Bullshit Acceptability

“It is impossible for someone to lie unless he thinks he knows the truth. Producing bullshit requires no such conviction.” – Harry Frankfurt

The Oxford English Dictionary defines bullshit as, simply, “rubbish” and “nonsense”, which unfortunately does not get to the core of bullshit. Consider the following statement:

“Hidden meaning transforms unparalleled abstract beauty.”

It sounds very meaningful but hardly conveys anything to the reader.

In philosophy many times you come across statements like this:

“Attention and intention are the mechanics of manifestation.”

This is an actual tweet from Deepak Chopra.

Is there any meaning that you can ascribe to this statement at all?

In On Bullshit, the philosopher Frankfurt (2005) defines bullshit as something that is designed to impress and seems to convey a deep profound philosophy. However in reality it is nothing but a meaningless collection of buzzwords put together to impress the hell out of people.

Every day when you deal with people you come across bullshit in the garb of fancy sounding words or statements that actually have no meaning.

When Smart people don’t have answers, instead of saying I don’t know, they give you a profound sounding statement that has no meaning but sounds goods

Bullshit in Investing

Look at these statements, for example:

This time it’s different…

John Templeton famously said, the 4 most dangerous words in investing are-“This time it’s’ different”

This statement starts coming into play more at stock market peaks or bottoms especially tops when it is used to justify higher prices.

When the market is at its peak you will get compelling reasons why stock prices should go higher, why the bull market should last considerably longer than any other in history, why this boom will not be followed by a crash and hence why “this time it’s different.”

There is always some truth here and that’s why the arguments sound compelling. As even Mr. Templeton said, 20% of the times these statements are indeed true.

However the danger lies in thinking that this “Different” will be uninterrupted.

Look at what’s happening with Tech stocks-it seems that there will be no end to tech adoption and companies can continue to grow at very high levels for ever;

However we forget that its “Gravity” that holds us together and “gravity” does come into play if not today than tom.

There are no Buyers, there are only Sellers

If there is no buyer there will be no sale and hence no seller;

However what it really means is that there is no buyer at a stated price; As the asking price goes down, buyers emerge;

Look at everyone’s whipping boy-DLF, it has perpetually been an volatile stock, however even on its worst fall day it has found buyers.

Since it was listed, its average volume on days that it fell has been around 78 million a day. On days that it rose, the figure was 83 million.

Time in the Market and Not Timing the Market

Ask those who invested at the peak of the stock market; Investors who invested in January-2008 had to wait 5 years to cross the peak of Jan-2008 even though they came in striking distance of crossing it within 3 years too.

The statement used to dissuade investors from staying out of the markets so the managers can continue to make money;

However in reality it has not played out very well for the investors and hence for investors keeping some cognizance of the market levels is important to ensure disappointment

Cash on the sidelines

On a net basis, there is no side-line.

People who use this statement seem to suggest that there is some stockholder who sold his stake and is now awaiting re-investment.

However for the market, an equal amount of money get invested back by the buyer so there is no incremental cash.

When the seller comes back as a buyer, he/she would need a seller to re-enter.

Incremental liquidity or re-allocation could come in and push upward pressure on prices, however somebody will have to sell for somebody to buy, unless corporates create new equity.

All of these statements sound “Smart”.

However these are used by market commentators as they need to say something to the Media and when there is no other explanation.

These explanations sounds extremely plausible.

Be Aware and “Stick to your Course” and keep your “Bullshit Filter” on.

For guidance contact manish.verma@manishverma.co.in or on +919920741569.

Follow my Twitter handle @manver1974 for more such shares.

When Price Rules

Heard a comment on a business news channel yesterday

“Nobody cares about valuations these days so no point talking about”.

In 1999 at the peak of the Dotcom frenzy, there were 457 IPO’s of which 117 doubled on the listing day.

Technical and momentum ruled the roost at the cost of fundamentals of the stock.

FOMO send Nasdaq to a record high of 5132.52 by March, 2000.

However just after the peak, markets started to get sold off and by Oct, 2002, Nasdaq had lost 78% from the peak amidst the realisation that billions of dollar market cap without any earnings is not justifiable.

It took Nasdaq 15 years to get back to its highs of 2000.

The frenzy was such that if you just added Dotcom to your name, share prices would jump up-Computer literacy inc changed its name to fatbrain.com and stock went up 33% the next day.

When Appnet System decided to IPO under stock symbol APPN, stock of an inactive company Appian tech started getting demand.

