Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 367

A year coloured by what I have read

I love reading. The first book that I remember was a Famous Five mystery novel by Enid Blyton. It was a gift for a long rail journey from my grandmother (the time from Mumbai, India to my home town Jodhpur, Rajasthan was about 23 hours). Since then travelling and reading have been my two constant companions. Over time, I have learnt that for me reading is the most reliable source of serendipity - an essential ingredient to creating your own luck!

In this period of lockdown with no physical travel, I have continued my journeys through revisiting some old companions and picking up some new ones. This note shares some serendipitous experiences which inform my long-term strategic thinking (rather than the near-term tactical viewpoints).

2020 is a year of destiny. While COVID-19 (and Google) has made us all amateur epidemiologists, if we are to navigate the years ahead successfully, I think a few more areas of expertise might be required to answer the questions at hand.

Is the economic glass half full or half empty?

This topic requires us to step away from the high frequency indicators which populate popular commentary and step back to take a wider perspective. Getting lost in books allows that.

Fully Automated Luxury Communism by Aaron Bastani. I came to this book while researching socialism. The rise of Jeremy Corbyn in the UK and Bernie Sanders in the US made this a topic of real importance. Given the current more ‘socialist than Corbyn’ policies of the Boris Johnson conservatives, the book is worth revisiting. Bastani pushes forward on the arguments made in Abundance: The Future is Better Than You Think by Peter Diamandis, imagining a future where a new paradigm has emerged.

New technologies will liberate us from work, providing the opportunity to build a society beyond both capitalism and its alter ego, scarcity. Automation (the replacement of labour with cheap capital), rather than undermining an economy built on full employment, is instead the path to a world of liberty, luxury and happiness for everyone.

The book charts abundance in energy through the move to renewables and food through new methods of farming and protein consumption. Ultimately, he reimagines Karl Marx’s philosophy in the form that true sustainable development is only possible if labour’s cognitive and physical effort becomes a route to self-development rather than just a means of survival.

For me the key investment implications of reading this book were:

1. An appreciation that cheap energy is possibly the biggest future growth dividend for emerging markets like China/India. The 18th-19th century industrial revolution and subsequent dominance of the West was powered by fossil fuels. If we are sunsetting one, could we also be sunsetting the other and heralding emerging markets as the best investment for not only this decade but as the start of the Asian century? 

2. Greater interest in the thematic of sustainable food/farming and the merits behind the vision of the likes of Beyond Meat and Impossible Burger and its ilk and links to climate change.

3. An outside-in perspective that ‘my search for pricing power’ works only in a capitalist mindset built on scarcity. However, if money is not scarce any more will our investment process (seeking pricing power) continue to work? For now, the market continues to reward companies who are trying to democratise access to knowledge, information and computational power (one narrative to justify the heady valuations of the high growth software cohort).

4. The second but last chapter of Bastani's 2019 book (Ch.11 Reforging the Capitalist State) makes some interesting points relevant for the long-term intersection of politics and economics:

  • Contrast between universal basic income (a subject which has been dealt with in great depth by Geoff Crocker in his book Basic Income and Sovereign Money) and universal basic service (free services provided to everyone with a progressive taxation system). This is possibly the most pertinent issue as the CARES Act in the US (US$600 per week in every unemployed person's bank account) is a live case study of what the future might look like under this scenario and an area which I think deserves a lot more work. Wartime measures last for much longer than we think. 
  • Making the point that one of the biggest criticisms of the old Soviet economy was its command and control infrastructure, how is today any different with central banks around the world trying to ‘plan everything’? In fact, could this be one justification as to why quasi sovereigns like Apple/Microsoft/Google/LVMH/Nestle/Amazon deserve ever higher valuations as they are exceptions to the rule that everyone requires central bank or government support. Both the debt and equity markets are rewarding them with a lower cost of capital.
  • Markets are supposed to serve the economy but the reverse seems to be true currently (at least as apparent from central bank actions which deliver socialism for the rich and market capitalism for the rest. Or the pithy version, profits remain privatised yet losses are nationalised).
  • Is GDP the right metric to evaluate successful economic management in a world of deflation? The yardstick may no longer apply in a world where technology has made information free, automation has reduced the pricing power of labour, new energy technologies and use of more renewables, will continue to reduce the marginal cost of food/energy and central banks are now well on their way to making money free!

5. The key unanswered question when a world dramatically different from our own is both inevitable and near at hand is ‘in whose interests will it be created?’ Technology has moved fast to transform work and improve people’s lives, yet we have been slow to create the appropriate social and political institutions to adapt to this new world which has led to deepened inequalities.

Other books for these times

Other books that I have enjoyed reading or revisiting during this time:

  1. The Levelling - Michael O’Sullivan - an excellent read on the end of globalisation and what needs to be done to reimagine a new world order (see my note here which discusses some of the investment implications of the China/US spat on investment decision-making)

  2. Humankind: A Hopeful History - Rutger Bregman - a well-researched and argued case that deep down, people are decent. The instinct to co-operate rather than compete, trust rather than distrust, has an evolutionary basis and by thinking the worst of others, we bring out the worst in our companies, politics and economics. We can and must do better.

  3. Grow the Pie: How Great Companies Deliver Both Purpose and Profit - Alex Edmans - In some sense arguing that companies should target social values as a primary goal and that shareholder returns are a secondary outcome. Our colleague Dhananjay Phadnis has written a detailed piece on his thoughts on the book and case studies relevant for Asia; and our colleague Wen-Wen Lindroth has put out a piece on Sustainable Capitalism with echoes of some thoughts from the book. For me it was a useful read as we try to calibrate how much weight we must put to each factor of the ESG matrix as the matrix also continues to constantly evolve.

