5×5: Five articles summarised in five lines 🌟
- Business: Realistic insights on India’s fintech space by Nithin Kamath
- Psychology: Fallacy of recency bias and rare events
- Inflation: USA is trying to tame inflation using price controls
- Buffett: Investing in ‘dirty’ energy businesses.
- Venture Capital: The Tiger is cornered after a brave run
- Pop Quiz #7: A quiz question that can win you a little gift from us!
Nithin Kamath speaks his mind 🎙
- Increasing interest rates, drying capital, and decreasing wages will impact fintech businesses across India
- The total addressable market size of India is not as big as it is projected – ~15 crores vs ~50 crores.
- Further growth in Fintechs will be driven by growth in the market size.
- Startups that spent the most on acquiring customers or on employee costs may find it difficult to weather a funding slowdown.
- Crypto is a highly risky asset and one should be careful about putting significant amounts into risky assets.
Read More – Nithin Kamath speaks his mind
Recency bias and low probability events 👀
- Generally, we are wired to overreact to ‘one-off’ recent events and speculate about the future basis them.
- The Russia Ukraine war made us speculate about China Taiwan war, Russia Poland war & World War 3 — extremely low probability events.
- Such aberrations occur because we take the most recent data to speculate the future i.e. recency bias
- This kind of speculation is also common among pundits commenting on sports, markets, and politics.
- Essentially, extreme forecasts don’t work all the time, things revert to mean often, and people change before they “fall off the cliff”
Read More – Extrapolating the recent past
Is inflation driven by corporate greed? 💸
- Interestingly, there’s legislation being debated in the USA basis the hypothesis that Inflation is driven by corporate greed.
- When companies have monopoly power, they raise prices beyond what those prices would be in a competitive market.
- Corporate profits, as a percentage of GDP, are at the highest ever — some of it is due to increased prices.
- ‘Price controls’ cannot be a solution to inflation as they don’t do much or make matters worse.
- Price controls artificially disincentivize production which will reduce supply in an already supply starved economy.
Buffett betting on Oil & Gas 🔋
- Buffett has started acquiring shares in Chevron, maybe, because it checks all the right boxes – strong fundamentals, good leadership, financial stability, and healthy cash flows.
- He already has a significant stake in Occidental Petroleum – a company he may end up taking private.
- Both investments, though in the same sector, seem to have an entirely different rationale.
- Or there could be a single common reason behind these investments. Buffett plays his cards close to his chest.
- It can be satisfactorily concluded that Buffett surely sees value in the energy sector.
Read More – Berkshire’s Big Bet on Energy
Cornered Tiger 🔫
- Tiger Global does late-stage private equity with a swift approach – move fast, buy more, and don’t worry about valuations.
- Tiger and its friends would keep investing money into the same businesses and raising the valuations.
- Earlier, the end game would have been to eventually dump their holdings into the stock markets via IPO.
- Tiger has suffered massive losses in public markets which is hurting their bottom line.
- Now, Tiger is doing all it can to keep its private equity valuations up for as long as possible.
Read More – Late Stage Prisoners Dilemma
Pop Quiz #7 ⚡️
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Question: In the 1990s, this company was threatened by the wrath of the Pollution Control Board of India for the huge amount of pollution its industrial unit was causing.
So to make amends they started planting mango orchards in nearby wastelands to curb pollution. As a result, today they are one of India’s largest exporters of mangoes with 127 different varieties of fruit.
Name the organization. (You surely know the answer!)
Last week’s quiz results💡
Answer: Bombay Stock Exchange (BSE)
Quiz Winner – Neil Parekh 🎉
⚡ Launching – The Capitalmind Show!
We did a soft launch of our weekly show. We will capture everything that happened over the last week in this Live stream with Deepak Shenoy. To get updates for the next episode, follow us on twitter (@capitalmind_in)
