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beta for thee, lamborghini for me

Shyam Sunder
May 8, 2022
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A lot of controversy, finger-wagging and hashtags this week on the alleged front-running by a bunch of guys (why it always men?) working for Axis Mutual Fund. The tip-off was the head-trader driving around in a Lamborghini and a Rolls Royce.

Twitter avatar for @stocksniperd
tuff @stocksniperd
@darshanvmehta1 @iRadhikaGupta So the spoils of corruptn of VJ axs are to the tune of500cr+ He has a rols royc,14 apts around mum Ran an open shop paisa do dhanda lo Made +400cr buyng SM cap & boosting them to place with MF once they cross a certn size threshold This is industry practise by fnd mng & traders
4:54 AM ∙ May 3, 2022
81Likes19Retweets

Apparently, Axis knew about it since February but chose to let the accused continue with business-as-usual until their hand was tipped by media reports. You can read all about it in moneylife and livemint.

The last time that employees of a big mutual fund company were involved in something like this was HDFC’s, about a decade ago.

Unfortunately for investors, there is no asset management company in the world that can guarantee that none of its employees will front-run or insider-trade to their detriment. To catch this sort of behavior, institutions rely on large-scale surveillance and data-mining systems. But, at the end of the day, these systems are back-ward looking and human ingenuity will always remain one step ahead.

Punishing bad actors that do get caught is the bare minimum. Because the whole financial services industry is filled with perverse incentives.

  • Media is incentivized to dramatize everything to chase eyeballs and clicks. Their only crime is to be boring.

  • Brokers are incentivized to drive transactions. Their only crime is asking you to buy-and-hold.

  • Paying a percentage of assets? They are incentivized to gather assets. Their only crime is being sub-scale.

  • Paying carry? They are incentivized towards max-risk. Their only crime is being conservative.

  • Paying a per-visit flat fee? They are incentivized to atomize. Their only crime is being comprehensive.

A successful asset management business involves most, if not all, of the above activities. Regulators try to balance these incentives against the value provided by the business but can never really get rid of them. As far I know, only Warren Buffett’s Berkshire Hathaway and Jack Bogle’s Vanguard have even attempted to overcome these temptations. And they have done this by adopting unique corporate structures.

I guess it is my way of saying, don’t be naïve. Nobody is Caesar's wife. Nobody is going to pass the agni pariksha in this industry.

Markets this Week

There is no more alpha. There is just beta you understand and beta you don’t understand, and beta you are positioned to buy vs. beta you are already exposed to and should sell.

John H. Cochrane (pdf)

This week was all about central banks hiking rates. We got +40bps and the Americans got +50bps. CNBC ran “Markets in Turmoil” after Nasdaq dropped 5% on Thursday.

All said and done, Indian equities have held up better than most. INDA, the Indian ETF, has fallen less than both EEM and SPY.

Links

A new study suggests that companies with relatively high trademark filings earn higher future profits (WSJ)

Twitter avatar for @ecommerceshares
Wasteland Capital @ecommerceshares
April US spending data from MasterCard. Consumer refuses to get depressed, and won’t stop shopping. Wage growth & jobs is all that matters. Jewellery (+33%, happy $SIG), luxury (+26%), department stores (+15%). E-com shrinking though. We want to go outside! Restaurants +9%.
Image
8:38 PM ∙ May 5, 2022
126Likes23Retweets

'Buy now, pay later' is sending the TikTok generation spiraling into debt (sfgate)

More than 4.7 million people in India - nearly 10 times higher than official records suggest - are thought to have died because of Covid-19, according to a new World Health Organization (WHO) report. India's government has rejected the figure, saying the methodology is flawed. (BBC)

owning myspace equity doesn't make you facebook rich

@mgnr_io

Twitter avatar for @KennethLFisher
Ken Fisher @KennethLFisher
FI research analyst, Christo Barker, compiled this very nice and extensive three-phase list you may find interesting if you’re fretting an impending bear market versus not. Of course, not all or none of these necessarily occur, but this is a pretty good general guide.
Image
9:11 PM ∙ May 3, 2022
150Likes42Retweets

Nice to see Indian retail investors keeping the faith!

Twitter avatar for @udaytharar
Uday Tharar @udaytharar
Retail investors’ holding in the NSE-listed universe has reached a 58-quarter high of 9.7%. After 3 years of outflows in 2017-19, retail investors have turned net buyers since 2020. Investor accounts with depositories reached 90million in FY22, up 2.2x vs. pre-pandemic levels.
Image
6:00 AM ∙ May 4, 2022
27Likes7Retweets

On Monday morning, with volumes thinned by the UK’s bank holiday, Citigroup briefly crashed the European market. (FT)

Meme of the Week

Twitter avatar for @dougboneparth
Douglas A. Boneparth @dougboneparth
Every dead body on Mt. Everest was once a highly motivated person so maybe calm down.
2:45 PM ∙ May 1, 2022
58,890Likes9,716Retweets
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