Ten interesting things that 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 January 20, 2017.

1) How Elon Musk learns faster and better than everyone else [Source: Medium.com]

One might think - how is it even possible that Elon Musk could build four multi-billion dollar companies by his mid-40s — in four separate fields (software, energy, transportation and aerospace)? To explain Musk’s success, this article talks about his cross field expertise has helped him develop extremely visionary and successful franchises. According to him, learning across multiple fields provides an information advantage (and therefore an innovation advantage) because most people focus on just one field. As far as Mush is concerned he followed a two-step process for fostering learning transfer. First, he deconstructs knowledge into fundamental principles by viewing knowledge as sort of a semantic tree, making sure he understands the fundamental principles, i.e. the trunk and big branches, before getting into the leaves/details. Next, he reconstructs the fundamental principles in new fields. For instance, he used the principles of aerospace in order to create SpaceX, of automotive in order to create Tesla with self-driving features, of trains in order to envision the Hyperloop and so on.

2) Lucy Kellaway’s jargon awards: Corporate guff scales new heights [Source: Financial Times]
The legendary Lucy Kellaway introduces her ‘awards for horrible use of language in business with a new category - a prize for clarity. She names this coveted prize the Wan Long prize, after the Chinese meat magnate who once uttered the clearest sentence ever spoken by a CEO: “What I do is kill pigs and sell meat.” This year’s winner according to Lucy is a BNSF railway executive who told a conference: “We move stuff from one place to another.” This elegant, informative and borderline beautiful sentence is a reminder that despite the horrific nature of contemporary business language, clarity remains attainable. According to her, corporate guff is a product of failure and mediocrity — it exists because the truth is too painful, or because executives are cannot be bothered to ascertain the truth. From people promoting driverless cars to chief executives of major automotive firms, 2016 was full of corporate guffs.

3) Aid in reverse: How poor countries develop rich countries [Source: The Guardian]
This piece argues against the notion that rich nations of the OECD give generously to the poorer nations of the global south. Highlighting a study published by the Norwegian School of Economics, the article says that the flow of money from rich countries to poor countries pales in comparison to the flow that runs in the other direction. The biggest of outflows from the poor countries has to do with unrecorded – and usually illicit – capital flight. The study calculates that developing countries have lost a total of $13.4trn through unrecorded capital flight since 1980. Further, multinational companies also steal money from developing countries through “same-invoice faking”, shifting profits illegally between their own subsidiaries by mutually faking trade invoice prices on both sides. Combining all kinds of outflows, the article estimates for every $1 of aid that developing countries receive, they lose $24 in net outflows!

4) Steve Jobs’ legacy is the omniscient tech company [Source: Financial Times]
Steve Jobs was a lone voice in the wilderness in preaching the power of uniting hardware and software, while Microsoft made a fortune by dominating software alone. However, even he did not predict the potential of integrating everything from software and mobile hardware to data storage and artificial intelligence. Yet this is his legacy: the omniscient tech company. It was difficult in 2007 to imagine what such an enterprise could be worth. Only Microsoft was among the world’s 10 most valuable companies, not Amazon, Apple, Facebook or Google. The latter ranked 51st in the FT Global 500 in the first quarter of 2007; Apple was 85th, Amazon did not make it to the list and Facebook was still five years away from its initial public offering. These five companies, with Google renamed Alphabet, are all in the top 10 now. Information technology has become the dominant source of corporate value, displacing finance, telecoms and energy.  As per this piece, the new breed of tech company has three competitive advantages. The first is scale: they employ thousands of engineers and operate networks of server farms — and in Amazon’s case retail warehouses — that smaller rivals cannot match. Like other conglomerates, they have deep resources. Second, they exploit network effects. The more users they amass, the more data they can collect and the better the service becomes. It creates a virtuous circle. Third, they are becoming vertically integrated — the strategy that Jobs brought to Apple. They make hardware, from Apple’s iPhone and Google’s Pixel to Amazon’s Echo, and are finding new ways to put sensors in other devices, such as driverless cars. By analysing the data these capture, they can develop products tailored to every user.

5) Why innovators should study the rise and fall of the Venetian Empire [Source: Motherboard]
Most organisations would be happy to last for centuries, as the Venetian Republic did. From 697 to 1797 AD, Venice’s technological acumen, geographic position, and unconventionality were interlocking advantages that allowed the “Most Serene Republic” to flourish. But when change comes suddenly, it can turn strengths into weaknesses and sweep away even thousand-year success stories. In case of Venice, it reached a point where it focused more on exploitation than exploration: Venetian traders followed existing paths to success. The invention of seafaring galleons allowed countries bordering the Atlantic to set up new trade routes that did not flow through the Adriatic. This age of exploration triggered the beginning of Venice’s decline. One huge advance in technology — ships that could survive at sea for months, even years — weakened Venice’s competitive advantage and the strategic fit of its competencies. What this means for entrepreneurs and innovators today is that the stronger the assumption that the future will function as today does, the greater the gravitational force of the status quo. Organisations set in their ways to slow down and never strive for new horizons and are doomed to wither. One major move by a competitor, or one new technology, is sometimes all it takes to end an empire. To be successful, resist “success as usual” syndrome and explore emerging technologies and new business models. Keep the big picture in mind and be wary of being too efficient and too optimised.