Retail investors dominated the market and business news papers were even recommending leaving job and starting day trading.

News Channel used to present stock news like reading a mystery novel.

Today after over 20 years, retail investors are again ruling the roost;

70% of all trading in June-21 was by retail investors in India. Last time such retails participation was seen in June-2006.

While in the US 40% of all retail investors made their 1st investment during 1996-2000, In India over 1 crore (10 Mn) investors bought their first stock in 2020.

Of-course now a lot more people are aware of looking at management quality, growth or at-least think that they are looking at it.

However how many people are just buying the name, price and the headline and many are there so they don’t miss out.

As they say-“History doesn’t repeat but it does Rhyme

Every tech company looks like a winner;

Every chemical & pharma company is a winner;

Undervalued stocks are being chased.

The true objective of investing is to grow your wealth to meet your Goals.

However in times like these after a good ride, the objective becomes “to be in the GAME”.

As one Investor told me-

“I need some excitement”

and another one said

“This investment is not exciting enough”

It is now like being on a “Roulette”.

As it is said

If you don’t know who you are, this is the wrong place to find”

I have a simple message for those who are adopting this style

Calculate your XIRR for the last 3 or 5 years on your stock portfolio and just find out if you have done dramatically better than a Fund or even a portfolio of names that are commonly known instead of the names that are a “Fad Today” and then decide if this Game is for you and if the stress is worth it.

Crypto 101-Part V-Hash Function Explained

In the first 4 parts of the Crypto 101 series, we have discussed the basics, mining and mining processes, which is available here to revisit- Part I, Part II, Part III, Part IV

Today I am doing a post on the “Hash” function that’s crucial to mine a crypto and essential to the blockchain security infrastructure.

The “Explain It Like I’m Five” Version

Consider the following example:

I tell three friends that I’m thinking of a number between one and 100, and I write that number on a piece of paper and seal it in an envelope. My friends don’t have to guess the exact number; they just have to be the first person to guess any number that is less than or equal to the number I am thinking of. And there is no limit to how many guesses they get.

Let’s say I’m thinking of the number 19. If Friend A guesses 21, they lose because of 21>19. If Friend B guesses 16 and Friend C guesses 12, then they’ve both theoretically arrived at viable answers, because of 16 < 19 and 12 < 19. There is no “extra credit” for Friend B, even though B’s answer was closer to the target answer of 19.

Now imagine that I pose the “guess what number I’m thinking of” question, but I’m not asking just three friends, and I’m not thinking of a number between 1 and 100. Rather, I’m asking millions of would-be miners and I’m thinking of a 64-digit hexadecimal number. Now you see that it’s going to be extremely hard to guess the right answer.

Here is an example of how the Hash is used

If we take the sentence “Donkeys live a long time” and wish to encrypt it

We apply hash algorithm to it, we will get 6e04f289.

This value is known as a hash.

 What Is a “64-Digit Hexadecimal Number”?

Crypto miners need to solve for a 64 digits hexadecimal number provided to them to reach the solution

Here is an example of such a number: 

0000000000000000057fcc708cf0130d95e27c5819203e9f967ac56e4df598ee

The number above has 64 digits.

As you probably noticed, that number consists not just of numbers, but also letters of the alphabet. Why is that?

To understand what these letters are doing in the middle of numbers, let’s unpack the word “hexadecimal.”

As you know, we use the “decimal” system, which means it is base 10. This, in turn, means that every digit of a multi-digit number has 10 possibilities, zero through nine.

“Hexadecimal,” on the other hand, means base 16, as “hex” is derived from the Greek word for six and “deca” is derived from the Greek word for 10. 

In a hexadecimal system, each digit has 16 possibilities. But our numeric system only offers 10 ways of representing numbers (zero through nine). That’s why you have to stick letters in, specifically letters a, b, c, d, e, and f. 

Use in the Mining Process

If you are mining crypto, you do not need to calculate the total value of that 64-digit number (the hash).

In crypto mining terms, that metaphorical undisclosed number in the envelope is called the target hash.

What miners are doing with those huge computers and dozens of cooling fans is guessing at the target hash.

Miners make these guesses by randomly generating as many “nonces” (number only used once) as possible, as fast as possible and the nonce is the key to generating these 64-bit hexadecimal numbers.

In Bitcoin mining, a nonce is 32 bits in size—much smaller than the hash, which is 256 bits. The first miner whose nonce generates a hash that is less than or equal to the target hash is awarded credit for completing that block and is awarded the spoils of 6.25 BTC.

