Bubbles at the speed of light

A friend of mine, trained in physics, once told me that he never expected to be in a profession where the speed of light was a limiting factor. That profession was finance, and this article by Paul Wilmott explains why (and also explains why the author is worried): computerised stock-market transactions now take place at speeds limited only by computer hardware and communication systems. But I was particularly struck by the closing paragraph:

Buying stocks used to be about long-term value, doing your research and finding the company that you thought had good prospects. Maybe it had a product that you liked the look of, or perhaps a solid management team. Increasingly such real value is becoming irrelevant. The contest is now between the machines — and they’re playing games with real businesses and real people.

I wrote something extremely similar in the last paragraph of a blog post some time ago:

Once upon a time, you decided whether or not to buy a stock by comparing its price with the earnings of the company, estimating the dividends you would get, and comparing with other investment options. Somewhere along the way, the goal of investment changed into something rather different: buy a stock in the hope that its price will rise, and sell it. It doesn't matter if it is ridiculously overvalued: if the market is going up, buy. What exactly was wrong with the old model, and how many mutual fund managers actually looked into the strengths of the companies in their portfolios before putting their customers' money into them?

Wilmott doesn't talk about mutual funds, but to date his is the only article I have read that raises the question of investing for long-term sustainability. His NYT article talks about how bubbles grow and burst. It seems clear to me that most mutual fund managers feed (and feed on) bubbles, rather than look at the long term. It is not clear to me that, even today, investing with a long-term perspective in a sound company is a bad thing to do.

Fiat: the service is the thing

In 2004 I bought my first car, a 1999 Fiat Uno that had done about 25000 km. I bought it for 1 lakh rupees, about half the price I'd have paid for a comparable used model from Hyundai or Maruti. I've more than doubled its mileage since then and it has served me well. If Tata's "Rs 1 lakh" car serves its customers equally well for five years, they should be happy. [sentence corrected - originally said Maruti's]

But the people who should take credit for its smooth running are not Fiat, but a garage near my house called Kittu Auto Works. I first went to them more or less randomly, but stayed for a while. The service was fast and excellent, which cannot be said of the official Fiat channels. The reason for the low price I originally paid was, in fact, precisely Fiat's terrible reputation for after-sales service (plus the fact that the Uno was no longer being manufactured.) At that time, it was Sundaram motors who were tied up with Fiat for sales and service; based on their reputation, I did not even venture to try them.

As the years went by, Fiat started turning itself around internationally, based on some extremely successful launches like the Fiat 500 and the Grande Punto, and on some aggressive costcutting and optimisation by a new CEO. In India, Fiat continued to struggle, but made changes too, notably scrapping their agreement with Sundaram and tieing up instead with Tata Motors (who were interested in Fiat's technology and overseas reach).

So I tried giving the new official Fiat service centre, Concorde Motors, a try. No luck. The guy told me frankly that the waiting time for Uno parts is typically 3 weeks. I said that my mechanic gets all parts the same day so far. He said "local guys can get it locally, but we have to go through the official channels." Given how many Unos are still on the road (I'd guess that, at least in Chennai, it's the most common car not still in production), I find it inexcusable.

So I stuck with Kittu. But I was growing a bit dissatisfied: the car, as it gets older, was showing more severe problems and it seemed like he was band-aiding them rather than fixing them. Also, every time he returned the car, it seemed a new problem would crop up.

Finally, after a repeated failed attempt to fix a radiator leak (he had fitted a new pipe, but placed it too close to the radiator body, and a sharp edge had cut into the pipe), I lost patience and decided to explore another mechanic. This was a new shop called Ignite, run by a young, articulate man called Raghav who had quit his software-industry job to pursue his first love, fixing cars. After a stint with Hyundai he had decided to set out on his own.

So far I am entirely satisfied with Ignite (and recommend them to anyone in Chennai who may be reading this). I find Raghav responsive, quick to understand the problem, and thorough in fixing it. Two examples: a persistent gearbox oil leak, that Kittu kept claiming was due to the driveshaft seal, was identified by Raghav as coming from deeper inside, and he fixed it. And a cold start problem, that had been around since the time I got the car but had been getting worse, was identified as a carburettor problem; he replaced the idle jet and the car has been as good as new since. He was also upfront in telling me what he did not fix and why not (basically, difficulty in getting parts plus lack of immediate severity of the problem); if it gets worse, he would do it, fabricating parts if necessary.

Thanks first to Kittu and then to Ignite/Raghav, I have been happy with my Uno. As for Fiat India, I am grateful to them for building good cars, but also, in a way, for their horrendous after-sales service that enabled me to buy a used car at a great price.

[UPDATE 05/02/2010: I really must update the above. A little after I wrote all that, the car developed a persistent problem in the ignition system that Raghav, after changing the spark plugs, wires, ignition coil, distributor cap and rotor, and much else -- all of which needed changing, except the ignition coil -- decided he did not know how to fix. I returned to Kittu, who immediately identified the problem as the distributor -- not the cap or rotor, but the timing mechanism -- and fixed it. Moreover, a couple of parts replaced by Raghav developed problems within a few months and had to be replaced again by Kittu. So I am back to Kittu, for the lifetime of this car. The guy knows his stuff and I highly recommend him to anyone who lives in or near Kottivakkam, Chennai. He has a tendency to minimise costs, but usually that's not a bad thing. I notice he even gets lots of Hyundai cars to repair, even though there is an official repair shop about 300 metres away. As for Raghav/Ignite, he's probably good too, but hasn't seen thousands of cars yet: he'll probably get there...]

