PEN IS MIGHTIER THAN THE SWORD

Provided you have both....

Man vs Machine ?

 

The Kasparov Effect: Psychological Denial Let’s look at the facts without the emotional baggage. In 1997, IBM’s Deep Blue beat Gary Kasparov. Later, a machine won Jeopardy!. When Kasparov lost, he complained that he didn't get to study Deep Blue's moves, while the machine had analyzed all of his. This is classic "pain-avoiding psychological denial." He refused to accept reality. The machine had the data; the man had the ego. In a contest between a fatigue-free algorithm and a human prone to bias, bet on the algorithm for the grunt work.

Invert the Question People are running around hyperventilating, asking, "Will computers outperform us?" or "Will I lose my job?"

Invert the question. Instead of asking how computers will replace us, ask: "How can I use this machine to be less stupid?"

There is no doubt that computational tasks are better left to the silicon. There is hardly a desk job left that doesn't rely on a computer. We like to tell ourselves a comforting fairy tale that "creative" or "strategic" work is safe. That’s nonsense. Creativity is just a complex pattern recognition process. If you give a machine enough prior data and a feedback loop, it can generate art or write news. It doesn’t get tired. It doesn’t get depressed. It just executes.

Look at machine generated art. 

https://deepdreamgenerator.com/

Or machine generated human faces. These are not real people!

https://www.thispersondoesnotexist.com/

Man Plus Machine Here is the mental model you need to understand the future. Look at the free-style tournament Kasparov organized later. You had three groups:

1. Inferior players with superior computers.

2. Grandmasters with inferior computers.

3. Moderate players with moderate computers.

Who won? The third group.

This is a multiplier effect—when two or more forces combine to produce a result greater than the sum of the parts. The grandmaster failed because he had too much ego to listen to the machine. The inferior player failed because he didn't know what to ask the machine. The winner was the moderate player who had the process right: he provided the judgment, and the computer provided the calculation.

The Conclusion Stop panicking about the machines taking over. Envy and fear are the stupidest of the deadly sins. The computer is a lever. If you are wise, you use the lever to move the world. If you are a fool, you let the lever crush you.

Steve Jobs had it right: the computer is a "bicycle for the mind." It makes you faster, but you still have to pedal.

Humanity will reinvent itself because it has to. As professionals, our job is simple: Use the tool to compound your own rationality. Don't just get used to it—master it.

Smoking & Drinking is injurious to health - Enjoy Responsibly !!

                                          

                                                                      লীলাময়

                                                     ভোগের মহল্লা নাকি দাদার কীর্তি

                                                    পড়া লেখা আগে, পরে ফূর্ত্তি !

Tackling volatility in capital markets.

With one simple change in the legislation all democratic governments can tackle volatility in financial markets by just one simple step.

Shutdown trading in open markets during Mon - Fri and keep it open only during the weekends i.e. Saturday and Sunday, maybe the public holidays also.

The day traders, speculators and money managers can spend all their hard earned money in the weekdays. More days to spend, you see :-))

ESOPs - a case of wrong incentives.

The front page of leading newspapers reported the sudden resignation of a top business executive. The reason behind his resignation was not clear and only occupied a couple of lines. More emphasis was on this person's high compensation, from present and past employers. I was stumped !
Curios to find why this person was paid so much, I searched specifically for achievements, skills, talent and omitted words and phrases related to compensation, salary, bonus. I could not find anything exceptional to justify that kind of compensation.

The law of distribution is one of the ancient. After a successful hunt, people would gather around the dead animal and only one person, usually the oldest, would be given the task to distribute. The person responsible for distribution could not set aside anything beforehand and would claim only what was left-over. Such laws are the foundations of human society.

The hefty compensation paid to a handful people in any corporate is mostly in the form of stock options (ESOP) or common stocks those can be redeemed after a certain period. Generally, ESOP is as follows - e.g. the executive gets the right to buy, say 100k shares at a future date at a pre-determined price. Suppose that price is 100; if the price goes up to 120 on that date, the person can still buy at 100 and immediately sell it in open market at 120 netting a profit. Or they can wait for the price to rise further.

This is a good arrangement as long as people are honest. If otherwise, it becomes a dangerous one.

These handful people are the ones who are directly responsible for the financial management of the company. One can increase revenue via aggressive sales though it may actually not generate enough profit for sustenance, or another company can be acquired and merged to increase the revenue which may turn out to be a bad acquisition, or they can evade tax liability, or simply lie. There are several ways to create a sense of optimism whereas the underlying reality may be different. Also, the promoter group wants to limit the financial information only to a selected few for vested interest. Most promoters and their close ally are the ones to flee the scene at the first hint of trouble. And they run away being richer at the cost of the hard earned public money.

ESOPs should be distributed entirely to employees except for those handful ones.

