Ten Technology Trends for 2011

It’s always dicey trying to predict technology trends. But it becomes a bit easier if the time horizon is short, like say, a year. It’s also that time of the year, with the new year dawning, that one wants to look ahead and try to guess how things will pan out.

Technology is what technology does. In this article, I shall try to focus more on the impact of technology as I see it on our daily lives in 2011.

The distinctive trends that have caught on and look like accelerating in the next year are:

1. The rise of smartphones: With the increased number of apps available on smartphones, we will soon come to a stage that we cannot live without one.  We will use it to speak and send sms as always. We will want to use it to upload photographs of family events as they are happening on to facebook. We will be tweeting on the go, and in the middle of every act. We will use GPS applications coupled with city maps to find our way around. We will play silly games on it like “Angry birds”. We will have the compulsive need to feed our cow, or till the land, or whatever it is that people do, when they join Farmville. We will use barcode reader apps to find out more about products on store shelves and to do comparison shopping. We will record events in our lives by uploading photographs on the net and tagging them. Our banking and bill payments will be on the go. Whether we know where we are going will continue to remain a question, but we will be doing more and more things on the go. To paraphrase Lewis Carroll, “if we don’t know where we are going, it doesn’t matter which road we take”; but we are definitely sure that we want to reach wherever we are going faster!



2)      The rise of Android: Android phones that are hitting the market are catching up on features with Apple, and the apps are more in number and unrestricted. Nokia’s Symbian and MS Windows 7 will remain niche, and may even fail to take off. Android will overtake Apple, and Apple will continue to be strong. Corporates are beginning to allow connectivity from multiple devices as they resolve security issues, and that will ensure that the growth of RIM’s Blackberry also tapers off.

3)      Different strokes for different folks: Wireline devices are not dying, not yet. High-end PC’s with wired connections will come into every home; most people who are reading this article already have a PC at home with a high-speed (?) internet connection. More people will buy high-end PC’s for the home, and several of us will upgrade. Cheaper PC’s for the rural markets and schools will be pushed by computer makers looking to expand their markets. System-on-chip products using more energy efficient chips like Intel’s Atom will increase in usage and penetration. As to wireless, more applications will be found for them. Corporates will start developing apps for their sales teams (to start with) and others, with applications “on the go” specific to their areas of work. 




4)      Google will become more powerful, especially if Google TV takes off. They are collecting more and more of the world’s information in their maps, and more and more streetscapes from roving cameras. The fact that most internet searches are not searches any more, but “googles” only enables them to amass a load of valuable data about our buying habits and psycho-profiles which they can even use to predict behavior. In fact, Google Instant is a step in that direction.

5)      TV will become more “on demand”; DTH television will gain a greater foothold in India. The old cable-wala as we know him, is a dying breed. Integration of TV and PC viewing is still some time away, it won’t happen in 2011.

6)      More people will start working from home. In India, many companies have tried work from home policies with mixed success. There are several people who do not want to work from home – they find coming to office gives them greater flexibility and peace of mind, perhaps. But companies are pushing work from home more than before, and have even started talking of factoring a “discount” into their real estate planning to factor in working from home. The need to be seen as “woman friendly” will add to the trend. As connectivity at home improves, the willingness to work from home will increase.

7)      LED lighting will start growing. After tungsten filament, it was mercury vapor lamps, then it was CFL. Even before CFL could take hold fully, LED is gaining ground. It consumes much less power, is much more flexible in terms of applications, and the technology is proven. As production increases, it will bring down prices and push up demand. People will need to get used to the difference in the ambient lighting, since LED has a different feel to it, but that will begin to happen.

8)      Small solar powered electrical devices will take off in a big way especially in villages. These are becoming more and more affordable.

9)      More and more people will hit the “Dunbar limit” on facebook and will start restricting their “friendships”. In India, this will be more than made up by the fact that more and more people will join facebook.

10)     More and more of human interactions will happen on-line; and we will be less and less able to recognize our neighbors, leave alone becoming friends with them!

