Author: shyam

Getting Bullish on Crypto

shyam February 1, 2019

Jan 2018 was the height of crypto-fever. Every punter I knew was “trading” it. Then came crypto-winter. Then the RBI banned banks from doing business with any entity dealing with cryptos. And now we are going through a new phase: crypto-indifference.

Bitcoin was hailed as “digital gold.” And crypto’s were supposed to supplant fiat currency (aka, regular currency) as a store of value and a medium of exchange. Never going to happen. And that is a good thing.

I had talked quite a few of our investors out of “investing” into cryptos last year. And it proved to be a good call. Now is the time to have a re-look.

Will crypto’s ever be a store of value or a medium of exchange or an alternative to fiat currency? No. But they don’t need to be any of those to be useful. There are a lot of use-cases where a “score” needs to be kept within a closed network. Situations like voting within your apartment complex or splitting bills with your roommates or friends. There are micro-payment use-cases where you don’t need to have a charge-back facility. I see the core ideas behind the crypto+blockchain toolset being embedded in applications that a network would use everyday. And there is sufficient plumbing available now to do these experiments faster.

It is still an open question as to who and how these will be monetized. But now that the punters have pretty much written off cryptos, it allows the space to step back and innovate without the distractions of a ticker-tape.

Does this mean that you should go out and buy a bunch of bitcoin? No! I remain bearish on the price of all cryptos, including bitcoin. But I am now bullish on their value.

Categories Investing Insight Tags crypto

Book Review: Why Nations Fail

shyam January 31, 2019

In Why Nations Fail: The Origins of Power, Prosperity and Poverty (Amazon,) authors Daron Acemoglu and James A. Robinson compress over 15 years of research on what drives the growth of nations.

Some hard-hitting excerpts:

Poor countries are poor because those who have power make choices that create poverty. They get it wrong not by mistake or ignorance but on purpose.
Growth moves forward only if not blocked by the economic losers who anticipate that their economic privileges will be lost and by the political losers who fear that their political power will be eroded.
Many of the micro-market failures that are apparently easy to fix may be illusory: the institutional structure that creates market failures will also prevent implementation of interventions to improve incentives at the micro level.

India is a bit like the hapless victim in the old Ajit joke, immersed in a vat of liquid oxygen. The liquid will not let it live and the oxygen will not let it die.

Recommendation: must read!

Categories Books Tags book, review

The futility of market timing?

shyam January 30, 2019

We recently came across an article put out by Albert Bridge Capital titled the “The futility of market timing.” You can read it here. The authors use the S&P 500 index to show that the gap between perfect market timing (always buying at the lows) vs. the worst market timing (always buying at the highs) doesn’t matter over long periods of time (20+ years.)

We were curious about how returns from the NIFTY 50 would look like if we ran the same experiment. We looked at consecutive 10- and 20-year rolling periods starting from 1991 where an investor buys Rs. 1 lakh of the index every year at

the highest level of that year (H)
the lowest level of that year (L)
some random day (R)

We added the random scenario (#3) because that is more-or-less the opposite of trying to time the market.

10-year rolling-period returns:

20-year rolling-period returns:

Unlike the S&P 500, the NIFTY 50 has been an extremely volatile beast. And given the wide gap in terminal wealths, there is always going to be a temptation to try and time the NIFTY 50.

Code on github.

Categories Investing Insight

Stock and Bond Correlations and Volatility

shyam January 29, 2019

Stocks and Bonds are not correlated. They are not negatively correlated. And neither are they positively correlated. One doesn’t “zig” when the other “zags.” This is exactly why portfolio allocations start with stocks and bonds – the diversification math works on uncorrelated asset classes. When you combine the two assets together you get lower portfolio volatility.

Here are some charts that show how the two asset classes differ: