Side Notes by Zerodha Varsity
Byte-sized lessons on investment strategy, financial metrics, business decisions, and/or market phenomena.
Hersheys Hazelnut Chocolate Spread travels six countries to reach you!
A Hershey's hazelnut chocolate spread is used to make breakfast toasts, for baking cakes and cookies, and as a topping on fruits and desserts. But before reaching your table, the spread traverses through six out of twenty-six countries that participate in Hershey's supply chain.
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Gulf Rupee - the time when India printed currencies for other countries
Five Gulf countries - Kuwait, Bahrain, Qatar, Oman, and the UAE - used the Indian rupee as a legal tender until the late 1950s and early 1960s. But it became a problem for India. So the RBI introduced the Gulf Rupee, a special edition of the rupee that could be used only in those five countries and not India. But why is it not in circulation today?
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<...Semiconductor Chips - Moore's Law, TSMC, ASML, India's push for chips
A semiconductor is a small card or chip inside your phone, laptop, smartwatch, or other digital device. That small chip has a value chain that spans thousands of players across many countries. Semiconductors are also seen as a tool of geopolitical influence, therefore, many countries have been rushing to become part of the semiconductor value chain.
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How shale oil made the US the world's largest oil producer? What is shale oil?
The US extracts oil trapped in hardened shale rocks. The technology used in drilling through shale rocks and extracting oil is difficult and expensive. America's peak capitalism helped make it cheaper and made the US the world's largest oil producer.
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From earth to your cars - how crude oil is extracted and refined into petrol
Petrol, diesel, natural gas, fertilizers, plastics, rubber, detergents, and fragrances all have origins in crude oil (hydrocarbon) extraction. Crude oil runs deep in our daily lives, so it is understandable that crude oil prices are a major influence on the inflation rate. This episode traverses the entire crude oil value chain and more.
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How Zara's control over its supply chain makes it the most fashionable
Unlike most companies that aim for maximum capacity utilization, Zara deliberately operates below full capacity and is even willing to ship half-empty trucks or containers. The less-than-optimal capacity utilization means that Zara cannot always offer the lowest prices, but they are competitive enough. Rivals can only scramble to match Zara's agility.
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The rise and fall of Long Term Capital Management (LTCM)
LTCM had four co-founders - Myron Scholes and Robert Merton, who were famous for developing the Black-Scholes-Merton model of deriving option prices, and later also went on to win a Nobel Prize; David Mullins Jr., who served as the Vice Chairman of the US Fed from 1991 to 1994; and John Meriwether, who headed Salomon Brother's bond trading desk when it was caught in a bond auction scandal. After a few years of strong returns, LTCM quickly lost those returns and much more.
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Who broke the Swiss Banking Secrecy Code?
Bradley Birkenfeld was an American banker working for UBS in Switzerland. He blew the whistle on how UBS enabled American clients to skirt the tax laws. The investigation that followed forced Switzerland to break its decades-old banking secrecy code to let UBS share client data with the US authorities.
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Sumitomo Copper Scandal - How one trader cornered the world's copper market?
Around the 1990s, Yasuo Hamanaka of Sumitomo Corporation came to control 5% of the world's copper. He used various unscrupulous means, such as fake trades, forged documents, and hoarding, to manipulate global copper prices. Then, a twist came with the resurgence of copper mining in China. Sumitomo lost USD 2.6 billion when the scam was uncovered in 1996.
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Salomon Brothers Scandal and how Warren Buffett handled it
Salomon Brothers was one of the largest investment banks in the US in the 1970s and 1980s. It was the first bank to sell mortgage-backed securities. The head of the government bond trading desk at Salomon had figured out a way to scam the Fed's treasury auctions. When the scam surfaced, the Fed and the SEC were both determined to bring down Salomon, but Warren Buffett stepped in to help find the culprit and keep the bank running.
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Bernie Madoff's big fat Ponzi scheme - How was it discovered?
Bernie Madoff ran an investment management firm that was not open to all - it was an invite-only club. That is what made it aspirational. Many investors saw it as a sign of status if they got to invest with Madoff. But no one knew that Madoff was not investing their money; he was just running a Ponzi scheme that lost investors a massive $65 billion.
How did he pull it off?
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Lijjat Papad - How a group of 45,000 women swiftly run a pan-India organization?
Seven women from a housing society in South Mumbai started Lijjat Papad in 1959. It started as a co-operative and has since onboarded more than 45,000 member sisters. Interestingly, Lijjat also runs the Sasa brand of detergents and soaps.
Lijjat Papad is a masterclass in sustainably managing a large-scale organization that has remained true to its core values, even decades after its establishment.
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How a Rogue Trader caused the collapse of UK-based Barings Bank?
Nick Leeson was a young trader at Barings Bank who was tasked with setting up a trading desk in Singapore. He was an aggressive risk-taker who told small, harmless lies that soon became big enough to bankrupt the bank. He exhibited several behavioral biases that also led him to run a full-fledged scam. When in prison, he wrote a book called Rogue Trader, detailing how he orchestrated the whole scam at Barings.
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Reliance has equity reserves of ₹8 lakh crore! How does it use them?
A company usually creates reserves from share premiums and retained earnings. However, not all reserves are liquid. Companies use reserves for various purposes. If not used well, excessive reserves held in cash could be a drag on the company's ROE.
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Ryanair offers cheapest airfares and is still the most profitable
Ryanair offers extremely cheap flight tickets in Europe. They sell most tickets for £15 or less, which is roughly ₹1600. You hardly ever find those fares, even in India. Indigo is said to have emulated Ryanair's business model in its early days, but not anymore. So, how does Ryanair make money? What is its business model?
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Crazy Eddie - Scams and More Scams
Crazy Eddie was an electronics retailer in New York in the 1970s and 1980s. It was very famous for its catchy TV commercials but soon became infamous for the scams by its founders. This is a crazy tale of how two cousins defrauded their customers, shareholders, insurers, and the government.
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Why Jio Financial Services became part of the Nifty 50 index for just 13 days?
Jio Financial Services was spun off from Reliance Industries. Reliance is a part of the Nifty 50 index. Does that make JFS a de facto member of the index? JFS became part of the index for 13 days. What was the reason? Was 13 days too much or too little?
You could use the same framework to understand ITC Hotels' inclusion and exclusion in the indices.
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Why Airlines are a tough business to crack? Indigo, Jet Airways, Kingfisher and others
Warren Buffett called airlines a cursed sector. Kingfisher, Jet Airways, and Go Air in India, and many other airlines worldwide, have gone out of business. Even Indigo, India's most successful airline so far, suffered losses in four out of the last eight years. Why are airlines such a complicated business?
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Friends of Reliance Vs the Bear Cartel of Kolkata
A Kolkata-based group of brokers, often called the bear cartel, was shorting Reliance stock. As the stock was getting hammered, Mr. Dhirubhai Ambani apparently sought help from a group of NRIs to steady the stock price. The tale is dramatic and typical of the time when it happened.
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Why Hong Kong lets private banks print its currency?
Hong Kong's central bank does not print its currency. Instead, three private banks are entrusted to print Hong Kong Dollars. This arrangement is as good as handing over the monetary policy to private players. It seems strange, but there is a British-era reason behind it. And guess what? Currency pegging has also worked well in this arrangement!
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How Harshad Mehta Scam led to many reforms in the Indian markets?
The Harshad Mehta scam of 1992 exposed massive loopholes in India’s banking and stock market systems, leading to a series of crucial financial reforms. Faster adoption of digital banking and dematerialized shares, stricter regulatory oversight, and modernized stock exchanges were all outcomes of the reforms meant to prevent such frauds in the future.
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Why mutual funds were suddenly underperforming in 2019?
A SEBI rule in 2019 mandated mutual funds to change how they benchmarked their performance to an index. An understanding of price return (PR) and total return (TR) indices explains how the reported outperformance of mutual funds vanished.
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<...Leverage, ROE, and ROI - Margin Trading and Businesses
Borrowings can amplify your profits as well as losses. The profits earned on borrowed money add to earnings, but losses eat into the equity capital. Interest payments can further hurt equity. It seems like a risk-return dilemma!Zerodha Varsity on Social Media: Instagram: https://www.instagram.com/zerodhavarsity/ X: https://x.com/ZerodhaVarsity YouTube: https://www.youtube.com/@varsitybyzerodha Disclaimer: The stocks or financial instruments discussed in this podcast are meant for educational purposes only. Please do not consider them recommendations or financial advice of any form.
Crude Oil once traded at negative prices - Do you know why?
There came a time around COVID-19 when crude oil prices had fallen below zero. Meaning that you would be paid to take crude oil. It sounds strange, but it did happen. Tune in to know how and why was crude oil trading at negative prices.Zerodha Varsity on Social Media: Instagram: https://www.instagram.com/zerodhavarsity/ X: https://x.com/ZerodhaVarsity YouTube: https://www.youtube.com/@varsitybyzerodha Disclaimer: The stocks or financial instruments discussed in this podcast are meant for educational purposes only. Please do not consider them recommendations or financial advice of any form.
Surf Excel, Rin, Wheel - Why does HUL sell detergents under different brand names?
HUL has Dove, Lux, Pears, Axe, and Lifebuoy soaps. It has Sunsilk, Clinic Plus, Dove, and other brands of shampoo. HUL is a house of brands with multiple brands in every product category. And did Maruti Suzuki take a leaf out of HUL's brand management book?Zerodha Varsity on Social Media: Instagram: https://www.instagram.com/zerodhavarsity/ X: https://x.com/ZerodhaVarsity YouTube: https://www.youtube.com/@varsitybyzerodha Disclaimer: The stocks or financial instruments discussed in this podcast are meant for educational purposes only. Please do not consider them recommendations or financial advice of any form.
Singapore is the most expensive place to own a car!