The best ODI team ever

We are back to the ritual that is conducted religiously every year. All-time great players have been nominated for a poll on the best ODI team ever. What purpose do such exercises serve?

 

Each player is a product of his times and each performance is unique. A person who does great things in one era has to be lauded for the fact that he has managed to rise above the constraints set on him by his environment, surmounted challenges posed on him by opposition, and managed to triumph in spite of all odds. Celebration of all victory is our way of acknowledging the indomitable spirit to fight that resides in all of us. 

 

The bowlers that the great Don faced and the countries he played against (England) are very different from what Sachin faces today. Both of them are champions, but from different eras. Why do we insist on having the debate about who is the greater batsman? Why not just revel in the greatness of both and feel happy about it?

 

The modern era is one of making lists. We want to rank everything and everyone on a scale, and are not satisfied till we decide who is number one. The persons or institutions being ranked sometimes do not take part in the process and do not care what you or I think about them; but unfortunately, in the era of market based economies, it matters. A lot of decisions are made based on who is first, and a lot of money is spent based on such rankings. So we have the spectacle of people competing to be ranked, and losing sleep over retaining their place on the rankings. Why not just enjoy the process and let the rankings go?

 

We rank batsmen based on their runs; bowlers based on their wickets. Since this does not seem adequate to capture the complexity involved, we throw in things like strike rate, quality of opposition (which itself is based on another rank, but never mind that), number of maiden overs bowled, etc. We assign weightages to each factor. Would these weightages adequately distinguish between the balance of various factors that changes with every match? But never mind that, we want one number, and one ladder on which to place people. We now have two lists, one of batsmen, and one of bowlers. Since the two need to be compared for the ladder is but one, we assign equivalences between number of runs scored and number of runs conceded, number of tons and number of wickets, and so on. And then we come up with one number. A number that encapsulates the genius of each sportsman… the whole genie in a bottle neatly packaged and measured!

 

You can imagine the following scene in a sports management agency. The client has a budget of ten crores, and he wants to sign on a couple of celebrity sportsmen for endorsements. The media planner will have a powerpoint presentation ready that has all kinds of scientific analysis; like, amount demanded by the player divided by his ranking as decided above,  a two-axis graph with performance on the x axis, and popularity on the y axis, with player names plotted inside… I am sure we could think of many more metrics.  What do such metrics actually stand for, what do they represent? No one gives a thought to that. Unfortunately, a lot of decisions are made based on these metrics, sometimes for want of a better alternative. I am sure a Richard Branson or a Steve Jobs, if asked to decide on whom to pick for endorsing their products, would not look at such metrics; they would look at numbers no doubt, but go with their gut. Unfortunately, when there are too many people deciding at the top, with too many stakeholders to report to, and too many justifications to make, everything has to be reduced to a metric.

 

Coming back to cricket, there are not just individual rankings, but team rankings as well. And then you have a selection of the best current world one-day team based on points. Would a Dhoni or a Sachin perform similarly when they are part of a different team; how much of their performance is part and parcel of the set-up and the team they are in – how much of their spirit that we see in the game is intertwined with the team they are in?  All these nuances are ignored of course – we just want to pick one team that we think is the best, and in order to justify our choice we want numbers to back us up!

 

And then ICC has its 40^th anniversary celebrations and declares that it will have an online poll of the best ODI team ever spanning players across generations. What are we comparing and why? We are of course ecstatic that a few of our players are there on the shortlist – they better be, considering the number of countries that play cricket, and considering the disproportionate amount of time we devote to cricket as a nation.

 

And then the winning team is declared. If you happen to have chosen the correct winning team in the poll, your name gets mentioned somewhere. You get your 15 minutes of fame. Several online polls are conducted in such a way now that the majority verdict on the poll determines the winner (with revenues to the telephone company if it is an SMS poll, but that is another matter). The irony that is lost by most people in such a scenario is that you are declared a winner precisely because you are part of the majority! To be unique, you have to belong!

