November 16, 2016
I’m sure some of the criticism of people who claim to be using data to find knowledge, and to exploit inefficiencies in their industries, has some truth to it. But whatever it is in the human psyche that the Oakland A’s exploited for profit—this hunger for an expert who knows things with certainty, even when certainty is not possible—has a talent for hanging around. ... How did this pair of Israeli psychologists come to have so much to say about these matters of the human mind that they more or less anticipated a book about American baseball written decades in the future? What possessed two guys in the Middle East to sit down and figure out what the mind was doing when it tried to judge a baseball player, or an investment, or a presidential candidate? And how on earth does a psychologist win a Nobel Prize in economics? ... Amos was now what people referred to, a bit confusingly, as a “mathematical psychologist.” Non-mathematical psychologists, like Danny, quietly viewed much of mathematical psychology as a series of pointless exercises conducted by people who were using their ability to do math as camouflage for how little of psychological interest they had to say. ... students who once wondered why the two brightest stars of Hebrew University kept their distance from each other now wondered how two so radically different personalities could find common ground, much less become soulmates. ... Danny was always sure he was wrong. Amos was always sure he was right. Amos was the life of every party; Danny didn’t go to the parties. ... Both were grandsons of Eastern European rabbis, for a start. Both were explicitly interested in how people functioned when they were in a “normal” unemotional state. Both wanted to do science. Both wanted to search for simple, powerful truths.
Being underestimated – by family, classmates and colleagues – had been the theme of his life, a curse he had borne silently since childhood. But for the mission he had now embarked upon, it was a blessing. None of his co-workers or managers in the intelligence community could have imagined that he of all people was capable of masterminding a complex espionage plot. ... With fortune, he imagined, respect would follow. Those who had known him would no longer doubt his intelligence. Once and for all, he would shake off the image that had dogged him since childhood. ... The sender of the envelopes was no doubt a bona fide member of the US intelligence community, with access to “top secret” documents, intent on establishing a clandestine relationship with a foreign intelligence service. The person had, in fact, already committed espionage by giving classified information to an enemy country. Carr might as well have been looking at a warning sign for a national security threat flashing in neon red. ... As long as he could get away with it, espionage was a legitimate answer to his troubles.
Given today’s low yields and high valuations across almost all asset classes, there are no particularly good outcomes available for investors. We believe that either valuations will revert to historically normal levels and near-term returns will be very bad, or valuations will remain elevated relative to history. If valuations remain elevated indefinitely, near-term returns will be less bad but still insufficient for investors to achieve their goals. Furthermore, given elevated valuations in the long term, long-term returns will also be insufficient for investors to achieve their goals. It would be very handy to know which scenario will play out, as the reversion versus no reversion scenarios have important implications both for the appropriate portfolio to run today and critical institution-level decisions that investors will be forced to make in the future. Unfortunately, we believe there is no certainty as to which scenario will play out. As a result, we believe it is prudent for investors to try to build portfolios that are robust to either outcome and start contingency planning for the possibility that long-term returns will be meaningfully lower than what is necessary for their current saving/ contribution and spending plans to be sustainable. ... By now some of our clients are probably thoroughly sick of hearing about the topic, but this piece is going to delve into it yet again, because the question of whether we are in Purgatory or Hell is a crucial one, not only for its implications for what portfolio is the right one for an investor to hold at the moment, but also for the institutional choices investors have to make that go well beyond simple asset allocation. ... In the long run, we can hope that valuations fall to historically normal levels, because only if that happens will the institutional business models and savings and investing heuristics that institutions and savers have built still be valid.
In the next 15 years India will see more people come online than any other country. Last year e-commerce sales were about $16 billion; by 2020, according to Morgan Stanley, a bank, the online retail market could be more than seven times larger. Such sales are expected to grow faster in India than in any other market. This has attracted a flood of investment in e-commerce firms, the impact of which may go far beyond just displacing offline retail. ... India’s small businesses have limited access to loans; most of its consumers do not have credit cards, or for that matter credit. The e-commerce companies are investing in logistics, helping merchants borrow and giving consumers new tools to pay for goods. ... Amazon wants to make India its second-biggest market, after America. For the time being, though, with just 12% of the market, it lags behind the home-grown successes, Flipkart (45%) and Snapdeal (26%). All three, as well as some smaller competitors, are spending at a blistering rate. ... The prospect of a second market growing to a near-Chinese size attracts those who made a packet the first time round. ... Indian regulations bar foreign-backed e-commerce firms from owning inventory, and so acting as a straightforward retailer is not an option. As a result India’s top e-commerce companies look much more like Alibaba.
In theory, the redesign begins with a problem. The problem might be specific or systemic or subjective. A logo makes a company’s image feel out of date. A familiar household object has been overtaken by new technology. A service has become too confusing for new users. And so on. The world is, after all, full of problems. ... The human desire to solve problems fuels brand-new inventions too: The wheel, for example, eased conveyance significantly. But the redesign tends to address problems with, or caused by, dimensions of the human-designed world, and identifying such problems may be the designer’s most crucial skill. Redesigns fail when they address the wrong problem — or something that really wasn’t a problem in the first place. While progress may entail change, change does not necessarily guarantee progress. But a clever redesign, one that addresses the right problem in an intelligent fashion, improves the world, if just by a bit. ... the platonic ideal of the redesign: A designer sees a problem, proposes a solution, makes a difference. Such tidy narratives fuel a reigning ideology in which every object, symbol or pool of information is just another design problem awaiting some solution. The thermostat, the fire extinguisher, the toothbrush, the car dashboard — all have been redesigned, whether anybody was clamoring for their alteration or not.