Spotlight

If you understand probability, then you know how the games at Casino are rigged against you. The strategy then is not to just avoid the casino but become one.

Did you know that some Casinos sell adult diapers at their entrance? That’s a bizarre trivia about casinos. Why in the world would a Casino sell diapers to its customers?

Well, the fact isn’t just strange but very disturbing. Gambling, as we all know, is addictive. And some people get hooked so hard to the slot machines in the Casino that they refuse to leave their seats even for answering nature’s call. Hence the need for adult diapers.

I’m not trying to be funny or sarcastic. Neither am I making this stuff up. “Perfect fit for the gamblers at all-night casinos,” claims one advertisement by a company that markets such diapers.

[Read more…] about Spotlight: Be the Casino

Anti-pattern is a field of study in software engineering, which is defined as the commonly occurring solution to a problem that generates decidedly negative consequences. History, including that of investing, should be studied using the lens of anti-patterns.

Benjamin Graham’s book The Intelligent Investor is one of the greatest investment classics. I know that you already know it but I wanted to write it again so that I don’t forget it. In the introduction of the book, Graham reminded us of the famous poet George Santayana’s quote, “Those who do not remember the past are condemned to repeat it.”

It’s not just a quote but a warning. Unfortunately, most people choose to ignore this warning. German philosopher Friedrich Hegel confirmed it when he observed, “The only thing we learn from history is that we learn nothing from history.”

The interesting thing about using quotes is that you can always find some wise words uttered by someone to prove your point. The two quotes that I used above were meant to highlight the importance of learning from history. To contradict it, let me tell you what Warren Buffett wrote in his 1991 letter to investors – “If history books were the key to riches, the Forbes 400 would consist of librarians.”

[Read more…] about Spotlight: Anti-Patterns from the History of Humankind

For a human mind, the best way to learn a complex idea is to find it living inside something else it already understands. Metaphors create that bridge. It’s when we find metaphors, to explain something which doesn’t exist in our current vocabulary, we break the mental barrier and create the possibility of discovering something new.

In 1891, a German high school mathematics teacher, Wilhelm Von Osten claimed that his horse named ‘Hans’ had unusual intelligence. According to Osten, with the help of some basic training, Hans had developed a remarkable ability to solve fairly difficult mathematical problems. Osten firmly believed that humans had been underestimating the reasoning skills of animals, especially horses. Soon Von Osten began touring all over Germany to show off “Clever Hans” mathematical proficiency.

Alan Bellows in his article,Clever Hans the Math Horse,describes this incident –

[Read more…] about Spotlight: Of Investing, Horses and Creativity

Like clownfishes, while navigating their way towards home, lose the ability to sense vital smells in more acidic waters, investors lose their sense of smelling trouble during bull markets.

If you have kids, or even if you don’t, I am sure you must have watched Disney’s animated movie Finding Nemo. It tells the story of the overprotective clownfish named Marlin who, along with a regal blue tang named Dory, searches for his abducted son Nemo all the way to Sydney Harbour. Along the way, Marlin learns to take risks and comes to terms with Nemo taking care of himself.

Marlin had big reasons to worry when Nemo was abducted. This is because clownfishes live their entire adult lives nestled in the protective arms of a single sea anemone (group of water-dwelling, predatory animals named after a terrestrial flower) on a coral reef.

Between birth and adulthood, however, the fishes have to complete a treacherous journey. After hatching, a larva – a tiny, partially formed version of an adult fish – swims out of the reef to the open sea to finish developing, presumably away from predators.

After maturing for 11 to 14 days, the young one is ready to swim back to the reef and select an anemone to call home. But as it swims close, it must cross a “wall of mouths” – all kinds of creatures that lurk around the reef ready to gobble up the tiny fishes.

To successfully navigate these dangerous waters a clownfish needs to recognize the smells of the predators and avoid their grasp.
[Read more…] about Spotlight: Of Investing, Bull Markets, and Smelling Trouble

A good question makes it clear that the questioner is willing to participate in the process of developing the solution. It exhibits problem-solving intelligence rather than passively waiting for an answer to drop from above. Whereas a bad question is an act of an intellectual dishonesty on the part of the seeker and a huge time sink on those who have to answer it. 

Two hunters are out in the woods when one of them collapses. He doesn’t seem to be breathing and his eyes are glazed. The other guy whips out his phone and calls the emergency services. He gasps, “My friend is dead! What can I do?” The operator says “Calm down. I can help. First, let’s make sure if he’s really dead.” There is a silence, then a gunshot is heard. Back on the phone, the guy says “OK, now what ?”

Well, the guy was a hunter. What else can you expect from him? In fact, you would agree that the blame can’t entirely be put on the poor hunter. The operator’s question wasn’t very clever either.

There’s some truth to the saying – the quality of your questions determine the quality of solutions you get. Computer programmers very well know the theory of GIGO i.e., garbage in garbage out. It’s true with questions too. Good question begets good answer. Bad question attracts a bad answer.

[Read more…] about Spotlight: The Art of Asking Smart Questions