The difficulty level of the most recent block at the time of writing is about 17.59 trillion, meaning that the chance of any given nonce producing a hash below the target is one in 17.59 trillion. Not great odds if you’re working on your own, even with a tremendously powerful mining rig.

As this is a slightly complex subject, I will stop here and let you digest.

More to follow

For further guidance please contact on manish.verma@manishverma.co.in or +919920741569

Follow my twitter handle irreverentinvestor @manver1974 for more such shares

Folding your Cards

On the surface, poker seems like it is a game about cards, and on the surface it is.

However, you don’t need to get much below surface-level to see that poker is primarily a game about the behaviour of the other players. The player on your right just put in a big bet: Does he have a big hand? Is he bluffing? What does he think you have, and how does he think you will respond? Given what he might have and what he thinks you might have, if you put in a huge re-reraise, how will he respond?

The key characteristic of a poker game is limited information.

Neither player knows the other players face-down cards, but each can guess based on the other player’s behaviour.

So, while neither player knows exactly where they stand, they have cues from the patterns of betting within this hand, from the patterns of betting in past hands, and from any “tells” they can pick up by observing their opponent carefully.

As in poker so in investing you have limited information from which you draw probabilistic cues on how to proceed further.

A company’s business, demand for its products, past performance of the management, future for the business is information available for most of the good companies.

However, future is uncertain, at the start of 2020 calendar year nobody knew the world will be turned upside-down.

No-one is aware of the kind of issues that can come in short-term to disrupt your journey.

So, you are working with a lot of hindsight bias in an uncertain environment.

This is what makes investing interesting.

Exit Decision

In discussion with most of the investors, one question often comes up-how do I decide when to sell a stock?

Micro Reasons

These are stock specific reasons which could prompt a sell decision.

Let’s learn from the best:

Warren Buffett mentioned two main reasons he’ll sell a stock.

  • The first is when he feels Berkshire needs the money for a more attractive opportunity. “We would sell if we needed money for something else — I would reluctantly sell something terribly cheap to buy something even cheaper,” said Buffett. 
  • The second, and more common, reason Buffett sells stocks is because of changing fundamentals, or a changing competitive landscape.

For example “We think McDonald’s has a fine future, we think Disney has a fine future, and there are others. But we don’t think their competitive advantage is as strong as we thought it was when we initially made the decision”.

Here are some instances of when Buffet some of his holdings

IBM- Original thesis no longer applicable; Buffett says he misjudged IBM’s competitive challenges, and as a result, it has revalued the stock lower.

Wells Fargo-To remain under regulatory limit of 10%

Freddie Mac– The company was taking on far too much risk to keep its earnings growing at a double-digit rate.

Exxon Mobil– However, Buffett realized that oil prices weren’t likely to stay as high as he originally thought, so Berkshire’s entire stake was abruptly sold.

Goldman Sachs– To  raise capital for the pending Precision Castparts acquisition.

Bad reasons to sell

To be thorough, there are some bad reasons to sell a stock that investors should avoid. These include, but aren’t necessarily limited to:

Because the stock’s price plunged 

Because the stock’s price increased sharply

Because a billionaire sold

Rebalancing Conundrum

When the market does well, your stated asset-allocation changes in favour of the asset that’s out-performing.

There are always 2 options available to an investor:

  • Sell high-performing investments and buy lower-performing ones.
  • Allocate new money strategically. For example, if one stock has become overweighted in your portfolio, invest your new deposits into other stocks you like until your portfolio is balanced again.

I  prefer the second option because rebalancing in the “traditional” way — without investing any additional money — requires you to sell your highest-performing assets.

I am generally fan of the second option since rebalancing by contributing new funds enables you to leave your winners alone to (hopefully) continue to outperform.

The crucial steps to consider are

  • Re-balancing or the decision to sell a performing holding is not a blind robotic exercise; it requires careful consideration of why?
  • Review the portfolio for winners and losers from the perspective of reasons you first bought them rather the price at which they are trading or profit/loss that you have made
  • If there is a change in fundamental of the business or your thesis is not working or you have a better deployment opportunity, consider selling out and re-deploying;

Remember more than “Knowing” what’s important is to “Know why

For guidance contact on manish.verma@manishverma.co.in or +919920741569

Follow my twitter handle irreverentinvestor.com @manver1974 for more such shares

Crypto 101-Part IV-Mining a Crypto

For those new to this post refer to Part I, Part II and Part III

Last week we had learnt about the 2 key methods of crypto mining “Proof of Work” and Proof of Stake”.

