Archives for June 2016
Ayaz Motiwala is the founder of Amala Emerging Asia Fund which is focused on investing in quality businesses primarily in India, Indonesia, Thailand and Hong Kong. He has been investing professionally for 20 years of which the last nine years have been out of Hong Kong.
Prior to the current role, Ayaz worked at Samena Capital, a special situations fund based in Hong Kong. He has worked for four years independently managing the India and South Asia investment portfolio of Highbridge Asia Opportunities Fund in Hong Kong. He has also worked in other funds/ security houses viz. New Vernon Capital LLC, Birla Sunlife Asset Management, Motilal Oswal Securities and Ask Raymond James. Ayaz is an MBA in finance from Institute for Technology and Management, Mumbai and Bachelor of Commerce from Mumbai University.
Safal Niveshak (SN): Could you tell us a little about your background, how you got interested in investing, how have you evolved as an investor and what’s your broad investment philosophy? Has your investment policy changed much through the years as your capital has grown?
[Read more…] about InvestorInsights: Ayaz Motiwala
“Many happy returns of the day Anshul!” One of my old friend wished me on WhatsApp. Dropping a message on WhatsApp is more convenient these days than calling up. It was still better than the standard birthday wishes you get on Facebook, which you know have come as a result of constant pestering from Facebook notifications – “Hey! It’s Anshul’s birthday today. Write something on his wall.”
“Thanks man. I am glad you remember.” I replied. I still didn’t believe that he actually remembered my birthday. May be Facebook sent him a customized birthday wish to be forwarded to me from WhatsApp. After all Facebook now owns WhatsApp.
“You know what? You just wasted another premium of your life insurance!” He joked.
“Well, that’s an interesting way to look at it. But I am glad that it was wasted. After all life is perishable and can end at any moment – insured or uninsured.” I told him with a smiley.
But that got me thinking about insurance (especially term insurance) and life. On one hand, every additional year I live on, the insurance premium seems to go waste. But on the other, as I grow older, since my life insurance premium remains fixed, I get more and more value for each rupee spent on insurance. How?
For anything that’s perishable, including human life, every additional day in its life translates into a shorter additional life expectancy. Isn’t it?
A book about Halo Effect and eight other business delusions that deceive managers. It attempts to answer the question why is it so hard to understand the high performance of an organization or individual.
Rajiv Bajaj, MD of Bajaj auto, said this in one of his talks –
I joined the company [Bajaj Auto] twenty years back. In my college I was trained to think ‘Just in Time’ because it was supposed to be one solution for all the problems. And then somebody said, Just in Time is not enough. They said there must be Kaizen, World class manufacturing, Toyota production system, Kawasaki system, automation and robotics. Then they said you must also know CAD, CAM, simultaneous engineering, re-engineering, six-sigma, TQM, and you must wear six hats, follow seven habits, look for blue oceans, be a bit of a maverick and indulge in management by walking around. Every time I learnt something I found myself back at the starting point. There was always the new book on the shelf, and there was always the new consultant on the seminar circuit. And these guys would do anything to keep themselves in demand and keep all of us confused. So I decided to ignore all of these.
Rajiv Bajaj turned around Bajaj Auto from a loss making company in the year 2000 to the most profitable auto company in world and it’s pretty clear from his talk that he didn’t do it by listening to those management experts and celebrity CEOs who claim to have the next new thing.
[Read more…] about BookWorm: The Halo Effect
A leading Indian brokerage – let’s not take names here – is in the limelight these days for being consistent in revising its Sensex targets at the drop of a hat. In fact, it has been consistent in such revisions for almost the past two years. But the real beauty of all this lies in the fact that experts from this brokerage have no qualms about ditching their existing Sensex target to adopt the new one.
Just a month ago, its Head of Research appeared on CNBC and advised people to “take the market’s exit opportunity with both hands,” as he predicted “the Sensex is likely to touch 22,000 mark by the end of this year (March 2017).” He reiterated this target on 31st May.
Then, just a week later, he did a complete u-turn and raised the Sensex target to 29,500, again by the end of March 2017. On a lighter note, I suspect some superstition in this new target because unlike the earlier rounded-off targets of 36,000 (January 2015), 34,000 (March 2015), 32,000 (May 2015), 28,000 (August 2015), and 22,000 (March 2016), the new target is 29,500 (midway between 29,000 and 30,000). 😉
In theory there is no difference between theory and practice, but in practice there is. That’s because, for human mind, insights do not pass well from one field to another.
Picture the following. You are led into a room with a table. On the table are three items: a box of tacks, a book of matches, and a candle. Your job is to attach the candle to the wall so the wax doesn’t drip onto the table. You can take as much time as you need. How do you proceed?
If you are like over 75 percent of the participants in the now-classic study by a psychologist named Karl Duncker, who created this experiment in 1945, you would likely try one of two routes. You might try to tack the candle onto the wall—but you’ll quickly find that method to be futile. Or you might try to light the candle and use the dripping wax to attach it to the wall. Again, you’d fail. The wax is not strong enough to hold the candle, and your contraption will collapse. What now?
