Tamohara Quarterly Newsletter - Best Books I Read in 2022
Dear Investor,
‘Investing is a liberal art’ is not just a corny poster we put up in our office but
something we truly believe in. In line with this belief it has become a tradition
for us to reflect upon the best books that we read in the year and what those
varied subjects covered have taught us about investing.
2021 lessons were centered around doing a few simple things, but doing them
thoroughly and consistently. After a heady 2021, 2022 has been a sobering
year and perhaps for those reasons the lessons we have inferred from our
best reads of year are centered around how little we know and can control,
the power of economic incentives and a realization that when something
doesn’t work it is time to go to the drawing board and reimagine the problem.
Dead in the Water by Matthew Campbell and Kit Chellel
Dead in the Water is a long-form
investigative piece that opens up the
wildly dark underbelly of the shipping
industry. The book follows the story of
the Brilliante Virtuso, a oil tanker that
was apparently attacked off the Yemen
coast by Somali Pirates that started a
whole chain of events in the shipping and
insurance industry including the murder
of a British National in Aden. The Billiante
Virtuoso was registered in the Marshall
Islands, flew a Liberian flag, had a Greek
owner, a British insurer and was attacked
off the coast of Yemen and subject to
international law. The complex holding
structures of each individual vessel,
the incredibly bleak working conditions on the vessels and the extent to which a
few oligarchs dominate the game along with an insurance company that cannot
do anything about the rigged game- all expose the fragile nature of the supply
chain on which globalization rests.
The book highlights the extent to which we do not know the true reasons for
events occurring, nor the players involved in ensuring we get the perfect
Peruvian Avocado delivered to our homes. It also shines light on the power of
economic incentives and how that governs our world.
As investors, when we conjure up reasons on why and when a new business
model/ disruption would get adopted it is essential to figure out the economic
incentive in doing so. Electric two wheelers have been a prime example of the
same. Adoption started galloping only when the total cost of ownership of EV
started reflecting far better economics than an internal combustion engine
bike. Scrapping an oil tanker (that was way beyond its age and maintenance)
would not yield as much as staging a pirate invasion and getting insurance
companies to pay for the damages. Never underestimate economic incentives
and at all given points of time try to visualize those for all of the businesses we
own.
The World for Sale by Javier Blas and Jack Farchy
The World For Sale is yet another book that
showcases the power of economic incentives
and how little we actually know of what drives
the world. The creative extent of capitalism
practiced by commodity traders and the extent
of their economic and (shockingly) political
influence made this a read unlike any other
finance/ economic history book out there.
Vitol, a commodity trading firm, engaged in the
sugar for oil trade that essentially kept Castro’s
Cuba afloat. They used shell companies to
ensure their activities fell outside the purview
of the economic embargo imposed by the USA. This is just one of the many stories
highlighted by the authors in the book. Having read these stories, one cannot help
but view recent news in the global energy markets with a cynical lens.
The power of economic incentives is the reason that pushed a trading firm to come
up with their own currency in the hyper inflationary environment in Zimbabwe.
As investors, we have made it a part of our process to answer questions crudely
around Porter’s five forces that help us cover the business incentives from the
perspective of various stakeholders. This list is by no means exclusive to Porter’s
five forces, nor is it exhaustive. As we come across many examples of incentives
leading people awry or in an unexpected direction, we keep building our checklist
out.
The Battle for Rezang La by Kulpreet Yadav
If the power of economic incentives has
failed somewhere it is with the Indian
Armed Forces. The courage and valor
demonstrated by them has no roots in
economic reasoning whatsoever.
Kuldeep Yadav’s vivid narrative
elaborating on the painstaking details
of the preparation for the battle in the
1962 Indo China War, as well as the
actual combat against the waves of
Chinese attack, was one that I was
unable to get out of my head for a while
after keeping the book down. Ahirs of
the 13 Kumaon take a 'fight till last man
standing and last bullet available'
stance, which in light of the
infrastructure they are equipped with
and the economic conditions of the
jawans is surprising. There is however a
lesson in the story of the battle for for
us all. The troops upon arrival at
Rezang La had warned the seniors of a
likely wave of Chinese attack coming in from the direction that it eventually did
come from. The seniors however did not heed this feedback despite not being on
the ground themselves. This is a lesson for us in life as much as in investing- keep
yourself grounded by allowing for a feedback loop. While not everything
warrants a reaction, ignoring all feedback from the ground as noise is also not
prudent.
The First Cell by Azra Raza
Being deaf and blind to feedback
loop is a problem that has plagued
cancer therapy for the past four
decades now. Majority of cancer
treatments over the past four
decades plus have been dominated
by the medieval methodologies of
slash (surgery for tumor removal),
poison (chemotherapy) and burn
(radiation). It is evident that the RoI
on the research dollars flowing into
cancer therapy is not yielding
significant advances in therapy.
There are simply small niches
being unlocked here and there but
nothing significant.
The First Cell by Azra Raza is a
book that is in equal parts
harrowing, stimulating and
informative. Dr. Raza in
establishing her hypothesis that the more effective way to spend R&D dollars in cancer therapy is on having a
disproportionate amount of resources allocated to early detection (detection of
the first cell) vs.
spending billions on drugs that work on specific indications/
manifestations of the disease, draws on the pragmatic problems faced by the
cancer patients and families as well as emotional.
Despite being a trained oncologist, in the face of data suggesting otherwise,
Dr. Azra calls for a rehaul of our thinking on cancer therapy (though she actually
spent almost a decade in medical school learning it and a couple more decades
practicing it). What stops us from going back to the drawing board when we
realize there is a flaw in our process?
View it as a task and rethinking a problem may seem cumbersome. View it as a
chance to start afresh, it is liberating. It is on this humbling yet uplifting note that
we wish to start our new year.
As always, thank you for your continued support and faith in choosing us to be
your partners in your wealth creation journey. Wish you and your loved ones a
very happy new year!
Happy Investing!
Best,
Harini Dedhia
Head of Research and Portfolio Manager