This week in a shorter post I want to dive a bit deeper into basic mining process and functions.

Will be doing a Part II of this next week for more details

What’s Crypto Mining?

Crypto mining is the process through which new crypto are entered into circulation.

Who’s Mining?

Bitcoin miners are the ones who are engaged in mining fresh bitcoins.

Miners get rewarded with the crypto being mined; for example bitcoin miners get rewarded with bitcoins for completing blocks of verified transactions that get added to the blockchains.

Mining rewards are paid to the miners who discovers a solution to the complex hashing puzzle first. However the probability that a miner will solve the problem first depends upon the total mining power on the network.

A miner needs a GPU (graphic processing unit) or ASCI (application specific integrated circuit) to set-up a mining circuit.

Miners are getting paid for their work as auditors. They are doing the work of verifying the legitimacy of Bitcoin transactions. 

To earn the crypto, you need to meet two conditions. One is a matter of effort; one is a matter of luck.

1) You have to verify transactions. This is the easy part.

2) You have to be the first miner to arrive at the right answer, or closest answer, to a numeric problem.

This process is what we described as the proof of work in the Part III of this series.

“What do you mean, ‘the right answer to a numeric problem’?”

Miners are not solving any complex mathematical problems- What they’re actually doing is trying to be the first miner to come up with a 64-digit hexadecimal number (a “hash”) that is less than or equal to the target hash. It’s basically guesswork.

Mining is essentially guesswork, but with the total number of possible guesses for each of these problems being on the order of trillions, it’s involves a lot of hard work.

Successful mining requires a high “hash rate,” which is measured in terms of megahashes per second (MH/s), gigahashes per second (GH/s), and terahashes per second (TH/s).

What’s crucial here is that there is no other process for creating a crypto coin. Mining is basically printing new currency.

Hash Function

  • A hash is a mathematical function converting an input of arbitrary length into an encrypted output of a fixed length.
  • Hashes are of a fixed length since it makes it nearly impossible to guess the length of the hash if someone was trying to crack the blockchain.
  • The same data will always produce the same hashed value.

A crypto “hash” has 3 properties:

  • They are “collision-free.” In simpler words every answer has only one question;

No 2 questions can produce the same answer, something that can happen in other fields

  • They can be hidden.

In simpler words you cannot guess the answer looking at the question. 

  • They should be puzzle-friendly.

It should be difficult to select an input that provides a pre-defined output. Thus, the input should be selected from a distribution that’s as wide as possible.

Here is an example to understand this better:

Let’s go with the sentence, “don’t be a jerk,” 

Becomes ciphertext- Grqwehdmhun

I will leave it here for today and elaborate further on mining technicalities in the post of next week.

For queries contact manish.verma@manishverma.co.in or +919920741569

Follow my handle irreverentinvestor @manver1974 for more investing shares

The Crowd Within

In 2008, Vul and Pashler (2008) conducted an experiment where they asked participants eight general knowledge questions, all of which required an estimate of a percentage (e.g., What percentage of the world’s airports are in the United States?).

Participants were then unexpectedly asked all eight questions again, either immediately or three weeks later. The average of both guesses was more accurate than either the first or second guess alone, especially for the participants who waited three weeks between guesses.

That is strange. Until now, psychologists have assumed that when people make a guess, they make the most accurate guess that they can. Ask them to make a second and it should, by definition, be less accurate. If that were true, averaging the first and second guesses should decrease the accuracy. Yet Edward Vul at the Massachusetts Institute of Technology and Harold Pashler at the University of California, San Diego, have revealed in a study just published in Psychological Science that the average of first and second guesses is indeed better than either guess on its own.

What’s happening here?

Individuals use their subjective reality base on their perception of the information available to make a decision and that can impact their response.

The subjective reality is an outcome of the environment and experiences that an individual has gone through along with a mix of their fears and motivations.

The bias that creeps in is use much like a child with use a short-cut to solve a math problem.

The first level thinking about a decision is impacted by this background and intuitively a decision is taken.

The rest of the process is really about finding a reason to justify the decision and make it look rationale.

For example I have a compensation issue in hiring but I can’t be seen to say that due to fear of being seen as cheap so as soon as I get a candidate who is high cost, my decision is made to reject, however then I look for a good enough reason to make it look rationale and I say-“oh, you are not conversant in my mother-tongue so sorry it will not work-out”

Investment Decisions

When individuals make investment decisions they are always looking an anchor to justify that decision to themselves.