(23 December, 2010)

Talking about Gold and Silver - Part 4

 

If you ignore ornaments, there are three ways you can buy gold. Physical gold in the form of gold biscuits, electronic gold in the form of ETF’s, and electronic gold in the form of e-gold from the commodity exchange. When it comes to silver, ETF’s have not yet been allowed by SEBI, and hence the options are only two – physical bars, and e-silver from the commodity exchange. Each of the modes of holding has its own characteristics.

 

Bullion in the physical form is the most free from political control.  In the US it was not lawful for private citizens to hold gold for a long time, and in India till the mid-90's, gold imports were restricted in order to curb private holdings of the metal.  In situations of war or public emergency , the entire gold reserves of the country can be commandeered by the government, who can pay you cash in return. But one of the reasons why we hold gold and silver is as a hedge against the threat of currencies becoming worthless! Gold in ETF form or gold lying in the commodity exchanges are easiest for the government to lay its hands on.  Also, in a situation where the actual physical stock is with someone else, and all that you hold is a piece of paper “promising” you delivery, there is always a counter-party risk involved. This risk could play out in various ways. For example, how do you know that the ETF is actually holding physical gold – part of their portfolio could be in the form of “gold-backed” securities which, unbeknownst to them, may not have a backing of solid gold behind it?

 

Modern markets and institutional structures with the backing of relevant laws and regulators, are built in such a way that they give us the confidence to trust in them. I do. I do trust them to the extent that a major portion of  my assets are lying with the government as PF or PPF, or in the stock markets as shares in demat form. But the 10 to 15% percent that I put aside as the “ultimate fall back”, – my investment in gold and silver serves this purpose apart from being a good investment on its own merits  – I would like to keep in physical form in my custody, thank you very much. Guarding against Black Swan events at least to the extent of 1/6^th of my holdings strikes me as a sensible thing to do.

 

Okay, so let’s not get paranoid. Let us bring the debate back to level ground where there are no armageddons, no apocalypses. Assuming all the modes of holding are equally safe, how do we decide in what form to hold gold and silver?

 

We examined physical bullion in the last part of this series. When you sell gold biscuits or silver bars, the tax treatment is the same as that for any other asset. If you have held it for less than three years, the profit on sale would be added to your income for this financial year, and you will end up paying full tax calculated at your marginal rate. If you have held it for more than three years, you will be taxed  at  rates pertaining to long-term capital gains, i.e., 20 percent after indexation benefit, which could work out to anywhere between  13   and 20 percent of the gains. Having said that, most transactions in physical gold and silver are in cash, and carried out at the retail level.

 

You can buy gold (not silver, not yet at least) in ETF form. ETF’s are nothing but “Exchange Traded Funds” which are closed-ended mutual funds that are “traded” on the exchange, i.e., units of the fund are bought and sold on the exchange just like shares at the day’s quoted price, rather than redeemed through the fund manager at the day’s NAV. Gold ETF’s invest in gold and hence their prices are supposed to closely track the price of gold. For this, they charge a management fee which  in India  varies from 1% to 1.5% percent per annum. If one tracks the last few years’ performance of gold ETF’s , it has been observed that they do not exactly give the same return as the price of gold; they actually lag the gold price increase by about a percent every year. Part of this is of course due to the management fee that is charged for managing the fund. There are about a dozen Gold ETF’s in the Indian market – among them I prefer Goldbees from Benchmark AMC.

 

Buying from the cheapest retail source entails a buy/sell spread of about 4%, as we saw in the previous part. Add about 2% for the extra hassle of keeping physical gold, and selling it when the time comes, and you get, say, 6%. Buying an ETF through a broker involves commission at the time of buying and selling, totaling to about 1.5%. Add to this a management fee of, say, one percent per year. Equating the two, you get a “break-even” period of about five years. If your investment horizon is less than five years, go for ETF. If it is more than five years, you should prefer physical gold.

 

Gold  ETF’s get a special tax treatment since they have been classified as “ non-equity mutual fund ”.  If you hold ETF’s for more than a year, any gains you make on sale classifies as “long-term” and you can pay tax at the rate of 10 percent of the gains.  In case you hold it for less than a year, the gains are just added to your income and taxed at your marginal rate. This compares very favorably with physical gold, where the threshold for considering it long-term is three years.

