Category: Food for thought

Bruce Schneier talking about some inner workings of NSA in context of the Signal chat leak.

When the NSA discovers a technological vulnerability in a service such as Signal (or buys one on the thriving clandestine vulnerability market), does it exploit it in secret, or reveal it so that it can be fixed? Since at least 2014, a US government interagency “equities” process has been used to decide whether it is in the national interest to take advantage of a particular security flaw, or to fix it. The trade-offs are often complicated and hard.

Waltz—along with Vice President J.D. Vance, Defense Secretary Pete Hegseth, and the other officials in the Signal group—have just made the trade-offs much tougher to resolve. Signal is both widely available and widely used. Smaller governments that can’t afford their own military-grade encryption use it. Journalists, human rights workers, persecuted minorities, dissidents, corporate executives, and criminals around the world use it. Many of these populations are of great interest to the NSA.

At the same time, as we have now discovered, the app is being used for operational US military traffic. So, what does the NSA do if it finds a security flaw in Signal?

Previously, it might have preferred to keep the flaw quiet and use it to listen to adversaries. Now, if the agency does that, it risks someone else finding the same vulnerability and using it against the US government. And if it was later disclosed that the NSA could have fixed the problem and didn’t, then the results might be catastrophic for the agency.

It is really fascinating to read how these clandestine agencies work. Fodder for a spy novel.

Jason Cohen talking about how a theory can give accurate predictions, but fail on the explanation of why.

The Mayans’ conception of the Earth, moon, sun, planets, and stars, was as ludicrous as every other ancient civilization, yet their priests routinely predicted the timing of eclipses with impressive accuracy. The priests leveraged this accuracy as evidence that their religion was correct, and that their exalted position in society was justified.

Their religion—and therefore their explanation of how the universe worked—is laughable to the modern reader: The Earth in the center (of course), with thirteen tiers of heaven whirling above and nine levels of underworld threatening from below. Eclipses are not caused by a physical object blocking the light of the sun, but rather spiritual beings temporarily consuming the sun or moon (Figure 1). Even the most fervently religious person today would classify these ideas as fanciful mythology, though the Mayans were no less certain of the veracity of their religion than modern-day humans are of theirs.

Nevertheless, they were careful observers and meticulous calculators. They understood that eclipses happened roughly every 173 days, adjusted by a 405-month cycle and additional smaller correction. They tracked these cycles and updated their model over the centuries, and as a result, their theory yielded accurate predictions, even though the theory’s explanation of why was entirely incorrect.

Dror Poleg succinctly explaining how convenience trumps authority.

At my office building, there is a bathroom. Every other week, the toilet gets clogged and the landlord has to call in a plumber. “Someone flushed wet wipes,” says the plumber. “You should tell people to not flush anything other than toilet paper.”

At first, the landlord put up a sign that said “Please do not flush wet wipes.” After every incident, the signs became more aggressive, using terms like “absolutely forbidden” and even “this is disgusting.” The landlord even tried to punish tenants by delaying the repair and keeping the toilet closed for days. 

Nothing worked. The signs continue to get more aggressive, and the toilet continues to get occasionally clogged. 

How do you prevent people from throwing wet wipes into the toilet? 

There’s one strategy the landlord hasn’t tried yet: Put a little bin next to the toilet, so people could have somewhere else to throw their wipes.

I read an interesting post by Jacob Kaplan-Moss about taking advice from someone who’s been in the tech industry far longer than you and how to give advice as a silver sage yourself.

…advice people with long careers on what worked for them when they were getting started is unlikely to be advice that works today. The tech industry of 15 or 20 years ago was, again, dramatically different from tech today. I used to joke that if you knew which was was up on a keyboard, you could get a job in tech. That joke makes no sense today: breaking into the field is now very difficult, and getting harder every year.

So even when people with long careers try to give newcomers advice, while it may be well-intentioned, it’s likely to be useless. If you’re new to tech, ignoring advice from old heads is probably a good idea. And if you’re a fellow old head who’d like to help people new to the industry, do it by paying close attention to what works for them and pass on that advice.

I think this applies to everyone, irrespective of the field in which they are working on. Commonly called as, generation gap. The young ones will always roll their eyes the moment silver sage starts giving advice. Then what can the silver sage offer? Stories.

After reading the post, I coincidentally listened to the Paisa Vaisa podcast by Anupam Gupta and Aashish Somaiyaa on How Investor Behavior is Reshaping Mutual Funds. Below is the transcript of what caught my attention.

The people who are young today, jo yeh log OTT pe dekh rahe hain, kitabon main proper literature padh rahe hain, hum log toh tabloid main padhte the. Oh my god, look Harshad Mehta and his Lexus and see what has happened. So for us it was really vivid, I mean we knew boss yeh to scam hota hai, for these people it’s a story. [Link]

…

It’s a different world. Matlab aap sportsman ko dekho, cricketer ko dekho, humare yeh jo young log hain unka, for the lack of better word, disposition, attitude, its totally changed. And rightfully so. Inko confidence hai because inka PE multiple zyada hai. Inko future ka visibility zyada hai. Humara PE multiple low tha, humko future kaa visibility hi nahi tha. [Link]

The younger ones don’t need advice. They need to hear the stories and vivid experiences that the silver sage went through, and how those experiences shaped what the silver sage is today.

Gordon Brander talking about why you should not rebuild software ecosystem. And if you are rebuilding a software ecosystem, you might be screwed.

