Pranav—The impressive trajectory of American analytics firms
Bloomberg just carried a really neat piece on the rise of analytics firms like Moody's and S&P --- making the case that the analytics giants have, over time, become central to finance.
This dominance is just a generation old. I'm sure this isn't a surprise for someone that's been in finance for a while. To a rookie like me, though, that's wild. There was a time when celebrity managers had the same role, and these companies did little more than providing data to the real big boys. That changed when index funds took off, in the 1990s. As more and more dollars moved to index funds, market power moved from superstar stock-pickers to nameless data analysts.
Another big ingredient for their rise, however, was the absolute (and very recent) dominance of the magnificent seven. They grew non-stop, as did their weight in indexes --- and any active manager that wasn't as heavily bought into them (and that was basically every active manager) looked like a dud.
But if you believe that tech stocks are far too highly valued, does that also means that the reputation of these firms is also in a bit of a bubble? I think the piece implies this, though it doesn't quite say so.
Meanwhile, these firms are spinning off products that increasingly resemble active strategies ---- value, growth, quality and momentum. With time, active managers have slowly fallen to less than 50% of the market.
S&P and Moody's, though? They've become gigantic businesses in their own right, with hugely profitable business lines, piles of cash, and a lot of data that they can monetise, besides.
Which makes me wonder: why doesn't India have private index providers of the same kind, which aren't affiliated to a stock exchange? What are the inputs in such a business anyway? Questions I'll park for later.
Krishna—When you become wealthy
A recent post on Klement on Investing discusses a study from the US and UK that examined how people’s views on taxation shift after they acquire wealth. The researchers conducted two experiments:
Effort-Based Wealth
Participants had to add two-digit numbers as quickly as possible. High performers earned more and, as a result, favored tax rates about 30% lower than those supported by low performers. Their stance was that they worked harder and thus deserved to keep more of their earnings.
Luck-Based Wealth
In this scenario, wealth was allotted purely by lottery. Even though winners knew their good fortune was random, they still advocated for tax rates around 20% lower than those who didn’t win.
Overall, the study found that once people become wealthy—whether through effort or luck—they tend to feel they deserve their wealth and push for lower tax rates.
Okay, off to earn the big bucks so I can change my opinion, too!
Tharun—AI + Quantum computing = AQ
Things are progressing so fast in the AI and Quantum computing space that every day some news about a development comes out. One such thing that I came across today is AQ. Think of AQ as a super team of Artificial Intelligence (AI) and Quantum computing (Q), and together they are AQ.
And this now is a possibility thanks to Microsoft releasing Majorana 1 Chip. Nadella hyped the release, and explained it in a way where everything went over my head when I read it.
So I did the same thing a bunch of us are involuntarily doing, asking AI to explain it like I am a 10-year-old. And here's how GPT explained:
What is Microsoft's Majorana 1 Chip?
Microsoft is making a special type of quantum computer chip called Majorana 1. It uses a new kind of "building block" called a topological qubit. Imagine you're building a LEGO tower, but the pieces are wobbly and keep falling apart (like normal qubits in other quantum computers). Microsoft's new qubit is like a super-strong LEGO piece that doesn't fall apart easily. This could help make quantum computers work better and faster.
What is a Majorana Particle?
A Majorana Particle is a super tiny thing (like an atom) that scientists have been searching for, for almost 100 years. They finally found it, and it has special powers that could help make quantum computers stronger and more reliable. Think of it like finding a rare Pokémon that can power up your whole team – it's a big deal!
Now, while this is easy to understand, I am sure there is a lot more to it because the internet is going bonkers over this. There are a bunch of other announcements in this field that you can find here.
Pranav had written on The Daily Brief about how AI is getting used across industries. It will be fascinating to see how this all plays out with quantum computers in the equation.
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