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A Gambler’s Instinct: The knack for taking calculated risks and knowing when to take them

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“One thing that is different in our players of today and our players of yesterday is that earlier our players used to play mostly not to lose, and today they very often play to win”, said my broker friend Jigneshbhai over our Sunday evening coffee. Continuing, he remarked, “The difference may seem minor but is vast. In the first approach, the best result you will get in the game is a prevention of loss and then you hope for a win. While in the second approach, the worst approach you may get is a loss, but if you calculate your risks, you may also get a big win.”

“Like what happened last week, when Dhoni and Raina suddenly decided in the 35th over that they were not happy with 225 as that may, at best, prevent a loss, but wanted 300 to play for a win.”

“But there was risk in it. What if they had lost their wicket?” interjected Swami.

He was right. There was a risk of that happening, and in that case even the result of prevention of loss would have been difficult to guarantee. “Yes, that’s right. Playing for a win always has more risk than playing not to lose. And it is not always sensible at all times to play only for a win. There will be stages when it is best to play not to lose. But the reason I think Dhoni is a great captain is because he has a wonderful gambler’s instinct that helps him decide when to play not to lose and when to play for a win. And acts accordingly.”

Just as we were leaving, he added, “You know, Swami. In the long-term game of investments in the capital markets, playing not to lose can, sometimes, also mean you are playing to win. It seems to me that the current period is one of those times when you can both play not to lose as well as play to win.”

And then in the background I heard this song by the famous country music singer Kenny Rogers that he started humming as we left.

“Now every gambler knows the secret to survivin’
Is knowin’ what to throw away
And knowin’ what to keep
‘Cause every hand’s a winner
And every hand’s a loser
And the best that you can hope for
Is to die in your sleep”

“So when he finished speakin’
He turned back for the window
Crushed out his cigarette
And faded off to sleep then somewhere in the darkness
The gambler he broke even,
but in his final words
I found an ace that I could keep”

“You’ve got to know when to hold ’em
Know when to fold ’em
Know when to walk away
know when to run
You never count your money
When you’re sittin’ at the table
There’ll be time enough for countin’
When the dealin’s done”

[youtube=http://www.youtube.com/watch?v=kn481KcjvMo]

A Cryptic Cocktail: Mixing Cricket Commentary with Stock Markets and Investing

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The wealthy man living in the sprawling bungalow near my house with his BMW and Mercedes speaks very sparingly. And whenever he speaks, it is quite cryptic. So one has to really concentrate when he is speaking, and think hard after he is done. So the other day when my South Indian friend Swami and I were just walking across from my house to get a coffee, we saw the wealthy man taking a walk with his dog. He knows Swami, who by now has had a number of ‘question-mark’ conversations with him in the past. So he wished me good evening, and this time before Swami could ask him anything, he just told him with a wry smile, “The situation is tense but under control.”

I first heard this term being used by the Mumbai police during the Mumbai riots in the early 1990’s. It was so conveniently cryptic and became so popular that the Home Ministry started using it. Now I think it has become the de-facto phrase used by government officials, specially Home Ministry ones, to describe, in an imprecise way, what is happening whenever there are riots, earthquakes, floods, strikes, accidents or anything remotely like those.

So I was a bit surprised when the wealthy man used it, not quite clear what he was referring to. So I took the liberty of asking him if he had some time for a quick coffee. The wealthy man does not easily say yes, but this time, he surprisingly did – so in a few minutes, we found ourselves chatting with him over a coffee.

After an awkward silence for a few minutes, my South Indian friend Swami had to ask something. He tends to lose his patience with Jigneshbhai, but with the wealthy man living in the sprawling bungalow, you cannot do that. So in polite language, he asked him for advice on the current state of the markets.

The wealthy man replied, “This match is very much in the balance now”. And added in his baritone voice, “It is not going to be easy for the batsman to get bat on to ball on this pitch.” Further, neglecting our confused looks, he continued, “It will provide assistance to the bowlers, but if the batsmen apply themselves, one can play a long innings.” I knew he spoke sparingly, and was cryptic most of the time, but this seemed out of context. So we thought he probably misunderstood the question – perhaps he heard matches instead of markets.

So Swami tried to explain – “Yes sir, but I was referring to the markets, not to the Champions league matches. I have already lost so much, would be great if you could throw some light on what to do next.”

This time, we thought we will hear some gems of wisdom. But the wealthy man continued. “Well, given the conditions, it should be good toss to lose”. This was getting a bit out of hand. Even I was starting to wonder what was happening here. But Swami was now getting a bit aggressive. He clarified, “Sir, I am losing money everyday in these volatile markets. You have been playing the markets for so many years. Should I sell and get out now?” Again with eager eyes, we were looking for some pearls of wisdom this time. And the wealthy man said, “We had a cracker of a game today, but at the end of it all, one will have to say that the team that kept its nerve better prevailed”.