 

You can also hold gold and silver in “e” form. National Spot Exchange, which is a commodity exchange, offers “e-gold’ and ‘e-silver’. They are like demat shares – you hold them in a separate commodity demat account that you open with them. They are fully backed by physical gold/silver with a facility to deliver the bullion physically to you at a nominal cost, at your option. You buy or sell them like you do shares. The tax treatment is the same as for physical gold or silver. Visit the website of National Spot Exchange to find out the modalities of opening an account, etc.

 

That concludes our four-part series on gold and silver. If you have been just reading this, and not bought any, it is time you ventured out into the market and bought some!

Clarifications on Gold rates

Checked rates today at Tanishq and Shubh Jewellers.

The rate quoted on the Mint masthead is Rs. 2043.50 per gram. Tanishq's base rate is 2120. They charge about 5% margin (it varies as per a sliding scale - it's 5% for a 10 gram coin) plus 1% sales tax. The actual rate for a 10 gram biscuit is 2247. They will buy back Tanishq biscuits at the base rate (2120) if you buy ornaments from them with the proceeds. In case it is a cash buyback they will deduct 5% and give you 2014. So the net buy/sell margin actually works out to about 11% including the tax.

Shubh Jewellers quoted 2088 as their base rate, plus 1% tax. Their buyback for Shubh biscuits is currently is at 51 rupees less, that works out to 2037. 

As expected, the buyback is at a rate slightly less than the day's benchmark rate. The rate at which they sell to us differs widely.

Talking about gold and silver - Part 3

How to buy gold and silver

 

When you buy a car, there could be a justification for paying more for a Swift over an Alto; you could consider paying more for a Louis Philippe Shirt over a shirt from a lesser brand; you might willingly pay twice that amount for a designer shirt that is exclusive. In some cases additional features justify the higher price, and in some cases it is justified by the brand value.  How much premium should be paid for "brand" value is debatable, but there is some justification for it once you have taken care of your basic necessities, and want to show that you are progressing in life.

 

That is as far as consumption expenditure goes. When it comes to investments, would you pay more for one share of Reliance just because you bought it from a big reputed broker? Perhaps you may pay commission at a few basis points higher for the convenience of dealing with your regular banker or broker, but I am sure you would not want to pay too much of a differential. When it comes to commodities like oil, iron, or copper, would people pay more just because they are buying from a different source? The international price of all commodities at the wholesale level is the same.

 

Gold and Silver are investments, and they are also commodities. Ignoring ornaments for now, would you pay more for a ten-gram gold biscuit (whatever the grammage, we shall refer to it as biscuits in case of gold, and bars in case of silver) just because you are buying it from a particular source? Let's assume you are willing to pay more because you are buying it from your bank, but how much more will you be willing to pay? 1%? 2%? What if I tell you that your bank charges you at least 15% more than what you would pay if you knew where to shop? Would you still buy gold from your bank?  They won't even buy it back from you – just check the purchase price from your banker today, and ask your jeweler how much he would be willing to buy it at. The difference is the buy-sell margin you pay. If it is anything less than 15%, let me know.

 

Gold ornaments have been considered a good investment since time immemorial.  Ornaments are no doubt good as investment, since the value of gold tends to go up over time; however, buying gold in ornament form has its drawbacks.  The "making charges" are anywhere between 7 to 15 percent depending on the intricacy of the design. When you return it there may be certain deductions like "melting charges". If you return it to a different jeweler than the one you bought it from, it is certain that he will cast aspersions on its purity, and tell you that what you thought was 22 carat is only 20 carat gold. There goes another 10 percent! You could ask for BIS certified gold or buy from a reputed brand like Tanishq – this ensures that the "melting" purity is what has been guaranteed – but in that case the making charges are likely to be at the higher end of the band. The good brands may not even quote you a rate per gram, they will talk only of a "piece rate". 

 

There is no harm in buying gold ornaments; in fact, for those men who are married or have girlfriends, it is highly recommended. Just don't think of it as an investment, at least not as an investment in gold! Once you think of it as a consumption item, you will not mind paying the making charges; in fact, you will splurge on the most intricate pieces, as you should.

