Ten interesting things we read this week

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At Ambit, we spend a lot of time reading articles that cover a wide gamut of topics, including investment analysis, psychology, science, technology, philosophy, etc. We have been sharing our favourite reads with clients under our weekly ‘Ten Interesting Things’ product. Some of the most interesting topics covered in this week’s iteration are related to ‘Buffet’s $1 test’, ‘flaw of averages’ and ‘space mining – the new frontier’.

1) The flaw of averages [1843magazine.com] 
Todd Rose, a high-school dropout turned Harvard professor, used to question and quiz teachers about why they taught the way they did. On more than one occasion he was sent to detention for using a different method to the one his maths teacher recommended. He was lonely and bored at school, and won few prizes. His grade-point average (GPA) was 0.9, or a D-minus. It was not good enough to graduate, so, when he was in his final year the head teacher told him to leave. He personally went through a lot of things. In 1955, married with two sons and fearful for his family’s future, he enrolled in night classes at Weber State University, a local college that did not ask for his GPA. He discovered statistics and psychology, and learnt what interested him, at his own pace. He graduated with a 3.9 GPA (near enough straight As) and an offer to study psychology at Harvard, where today he is director of the Mind, Brain and Education programme at the Graduate School of Education. His research is in the field known as “the science of the individual”. He argues that the myth of an “average” person, around which today’s educational systems are built, stunts people’s intellectual growth and damages lives.

He uses the example of United States Air Force to explain what he means by the “tyranny of the average”. In 1926, the USAF measured pilots’ heights, leg lengths, arm spans and so on to create a standardised cockpit. By the late 1940s, there had been a spate of plane crashes. Gilbert Daniels, a researcher, took another 140 measurements from 4,000 pilots. He assumed that the vast majority of pilots would be within a narrow range across most dimensions. None were. Some were tall with short legs; others had small hips and a wide neck. The cockpit would have been slightly wrong for all of them. The air force then brought in an adjustable cockpit and crashes became less common. Rose believes schools and universities are just like those 1940s planes. And as they are designed with a mythical “average” user in mind, they are designed for nobody. There are similar issues in other fields as well. The study of child development which uses group averages leads to poor predictions of individuals. Rose concedes that averaging out results allows statisticians to draw distinctions between groups. But if you want to make predictions about an individual it is not really useful to know something about the group to which they belong.

One problem, according to Rose, is that “talent is always jagged”. Standardised tests try to reduce ability to a single number. “Average-arian” thinking gives rise to another problem, says Rose. Edward Thorndike, one of the most influential psychologists of the 20th century, thought that, “the quick learners…are the good retainers.” To this day exams are time-limited; pupils are placed in age-specific grades; timetables feature specific times for each subject. All of which reflect the belief that there is a straightforward relationship between learning ability and learning speed. But it turns out that whether you can master a subject is not related to how long it takes to do so, says Rose. According to Rose, there’s another way of looking at it; one that places the individual at the centre of analysis. Traditionally researchers take one observation at one time from multiple people. By contrast the likes of Rose, Kurt Fischer – Rose’s mentor at Harvard – and Peter Molenaar, at Penn State University, take multiple observations of a single individual. They then look for common patterns in the way that those individuals develop. This way is “analyse, then aggregate”, rather than “aggregate, then analyse”.

Though newly fashionable, these ideas have a long history. In his novel “Emile”, Jean-Jacques Rousseau argued that children should “learn by experience alone”. Also, technology has given these ideas a new momentum. The blend of technology and self-directed projects at each of the eleven Summit Public Schools, the leading exponent model which Rose also advises, is deliberate. Pupils spend about 16 hours per week (roughly half of that at home and half at school) learning on their laptops. They use the Summit Learning Platform, designed pro bono by engineers from Facebook. While textbooks are replaced by playlist, pupils take test and submit essays on platform. The platform allows students to learn at their own pace, argues Andrew Goldin, Summit’s chief of schools. One 17-year-old girl says that, unlike her friends at other schools, “I actually like my school”, since it offers lots of chances to try out new things. Rose acknowledges that this model could go horribly wrong. If it does, a lot of children’s lives will have been damaged; but then it is hardly as though the existing system is releasing the full potential of America’s young people. For Rose, giving children more control over what they learn and how they learn it is central to achieving that.

