FF Daily #385: Age of pandemics

May 31, 2021: Chinmay Tumbe on the difficulties of forecasting in a pandemic; Best shareholder letters; On self-deception; Starry Night

Founding Fuel

[By Gwydion M. Williams (CC BY 2.0), via Flickr]

Good morning,

A few days ago, we got done with reading the compelling Age of Pandemics: How They Shaped India and the World by Chinmay Tumbe. He is an economist at IIM Ahmedabad and the book was published last year.

[T]here will always be a contest between those who want to shut down economic activities to control a pandemic and those who don’t. Seen from the prisms of economics and epidemiology, it reflects different objectives, one that wishes to maximise economic growth (without rampant inflation) and the other that wishes to minimize deaths. This is a hard trade-off that policymakers around the world grapple with during a pandemic. It is a choice that should not be left to either epidemiologists or economists, as they are accountable to nobody, but to politicians taking counsel from both.

“It is likely that both epidemiologists and economists have vested interests in exaggerating their fears. For it is better to project a million deaths and be proved wrong when only 10,000 occur, rather than the reverse. And it is better to project a 10-percentage point cutback in economic output and end up with only 5 per cent than the other way round. The politician’s choice today is reasonably simple. Given a potential scenario of a million deaths without any action but a 10 per cent cutback in output with intervention, few would choose the former. Unsurprisingly, most governments opted for a lockdown in 2020.

“A lot then depends on forecasting. And in this, I will argue that epidemiologists and economists will never get it consistently right. This is not to belittle the efforts of these fields, which have contributed to a reduction in death rates due to infectious diseases, and output-and-price volatility, respectively, over the past century. But pandemics are different and one has to admit humility in the face of extraordinary uncertainty.”

After reading the book, there were many questions on our mind. How much has the world changed since the time Tumbe wrote the book? What options do policy makers have now? Why did India get implicated as badly? How did we forget history? What lies ahead? Tumbe opened up and we had a lovely time listening to him. We’ll post the conversation on Founding Fuel later this week. Stay tuned.

Have a good day. And stay safe.

In this issue

  • Best shareholder letters nobody is reading
  • When self-deception is good
  • [Painting] Starry Night

Best shareholder letters nobody is reading

Krishna Kumar, a Bengaluru-based acquaintance of ours, has made it a habit to share with his larger network passages from books he reads or pointers to articles he finds interesting. That is how we discovered Pearls of Wisdom with pointers by Elizabeth Howell. She is an equities research analyst and we thought her post on why investors must pay attention to shareholder letters most interesting. “How well a CEO tells the narrative of their company actually impacts the stock price.”

“Companies with the strongest shareholder letters outperformed their index” 

Her research on the best shareholder letters reveals traits they have in common.

  • “Good shareholder letters spell out who they are and what their vision is for the company over the long term. This instills trust in stakeholders and provides a level of cushion when a seemingly out-of-character decision is made. Good shareholders invest in companies with big picture visions they believe in.”
  • How candid these letters are offer a hint to how the company performs when the environment turns gloomy. “Those whose Candor & Culture rankings were the lowest—Wachovia and Merrill Lynch—did not survive the economic crisis.”
  • They make an honest attempt to educate because the writers attempt to talk about “the secular drivers in the company’s market or something insightful that is happening in the industry. At the very least, management teams should want the investor to walk away from the letter more informed about its industry and company.”

Plus, they are entertaining as well. Howell goes on to talk about the best written shareholder letters she has examined and how those companies have outperformed the indices.

Dig deeper:

When self-deception is good

While on candour and transparency, an interview by Raju Narisetti of McKinsey with Shankar Vedantam, host of the Hidden Brain podcast had our attention. There are times when most of us lie. To place some hypothetical examples to illustrate his case:  

When a friend comes up to you and says, “You know, I’m going through a divorce,” you don’t tell your friend, “Well, you’re going through a divorce because you were a terrible partner. Serves you right.” You tell your friend, “I’m really sorry for what’s happened to you. I’m sure that things are going to look up in the future. Let’s maybe sit down and talk about how we can make things better for you.”

That’s what makes you a good friend.

“The idea that self-deception can ever be good for you is something that I find not only counterintuitive but also deeply disturbing.” 

When asked about the role of transparency in the workplace, Vendantam has a nuanced take: “in general, I think that’s a good principle. But it is the case that in many, many dimensions of our lives, it actually is helpful to at least shade the truth a little bit.

“Let me give you the simplest of examples. When we talk to one another in the workplace, it’s really important for us to be civil to one another, to be polite to one another, to phrase requests as requests rather than commands or orders. Now you could argue that, in some ways, this is a form of deception.” While the honest thing to do would be to order an underling around, we are polite because it helps the workplace succeed in the longer run, he points out.

He suggests that we push the boundaries in the interest of transparency and think about a question: “Should we simply make everyone’s salary transparent to have a more egalitarian workplace?” He dives into some detail there and explains why it backfired in spite of the intent being laudable. 

Where do you draw the lines then?

Dig deeper

Starry Night

Starry Night was painted by Vincent van Gogh in 1889 during his stay at an asylum where he was recuperating after being diagnosed with paranoia and epileptic fits. “Looking at the stars always makes me dream,” he wrote. 

Take a few minutes out to read the backstory to this work and look at this work of art in augmented reality. Think of it as balm for the soul. 

What’s helping you get through these tough times? Send us the song, poem, quote that is your balm now. And we will share it through this newsletter.

And if you missed previous editions of this newsletter, they’re all archived here.

Bookmark Founding Fuel’s special section on Thriving in Volatile Times. All our stories on how individuals and businesses are responding to the pandemic until now are posted there.

Warm regards,

Team Founding Fuel

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