Software can be rebuilt, because software is a machine. But a software ecosystem is not a machine. It is a living system. When we attempt to rebuild the ecosystem, we’re making a category error. We’re confusing the software for the ecological process unfolding around it.

…

You can’t rebuild an ecosystem, just like you can’t rebuild the Amazon rainforest. You can only grow with it, or bulldoze it and start over from zero.

May be that’s why legacy modernisation projects are so complex. Because you are screwed but you don’t know where.

While the jury is still out there on buying the dip, Nick Maggiulli explains why buying the dip—especially during recession—might not be possible for everyone. 

If we assume that the market will eventually recover, then a decline in equity prices today allows young and “asset-light” investors to buy cheaper today and earn higher returns in the future.

But the problem with this logic is that all else isn’t equal. Market crashes don’t happen in a vacuum. When asset prices decline, economic consequences typically follow. Workers lose their jobs or don’t get promoted. Hiring freezes up. People stop spending as much money. And this negative cycle feeds on itself.

If you happen to be someone who keeps their high-paying job during such a time, then, yes, a market decline can be a buying opportunity. But this isn’t the case for everyone. In fact, the paper The Short- and Long-Term Career Effects of Graduating in a Recession suggests that those who start their career during a recession tend to see 5% lower lifetime earnings. As the authors state:

A typical recession—a rise in unemployment rates by 5 percentage points in our context—implies an initial loss in earnings of about 9 percent that halves within 5 years, and finally fades to 0 by 10 years. For this time period, these reductions add up to a loss of about 5 percent of cumulated earnings.

I know what you might be thinking: “Yes, I lose 5% of my lifetime earnings, but I get to buy stocks at a 20%+ discount. How is that not a huge win?”

There are a few problems with this thinking, each of which I will address in turn.

Noah Smith reflecting on the recent meeting between Donald Trump and Volodymyr Zelensky. This is a paid article—which I do not have access to—but the below paragraph caught my eye.

The world is not made up of heroes and villains, like in Star Wars or a Marvel movie. Instead, like the Game of Thrones universe or a dark edgy comic book, the world is made up of antiheroes and villains. The kindest person you ever meet will have some moments of cruelty in their life; even the most upright and honest bend the rules once in a while; even people fighting for noble causes will have times when they’re selfish, arrogant, and greedy.

I previously read and liked M. Pattabiraman’s thoughts on financial independence.

Morgan Housel writes about independence and offers a another perspective on financial independence.

5. Financial independence doesn’t mean you stop working.

This idea is related to the previous one: Financial independence is a wonderful goal. But achieving it doesn’t necessarily mean you stop working – just that you choose the work you do, when you do it, for how long, and whom you do it with.

Those who retire early tend to come from one of two camps:

They hated their work but kept doing it to make as much money as they could.

They enjoyed their work but quit when they had enough money.

To each their own, but both look like situations where money controls your decisions. The irony is that some people who think they’re financially independent are actually completely dependent on money, so much so that they spend their days doing things they’d rather not because money tells them they should. Rather than using money as a tool, the money used them.

A sensible discussion on The Morning Brief podcast between Anirban Chowdhury and Nishanth Vasudevan on the FPI sell off. They also discuss some strategies for you to navigate the current market.

If you look at the price to earnings ratio, which is a very widely followed valuation parameter, that has kind of come closer to the 10-year average or it has kind of fallen slightly below the 10-year average, which basically shows that valuation among large caps, those have kind of eased quite a bit and they are looking much better in terms of valuations. But now when we look at the smaller companies, the small and mid-cap companies, the valuations who are there, they are still much above the 10-year average. Even despite all the correction.

 …

Despite that, many of the stocks are still trading above their averages. And yeah, there is still a fair bit of valuation concern in many of them. And that is the same point which ICICI Prudential, CIO S Naren raised.

He said that in a recent conference, where he said that the appetite for small and mid cap stocks, they have not subsided. People are still doing a lot of SIPs in that. And that is where he warned that you can’t do SIP, a systematic investment plan in an overvalued asset class.

In that, he actually was eluding to small and mid cap stocks. So over there, his suggestion was that, if at all you want to do a SIP, you should go for large cap oriented schemes or large cap oriented stocks.

I have came across some interesting perspectives on risks previously over here and here. This post by Paul Krugman—where he quotes his discussion with Jim Chanos—particularly caught my attention. While the Nifty 500 has dropped 16% since September 2024 and showing no signs of recovery, Jim Chanos is talking about US stock market which remains strong.

The one thing I’ve learned after 40 years of running money is that my idea of where the markets are going is pretty much worthless. What you can do at any given time in market cycles is look at things like sentiment and valuation that give you an idea of what kind of risk you’re taking. It’s not necessarily a timing mechanism, but should anything go right or anything go wrong, what type of risk are you incurring? And right now, I believe pretty strongly that risks are pretty elevated for lots of reasons. We can get into them. But valuations are very, very high. And they’re very, very high on what are basically all-time high corporate profit margins, which used to mean revert, but don’t apparently do that anymore, as you know better than I do.

And then you’ve overlaid on this a really, really set of new political economic risks that could really take things in all kinds of different directions with unintended consequences. There’s elevated valuations on elevated profitability with a dynamic that is somewhat new in the political sphere.

A little later in the post.

…markets sometimes refuse to acknowledge what’s right in front of their noses, which seems relevant to our current situation.