2) Space mining take a giant leap from sci-fi to reality [Financial Times]
A recent law in Luxembourg provided a legal framework for private companies to exploit resources in space. Mainstream space circles see the idea of an extraction industry on asteroids and/or the moon as a serious long-term proposition rather than fantasy. Resources will be used in space, starting with water which can be split by solar power into oxygen and hydrogen fuel for spaceships. Metals for space manufacturing, such as iron, tungsten and titanium will follow. Bringing precious metals to Earth is a long term dream.

Chad Anderson, head of Space Angels, a US-based company investing in the sector, says the recent flow of private finance into space resources is part of a surge of support for a range of innovative activities sometimes referred to as NewSpace. Many NewSpace companies are setting up in Luxembourg to take advantage of legal and financial incentives offered by its government. Total private investment in commercial space ventures rose from $534m in 2014 to $3.1bn last year, notes Mr. Anderson. “The type of investor is changing too,” he says. “It used to be a bunch of space enthusiasts looking to make an impact on the field. Now we are seeing more mainstream and institutional investors.”

The options for extraterrestrial mining, the moon and asteroids, contain valuable raw materials, ranging from ice to metals. The moon is much closer to Earth, in a nearly circular orbit 240,000 miles away. Radio communication is easy and the lunar surface has been mapped in detail. Asteroids, far further away, have more eccentric orbits and less well understood geology. That said, the moon exerts significant gravitational pull, about one-sixth that on Earth. Smaller asteroids have very little gravity, which would make it easier to remove materials after mining. The moon has such key materials as extractable ice near the poles. A longer term lunar prospect is helium-3, scarce on Earth and potential fuel for nuclear fusion reactors later this century.

Space mining stories have featured the extraction of precious metals from asteroids but the first resource exploited will almost certainly be ice. This can be used to provide the water needed by various space activities. Water’s most valuable application will be for it to be split into oxygen and hydrogen to provide fuel for spacecraft. The fruits of space mining will be used initially in orbit rather than brought to Earth. There is scope for converting metals into components for spacecraft using 3D printing and robotic techniques. Manufacturing in orbit from materials available in space promises to be more economical than making things on Earth and lifting them into orbit. Exploiting precious metals such as platinum and gold — richly concentrated in some asteroids — probably lies several decades in the future.

Uncertainty over the legal basis of space mining — do private companies have the right to extract and make money out of celestial bodies that do not belong to them? — has receded in recent years. The United Nations Outer Space Treaty, now 50 years old, provides the basic framework on international space law. Its declarations include: “The exploration and use of outer space shall be carried out for the benefit and in the interests of all countries and shall be the province of all mankind; outer space, including the moon and other celestial bodies, is not subject to national appropriation by . . . any means.” Luxembourg went further this year with its law “ensuring that private operators can be confident about their rights on resources they extract in space”. The law provides that space resources can be owned by anyone, not just by Luxembourg citizens or companies.

3) People power, not robots, will overcome humanity’s challenges [Financial Times] 
On the topic of robots increasingly taking away our jobs, Nick Hanauer, Amazon’s first non-family investor and tireless advocate for a more equitable economy, said: “Prosperity in human societies is best understood as the accumulation of solutions to human problems. We won’t run out of work until we run out of problems.” According to the author of this piece, Tim O’Reilly, that is one of the three reasons why we will never run out of jobs. The second is explained by what Clayton Christensen, Harvard business professor, called “the law of conservation of attractive profits”. Once one thing becomes commoditized, something else becomes valuable. He talks about how the rise of open source software and the open protocols of the internet have not led to the end of the software industry but to the rise of new business empires based on Big Data and collective intelligence. This same dynamic is at work in our creative economy. When the mechanical spinning and weaving machines of the industrial revolution put hand spinners and weavers out of work, cloth became cheaper. We made it valuable again with fashion, and brought that fashion not just to the rich but to everyone. Millions of people worked designing, marketing, selling and distributing the results.