No one sees the solution at once. Some people find it after only a minute or two of thought. Others see it after faltering through several unsuccessful attempts. And many others fail to solve it without some outside help.
Here’s a hint – think outside the box. Isn’t that a cliché? Thinking outside the box is a phrase which is being overused, rather over-abused, by a parade of creativity experts since ages.
[Read more…] about Behaviouronomics: Domain Dependence
I am sure many of you have heard the famous Aesop’s fable about the fox and the grapes. If not, here’s a quick recap of the story.
A fox sees some high-hanging grapes and wishes to eat them. When it is unable to think of a way to reach them, it decides that the grapes are not worth eating. The fox then justifies that the grapes are not ripe or they are sour (hence the common phrase ‘sour grapes’).
Every time I hear this story, I laugh at the delusional fox. However, I rarely imagine that a similar fox is inside me also. The fable is a classic illustration of what psychologists call Cognitive Dissonance.
Behavioural scientists define cognitive dissonance as the feeling of mental discomfort or tension produced by the combined presence of two thoughts, ideas, beliefs, attitudes, or opinions that are psychologically inconsistent. The greater the discomfort, the greater the desire to reduce the dissonance of the two cognitive elements. Dissonance theory suggests that if individuals act in ways that contradict their beliefs, then they typically will change their beliefs to align with their actions.
In case of Aesop’s fox, an inconsistency arose when the fox set out to do something and failed to accomplish it. He could resolve this conflict in one of three ways: (a) by somehow getting at the grapes, (b) by admitting that his skills are insufficient, or (c) by reinterpreting what happened retrospectively. The last option is an example of cognitive dissonance, or, rather, its resolution.
The cognitive dissonance theory was developed in 1957 by Leon Festinger, who observed in a series of experiments that people would change their attitudes to make them more consistent with actions they had just taken. Cognitive dissonance is one of many behavioural biases that evolution has wired into the human brain.
During my evening walk yesterday, I was with a 75-year old gentleman who seemed fitter than I am, walked faster than me, had a wider smile than I can ever manage, and talked much more than I do in a few days.
During the ninety minutes we walked together, we talked about our lives, careers, and investing.
“What do you do for a living, young man?” he asked me.
“I am a blogger and an investor,” I replied.
“What kind of an investor are you?” he asked back.
“Well, a long term investor in the stock market,” I said.
“Long term? Great! Even I have been a long term investor all my life,” he told me. “Long term investing makes a lot of sense.”
“Yeah it does,” I said. “Having a long-term thinking is always good.”
“Well, not always, son!” he replied.
“Why do you say so?” I asked.
Randomness in itself is not risky when it comes to investing in the stock market. But how you manage that randomness is what matters in the final outcome of your investment process.
Imagine you are offered to play a betting game with a regular dice. The deal is that if your chosen number turns up, you win and get back double the amount you bet. Would you play this game?
Using simple probabilities, we can see that the expected value of this wager is negative. How? The probability of each number on the dice (with six faces) is 1/6. So expected value = 2 x (⅙) – 1 x (⅚) i.e., -(1/2).
If someone agrees to play this game, he’s blindly speculating. Isn’t he? He obviously doesn’t understand probability. The outcome of a dice throw is pretty random and you can’t hope to make money from randomness. But hang on. The game is about to get little more interesting and profitable.
If you’re informed (by reliable sources) that the dice is completely loaded (unfair) and number 6 turns up on every throw, would you bet your money now? Of course. The game is no more random for you. But for a person who doesn’t have this specialized information about dice, the game is still plagued by randomness.
Which means randomness could be subjective. It is not absolute – the same event is more random to one person than to another. Notice that the extent of randomness decreases with the knowledge we obtain (the dice is loaded and favours the number 6). Which simply translates to the idea that the better we understand the business we are exposed to, professionally or through a stock purchase, the less random the environment is to us.
The dice example might look very obvious and uninsightful but if you could draw a parallel in investing, the lesson learnt can turn a losing investment strategy to a winning one. Because there is strong correlation between randomness and risk.
[Read more…] about Spotlight: Randomness and Investment Risk
“Do we have flexible working hours here?” That was the first question I asked when I joined my first job in IT industry.
“Yes. As long as you get your 40 hours in at the end of every week.” Informed my new boss.
That was a great deal considering the previous 9-hours-6-day job I had in a manufacturing industry. Forty-hour week was even better than the schedule I had during my school days.
In India the culture of forty-hour week became more popular with growth of IT industry. Have you ever wondered how this idea of forty-hour week came to be?
The credit for our 8-hour-5-day work week goes to an unsuspecting guy called Henry Ford, the founder of Ford Motor Company.
Until 1900 most industries used to have 100-hour work weeks. But in 1914, Ford Motor Company took the radical step of cutting the work-shift duration to eight hours. This was an unconventional move in those times but when this change saw an increase in Ford’s productivity, other companies followed suit and soon the 8-hour-day became the norm.
But the question is, how did the productivity increase with reduction in work hours?