Employees who are more closely involved in building the products & services of the company and directly serving the customer and far away from the financial management of the company. This will improve their loyalty to the company and hence they will work for the long term. It will also improve the quality of work as their work directly affects the future compensation. I also think it will improve the financial discipline of the company and curb the indifferent attitudes employees have towards company facility like going for business class in a one hour flight or binge drinking on 5-star accommodation or using the photo-copier for personal use :-)

This simple change of incentives can go a long way in improving corporate efficiency and lead to more ethically managed business. Insider trading will be a lost phrase because no one will hold those obscene number of options and be in a vantage to manipulate the stock price. People can engage in more meaningful work than fixing the broken system left by dishonest ones.

Improper use of sentiment analysis

Sentiment analysis has been a tech buzzword which entailed the popularity of social media. 

Just as the child bites at almost everything as soon as its milk teeth grow, everyone with a social media account seemed to have an opinion about everything. And companies were trying to exploit this tremendous amount of data by analyzing public opinion. 
I have also been involved in such an effort though I now admit that our sentiment engine was not good enough. 

But what worries me is another buzzword predictive analytics. And its dangerous application in stock markets. 

Several startup companies are trying to predict stock price based on public sentiment. The practice of predicting stock prices itself is a questionable business model; seems they are trying to justify the prediction using this new methodology.

Information that triggers price movement is private to only a few who take advantage as early movers. Hence the price trend already starts way before the news is published in mainstream media. 

Look at TATA STEEL. 

The general sentiment in beginning of Mar 16 on Indian steel industry was extremely negative. China had produced more steel in one year than the Brits had done in last 80. However, we see a 30% increase in TATA STEEL price in the same month. Only at the end of the month, the company made public of its decision to sell Chorus. Under the circumstances it would reduce debt, hence the optimism about the company. Selected few knew that their CFO was making several trips to London and had taken advantage of this fact. 

Another example of a debt ridden company - GMR infrastructure. 

Look at the sharp price rise on 13 Jun 2016. It was after four days the general public learnt about its progress to sell off stake in a profit making project. 

(as of writing this article, the company had already denied it as rumors !! ) People interested may track the story further to see how such things wipe off hard earned money of retail investors. 

Hence we can conclude the following. 

One can look at the currently emerging price trends and predict the future sentiment but not the other way around.

The Great E-Commerce Delusion: Selling Dollar Bills for 80 Cents

My parents were dumbfounded when I bought an air conditioner online without inspecting it physically. They were even more surprised by the white-glove service—on-time delivery and excellent packaging. We were all satisfied. But as Mr. Charlie Munger always said, "Invert, always invert." Instead of just enjoying the cool air, one must ask: Does the arithmetic of this transaction actually make sense?

I felt compelled to write this not out of satisfaction, but out of sheer disbelief at the economic irrationality on display.

The popular media tells us these large e-commerce companies make no profit. For once, the media is understating the madness. Revenue is growing, yes, but so are the losses. In the corporate world, where "audited financials" can sometimes be a work of fiction, you can safely assume the reality is even uglier than the adjusted EBITDA they feed the public.

Consider the data from the recent fiscal year (FY25). Flipkart generated over ₹82,000 Crore in revenue, yet managed to lose over ₹5,000 Crore. Zepto, the new quick-commerce darling, saw losses swell by 177% to over ₹3,300 Crore. They are growing like a weed, but they are burning cash like a drunken sailor. Only a few, like Zomato (finally posting a ₹351 Crore profit) and Delhivery, have begun to respect the laws of gravity. The rest are still practicing "profitless prosperity."

The air conditioner I bought was 25% cheaper than at the brick-and-mortar store. I am supposed to believe this discount comes from "efficiencies" and lacking a physical storefront. Rubbish.

The math is simple. The e-commerce company is not gaining. They are subsidizing my comfort with shareholder capital.

The brick-and-mortar store lost the sale. If this continues, they will have to cut prices to survive, engaging in a race to the bottom where nobody makes any money. This is a classic "tragedy of the commons."

The government is also losing. Lower prices mean lower collected taxes. It is a lollapalooza effect of shrinking returns for everyone involved—except the consumer.. 

Can a business survive when no one gains? Certainly not. You cannot keep selling things for less than they cost and make it up on volume. That is not a business; that is a charity run by venture capitalists.

The only silver lining is Schumpeter’s "creative destruction." These companies have created employment—delivery boys and logistics staff—which puts money in people's pockets. Furthermore, it has rudely awakened the sleepy incumbents who were selling inferior goods and protecting their moats through lobbying rather than competence. That part is good for civilization.

But let us be clear: these gains are temporary anomalies. In the short run, the consumer is eating the investor's lunch. In the long run, basic arithmetic always wins.