Similarly, in the next economy, it is clear that caring is one of the things that is going to become valuable. Hal Varian, Google’s chief economist, noted that “if you want to understand the future, just look at what rich people do today”. Rich people once took the European grand tour; now football fans do it. Dining out was once for the wealthy. Now more people eat out than ever before. Everyone has a mobile phone, once a rare privilege. What do the rich do today? They send their children to schools with well-paid teachers and high teacher-student ratios. They have concierge medicine. They have personal trainers and coaches and therapists. They live in a creative, caring economy that, yes, would put millions to work if only everyone could afford to participate in it. The question is not whether there will be work to go around. The fundamental question of our economy today is not how to incentivise productivity, but how to distribute its benefits.

Why are the jobs we are creating so poorly paid and why, as our economy has become more productive, have wages not risen, working hours been reduced and benefits made more generous? We are in the thrall of an economic theory that says that wages and working conditions are entirely subject to inevitable laws of supply and demand, not recognising the rules and incentives we have created that ruthlessly allocate the benefit of increased productivity to the owners of capital and to consumers in the form of lower prices, but dictate that human workers are a cost to be eliminated. Judged by the hollowing out of modern economies, there is something wrong with that theory. Technology is eliminating jobs because that is what we are asking it to do. If we want a better world, it is time to start asking for something else.

4) Thoughts on Cost of Capital and Buffet’s $1 test [Base Hit Investing]
This post by John Huber, a portfolio manager at Saber Capital Management touches upon the ‘$1 test’ that Warren Buffet uses to think about a company’s cost of capital. The cost of capital is a very simple concept, but it’s also one that for becomes very confusing, theoretical, and abstract. The phrase “cost of capital” is often used in conjunction with “return on capital”, and Buffett has some common sense things to say about the relationship between the two. He sums it up best with what he has called the $1 test. An excerpt from his 1984 letter states “Unrestricted earnings should be retained only when there is a reasonable prospect – backed preferably by historical evidence or, when appropriate, by a thoughtful analysis of the future – that for every dollar retained by the corporation, at least one dollar of market value will be created for owners. This will happen only if the capital retained produces incremental earnings equal to, or above, those generally available to investors.”

To exemplify the $1 test, let’s assume an average stock market valuation of 10 P/E (approximate valuation in 1980s), or in other words, a 10% earnings yield. If a company valued by the market at $100 million earns a profit of $10 million and retains all of those earnings, the company will only increase the value by $10 million if it can earn an incremental return on that $10 million that exceeds what shareholders could earn elsewhere. In this example, shareholders have plenty of other alternatives to earn a 10% return on their capital (since the market average in this case has a 10% yield). So if the company can earn a 10% return on that retained $10 million, then its earnings will rise to $11 million the following year, and assuming the same valuation of 10 P/E, the business would now be valued at $110 million, thus passing Buffett’s $1 test. The $10 million of retained earnings created additional market value of $10 million.

The author says it’s important to determine what the returns on incremental capital for a business will be going forward, as that is a key variable in determining the rate at which the company’s intrinsic value will compound at over time. A firm’s value will grow at the product of its returns on incremental capital times the amount of earnings it can reinvest (plus any added benefit to allocating the portion of capital that couldn’t be reinvested back into the business). He presents example of Alphabet (Google) as a company that has created nearly $5 of market value for shareholders for each $1 it retained during 2012-2016. While many quibble over Google’s spending spree on ‘moonshots’ financed through the huge cash flow of its incredibly profitable core search business (Google spent over $1 of every $4 of revenue on R&D and capex last year), it still made around $20 billion of free cash flow! Such is the power of earning high incremental return on capital.

John also mentions how the current high levels of RoIC don’t really matter for a firm if there is nowhere to invest earnings at that rate going forward. Such a firm still might be a good business that throws off a lot of cash flow, but what we really want to know as potential owners is what the future returns on incremental investments will be, as that is what will determine how quickly the earning power of the business (and thus the intrinsic value) will compound. In the simple example above, if the company only earned a 5% return on the retained capital, then that $10 million would only produce $500,000 of earnings growth, or 5%, which is unlikely to be better than alternative options for owners. You could take your piece of that $10 million and invest it elsewhere at a rate higher than 5%. Over time, the market would likely begin to devalue these retained earnings such that each incremental dollar the company reinvested (that only produces 5% in a world where 10% is attainable) would wind up getting valued at less than a dollar in the stock market. Also, P/E ratios don’t remain static. The business that earned just 5% in a world of 10% earnings yields would likely see the valuation decline, thus not only failing to produce adequate RoIC, but the market would also value the earnings at a lower multiple, thus clearly failing Buffett’s $1 test.

