How is Your Most Precious Asset Performing?
(Nov 9, 2015)
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In this issue:
» Public attention, media hysteria and the Bihar elections
» Business confidence in India is showing worrying signs
» ...and more!
Do you recall hearing that as a kid? I certainly do. I remember school teachers yelling it over and over again...hoping to get our attention. Such distracted kids we were! At home too, I remember getting scolded for not 'paying attention'.
I came across a novel concept called 'attention economics'. According to Wikipedia:
Attention economics is an approach to the management of information that treats human attention as a scare commodity, and applies economic theory to solve various information management problems.
Let us think about it for a moment. What is attention? As per Thomas H Davenport and JC Beck, 'Attention is focused mental engagement on a particular item of information. Items come into our awareness, we attend to a particular item, and then we decide whether to act.'
In our current times, advances in information and communication technology have unleashed an unprecedented wealth of information right at our fingertips. An endless flood of information competes for our attention. But most people fail to realise that, when they are 'paying attention', they are expending a precious, limited resource.
Do you ever think about how you are 'spending' your attention? Do you realise how much of your attention is wasted consuming meaningless, irrelevant, and sometimes even harmful information?
In an essay published in 1971, Herbert Simon (winner of Nobel Prize in economics in 1978), said, 'A wealth of information creates a poverty of attention.'
Let's put this in the context of investing in the stock markets. A plethora of information pours in minute by minute. As an investor, how do you expend your attention? Do you jump aimlessly from one bit of information to the next? Do consciously choose where to focus?
Think about attention as if it were a sum of money. How would you spend it? If you possess a value investor's mindset, you would want to invest your attention in ideas and information that would compound your wealth and well-being at the highest possible rate of return.
As an investor, are you investing your attention productively? Let us know your comments or share your views in the Equitymaster Club.
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Since we are on the subject of attention, I thought it would be worth making a mention of the topic that recently grabbed the entire nation's attention -the Bihar Assembly elections.
The unfolding of the elections was reported so extensively across all media. Viewers were bombarded with a zillion bits of news, numbers and data, exit polls...and everything was analysed and scrutinised with such zeal and haste that no one would doubt that this was indeed the most important event unfolding on this planet.
After all the tension and high decibel drama, the results finally came in yesterday. The Nitish Kumar-led Grand Alliance achieved a thumping victory in Bihar. The BJP-led National Democratic Alliance witnessed a disappointing defeat.
But the way the events were covered, the confidence with which predictions were made and later rectified to match with actual results, makes one question the credibility of the fast-emerging 'instant analysis' culture that leaves little room for deeper introspection and multiple possibilities.
Vivek Kaul, our India Editor of The Daily Reckoning had written a compelling commentary insisting readers to switch off the TV and not waste time on Bihar election results. I would highly recommend that you read the article that he has just written post the election results- Bihar elections: Why TV channels declared that Nitish Kumar had lost
A year and a half ago the market sentiments in India were running high. With Modi Government getting a clear mandate, 'acche din' seemed just around the corner. The Indian growth story never looked so promising.
However, the story seems to be taking an unpleasant twist. To call it a twist may be an understatement actually. As per Markit India Business Outlook survey (as reported by Livemint), the business confidence has touched the lowest level since 2009. As per the survey outcome, net 17% of the respondents expect an increase in business activity over the next 12 months. The shift in sentiments is noteworthy. Last year, net 35% of the respondents expected business activity to revive in 12 months.
And this is just one area where the disappointment of key participants in India's growth story is evident. As per the survey outcome, only a net 18% of Indian businesses expect a rise in profits in the next 12 months. The much hyped 'demographic dividend' is likely to become a liability with only a net 7% of the respondents expecting a rise in employment. The theme - 'infrastructure revival' is getting lost with expectations of a rise in capital expenditure declining.
All these statistics clearly point to one thing - the government is still struggling to deliver on the promises it made about reviving the economy. The reforms pipeline has been slow. And with the BJP-led National Democratic Alliance losing out the mandate in Bihar, the passage of key economic reforms will be a tough task as the BJP does not have a majority in the Upper House of the Parliament. As such, investors will need to follow a cautious approach and see how the economic revival unfolds.
Business Sentiments Take A Beating
After nose-diving during the early market hours, Indian stock markets recouped a large chunk of the losses. At the time of writing, the Sensex was trading lower by around 193 points (-0.74%). Barring FMCG, consumer durables and auto indices, all other sectoral indices are trading in the red with realty, healthcare and banking leading the losers' pack.
"Simplicity has a way of improving performance through enabling us to better understand what we are doing." - Charlie Munger
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|This edition of The 5 Minute WrapUp is authored by Ankit Shah (Research Analyst) and Richa Agarwal (Research Analyst).
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