisions are more experimental. In these cases the choices can be made in stages, with each step designed to reveal some information. From Marvel’s decision to publish the Spiderman comics (that went well) to Google’s launch of the G+ social network (that didn’t) a company can see what works and then either redouble its efforts or abandon the project. For an individual, anything from a new hobby to a career can be treated as an experiment.”

6. Short read: How data helps deliver your dinner on time—and warm
Author: Tom Simonite
Source: Wired (https://www.wired.com/story/how-data-helps-deliver-your-dinner-on-time-warm/)

With Uber deciding to sell Uber Eats India to Swiggy for a stake in the latter, the food delivery space in India is consolidating with Swiggy, Zomato (owned by the publicly listed company, Info Edge) and Food Panda (owned by Ola). But this piece in the WIRED is about the fascinating data science behind the food delivery business and the disruptions it is likely to cause to the much larger restaurants business.
 “The more detail with which we can model the physical world, the more accurate we can be,” says Eric Gu, an engineering manager with Uber Eats’ data team. The company employs meteorologists to help predict the effect of rain or snow on orders and delivery times. To refine its predictions, it also tracks when drivers are sitting or standing still, driving, or walking—joining the growing ranks of employers monitoring their workers’ every move. Improved accuracy can convert directly into dollars, for example by helping Uber combine orders so that drivers carry multiple meals without any getting cold. Drivers get a small bonus for ferrying multiple orders on one trip. “We can save on delivery costs and pass back some savings to the eater,” Gu says. Four blocks away, Uber rival DoorDash has its own team of data mavens working on an AI-powered crystal ball for food deliveries. One of their findings is that sunset matters. People tend to order dinner when it’s dusk, meaning they eat later in summer and shift their habits when the clocks change in spring and fall. Like Uber, the company keeps a close eye on sports schedules and weather patterns, while also tracking prep times for the dishes offered at different restaurants. Company data indicates that pad thai takes 2 minutes longer to prepare Friday through Sunday than during the rest of the week, because kitchens are busier.
Rajat Shroff, vice president of product, says DoorDash data also clearly shows the connection between accurate delivery predictions and customer loyalty. “That’s driving a big chunk of our growth,” he says. The company was valued at $7 billion this month by investors who plowed in $400 million of fresh funding. DoorDash has also been working to better understand what happens in restaurants, for example by connecting its systems with Chipotle’s in-house software so orders can be sent in more smoothly, and DoorDash can track how they’re progressing. The company has built a food-delivery simulator in which past data is replayed to test different scheduling and prediction algorithms. Both DoorDash and Uber use their data to offer drivers more money to head to areas where demand is expected to be strong…. “I’ve spent my whole career trying to figure out how to put the best product in front of people,” Hargrave says. “Now I’ve been thrown this curveball where I have to put it in a box.” Tacolicious switched its register system to better handle delivery orders without compromising in-store service. There’s now often a person in each restaurant working exclusively on packaging and checking delivery orders.
Muller and Hargrave say the app-and-algorithm approach to dining can squeeze conventional restaurants and could even put some out of business. Uber’s standard cut of each order is 30 percent, a significant bite in a traditionally low-margin industry. Even restaurants like Tacolicious that accommodate delivery services must also serve people who walk in the door. That’s one reason Uber is encouraging the development of “virtual restaurants,” which operate out of an existing restaurant’s kitchen but sell only via its app. Uber said last year that it was working with more than 800 virtual restaurants in the US; many operate during hours when a restaurant’s main business is slack or closed, allowing more efficient operation and use of the property. Uber and DoorDash also work with so-called dark kitchens, operations that serve only via delivery apps and can be more efficient and predictable than conventional restaurants. DoorDash operates a 2,000-square-foot kitchen space in the Bay Area that it rents to such operators.
Muller likens the arrival of Uber Eats and others to how online travel sites shook up the hotel industry, forcing hoteliers to adapt their business models to a market where consumers are more engaged, driving more visits, but at lower prices. How lucrative this new form of restaurant business will be is unclear.
Uber and DoorDash both declined to provide more detail about their businesses but are rapidly expanding their reach. DoorDash says it covers 80 percent of the US population, and Uber Eats claims to have reached more than 70 percent, in addition to serving more than 100 cities in Africa, Asia, and Europe. Sallenave, the Uber Eats head for the US and Canada, predicts eating via app will become the norm everywhere, not just in urban areas. “We fundamentally believe we can make this business economically viable, not only in large cities but also in small towns and in the suburbs,” she says.”

If you want to read our other published material, please visit http://marcellus.in/resources/
Note: the above material is neither investment research, nor financial advice.Marcellus Investment Managers is regulated by the Securities and Exchange Board of India as a provider of Portfolio Management Services and as an Investment Advisor.
Copyright © 2018 Marcellus Investment Managers Pvt Ltd, All rights reserved.