To sum it up, Buffett uses a common sense approach to thinking about returns on capital and cost of capital. With the $1 test, he is clearly talking about cost of capital, and he clearly is judging company returns on capital relative to that cost of capital, but he is doing it in a much more common sense way that has more practical use than trying to figure out industry betas, equity risk premiums, WACC, etc.

5) Firms that burn up to $1bn a year are sexy but statistically doomed [The Economist]

Most bosses complain of being slaves to short-term profit targets. Yet a few flout the orthodoxy in flamboyant fashion. Consider Tesla, a maker of electric cars. This year, so far, it has missed its production targets and lost $1.8bn of free cashflow. But it doesn’t matter. If its founder Elon Musk muses aloud about driverless cars and space travel, its shares rise like a rocket—by 66% since the start of January. Tesla is one of a tiny cohort of firms with a licence to lose billions pursuing a dream. Investing today for profits tomorrow is what capitalism is all about. Amazon lost $4bn in 2012-14 while building an empire that now makes money. Nonetheless, it is rare for big companies to sustain heavy losses just to expand fast. If you examine the members of the Russell 1000 index of large American firms, only 25 of them, or 3.3%, lost over $1bn of free cashflow in 2016. In 2007, the share was 1.4% and in 1997, under 1%.

Most billion-dollar losers today are energy firms temporarily in the doldrums as they adjust to a recent plunge in oil prices. Their losses are an accident. But a few firms love life in the fast lane. Netflix, Uber and Tesla are tech companies that say their (largely unproven) business models will transform industries. Two others stand out for the sheer persistence of their losses. Chesapeake Energy, a fracking firm at the heart of America’s shale revolution, has lost at least $1bn of free cashflow a year for an incredible 14 years in a row. Nextera Energy, a utility that runs wind and solar plants, and which investors value highly, has managed 12 years on the trot. Collectively these five firms have burned $100bn in the past decade, yet they boast a total market value of about $300bn. Combining punchy valuations with massive losses means taking the entrepreneurial art form to a dizzying extreme. Steve Jobs, Apple’s co-founder, was said to have a “reality distortion field” that allowed him to bend the perception of others (although Apple itself was fairly timorous, losing just $874m in its worst year, in 1993). The experience of the five suggests that bending reality today has three elements: a vision, fast growth, and financing.

Take ‘vision’ for instance. A charismatic leader with a world-changing plan is de rigueur. For its first 23 years, Chesapeake was led by Aubrey McClendon, a cocky Oklahoman who pioneered the process of blasting rocks to extract gas and oil. Reed Hastings at Netflix plans to destroy the conventional TV industry by selling films and shows over the internet. Like Mr. Musk, Travis Kalanick, Uber’s tarnished former boss, dreams of changing how humans travel. Nextera is led by technocrats but their aim is grandiose—to usher in a new generation of energy technology. The vision needs to be validated by runaway growth. Often firms emphasise a flattering operating measure, such as oil and gas pumped from the ground, the number of rides hailed and so on. Investors need to believe in a high “terminal value”, a point in the future when high, stable profits will arrive. So it helps to show that, hypothetically, profits would gush if breakneck growth were to stop. Uber says it is profitable in cities where it has operated longest, such as San Francisco. Nextera says that if it stopped investing in new capacity, it would make $6bn of free cashflow a year. Netflix amortises the cost of content over periods of up to five years, so it reports an accounting profit even as it bleeds cash.

The third element is financing to pay for huge cumulative losses. Each of the five firms has been a financial innovator, taking advantage of cheap money and growth-hungry investors. Uber has tapped private capital markets, Nextera has structured part of its business as a partnership, Tesla has taken deposits from customers and also trades environmental tax credits. Chesapeake Energy sparked Wall Street’s lust for shale junk bonds, and Netflix has signed commitments to make $14bn of future payments to studios and artists to buy creative content.