You need a Certificate of Entitlement (COE) to own a car in Singapore. COE is very expensive, and you must bid for it in an open auction, thereby adding to the cost of buying a car. Has Singapore made cars expensive on purpose? If yes, why?Zerodha Varsity on Social Media: Instagram: https://www.instagram.com/zerodhavarsity/ X: https://x.com/ZerodhaVarsity YouTube: https://www.youtube.com/@varsitybyzerodha Disclaimer: The stocks or financial instruments discussed in this podcast are meant for educational purposes only. Please do not consider them recommendations or financial advice of any form.
Diseconomies of Scale in Steel Recycling
We know economies of scale - as production increases, the per-unit cost goes down. Diseconomies of scale are the opposite - as production increases, the per-unit cost also rises. But why would that happen?Zerodha Varsity on Social Media: Instagram: https://www.instagram.com/zerodhavarsity/ X: https://x.com/ZerodhaVarsity YouTube: https://www.youtube.com/@varsitybyzerodha Disclaimer: The stocks or financial instruments discussed in this podcast are meant for educational purposes only. Please do not consider them recommendations or financial advice of any form.
Parle-G and Cadbury Dairymilk - Shrinkflation
Do you think today's Cadbury Dairymilk and Parle-G's five-rupee packets are much smaller than those 10-15 years ago? If inflation is the reason, couldn't they increase the packet price instead of reducing their size?Zerodha Varsity on Social Media: Instagram: https://www.instagram.com/zerodhavarsity/ X: https://x.com/ZerodhaVarsity YouTube: https://www.youtube.com/@varsitybyzerodha Disclaimer: The stocks or financial instruments discussed in this podcast are meant for educational purposes only. Please do not consider them recommendations or financial advice of any form.
Why is RBI selling Dollars? The USD-INR Struggle
The RBI sold more than 50 billion dollars between September and December of 2024. Was it a planned course of action? Why would the bank reduce its forex reserves?Zerodha Varsity on Social Media: Instagram: https://www.instagram.com/zerodhavarsity/ X: https://x.com/ZerodhaVarsity YouTube: https://www.youtube.com/@varsitybyzerodha Disclaimer: The stocks or financial instruments discussed in this podcast are meant for educational purposes only. Please do not consider them recommendations or financial advice of any form.
IL&FS, Essel, and Others - Why NBFCs were failing in 2018-19
NBFCs borrow money from banks and the public to give out loans. They make money by keeping the difference between the interest rate they receive from their customers and the interest rate they pay to their lenders. But something went awry in this arrangement in 2018-19.
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Amber Enterprises, Taj, Ultratech Cement - What's common among them?
Amber's revenues are the strongest in the March quarter and the weakest in the June quarter.
Taj Hotels sees the weakest quarter in September and the strongest in December.
Ultratech Cement witnesses a strong March quarter and the weakest September quarter.
Seasonality has got something to do with it, maybe.
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Bricks, Nuts and Bolts, Zips and Buttons - businesses without brands
Do you know the brand of bricks in your house? Do you know the brand of zips or buttons on your denims? Do we really care for the nuts and bolts used in our cars? How can one be successful in running such a no-brands business?
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Bajaj Auto Vs TVS Motor and Return on Assets
TVS Motor and Bajaj Auto are similar in terms of the size of their revenues and assets. However, TVS has a return on assets of 4%, while Bajaj’s return on assets is almost 20%. Why this difference?
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Vedanta paid dividends in excess of earnings
Vedanta Limited has been paying dividends that are in excess of its earnings over the past two years. Why is it doing so? And how can it pay such high dividends?
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Parachute Oil, Colgate Toothpaste, & Velvette Shampoo - Packaging Innovations
Velvette's shampoo sachets, Colgate toothpaste tubes with wider openings, and the rounded Parachute oil bottles were all revolutionary innovations in product packaging. These cases show how packaging can solve for affordability, convenience, and even business profitability.
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India and China - Electric heating vs sun drying - Population density
China is the second-most populous country on earth but has a significantly low population density. How is this causing the same sector to behave differently in India and China?
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Samsung, Apple, TSMC, Nvidia, and their PE Ratios
Apple, TSMC, and Nvidia have much higher PE ratios than Samsung despite Samsung competing directly with these players in the global markets. Samsung's revenues and operations are at comparable levels with the others. So, what is holding its PE Ratio back?
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Argentina's 287% inflation rate - Cheap money and freebies
In 2024, people in Argentina carried bags or even suitcases filled with money for simple transactions. Inflation was as high as 287%. What structural issues pushed Argentina into a spiral of hyperinflation? What is the country doing now to correct its course?
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Was Adani Power charging a country risk premium to Bangladesh?
Risk attracts a premium. A higher price is quoted if there is doubt about a customer's ability to pay up in time. The higher price is because the business wants a premium for assuming the risk. What if there is doubt about a country's ability to pay up? Perhaps that is what Adani Power was concerned about in its power supply deal with Bangladesh.
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Cuba, China, Middle East, and Concentration Risk
Cuba is called the sugar bowl of the world, but Brazil and India have overtaken it as the largest sugar producers. Why did Cuba fall back? It seems the Middle East might be taking lessons from such mistakes that Cuba and many other countries have made.
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