Ten interesting things we read last week

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At Ambit we spend a lot of time reading articles that are not directly relevant to Indian stocks. However, since the Indian economy is now umbilically linked to its global counterparts, the articles that we come across have relevance for Indian stocks and the Indian economy. In that context, this report contains the ten most interesting pieces that we read this week.

Here are the ten most interesting pieces that we read this week, ended November 11, 2016.

1) A culture of fake encounters is sustained by support from different quarters [Source: Indian Express]
The killing of eight SIMI undertrial prisoners, who escaped from the Bhopal Central Jail on October 31, by the police has generated considerable controversy. While former Madhya Pradesh chief minister (CM), Digvijay Singh, questioned the whole episode, labelled the encounter a “gallant act” by policemen. Sadly, there is nothing gallant about killing fugitive prisoners who, according to all evidence, were unarmed and could have been arrested. According to information given by the Home Ministry to Parliament on July 15, 2014, 368 fake encounter cases were registered by the National Human Rights Commission between April 2011 and April 2014. There are various reasons why such incidents take place. One, the incompetence of the criminal justice system to complete trials in time. Two, the support the culture of fake encounters receives from different quarters. When controlling crime or dealing with law and order becomes politically important, fake encounters get state encouragement and protection, with complete assurance of impunity granted in advance. Fake encounters are sometimes supported by the public as well, especially when terrorists or insurgents belong to minority communities.

2) Is India ready for Universal basic income? [Source: swarajyamag.com ]
The idea of a universal basic income (UBI) for citizens is being discussed in many developed countries. Not surprisingly, there is an ongoing debate in India as well. There is basic difference however in its implementation considering that for most European countries, the idea of UBI is complementary to the existing architecture of public service delivery and social safety nets. However, in developing countries, UBI has been justified to a large extent because of the perceived failure of the delivery mechanism for basic public services. Hence UBI is seen as a substitute for the provision of existing public service delivery. Some see UBI is just an extended version of direct benefit transfer (DBT). In that sense, the argument for a universal basic income is essentially a move towards cash transfers in place of in-kind transfers. Lack of infrastructure in India however means that UBI can only increase the demand for services like public education and health care without increasing the access to these services.

3) ‘Failure and innovation are inseparable twins’: Jeff Bezos’ 7 leadership principles [Source: geekwire.com]
This article highlights seven principles that have helped Amazon founder Jeff Bezos become one of the world’s most successful entrepreneurs: 1) He warns youngsters against taking too much pride in their talents which were essentially gifts given to you, he says they should instead choose to combine gifts and hard work; 2) He warns against the human tendency for confirmation bias and says to be successful, people need to “seek to disconfirm their most profoundly-held convictions, which is very unnatural for humans”; 3) He emphasizes the need to be “incredibly relentless” with your vision. At the same time, along your path to success, you need to be flexible with the details; 4) Bezos says that while everybody wants to be inventive, they are afraid of failure. Real inventions have a built-in risk of failure in them; 5) Bezos said he always advises people, particularly young people, to get in touch with what they’re really passionate about; 6) He says it’s important to keep team sizes small – 10 to 12; 7) He talks about how a memo approach is better than the power point approach usually followed in corporates.

4) How I became a time-millionaire [Source: Financial Times]
This impressive piece by Nilanjana Roy talks about how wealth can be measured not only in terms of money but also in terms of time. According to her, for a growing number of affluent professionals, it’s regarded as inefficient to be too busy to fit in exercise, family life, travel, hobbies, and positively old-fashioned to boast about long working hours. The next logical step would be to imagine valuing professions that reward us in portfolios of bankable time, or living in a world where control over our time, or an abundance of free time, is as highly prized as other kinds of wealth. A baseline level of earned wealth would have to be established — or else, prisoners in jail, toddlers and or hospital patients are theoretically time-rich. She also mentions how the brightest humans find work satisfying in itself, continuing to be productive long after they’ve achieved financial stability; they tend to work for a few hours every day, with the odd marathon session.

5) Rubik’s cube makers square up in trademark battle [Source: Financial Times]
Rubik’s cube, one of the world’s most-recognised toys, may be stripped of some trademark protections by an EU court this week. In May, the Court of Justice’s advocate general recommended cancelling the EU trademark registration covering the cube’s three-dimensional shape. Of late, a series of high-profile failures to secure trademark protection for distinctive shapes has suggested winning such cases is increasingly difficult. Nestlé, the Swiss food group, was unable to trademark its four-fingered chocolate bar KitKat in the UK, Fellow Swiss chocolatier, Lindt & Sprüngli also failed in its attempts to trademark the shape of its gold foil-wrapped Easter bunny in the German courts, in 2013.  Rubik’s case has also highlighted efforts to extend additional protections over enduring, inventive items that can outlive standard 20-year patents. In this case, the advocate general’s opinion has reinforced the view that trademarks are not intended to be used to protect underlying technology.