While sustaining a reality distortion field is possible, the longer it goes on for, the harder it gets. More capital has to be raised and, in order to justify it, the bigger the firm’s projected ultimate size—its terminal value, has to be. Fast growth puts huge strain on managers. At some point the edifice can come tumbling down. The five companies described here have $60bn of borrowings, and few firms other than Amazon have defied the odds. Of the current members of the Russell 1000 index, since 1997, only 37 have lost $1bn or more for at least two years in a row. Of these, 21 still lose money. To justify their valuations, the five firms examined by Schumpeter (Netflix, Teals, Uber, Chesapeake  and Nextera) must grow their sales by an estimated 8-33% each year for a decade. Based on the record of all American companies since 1950, and the five firms’ present revenue levels, the probability of this happening ranges between 0.1% and 25%. Firms that burn piles of cash are often lionised in an era when growth is sluggish and few companies reinvest all their profits. But losing a billion dollars or more a year is a wildly risky affair and the odds are that such businesses will fall flat.

6)How Netherlands feeds the world [National Geographic]
In Netherlands, Dutch farmer Jacob van den Borne uses an instrument panel worthy of the starship Enterprise, to monitor two drones that provide detailed readings on soil chemistry, water content, nutrients, and growth. In fact they measure the progress of every plant down to the individual potato. And the production numbers testify to the power of this “precision farming,” as it’s known. The global average yield of potatoes per acre is about nine tonne. Van den Borne’s fields reliably produce more than 20. Since 2000, van den Borne and many of his fellow farmers have reduced dependence on water for key crops by ~90%. They’ve almost completely eliminated the use of chemical pesticides on plants in greenhouses, and since 2009 Dutch poultry and livestock producers have cut their use of antibiotics by ~60%. The Netherlands is the globe’s number two exporter of food as measured by value, second only to the United States, which has 270 times its landmass. So how have the Dutch done it?

More than half the nation’s land area is used for agriculture and horticulture. Some of Holland’s extraordinary greenhouse complexes cover 175 acres. These climate-controlled farms enable a country located a scant thousand miles from the Arctic Circle to be a global leader in exports of a fair-weather fruit: the tomato. Besides that the Dutch are also one of the world’s top exporters of other vegetables, including onions. The brain trust behind these astounding numbers is centered at Wageningen University & Research (WUR), the world’s top agricultural research institution. Ernst van den Ende, a renowned scholar and managing director of WUR’s Plant Sciences Group, says, “I’m not simply a college dean. Half of me runs Plant Sciences, but the other half oversees nine separate business units involved in commercial contract research.” The planet must produce “more food in the next four decades than all farmers in history have harvested over the past 8,000 years.” That’s because by 2050, the Earth will be home to as many as 10 billion people, up from today’s 7.5 billion. If massive increases in agricultural yield are not achieved, matched by massive decreases in the use of water and fossil fuels, a billion or more people may face starvation. Hunger could be the 21st century’s most urgent problem, and the visionaries working in Food Valley believe they have found innovative solutions.

The wherewithal to stave off catastrophic famine is within reach, van den Ende insists. His optimism rests on feedback from more than a thousand WUR projects in more than 140 countries and on its formal pacts with governments and universities on six continents to share advances and implement them. Van den Ende feels water isn’t the fundamental problem of African drought, it’s poor soil. Also, LED lighting can be used for 24-hour cultivation in precisely climate-controlled greenhouses. “Look at the island of Bali” he exclaims. For at least a thousand years, its farmers have raised ducks and fish within the same flooded paddies where rice is cultivated. It’s an entirely self-contained food system, irrigated by intricate canal systems along mountain terraces sculpted by human hands. “There’s your model of sustainability,” van den Ende says.

The Netherlands was the last Western country to suffer a serious famine, when 10,000 to 20,000 people died in German-occupied lands during the final year of World War II. Decades later, WUR’s Rudy Rabbinge, professor emeritus of sustainable development and food security, took up the cause when he helped devise extensive changes in the faculty, student body, and curriculum that transformed the institution. Today a hefty share of the academic and research activities at WUR are focused on problems facing poor nations. Some 4,000 miles south of Wageningen, in a family-owned bean field in Africa’s Eastern Rift Valley, a team from SoilCares, a Dutch agricultural technology firm, explains the functions of a small handheld device. In conjunction with a cell phone app, the device analyses the soil’s pH, organic matter, and other properties, then uploads the results to a database in the Netherlands and returns a detailed report on optimal fertiliser use and nutrient needs—all in less than 10 minutes. At a cost of a few dollars, the report provides input that can help reduce crop losses by enormous margins to farmers who have never had access to soil sampling of any kind. Less than 5% of the world’s estimated 570 million farms have access to a soil lab. That’s the kind of number the Dutch see as a challenge.