 

When you invest in gold, you should buy only 24-carat gold biscuits. Depending on where you buy it from, the person selling it to you will try to justify higher prices based on "quality" – once you are assured that you are buying from a genuine source, any talk of quality to justify a premium is bullshit.  Have you ever taken your old gold jewelry to the shop wanting to sell it? My wife and I have, and we have had the experience of the jeweler putting the ornaments in a pan and applying a blowtorch to them, converting the whole thing to a lump of gold, the purity of which he later checked. It does not matter if it is specially imported from Switzerland, it does not matter if the packet looks pretty or if the gold itself has some fine sayings embossed on it, it does not matter if the relationship manager offers to deliver it home – the value of gold lies in the intrinsic worth of the metal and nothing else. Once you cease to look at gold as an ornament, there is a definite reduction in the mystique!

 

Since it is a commodity after all, the trick in buying is to buy at the lowest price. Most jewelers you ask will refuse to sell you gold biscuits; since there is not much margin in it, they don't stock it. Some will tell you they have only their own store-branded 22-carat biscuits. This is preferably avoidable.  Finally, you will find some jewelers who will be willing to sell you biscuits. They will charge you one percent sales tax on that day's price while selling it to you, and buy back the biscuits bought from their own store at about 3 to 5 percent less than that day's price. A large jeweler like Tanishq offers to buy it back at 5 percent less than that day's price, and the quality is assured. Shubh Jewellers which has several outlets in Bangalore buys it back at Rs.51 less which works out to 2.5% less. That is when they buy back biscuits you bought from them in the first place; what we need to see is what we get when we sell it to any other jeweler in the market.

 

The best way to go about it is to of course compare the price that you are getting with the benchmark rate for the day, i.e., the 24 carat gold rate that is published in the newspapers. Among the retailers, Shubh jewelers is the lowest with a 2.5% premium over the day's rate. Any jeweler should be willing to buy biscuits from you at a couple of percent lower than the day's benchmark rate; adding the one percent sales tax that you pay on purchase, gives us a buy/sell spread of about 5 percent at the cheapest retail sources. The buy/sell spread when you buy in retail would generally be between 5 and 8 percent, taking all these factors into account. 

 

When you buy from a bank, you can only sell it back to a jeweler since banks don't buy back what they sell to you; they charge you 15 to 18 percent more than the day's benchmark rate, and the jeweler when you sell it back will take off another couple of percent. The bank might give you a 2 or 3 percent discount to keep you happy. Your net spread works out to anywhere between 15 and 20 percent.

 

When it comes to silver, you buy it not in grams, but in kilograms. You are unlikely to get nicely minted bars like in the case of gold; the market believes in bars of silver poured into "kutcha" moulds, which are never exactly equal to half kg or one kg or whatever – but you don't have to worry, since you pay for the exact weight. You should buy silver bars (99.9 percent purity) from a jeweler who is willing to sell it you – very few are – after checking on the buy/sell margin. I find Sri Krishna Diamonds and Jewelry (No. 1, Commercial Street) to be a good source; the buy/sell margin works out to 6 percent – 1% sales tax when you buy, and a deduction of 5% when you sell it back.  

 

An even better way to cut the spread in case you are someone who buys in reasonably large quantities (say at least 100 grams in case of gold and 5 kg in case of silver) is to buy from the wholesale market. That is of course Zaveri Bazar when it comes to Mumbai and the area around Avenue Road when it comes to Bangalore.

 

At about Rs.45,000 per kg of silver vs. about Rs.20,000 per ten grams of gold, silver is more voluminous to handle and store. Holding gold and silver in physical form also exposes you to the risk of theft.  If that bothers you, it is possible to buy gold and silver in demat form , either as ETF's, or as e-gold and e-silver. We shall examine that in Part 4 of this series.

 

(A lot of the information given in this article is based on first-hand personal experience - it is possible that you know of other good sources that provide equally fine or better rates.  Do add your comments or write in case you have any information to share.)