Merit often is created for rejecting/accepting a decision to make it look rationale.

An investor once told me I will invest in “Equity” of this company but not in “Debt”.

This is convoluted as “debt default” is sure to wipe off the equity of the company too.

However it seems like a very smart thing to say and makes the decision seem rationale even when it is not.

The subjective reality/risk-perception/risk-profile-whichever name is used helps individuals make quick decision which might not always be leading to a good process.

Whether it will lead to a good decision or not only time tells-however removing subjectivity has to be a constant endeavour for a good decision-making process to fall in place.

This is what requires an advisor who can act like a doctor and give you an objective pros & cons of a decision rather than playing up your own subjective reality.

For guidance contact on manish.verma@manishverma.co.in or +919920741569

Follow my twitter handle irreverentinvestor @manver1974 for more such shares.

Crypto 101-Part III-Mining a Crypto

For those new to this post refer to Part I and Part II

A short summary from part I

A blockchain is like a passbook to keep track of the information.

Now imagine this passbook holds details of millions of people and the information is held on thousands of computers.

Each computer will need to verify the transaction and once it is verified, it is like recording it on the physical passbook in permanent ink.

Crypto Mining

Mining is the process through which the blockchain is created.

Today we will focus on understanding the basics of 2 distinct methods being used-one which is the current standard and the other which is the challenger.

Proof of Work

This is a consensus mechanism that allows network nodes (various computers on the network) to agree on the transaction and authorize the same.

Each time the transaction is so authorized a blockchain is created with a reward for the miner in terms of crypto (bitcoin, Ethereum) etc.,

There are 2 types of transactions happening here-

  • One creating a new crypto and,
  • The other is verifying transfer transactions.

Both have rewards for miners who confirm the transactions.

Proof-of-work is the underlying algorithm that sets the difficulty and rules for the work miners do. Mining is the “work” itself.

It’s the act of adding valid blocks to the chain. This is important because the chain’s length helps the network spot the valid chain.

Transactions are processed into blocks. Each block has a:

block difficulty – for example: 3,324,092,183,262,715

mixHash-Forexample: 0x44bca881b07a6a09f83b130798072441705d9a665c5ac8bdf2f39a3cdf3bee29

nonce(number only used once) – for example: 0xd3ee432b4fb3d26b

This block data is directly related to PoW.

The proof-of-work protocol requires miners to go through an intense race of trial and error to find the nonce for a block. Only blocks with a valid nonce can be added to the chain.

When racing to create a block, a miner will repeatedly put a dataset, that you can only get from downloading and running the full chain (as a miner does), through a mathematical function.

This is to generate a mixHash that is below a target nonce, as dictated by the block difficulty. The best way to do this is through trial and error.

The objective of PoW is to extend the chain. The longest chain is most believable as the valid one because it’s had the most computational work done on it.

Within PoW system it’s nearly impossible to create new blocks that erase transactions or create fake ones or maintain a second chain. That’s because a malicious miner would need to always be solving the block nonce faster than everyone else.

PoW is also responsible for issuing new currency into the system and incentivising miners to do the work.

Miners who successfully create a block are rewarded in freshly minted crypto and all the transaction fees within the block. 

Challenges of Proof of Work

Security and integrity of the blockchain is the biggest advantage of a decentralized system.

However, there are 3 challenges

Accessibility– The barriers to entry to becoming a PoW miner are high. It requires a substantial amount of investment in hardware to run a rig and also access to low cost electricity. Hence being in a location with lower cost and also set-up a corporate entity to avail lower cost electricity increases entry barrier.

Centralization-high cost has led to mining getting concentrated in the hands of mining pools.

Scalability-As each block is mined consecutively and it is constrained by its size, sometimes miners have to wait for hours in the que.

One of the reasons such high amount of energy is being used in mining is the competition to be the first one to solve the puzzle.

This means the one with better computational power wins the race and that results into abnormal amount of energy usage

Ethereum is trying to change the mining protocol from “proof of Work” to “Proof of Stake”

Proof of Stake

Instead of miners a “proof of stake” will have validators.

The validators will have to stake their own cyrpto to be authorized as validators.

As a transaction is created validators will be chosen on random to mine them leading to reduction in competition and hence the resultant use of energy.