7) What boredom does to you [nautil.us]
According to the author of this article, Maroush Zamarodi, boredom is good for you. Boredom is the time that we reflect on our past actions and imagine the future, unknowingly. In fact the famous classic, The Hobbit was born out of boredom, when J.R.R. Tolkien was marking school examinations in the summer time. Also, Steve Jobs was a firm believer of boredom and it can be gauged by his own words, “I’m a big believer in boredom. ...All the [technology] stuff is wonderful, but having nothing to do can be wonderful, too.” Sandi Mann, a psychologist and the author of “The Upside of Downtime: Why Boredom Is Good”, says, “Every emotion has a purpose – an evolutionary benefit. I wanted to know why we have this emotion of boredom, which seems like such a negative, pointless emotion.” While researching emotions in the workplace in the 1990s, she discovered the second most commonly suppressed emotion after anger was boredom.

People who are bored think more creatively than those who aren’t. When we’re consciously doing things—even writing down numbers in a phone book, we’re using the “executive attention network,” the parts of the brain that control and inhibit our attention. Even when we space out, our mind is never switch off. “Scientifically, daydreaming is an interesting phenomenon because it speaks to the capacity that people have to create thought in a pure way rather than thought happening when it’s a response to events in the outside world,” said Jonathan Smallwood, a neuroscientist who has studied mind-wandering for 20 years. We’re at a pivotal point in the history of neuroscience, according to Smallwood, because, with the advent of brain imaging and other comprehensive tools for figuring out what’s going on in there, we are beginning to understand functioning that has until now escaped study.

In his seminal book ‘The Inner World of Daydreaming’, psychologist Jerome L. Singer, who has been studying mind-wandering for more than 50 years, identifies three different styles of daydreaming: poor attention control, guilty-dysphoric and positive-constructive. People with poor attention control are anxious, easily distracted, and have difficulty concentrating, even on their daydreams. When our mind-wandering is dysphoric, our thoughts drift to unproductive and negative places. We berate ourselves for having forgotten an important birthday or obsess over failing to come up with a clever retort when we needed one. We’re flooded with emotions like guilt, anxiety, and anger. Not surprisingly, this kind of mind-wandering is more frequent in people who report chronic levels of unhappiness. When dysphoric mind-wandering becomes chronic, it can lead people into destructive behaviors like compulsive gambling, addiction, and eating disorders. The flip side of dysphoric daydreaming, the positive-constructive kind, is when our thoughts veer toward the imaginative. We get excited about the possibilities that our brain can conjure up seemingly out of nowhere, like magic. This mode of mind-wandering reflects our internal drive to explore ideas and feelings, make plans, and problem-solve.

8) An assertive China challenges the West [Financial Times]
As the Xi Jinping era enters its second term, China’s challenge to the west is becoming more overt. There is a growing official confidence in Beijing — verging on arrogance that China is on the rise, while the west is in decline. The Chinese challenge to the west is taking place on three fronts: ideological, economic and geopolitical.

In the realm of ideas, the Communist Party leadership is increasingly strident in repudiating western liberalism. President Xi and his colleagues argue that one-party rule works well for China — and should extend long into the future. There is more discussion of the idea that a “China model” can be pushed in the rest of the world — as an alternative to America’s promotion of democracy. Just as the financial crisis of 2008 damaged the credibility of western economic ideas in China, so the election of Donald Trump and the fracturing of the EU have made it easier for China’s leaders to scorn western political practices. Rather than moving towards democracy, China is increasingly restricting political freedom, with crackdowns on dissidents and human-rights lawyers, tighter controls on the media, and official campaigns against western influence and ideas. The American internet groups — Google, Facebook and Twitter, remain excluded from China, blocked by the “great firewall”. It used to be conventional wisdom in the west that China would pay a heavy economic price for restricting freedom of expression, and that this price would only rise as China attempted to move away from low-cost manufacturing towards a knowledge economy. But China is increasingly confident that it can combine tight political control with continued rapid economic growth and technological innovation.