This was getting too much to handle now, even for me. We were starting to fear if the wealthy man had lost it – maybe growing age and the stress of his wealth getting eroded at this stage in life was getting to him. Or perhaps he was watching too much of TV, and business and sports channels were getting mixed up in his head. Swami gave me a strong stare, almost warning me that he is going to stop having coffee with me. As if handling my broker friend Jigneshbhai was not enough, now he had this wealthy man from the sprawling bungalow to make sense out of.

So we started wrapping up with our coffee, and hoped that this was it. It did not seem to make sense to press the point now. Not wanting to take the discussion further, I asked for the bill, and while waiting for it, asked the wealthy man which team he was supporting in the Champions League. I casually added, “The Royal Challengers seem to be up to it this time, but you never know with them. The Mumbai Indians could spring up a surprise.”

I thought this conversation was now making sense. We were both talking about the same topic. At least we will leave on a sober note. No more mixing cryptic cocktails of cricket and markets, I thought. So as we left, we were stumped when the wealthy man threw another cryptic one. “Indeed, in these conditions, I am in support of investing in wonderful companies with good long term potential. For the true fan, this pitch is just what the doctor ordered.”

Not an Ordinary Joint Family: The European Union and the Crux of its Problems

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ambuja“भैया ये दीवार टूटती क्यों नही?” said one brother to the other in the Indian joint family from the famous Ambuja Cement ad. And then the voiceover replies, “टूटेगी कैसे? ये अम्बुजा सीमेंट से बनी है.” I had heard that this ad was popular with the English players whenever Dravid used to come out to bat during the recent Test series. But that was for the Great Indian Wall of Cricket. It is not the same with walls in joint families. They keep on coming up and going down.

There used to be the old Indian joint family many years ago which had no walls. All brothers and their wives and children used to live in the same big house with no major walls separating them, and led by the great patriarch and matriarch. It worked in a lot of cases because most brothers were involved in the family business and hence shared the profits as well as the losses, the good times and the bad. Occasionally a brother turned out to be a good-for-nothing, and the joint family took care of him and his family. Not necessarily the best thing to do, but that’s how it was. If things took a turn for the worse, in cases of family honor specially, very rarely the good-for-nothing brother was thrown out! And then over time with individual families within the joint family, the walls kept coming up, growing into different houses, different businesses. Everyone had to earn their own bread and manage themselves, as the joint family dissipated.

Well this was what my broker Jigneshbhai was trying to explain to my South Indian friend Swami the other day. As usual, Swami was perturbed that ‘global turmoil’ was messing up with his investments. As if the Sub-prime crisis and US Debt problems and rating downgrades were not enough, he was now being told that some new beast called the European debt crisis had come up. And Jigneshbhai was insisting that this was because of the European joint family. “Don’t joke here”, said Swami. “This is about money, not family.” “That’s the problem. The Europeans mixed up family with money. In India, people are moving from joint to nuclear, and the Europeans moved from nuclear to joint!”, insisted Jigneshbhai.

Unable to understand, Swami kept staring at me, wondering what kind of financial adviser I had recommended to him. “Look Swami – a few years back, Europe was a continent with different countries running on their own, like our own nuclear family. Each of them had their own incomes, their own budgets, their own savings. And then they decided, we stay so close to each other – so why not allow free trade, free movement of people. Till that point it was fine! That prevented wars, you know – they had a history of fighting each other. Once people met, worked and mingled, they felt better about each other.”

It is great to listen to Jigneshbhai when he gets into this ‘ज्ञानी’ mood. So I listened, and so did Swami, albeit with his usual confused look. Jigneshbhai continued. “But then they decided to mixed their finances with proximity, and said let us give up our currencies, and have a common one. That brought all the walls down, and everyone thought they had become one big joint family. But that was not really the case, because there were big brothers and small brothers in it.”

“So now are they fighting?” asked Swami.

“Not fighting wars, but it is not very different. One brother is doing well, and says why should I pay for that good-for-nothing, and that fellow says if you don’t give me money, I will bring the family down. Unfortunately, it is not an ordinary joint family. There is no patriarch as such who can clamp everyone down, or throw a good-for-nothing out. And you know how it becomes then – like our  TV serials. That’s why I said, the problem is the European joint family.”

