Author: shyam

Malls Leapfrogged

Jack-Black-and-Michael-Ce-001

Emerging markets’ lagging technology adoption is considered an advantage. They are less inhibited by entrenched intermediate technology and can leapfrog to a state-of-the-art technology. For example, in India, mobile phones have substituted traditional fixed networks. Orissa electrified approximately 2,000 villages using decentralized solar power, biomass, wind power and a variety of small-scale hydropower projects. Why has retail commerce lagged behind?

Before the internet, malls offered the convenience of having a whole bunch of shops in one place. People can drive to a mall, park their cars, take breaks during shopping, probably even have a meal and then drive back home. What sounds like a typical American suburban ideal is a nightmare in the Indian context. Drive, park, deal with pesky salesmen, have junk for lunch, and then drive back? No thanks!

The leapfrog

Decline of malls in America

During the past few years, foot traffic in retail shopping malls has been declining. More American consumers are busier than ever and have less free time to shop in stores. Smartphones, tablets, conference calls, email, social networking, and video streaming all help to provide more efficient communication, but at the same time contribute to the limited capacity of the U.S. consumer for other endeavors. More and more, consumer preferences are shifting toward what can be done quickly and efficiently, and, ideally, what can be done from home or on the road when it comes to shopping.

Source: Have you been to the mall lately?

deadmalls.com

“Within ten to fifteen years, the typical U.S. mall, unless it is completely reinvented, will be a historical anachronism—a sixty-year aberration that no longer meets the public’s needs, the retailers’ needs, or the community’s needs.”

Source: Are Malls Over?

Is Costco losing the millennials?

A member of the millennial generation is highly unlikely to be a Costco customer. A car is all but a necessity for the typical “stock up” visit to Costco, and compared to older generations, millennials tend to not own cars and don’t seem to want to own cars. Most Costco stores are in suburban locations, while millennials tend to prefer urban living, and even if they are among the relatively few of their peers who could afford to buy a home, home ownership is less important to them than it was to their parents and grandparents as young adults. So … if you don’t have a car, and you don’t have the money or interest to stock up on two years’ worth of paper towels or mustard, and you wouldn’t have the space in your apartment to store this kind of stuff even if you wanted to, then there’s not much sense in shopping at Costco.

Source: Will millennials kill Costco?

e-commerce > malls?

An estimated 120 new malls have come up in the country over the last two years, of which 30-40 have either shut down or became non-functional due to poor footfalls and poor management. Meanwhile, capital continues to pour into e-commerce companies. Since Jan 2013, e-tailers have raised about Rs. 5,190cr.

Source: Over two dozen failed malls up for sale in metro cities

Will India leapfrog malls to e-commerce? We already give a puzzled look when people give us land-line numbers, will malls soon become a similar anachronism?

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How is Money Created?

money euro

The Bank of England has an interesting post on how money is actually created in the modern economy.

Money creation in practice differs from some popular misconceptions — banks do not act simply as intermediaries, lending out deposits that savers place with them, and nor do they ‘multiply up’ central bank money to create new loans and deposits.
 
In the modern economy, most money takes the form of bank deposits. But how those bank deposits are created is often misunderstood: the principal way is through commercial banks making loans. Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money.

 

“Commercial banks create money, in the form of bank deposits, by making new loans. When a bank makes a loan, for example to someone taking out a mortgage to buy a house, it does not typically do so by giving them thousands of pounds worth of banknotes. Instead, it credits their bank account with a bank deposit of the size of the mortgage. At that moment, new money is created.”

When loans are paid off, bank credit money (so-called “broad money”) is destroyed. When more loans are being paid off than are being created, money in circulation diminishes.
 


 

The accompanying article also explains how Quantitative Easing (QE) works and dispels many of the myths surrounding it.

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Why Do Models Beat Experts?

algorithms

Academic research continue to show that models beat experts. Here’s what we had said back in September last year:

Models beat experts. Models represent a ceiling, not a floor. Humans with a model improve performance, but underperform the model. Humans without a model are ineffective. Following a model, but then trying to add value via intuition, actually destroys the model’s benefit and causes investors to underperform the market. Experts need to design the models, but COMPUTERS NEED TO IMPLEMENT THE MODEL.

We also discussed the “Seersucker Theory” where people generally ignore available evidence and continue paying for forecasts.

We often fool ourselves into believing that the more we pay for advice, the better it is.

One explanation is that the client is not interested in accuracy, but only in avoiding responsibility. A client who calls in the best wizard available avoids blame if the forecasts are inaccurate. The evasion of responsibility is one possible explanation for why stock market investors continue to purchase expert advice in spite of overwhelming evidence that such advice is worthless.

It is not that we are dumb. It is just that we cannot help ourselves. There’s a term for it: “identity protective cognition thesis”, which is a self-sabotage of cognitive ability where it conflicts with a deeply-held belief. Basically, human beings have a tendency to want to hear information presented in the form of a story. This presents the risk of us getting psychologically attached to a single narrative prediction, which could then cloud our interpretation of new and potentially ‘inconvenient’ facts.

Say, for example, you have identified yourself as a raging bull on some US tech stock, the fact such a bias could lead you to make mistakes when analysing fresh data on that business does not bode well for the success of your portfolio.

John Maynard Keynes said: “When my information changes, I alter my conclusions. What do you do, sir?”

Turns out most of us will ignore the information and keep trucking. Is it any wonder then, that models beat experts?

Source:

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Practice Not As Important As Thought For Success

practice-makes-perfect

Malcolm Gladwell’s book “Outliers” popularized the “10,000 hour rule,” which suggests that many people who have reached the top of their fields got there, in large part, due to practicing for 10,000 hours.

In the new paper, published in Intelligence, the authors conclude that practice can only explain one-third of the variation in sucess in chess and music, and probably other fields as well. One player in a 2007 study, for example, “took 26 years of serious involvement in chess to reach a master level, while another player took less than 2 years to reach this level.”

They suggest that other factors together explain the lion’s share of success, such as intelligence, starting age, personality, and other genetic factors.

Source: Popular Science

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Pick your risk factor: value or momentum?

The Capital Spectator has a gem of a piece out:

The term “investing” is a misnomer when it comes to managing money. It’s really a job of choosing a set of risk factors that will produce an expected result. The real challenge is deciding which risk exposures are appropriate and how to manage those risks. But you can’t engineer risk away to nothing in a portfolio, at least not without incurring unbearable expenses. In the end, you can only earn a risk premium as the result of bearing risk and managing it in a way that suits your specific risk tolerance and return requirements.

We had written about this almost a year ago, saying that there is no such thing as “risk free.” Capital and risk are joined at the hip:

The conversations I have been having recently typically ends with “I don’t want to take any risk right now, let me wait and watch.” And therein lies the rub – there is no such thing as “risk-free.” Not in life, not in investing. The total risk in this world is a constant – we only transform it by our action or in-action.

This is where our investment themes come into the picture. By investing across different strategies, you get the benefit of balancing out strategy-specific risks. Worried about choosing between momentum and value? Why not choose both? Keep reinvesting your returns and the winning strategy will automatically become a larger part of your portfolio by the magic of compounding. You can begin by checking out how different strategies have performed here.

Source: The Illusion Of “Investing”

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