China’s price is also visible in its new economy and in cutting-edge technologies. According to Chinese, their country is well ahead of the US and Europe in mobile-payment technology. China has made faster progress towards a “cashless society” than most developed economies of the west. It is routine for Chinese consumers to pay for small items, such as food at a street stall, using their mobile phones. Alipay and WeChat Pay, the most common mobile payments systems, have become symbols of Chinese innovation; both the government and the private sector are confident of many more breakthroughs in the coming decade in a range of fields including robotics, drones, green technology and artificial intelligence. The growing sophistication of the Chinese economy will challenge western assumption that US and European companies can continue to dominate the high-tech economy, leaving China to concentrate on the lower end of the value chain. China’s emergence as a major exporter of capital also means that its companies will inevitably increase their presence as owners of physical and intellectual assets in the west.

China’s global investment also has strategic implications that will challenge the west’s dominance of the international political system. Successive US governments have deployed the US Navy to contain Beijing’s ambitions in the oceans to the east of China — but increasingly China is focusing on the lands to its west. The heavily promoted One Belt, One Road initiative is, in part, an attempt to develop new markets for China across Eurasia — with infrastructure links across central and south Asia towards Europe and Africa. Twenty Chinese cities are now connected to Europe by direct rail links and the amount of freight sent this way has quintupled since 2013, as routes such as Chengdu to Prague and Wuhan to Lyon establish themselves. China’s developing interest in Eurasia has significant strategic consequences. The Indian government is concerned that China is encircling it with infrastructure projects that have clear military implications, such as the ports that China has developed in Pakistan and Sri Lanka. The country’s rail and maritime links will also help the country to secure energy supplies from the Middle East. The ultimate ambition of the Belt and Road initiative is to turn the Eurasian landmass into an economic and strategic region that will rival — and finally surpass — the Euro-Atlantic region.

9) Sitting is the smoking of our generation [Livemint]
As we work, we sit more than we do anything else. We’re averaging 9.3 hours a day, compared to 7.7 hours of sleeping. Sitting is so prevalent and so pervasive that we don’t even question how much we’re doing it. And, everyone else is doing it, so it doesn’t even occur to us that it’s not okay. Health studies conclude that people should sit less, and get up and move around. After an hour of sitting, the production of enzymes that burn fat falls by as much as 90%. Extended sitting slows the body’s metabolism, affecting things like (good cholesterol) HDL levels in our bodies. Research shows that this lack of physical activity is directly tied to 6% of the impact for heart diseases, 7% for type 2 diabetes, and 10% for breast cancer, or colon cancer. The death rate associated with obesity in the US is now 35 million. For tobacco this number is just 3.5 million. The New York Times reported on another study published in the journal Circulation that looked at nearly 9,000 Australians and found that for each additional hour of television a person sat and watched per day, the risk of dying rose by 11%. In that article, a doctor is quoted as saying that excessive sitting, which he defines as nine hours a day, is a lethal activity.

As a result, over the last couple of years, we saw the mainstreaming of the standing desk. This is a step forward but even that won’t help you get real exercise. On the back of this, the author, Nilofer Merchant, four years ago, made a simple change when she switched one meeting from a coffee meeting to a walking-meeting. She liked it so much it became a regular addition to her calendar; she now averages four such meetings, and 20 to 30 miles each week.

Nilofer says the fundamental problem with exercise has always been this: it took time away from other more “productive things.” Going to the gym to take care of ourselves (vs. firms, colleagues, family) seemed selfish. In her case, only when she saw she could do both at the same time, by making exercise part of the meeting, did she finally start to get more exercise. Like this she’s not sacrificing health for work, nor work for fitness.

After a few hundred of these meetings, she started noticing some unanticipated side benefits. First, she says she can actually listen better when she’s walking next to someone than when she’s across from them in some coffee shop. There’s something about being side-by-side that puts the problem or ideas before us, and us working on it together. Second, the simple act of moving also means the mobile device mostly stays put away. Undivided attention is perhaps today’s scarcest resource, and hiking meetings allow us to invest that resource very differently. And, finally the end of a hiking meeting is always joyful. The number one thing Nilofer heard people say (especially if they’ve resisted this kind of meeting in the past) is “That was the most creative time I’ve had in a long time”. This could be because of either being outside office premises, or a result of walking. Research certainly says that walking is good for the brain.