Once the transaction is created, more validators will be called upon the attest the transaction ultimately leading to its addition to the blockchain.

Proof of Stake will also try to enable scalability by breaking the blockchain into 64 smaller components called “shards” that will break the network into smaller partitions, with each partition having its own data separate from other shards.

This will distribute the blockchain into multiple partitions being processed separately thereby improving the efficacy of the overall network.

There are other elements to mining which I shall cover in the next part so that you can digest this post meanwhile. Will also try to break down the proof-of-work protocol further to make it easier to understand.

For guidance contact on manish.verma@manishverma.co.in or 9920741569

Follow my twitter handle irreverentinvestor@manver1974 for more such shares

Narratives

”Jargon seems to be (the only place) where the right brain and the le^ brain meet”

Aswath Damodaran

Doctors/psychologists have defined how 2 sides of our brain-left & right. works differently from each other.

Left/Right Combo

The left side is characterized as Linear, logical things and reality based, while,

The Right side is characterized as big picture, intuitive, processing information on touch & feel rather than looking at letters, words or numbers.

Right side is supposed to be more creative than the left while the left is considered more analytical.

Not to say that more people are left brain or right.

In fact, brain imaging has found that most people are brain ambidextrous i.e., they use both side of their brain well.

it is easier for most people to understand a story rather than look at complex numbers and try to make sense out of them, left & right working together can be a very powerful tool.

Decision Making is complex

Narrative people think that stories matter more than the numbers while for numbers folks logic is the only way to move forward.

However, decision making is often a complex process that needs to marry not just numbers that make logical sense but also the human biases, aspirations, fear and needs.

There are 3 commong ways to convince people to take a decision:

  • Logic
  • Fear & Intimidation.
  • Influence

Overtime psychologists, marketers and ad men have found that influencing is perhaps the only way a person will not only make a decision gladly but will be even happy to justify it for long.

This is where narrative becomes bigger than the numbers.

Marketer’s Dream

Overtime as people understood the phenomenon, the process to marry the right and left started in sales and marketing.

While left side creates the numbers, the right side creates the narrative.

An honest marketer will make sure that numbers are in place instead of making a good pitch for a bad decision (for the customer), however when the number game overpowers and the need to own the latest “HOT ITEM” is high, narrative starts playing a bigger role.

It’s astonishing what a number on a deck can do when people are ready to justify their decisions.

2008-Narrative Weds Numbers

You Are Invited

If you need a marriage of different factors to create a disaster, 2008 is your prime example to go to.

In 2000, S&P 500 peaked at around 2300 or there abouts.

After all the ups and downs it was still at around 2000 in Oct 2007.

Equity investors having lost their shirt in the dotcom bubble didn’t have the guts to get back, however they were still crying for yield.

On the other hand, till 2004 interests’ rates were low leading to growth in housing market that was led by sub-prime mortgage which essentially means loans being given to people with low credit score and who would otherwise not get such a loan.

These loans were not only given at a higher rate and the terms of loan were in favour of the lender and lot of transactions were fraudulent. Everyone was trying to maximise returns.

Therefore, as it often happens and cause equity markets were not working, Wall Street created the mortgage-backed securities (MBS) that further aggravated the risk by combining these risky loans into AAA rated securities that were sold to investors as high yield products deemed safe.

Even sophisticated investors like banks had a lot of such risky assets on their balance sheet without enough capital cover.

Between 1998 to 2006, the value for such securities increased from 148 Bn USD to 1.2 Tn USD and their total shares of securitization market went from 18% to 56%.

When Fed went on its aggressive rate increase mission between 2004 to 2006 increasing rates by over 4% and home prices dropped these securities became worthless

The narrative was great here:

  • Low interest rates;
  • House as security
  • Product was hundreds of individuals loans leading to low risk
  • High Yield

Everything that will win over an investor-Narrative weds Numbers;

Unfortunately the marriage ended in suicide

Narratives winning over Numbers

If the treasury departments or Advisor of the client would have looked at the numbers and the worth of the underlying loans, they would have realised the risk.

However when the need is for higher yield and the entire market is going in one direction, the Narrative is stronger than the Numbers.

No-one wants a marriage of the 2, they are seeking to justify the decision.

Lessons

A blog cannot take away the flaws in human decision making.

Logically investor should be looking to protect their interest and hence look at not just narrative but also the number.

However biases and noise in decision making restricts investors from doing so and a good marketer will always marry the 2 as if they are “Made for Each Other”.