6) German billionaire rallies business to migrant cause  [Source: Financial Times]
While in 2015, as one million refugees lined up to get inside Germany, people lined up to welcome them, cheering and showering the arrivals with applause and sweets, 2016 was bookended by two events that displaced the goodwill with fear: 1) mass molestation by (supposedly) Arab or North African migrants; and 2) the Christmas market attack in Berlin, in which 12 people were killed. As Germany grapples with the consequences of Angela Merkel’s open-door refugee policy, the role that the country’s powerful corporate sector will play in assimilating and integrating migrants has become increasingly apparent. Six months ago a survey found that Germany’s leading companies had hired only 54 refugees in full-time jobs. Ralph Dommermuth, a German entrepreneur who has led the country’s largest corporate attempt to bring migrants into the jobs market, says companies can help themselves in the eyes of society if they play a bigger part in integration. He started the initiative called Wir Zusammen, or We Together, in February 2016 with 36 companies, including Deutsche Post, Deutsche Telekom and Deutsche Bank. The group has grown to 150 companies, including more than half of the 30-member DAX, Germany’s leading stock market index, as well as international companies, such as Google, McDonald’s and Procter & Gamble. As of December Wir Zusammen had placed 2,800 migrants into internships, 630 into trainee positions and 557 into full-time jobs.

7) The rise of the superbug! [Source: The Atlantic]
Antibiotic resistance is usually a slow-moving crisis partly because its danger can be hard to convey. One by one, over the years, the drugs used to fight the most stubborn infections have fallen by the wayside as bacteria have evolved resistance to them. For certain infections, the only drug left is colistin. On November 18, 2015, scientists published a report in the British medical journal, The Lancet: A single, easily spreadable gene makes the bacteria that carry it resistant to colistin, our antibiotic of last resort. This gene, called mcr-1, is found in pig farms and on meat in supermarkets. What this means is that if a bacterium with genes that make it resistant to every other drug picks up mcr-1, you get the nightmare scenario: a pan-resistant bacteria. Interestingly, a day after this article was published, there was a report of a Nevada woman who died after an infection resistant to 26 antibiotics, which is to say all available antibiotics in the U.S. The woman, who was in her 70s, had been previously hospitalised in India after fracturing her leg. Eventually this led to an infection in her hip. There was nothing to treat her infection—not colistin, no other last-line antibiotics.

8) Get rich or die vlogging: The sad economics of internet fame [Source: Fusion.net]
This article looks at the real vs. reel life of online media ‘celebrities’ that achieve fame through millions of followers on websites like YouTube. It talks about how the disconnect between internet fame and financial security is hard to comprehend for both creators and fans. But it’s the crux of many mid-level web personalities’ lives. These social media stars are too visible to have “real” jobs, but too broke not to. The problem lies in the fact that like many other areas of the economy, YouTube has a basic supply and demand problem. Everybody wants to be there, so fledgling performers put up with a lot because they want to be famous. Economist Jodi N. Beggs, from Northeastern University likened trying to get famous through social media to shelling out money for college—in each case, one suffers through hard work and zero-to-negative income in the hopes of a later payout. The difference is that YouTube is more accessible “because there’s no admissions committee.” The technical term for this is the Dunning Kruger effect, where unskilled individuals believe themselves to be more adept than they are.  The result is that the market is oversaturated, and firm’s Youtube get rich by becoming the gatekeepers to fame.

9) How Aryabhata got the earth’s circumference right [Source: Livemint]
In the annals of underestimates, the one made by Christopher Columbus perhaps ranks at the top. He underestimated the distance between Canary Islands and Japan by a factor of 80%, a distance that no ship of the time could have traversed. Luckily for him, he found another continent in his route to Asia. If Columbus arrived at such an error using European estimates, the fascinating question is how did Aryabhata compute the earth’s circumference so accurately (less than 1% error) nearly a thousand years ago? This article tries to explain this by looking at the methods known to astronomers at that point of time. Modern estimates suggest that Aryabhata’s computation was 39,968km, just off the currently accepted value of 40,074km by an incredible 0.27%. K. Ramasubramanian, a professor at IIT Bombay and an authority on the subject explains that what helped Indian astronomers was their familiarity with the concept of longitude. Aryabhata perhaps identified two different locations on the same latitude by monitoring shadow lengths at noon (using a gnomon) and then proceeded to calculate the difference in time (by observing the moon’s position or using a water clock) and terrestrial distance between these two locations. The, given each degree of longitude corresponds to four minutes, the terrestrial distance of 1° longitude multiplied by 360 would yield the earth’s circumference at that latitude. For India, this would not have given the true circumference (around equator). Fortunately, Aryabhata was quite conversant in trigonometry, which he could have used to calculate the equatorial circumference of the earth.

10) Tissues, organs and the long, dark history of anatomy [Source: Financial Times]
Herophilus, born in 335BC near modern-day Istanbul, was regarded as one of the finest physicians of Alexandria. While his ways were dark (he murdered to get hands on body samples for study), he is credited with being one of the earliest anatomists. However, despite millennia of investigation, the human body still yields the occasional anatomical surprise. Scientists recently identified a new organ in the digestive system – the mesentery. The mesentery has been described before but it has been thought of as several individual mesenteries, or fragments of tissue in the digestive system. Now, thanks to more detailed investigations, scientists believe the fragments are in fact different stretches of a single, continuous ribbon that connects the intestine to the abdomen and binds everything in place.

(Views expressed are personal.)