Why my conviction in India has substantially increased

See my twitter post

Want to be wiser? And a better investor? Practice "Illeism"

Prof Igor Grossmann (@psywisdom) is leading work on Wisdom - a much better predictor of wellbeing and superior decision making than IQ. But it is difficult to define Wisdom and what drives it.

Wisdom entails "intellectual humility; taking the perspective of others; recognising uncertainty; and having the capacity to search for a compromise"

Illeism is speaking about yourself in the third person. Apparently it can improve wisdom scores (yes researchers like Prof Grossmann are working to codify "wisdom"). Reason being..."small change in perspective can clear your emotional fog, allowing you to see past your biases."

"people tend to be humbler, and readier to consider other perspectives, when they are asked to describe problems in the third person". Illeism can also help with "greater emotional awareness and regulation which in turn can improve performance on the stock market."

This is based on this article.

Markets - expensive but irresistible (interesting notes from GMO)

February 2018 saw a solid correction in the equity markets across the world. Markets are gyrating up. This correction notwithstanding, there is a lot of interesting debate on this particular bull run as the most "hated bull run". Folks at GMO have shared some interesting views.

From James Montier:

1. Markets are expensive.

2. A case of "fully invested bear". Investors agree markets are expensive, and yet are fully invested.

From his colleague Jeremy Grantham

3. Markets are expensive, but not yet a bubble. Bubbles are best predicted by "acceleration" in price (thanks to mass euphoric psychology) rather than the absolute high level of price. Therefore expect a big bull-run ("melt-up") in 2018 before eventual crash in 2019. In author's own words:

4. Grantham's advice to investors: "What I would own is as much Emerging Market Equity as your career or business risk can tolerate, and some EAFE."

Well I would say that be micro-economy focused and keep investing on excellent assets that are still somewhat reasonably priced, and simply be patient before jumping into any equity markets - developed or developing.

Payment infrastructure is booming, but bumpy road ahead

Last year, RBI came up with a very good concept paper on Card Acceptance Infrastructure essentially analyzing ways to expand acceptance of cards through physical POS, digital POS (such as those based on QR-code), and online payment mechanisms. Since the report, Demonetization has massively pushed up the physical acceptance infrastructure.

(Source: RBI)

BCG and Google have predicted, rather bullishly, that 10 million merchant establishments will accept digital and mobile based payments by 2020. 

However, some caution is justified. The RBI concept paper captures some real barriers to POS penetration. 

• High cost of acquiring business that include high capital cost of POS machine, recurring maintenance / servicing cost, difficulty of servicing POS machines in rural areas, etc. is a major constraint.

• Low utilization of cards makes acceptance for small merchants and / or in rural areas unviable due to low card footfalls and low transaction values besides other costs associated with merchant acquiring, ultimately forcing acquiring banks to withdraw the POS terminal.

• Lack of adequate and low cost telecommunication infrastructure makes it difficult for merchants to access networks which are required to accept electronic payments and process these transactions. Poor telecom connectivity in many areas lead to fewer transactions and consequently affect revenue of acquirers.

• Lack of incentive for merchants to accept card payments is another inhibiting factor. Further, transparency and audit trails associated with card payments often act as deterrent for accepting card payments by merchants.

• Insufficient awareness about the costs associated with use of cash and cash handling is also a contributing factor.

• Factors from consumer perspective, such as, low levels of awareness, apprehension of using non-cash payments, especially concerning its safety and security, anonymity associated with cash payments, surcharge / convenience fees being levied for use of card / electronic payments, difficulties in changing consumer behavior, etc. also inhibit growth / usage of card of payments for purchase of goods and services.

• Merchant Discount Rate (MDR) also often acts as a disincentive. Though the regulatory policy on MDR (issued in September 2012) had indicated a cap on MDR, it is generally treated as floor, with the benefit of lower MDR not really accruing to smaller merchants. In certain segments like mutual funds, insurance, etc. a flat fee structure of charges has also been established by the industry.

Now on this last point, RBI feels that it needs to intervene heavily and has come up with "Draft Circular - Rationalisation of Merchant Discount Rate (MDR) for Debit Card Transactions" earlier this year.

At the end of the day, major growth and scale up happens when unit economics is proven and market participants pile in. MDR is key to unit economics calculations. While it is important to balance needs of different stakeholders esp when Financial firms have been extractive in some areas, price intervention is always tricky and this is going to be a bumpy ride.