As I say often, have a “Fun Money” allocation with which you can play some narratives even if numbers are not strong so you don’t get “FOMO” or you want to justify the narratives.

For the rest of your money, marry “narratives with numbers” genuinely.

It’s not easy and you need a strong guiding hand-

Reach out on manish.verma@manishverma.co.in or 9920741569 for guidance

Follow my twitter handle irreverentinvestor @manver1974 for more such shares

Crypto 101-Part II

In part I of the Crypto 101 we had discussed the basics of the blockchain tech and the various use cases of crypto.

Bitcoin being the largest and most know crypto or blockchain product there is a fallacy that blockchain use is restricted to currency and store of value.

However, that is not the case.

In Part II we will talk about the largest blockchain products by use and their various uses.

Cryptocurrency

Most popular of the crypto is bitcoin.

It was created as a medium of exchange and store of value.

Followers of bitcoin consider it to be “digital gold” without the deficiencies of gold i.e., gold needs physical storage and distribution, has compliance challenges and is not easily convertible into cash.

While bitcoin can be converted into cash in seconds and also bitcoin has now been authorized as a medium of exchange by leading payment platforms from Mastercard, Visa, PayPal and Square.

Of-course its price is volatile and subject to sudden 40-50% swings leading some to look at it as a very risky proposition.

Gold doesn’t have such wild swings.

Litecoin use case is the same as bitcoin.

The jury is still not out on this so watch the space.

Smart Contracts

Ethereum gets compared to MS-Excel by the early adapters.

It is used for smart contracts making them secure to hacking.

Giants like JP Morgan, BNY Mellon, Microsoft, Accenture, banco Santander and others are already using this tech.

Ethereum is being used for contracts, issuance of new coins (Called ICO-Initial Coin Offerings), Betting, Escrow and even Digital identity Management.

Clearly if security and privacy are key concerns, Ehtereum has found its place under the sun.

However as of now the cost is high because of the complex blockchain instructions required to create the contract.

A simple contract without complicated logic can cost USD 7000 on the other hand a highly complex one can cost as high as USD 45000.

This means that users go to Smart Contracts only when the business stakes are high, and cost is not a factor.

Having said that already over 1.5 million smart contracts have been entered into using Ethereum tech.

NEO is China’s answer to Ehtereum.

Launched as Antshares, NEO also enables smart contracts.

The difference is that NEO network is built on 2 tokens- NEO and neoGAS.

While NEO is the car, neoGAS is the petrol.

NEO tokens have a limit of 100 mn tokens and these are used for block creation, network management etc., while neoGAS is used for creating security.

One of the differences is that while Ethereum has its own programming language called Solidity, NEO can be programmed using C+ and Java making it easier for programmers.

Also cost of a smart contract using NEO is 27,800 USD compared to 45,000 USD for Ethereum.

Currency Transfer

Ripple enables secure currency transfer (or even commodities like Gold or Oil) using blockchain preventing cases of fraud and making transfer safer.

Currently transfer of assets require first converting the value to USD (involves conversion fee) and then enabling transfer which can take as much as 3 days.

However, with ripple as there is no conversion fee, you can do it smoothly and within second saving time and cost.

Organizations like Bank of America, Standard Chartered Bank, Moneygram, SBI Holdings , Westpac Institutional bank, Bank of Australia have already partnered with Ripple.

The best part is that the cost of money transfer using Ripple is just about 0.00001 SRP when 1 XRP is 0.29$.

This makes it very cost effective apart from being secure.

Stablecoins

 Large volatility in price of crypto has been a cause of concern leading to the creation of “Stablecoin”.

Stablecoins as the names suggests remaining stable in value.

How does that happen, by pegging them to another currency either a USD or another crypto.

There are 4 different kinds of stablecoins:

  1. Traditional (Off-chain)-these are the ones that are benchmarked to a fiat currency like USD so that the price remains the same as USD. The issuer can only issue as many coins as the amount of USD available with them. So if they have 10mn USD in the account, the can issue coins up to 10 mn USD with each coin being 1USD in price.

The advantage is that all the security of crypto blockchain is available while avoiding the volatility. Tether is the most knows and traded traditional stablecoin

Other examples are binancecoin, XRP etc.,

  • Crypto Collateral (on-chain)-as the name suggest the collateral here is another coin and not USD. This is on chain and fully backed by another crypto. Collateral is usually higher than underlying so that volatility can be taken care of.

DAI, Augmint, Ampleforth are some examples.