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Though I am not on the market for a new car, I have been following Fiat India's recent doings with interest. They have launched three cars this year. First, the Fiat 500 (Cinquecento), a super-small car (comparable with the Volkswagen Beetle), which is exorbitantly priced partly because, as a fully-imported car, it attracts 100% import duties. I believe sales have been in the low single digits. Second, the Fiat Linea, a very nice looking sedan whose sales have reportedly been very encouraging. I see quite a few of those on the road now. Third and most recently, the Fiat Grande Punto, a hatchback meant to compete with the likes of the Maruti Swift or Ritz, or the Hyundai Getz or i20.

The Linea and the Punto have been very competitively priced, and both are visually outstanding -- the best-looking in their category on the market, in my opinion. Reviews for both have been excellent, too. But looks and build quality have never been Fiat's problem: it's their after-sales service.

Yesterday I saw a Punto, clearly a demo vehicle, parked in front of my car as I was returning to it from a shop. Seeing my interest, the lady inside smiled at me; I asked if she worked for Fiat, and she said yes.

"Very nice car", I said.

"Thanks," she said.

"But the problem with Fiat is not the car quality: I have a Fiat Uno, parked behind [gesturing], and am happy with it. The problem is the service."

"Yes sir, for Uno and Palio there is problem with parts, but for Linea and Punto there will be no problem".

I had been preparing to argue that it was not nice to dump Uno customers after ceasing manufacture of the Uno, but this took me aback.

"Wait a minute -- the Palio is a current car! Are you saying there are problems with parts for it?"

"For petrol Palio there are problems sir, but no problems for diesel Palio."

"But then why should customers believe that servicing for the Punto is good? Maybe you have it in place now, but will you dump your Punto customers after a few years?"

"No sir, for Punto and Linea there will be no problem."

"See, the problem for Fiat has not been the cars, it has been the after-sales service. If you can't even service the Palio you have a problem. You need to make sure the service set-up for the Punto and Linea are good."

"Yes, sir, I agree. Thank you."

I will watch with interest. Apart from anything else, there seems to be a conflict of interest with Tata: the Palio and Punto compete directly with Tata's Indica, and the Linea competes with Tata's Indigo. One hopes that this does not affect their sales network.

The point is, parts are available even now for the Uno -- just not with Fiat. Due to high localisation, most parts are not actually made by Fiat, and even if Fiat doesn't warehouse them, others do. As the localisation levels of the Linea and Punto increase, I expect that the same will be true of those models too. Even if Fiat leaves customers of those cars in the lurch, third parties will step in.

I don't expect to buy a new Fiat car (or a new car of any sort) any time in the near future. But if they don't improve their after-sales service, a used Fiat could continue to be a very cheap and tempting option.

Is 377 now 404?

I've been going slow on blogging for a while. Yesterday's news of the Delhi High Court's ruling on Section 377 of the IPC is the biggest civil-rights news in India that I can remember: perhaps the biggest since untouchability was abolished. Just like untouchability, homophobia will persist in our society, but apparently it is no longer blessed by the law. But given the complexity of the situation, I wanted to spend some time absorbing the news before blogging. It is now over 24 hours and I'm not sure I'm much the wiser.

There is no ambiguity in the Delhi High Court's ruling: it is clear, and it is common sense. Outlawing consensual homosexual acts among adults is clearly discriminatory and violative of fundamental rights. (One should note that 377 does not outlaw gay sex specifically, but "carnal intercourse against the order of nature", which could be interpreted to mean anything. For example, it could outlaw any form of sex other than penile-vaginal penetration; on the other hand, given that homosexual behaviour is widespread in the natural world, one could argue that gay sex is not "against the order of nature" and not outlawed. But any interpretation of article 377 as outlawing consensual adult gay sex has been struck down, rightly, by the court.)

What I was wondering was, is this the end of the story? First of all, does the Delhi High Court's writ run across India? I am not a lawyer, but from what I gather on the net, the answer is yes -- unless the Supreme Court overrules it, which they would consider doing only if the Union Government challenges the HC ruling. But what if another High Court upholds 377? One assumes that the SC will then have to step in.

And what if the SC does step in? I am not pessimistic: after the Delhi High Court originally dismissed the Naz Foundation's petition in 2004, on the grounds that it was not of public interest, it was the Supreme Court that asked the HC to reconsider the case. I think it is not likely that the SC will rule differently, if asked to do so. Articles 21, 14 and 15 of the Constitution, cited by the High Court, surely overrule any colonial-era laws that have lingered on in our books.

Our religious leaders are, predictably, having fits -- this is one issue that unites all religions and religious leaders. Some, like the Catholic Bishops Conference of India, are relatively temperate in their response, saying they are "not opposed to" decriminalising homosexuality. One must be grateful for small mercies.

What is most amusing is this harping on "Indian culture" (a phrase used by nearly all religious leaders): our epics feature such stories as Vishnu turning himself into a woman to seduce Shiva, while the law in question is a legacy of the British and represents Victorian English culture (the same culture that imprisoned Oscar Wilde), not Indian culture at all.