  4. The Partnership - The Making of Goldman Sachs - Charles D Ellis - The reason to revisit the book was to reread the chapter on Sidney Weinberg and his friendship with Franklin D Roosevelt and Henry Ford II, which helped not only cement the leadership of Goldman Sachs but also tell an interesting story of what wartime corporate leadership may need to look like and how one manages the increasing presence of government in the corporate sector.

  5. Justice: What’s the Right Thing to Do - Michael J. Sandel - So far policy makers have pretty much succeeded in satisfying everyone. However, it is my view that as every work-from-home parent knows, at some point the candy (or iPad) needs to be taken away from the kid and tantrums (tough choices) lie ahead. This book is about various case studies and the process by which tough choices can be made, while serving the cause of natural justice, in a multi-layered problem. With the rise of ESG and as morality (and religious beliefs) now move from private matters to public debate and we sit in judgement of what is happening around us, this is a good refresher of the process that one must follow to appreciate both sides of the coin.

  6. Alchemy: The Surprising Power of Ideas That Don’t Make Sense - Rory Sutherland. Rory is the vice chairman of Ogilvy in the UK (it's a nice vague title that has allowed him to run a behavioural sciences unit in Ogilvy). I came to this book due to my interest in consumer behaviour and the realisation of how difficult it is to anticipate let alone forecast. Rory’s central thesis that conventional logic leads to conventional outcomes is as applicable in marketing as it is in investing. Two of my favourite quotes from the book:
    - “A change of perspective is worth 80 IQ points” - Alan Kay
    - “It doesn’t pay to be logical if everyone else is being logical” - Rory Sutherland

 

Amit Lodha is a Portfolio Manager on the Fidelity Global Equities Fund. Fidelity International is a sponsor of Firstlinks. The full version of this article is linked here.

This document is issued by FIL Responsible Entity (Australia) Limited ABN 33 148 059 009, AFSL 409340 (‘Fidelity Australia’), a member of the FIL Limited group of companies commonly known as Fidelity International. This document is intended as general information only. You should consider the relevant Product Disclosure Statement available on our website www.fidelity.com.au.

For more articles and papers from Fidelity, please click here.

© 2019 FIL Responsible Entity (Australia) Limited. Fidelity, Fidelity International and the Fidelity International logo and F symbol are trademarks of FIL Limited. FD18634.

 

1 Comments
David Landers
July 22, 2020

Fabulous distillation. Very generous and thoughtful. Thank you!

 

Leave a Comment:

RELATED ARTICLES

Julie Bishop on leaders, life, Liberals and libertines

Amid vaccine hope and skepticism, testing is key

Your adverse Covid effects and post-pandemic consequences

banner

Most viewed in recent weeks

2024/25 super thresholds – key changes and implications

The ATO has released all the superannuation rates and thresholds that will apply from 1 July 2024. Here's what’s changing and what’s not, and some key considerations and opportunities in the lead up to 30 June and beyond.

Five months on from cancer diagnosis

Life has radically shifted with my brain cancer, and I don’t know if it will ever be the same again. After decades of writing and a dozen years with Firstlinks, I still want to contribute, but exactly how and when I do that is unclear.

Is Australia ready for its population growth over the next decade?

Australia will have 3.7 million more people in a decade's time, though the growth won't be evenly distributed. Over 85s will see the fastest growth, while the number of younger people will barely rise. 

Welcome to Firstlinks Edition 552 with weekend update

Being rich is having a high-paying job and accumulating fancy houses and cars, while being wealthy is owning assets that provide passive income, as well as freedom and flexibility. Knowing the difference can reframe your life.

  • 21 March 2024

Why LICs may be close to bottoming

Investor disgust, consolidation, de-listings, price discounts, activist investors entering - it’s what typically happens at business cycle troughs, and it’s happening to LICs now. That may present a potential opportunity.

The public servants demanding $3m super tax exemption

The $3 million super tax will capture retired, and soon to retire, public servants and politicians who are members of defined benefit superannuation schemes. Lobbying efforts for exemptions to the tax are intensifying.

Latest Updates

Retirement

Uncomfortable truths: The real cost of living in retirement

How useful are the retirement savings and spending targets put out by various groups such as ASFA? Not very, and it's reducing the ability of ordinary retirees to fully understand their retirement income options.

Shares

On the virtue of owning wonderful businesses like CBA

The US market has pummelled Australia's over the past 16 years and for good reason: it has some incredible businesses. Australia does too, but if you want to enjoy US-type returns, you need to know where to look.

Investment strategies

Why bank hybrids are being priced at a premium

As long as the banks have no desire to pay up for term deposit funding - which looks likely for a while yet - investors will continue to pay a premium for the higher yielding, but riskier hybrid instrument.

Investment strategies

The Magnificent Seven's dominance poses ever-growing risks

The rise of the Magnificent Seven and their large weighting in US indices has led to debate about concentration risk in markets. Whatever your view, the crowding into these stocks poses several challenges for global investors.

Strategy

Wealth is more than a number

Money can bolster our joy in real ways. However, if we relentlessly chase wealth at the expense of other facets of well-being, history and science both teach us that it will lead to a hollowing out of life.

The copper bull market may have years to run

The copper market is barrelling towards a significant deficit and price surge over the next few decades that investors should not discount when looking at the potential for artificial intelligence and renewable energy.

Property

Global REITs are on sale

Global REITs have been out of favour for some time. While office remains a concern, the rest of the sector is in good shape and offers compelling value, with many REITs trading below underlying asset replacement costs.

Sponsors

Alliances

© 2024 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.