So if you want to buy 1000 USD worth DAI using Ether coins.

You might have to put 2000 USD worth of Ether to ensure enough collateral accounting for volatility in Ether price

  • Algorathmic Stablecoins-These don’t use collateral but adjusts supply to keep price stable. So if price falls, they reduce supply and if price increases, the increase supply.

Ampleforth, based, Empty Set Dollar, Dynamic set dollar are some examples.

  • Commodity back Stablecoins-its clear from the name that these coins are backed by commodities. Most common commodity being used is Gold.

Tethergold and Paxosgold being the 2 most widely used commodity backed Stablecoins.

Primarily this is an easier way to hold the underlying without need for physical possession. For example holders of Paxos Gold (PAXG) stablecoins can sell them for cash or take possession of the underlying gold.

However, because London Good Delivery gold bars range from 370-to-430 per ounce, and each token represents 1 ounce, users must hold a minimum of 430 PAXG to execute token redemption. Once redeemed, token holders can take possession of their gold at vaults throughout the UK.

So, there are multiple use case and options of tokens available as per the use case.

The subject is deep and requires guidance for which I can be reached on manish.verma@manishverma.co.in or +919920741569

Part III will be out next week unless you want it earlier in which case follow my twitter handle irreverentinvestor@manver1974

The Thrill & Pain of Success

G-force (gravity force) is the acceleration of an object compared to earth’s gravity.

When someone is merely standing, it is a 1-G environment where the earth’s gravity is pushing against the person.

Imagine a plane making a rapid 90-degree turn, it can create acceleration of up to 6 times earth’s gravity of 6-G.

In a 1-G situation the heart can easily generate blood to enable circulation in organs above the chest. However, if there is a sudden acceleration blood flows down to the legs making it difficult for heart to ensure circulation above chest which can result into a G-lock that can even kill a person.

The brain cells only have enough blood to keep it going for 4-seconds.

In untrained adults a 3G force is enough to destabilize the body.

A key part of pilot training hence is to teach breathing and muscle sensing techniques to keep the body going under extreme G-force.

Formulae 1 Drivers subject themselves to enormous forces every time they get behind the wheel, with straight-line accelerations and deceleration among the most savage of any form of motorsport; From a standing start the cars can pull around 2G and braking at the end of straights can results in as much as 6G at times. Around 1G of this comes purely from lifting off the throttle, and drivers have to apply around 160kg of force to the brake pedal to achieve the balance.

At the Tuscon grand prix in 2020, Lewis Hamilton posted 4.9G, 5.6G and 5.2G through turns 6.7 and 8 in practice.

Drivers need to strengthen their neck core and legs to meeting this challenge.

Not only that they need to be light to keep the weights of the car down and maximize speed of the car. To maintain this drivers, go for stringent diet taking a toll on their bodies and making them sick.

Hamilton has admitted losing 4kg in a single race.

Necks, Arms, Legs and Core need be in best shape for the formulae 1 driver and is a key factor in their fitness regime.

Drivers use weighted helmets to perform reps and build muscle mass. Capable of shifting 40kgs with their necks alone F1 drivers are supposed to have the strongest neks in the sport.

Why am I telling you all this?

Formulae 1 race appeals across age groups and genders for the fast thrills that it manages to create.

It’s great to see the drivers slugging it out for 90 mins and your favorite driver coming out a winner.

It’s not just formulae 1 for every sport or profession those who excel work very hard before they come out to deliver.

Outcome is Dependent on Preparation

They say XYZ became an overnight success in 10 years.

Those 10 years were the years of devotion to the craft which created the winner.

You want to achieve success you to prepare yourself and create a process which you follow with discipline to compete against the best.

Outcome is Visible

What we see is the outcome, what we miss is the process.

When the process is done well, outcome seems effortless.

That’s the beauty of a great process.

You can apply this to your profession, your daily routine or anything else in general.

There is no easy way out.

Even if you find one overtime you will realize it’s a “Zero Sum Game”.

What to Do?

  • If you don’t know, get a coach (all professional athletes have a coach), mentor, guide, advisor
  • Get to know your self-strengths, weaknesses, goals etc.,
  • Establish the roadmap
  • Take the pain to understand what you are getting into and its pros and cons
  • Develop your competencies or hire them

Remember, 90% of success will be off the field.

Finally stay the course.

For guidance contact manish.verma@manishverma.co.in or +919920741569

Follow my twitter handle irreverentinvestor@manver1974 for more such shares