6) Theo Epstein follows the money to historic Chicago Cubs victory [Source: Financial Times]
Theo Epstein created history by taking the Chicago Cubs to the World Series championship and his methods now transcend the game; youthful bright minds, guided by statistics, are also seen as the way ahead in politics and in business. As the Cubs’ head of baseball operations since 2011, Mr Epstein built the team — hiring, drafting, trading and setting salaries. The Cubs last won the World Series 108 years ago; so this ends the longest drought in the US sports history. But this was not the first time he had done this. In 2004, he was general manager of the Boston Red Sox when they won the World Series for the first time since 1918. But if Mr Epstein’s success at the two teams was on the same scale, he achieved it in different ways. In Boston, he inherited a very good team with several great players who had been hired at great expense and a weak supporting cast. At the Cubs, he inherited a terrible team, and presided over three dreadful seasons. The common thread was an emphasis on techniques that were popularised by the book Moneyball, by the financial journalist Michael Lewis. He covered Billy Beane, who used statistics to stay competitive with a small payroll at the Oakland A’s, and was offered the Red Sox job before Mr Epstein took it.

7) A water fight like no other may be brewing over Asia’s rivers [Source: Bloomberg]
Under President Xi Jinping, China has been aggressively asserting claims to most of the South China Sea. Another water fight could be just as explosive—this one involving fresh water. On Oct. 1, China said a hydropower project in Tibet was diverting water from a tributary of the Brahmaputra River, which flows into India and Bangladesh, reigniting concern over China’s control of some of the region's biggest waterways that have provided irrigation, transport, and life for millennia to much of South and Southeast Asia. India is concerned that Beijing could use water as a strategic weapon. Six of Asia’s 10 biggest rivers originate in China, including the Brahmaputra. As climate change leads to more extreme weather conditions, demand for fresh water is going to stoke more tensions. Further, if China has large-scale agricultural development and giant investments, it’s unlikely to sacrifice their needs for another nation downstream.

8) A board member’s guide to knowing when to go [Source: Financial Times]
Nothing seems to drive directors away from the boardroom once they have had a taste of it. There is, however, one shadow that hangs over board members’ ambitions to stay put: refreshment — the need for companies to bring new and different directors into the boardroom. More than a third of US board directors believe someone on their board should step down. Lack of churn is highlighted by the fact that among the top 1,500 listed US companies, fewer than 15% of board seats are held by directors who joined in the past two years. The article provides a guide for the types of directors who should be first in line for refreshment, based on the off-the-record comments of participants.

9) Steve Ballmer says smartphones broke his relationship with Bill Gates [Source: LiveMint]
Steve Ballmer said his decision to push Microsoft into the hardware business contributed to the breakdown of his relationship with longtime friend and company co-founder Bill Gates. However, he says that if he could do it all again, he would have entered the mobile device market years earlier. According to Ballmer, he and Gates have “drifted apart” partly due to a disagreement over whether Microsoft should make its own handsets and tablets. Ballmer said. “I had pushed Surface. The board had been a little reluctant in supporting it. And then things came to a climax around what to do about the phone business.” Microsoft entered the market in 2012 with the Surface RT, a tablet that sold poorly and required Microsoft to take a $900 million charge to write down the value of inventory. Now, the rejigged Surface business is profitable and generated more than $4 billion in sales for the most recent year. However, Microsoft’s foray into phone business was a mess almost from the start, with Microsoft’s board rejecting Ballmer’s initial plan to acquire Nokia Oyj’s handset unit and eventually writing down the entire $9.5bn value of the deal.

10) How polls overestimate support for third-party candidates [Source: HBR]
This piece describes how polls dramatically overstate support for third party candidates as was visible in the 2016 US elections. The reason for this is that the results for the minor-party candidates include two different kinds of voters: those who support those candidates in particular and those who will voice support for anyone who isn’t from one of the main parties. At first glance, this doesn’t seem like that big a problem. However, aside from the fact that voters who aren’t tied to any candidate are unlikely to vote at all, there’s the fact that on election day there will be multiple minority party candidates – hence leading to a dilution of votes. Therefore, any survey that selectively chooses a couple of minority party candidates and concludes about their chances needs to be looked at with a pinch of salt.

- Saurabh Mukherjea is CEO (Institutional Equities) and Prashant Mittal is Analyst (Strategy and Derivatives) at Ambit Capital Pvt Ltd. Views expressed are personal.