10) What Quantum Physics can tell you about your identity [medium.com] 
What it is that we all think we are, and why do we fear change? What is my identity? Or in other words, are we what we are, or are we what we do? The author of this article looks at science for an answer. Sir Isaac Newton provided the world with the laws of motion. The laws of motion included a law which stated that an object at rest or motion will remain in that rest/motion unless acted upon by an outside force. This law inherently stated that if one could know all information about the two objects in contact, and all is knowable, then one could predict exactly what outcome their meeting would create. At the heart of these laws lies a seemingly simple but absolute assumption, that by knowing the quantifiable information we can predict outcomes with certainty, and, furthermore, that all things are both essentially knowable and quantifiable. While this idea was near-revolutionary at the time of its creation, it soon became common sense as an approach to other scientific questions. In fact, the effect of Newton’s ideas soon reached far beyond traditional physical science, and into the realm of psychological science.

This assumption, that we could achieve absolute knowledge of people, led certain thinkers, such as Ivan Pavlov and B.F. Skinner to establish a major stream of psychology, behaviourism, that believed that with sufficient knowledge of past and current facts, a perfect prediction of future human knowledge could be made. A lot of people still believe this today. As beings of a physical world, this thinking suggests, our behaviour could be just as concretely predicted as any other interacting objects in space, simply by knowing the forces at work upon them. This theory is very attractive because it promises both to tell the future and uncover the “nature” of our human lives and selves.

However, the relatively newer field of Quantum mechanics shows classical mechanics as incomplete to describe the realities of the world around us. Quantum physics makes seemingly outlandish assertions, such as that pairs of foundational particles, which contain a charge, are neither defined as positive or negative until they are observed. Even more crazy sounding, simply observing one particle will change the charge of the other particle, no matter where it is in the universe at that time. These claims have been repeatedly supported by observation and experiment, and are now widely accepted in current physics, even laying the foundation for some of our most cutting-edge computer advancements. What quantum mechanics brought us was a view of the universe as dynamic, wild, and undetermined. Much like scientific reality, the Encyclopedia of Psychology raises the problem that, despite all of Newton’s Laws and Mathematics, “there is a clear dilemma in explaining human behaviour through psychological principles. On the one hand, if psychology is a science of behaviour, then there should be laws allowing prediction… On the other hand… individuals believe that humans control their own behaviours and possess free will.”

Sexual orientation is one area where the identity battle between “we are what we are” and “we are what we do” is particularly interesting. Michel Foucault, the pre-eminent French philosopher, and social theorist, published perhaps the most profound exploration of sexuality in modern history. In his own personal life, he openly dated other men, consistently advocated for equality, and eventually died of AIDS in 1984. Yet, he hated when anyone called him, or anyone else, “homosexual” or “gay,” and warned against connecting any labels with identity, including sexuality. He saw all labels as a way that society can control and limit individuals. As socially powerful as such labels may be in some situations, the younger generation, at least with regards to sexual orientation, seems to increasingly agree with Foucault. A recent study in Great Britain found that 43% of adults between the ages of 18 and 24 saw their sexual orientation as fluid, rather than fixed.  

But surely the universe isn’t only quantum mechanics. Classical mechanics wasn’t so much entirely wrong as it was incomplete and over-assumed. It seems just as extreme to say, “There’s no such thing as free will” as it does to say, “we are one hundred percent free will and self-determination.” The ‘we-are-what-we-do’ side claims that Helen Keller was a scholar, a speaker, and a leader. The ‘we-are-what-we-are’ side claims that she was deaf and blind. But can’t she be both, or to some extent neither, if she chooses? Surely, she was deaf and blind, yet despite those challenges, she became a powerful speaker and scholar. Her physical attributes created situations for Helen Keller to act within, and no doubt had some influence in the direction of life. Yet the key point, and what makes her so powerfully inspirational, was that she was not directed by those characteristics, but charted her own course, overcoming challenges presented by her physical “nature” when it wasn’t helpful, and using them when it was.

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