Good to hear this, thought Swami. It is not just Indians who have family problems. He was just going to ask a ‘सास बहू’ type question, but remembered his investments. His confusion was still not clear. So he asked, “Boss, so when is this family drama ending, and what does this all have to do with my investments?”

Smiling, Jigneshbhai replied, “Nothing. Family problems don’t get sorted out so soon. And Europe is not just another ordinary joint family. So if you have the courage and the money, keep investing. Your family will, later, thank you for it.”

Nonsense Generator: A Step by Step Ready Reckoner to become a Market Expert

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For individual investors who have ambitions to become market experts, I have devised a step by step approach that can be followed by almost anyone. No background in investing is necessary, but a learning attitude is important. It does not guarantee success (like market disclaimers!), but it is a sure and steady way to market expertise.

For those interested, here are the steps involved:

Step 1: Take any word in column 1 and another word in column 2 from the attached Excel sheet to form a cohesive set of meaningful terms. Like “Macro Environment” or “Monetary Policy”.

Step 2: Repeat step 1 to come up with two or three such cohesive meaningful terms. You can add more, but beyond two or three, it can tend to get difficult for people to believe that you are a genuine expert. So let’s say, you choose “Macro Environment” and “Global Uncertainty”.

Refer to the Excel file nonsense to practice steps 1 and 2.

Step 3: Now assuming you have mastered steps 1 and 2, add a few verbs to this term, and perhaps also a few adverbs after the term. This is actually something that cannot have copy-book instructions. Hence I do not have a table for it. But that’s where experience counts.

So finally after adding some non-core words to your core terms, you should come up with a nice expert sentence like: “Given today’s macro environment, lack of foreign liquidity and global uncertainty, going overweight is not recommended. Though long-term valuations and structural factors are still favorable.”

Or you could come up with something like: “The market may be going through technical consolidation, and fundamental research may not hold ground. Unless global cues are favorable.”

(Expert Terms underlined above)

Caution: Step 3 is very crucial to ensure that you have the right mix here. Do not go overboard in using the terms here. There is no sure-fire formula for this and can only be mastered with creativity and experience. It is a bit like cooking. An expert cook always knows what are the right ingredients and what should be their proportions so that the dish does not get spoilt. So keep practising step 3 till you reach perfection.

Step 4: Finally, any writer can write a speech, but it takes a true expert to deliver it in all seriousness. That is what step 4 is all about. Deliver it in true seriousness, preferably with a ‘lost in thought’ look, as if you actually understand what you are saying. That is the sign of a true market expert.

PS: For those who cannot master the steps just based on the notes above, practical demonstrations of step 1 to 4 are available mostly 24 by 7, but certainly between 9 am and 4 pm Mon-Fri on any business channel on TV.

What is better in dealing with terror? To remember or To forget

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A lot of people I met or spoke to on Sunday 9/11 told me exactly where they were and what they were doing when the two planes crashed into the Twin Towers 10 years back. I too remember what I was doing at that time. I don’t know why people remember that, but this was one of those events that I classify as “Do you remember?” events.

For example, a lot of people in the United Stated also remember what they were doing when Kennedy was shot.

I, for one, remember being woken up close to the middle of the night when Rajiv Gandhi was assassinated. My South Indian friend Swami remembers exactly what he was doing when Indira Gandhi was killed.

There are a few happy moments too. Like many Indians remember where they were when Mohinder Amarnath trapped Holding leg before and took India to World Cup victory in 1983. Similarly even 20 years from now, those who saw the six that Dhoni hit to give us the World Cup in 2011 will remember where they were then.

I used to have distinct memories of where I was and what I was doing in the month or so of the Mumbai riots of Dec-Jan 1992-93, and I also used to remember what I was doing when the Mumbai blasts that happened after that in 1993. That in some sense was India’s 9/11. At that time those were genuinely significant events. Now after so many blasts and riots, it is a bit confusing. Like 9/11, we have started naming them 7/11 and 26/11, may be we will have more. Not quite sure whether to remember or forget.

That gets me back to 9/11. Americans chose to remember it. Perhaps because it was the only major terrorist attack on their soil, and they did not quite understand how to handle it. It is not 9/11 the event itself, but remembering 9/11 that actually caused harm to the US, I think. That led to Americans living in constant fear, whereas actually they were still living in one of the safest countries in the world. That led to the pointless wars in Afghanistan and Iraq, and led to a total disproportionate increase in defense spending – thinking that these measures will help prevent further attacks. That also led to racial profiling. Americans started thinking of every minor thing in terms of a terror attack.

Of course, there were no further attacks, but that was because the US was always difficult to attack. Before or after 9/11, it was always difficult to attack the US, specially at that scale. 9/11 was an exception. So while it was a “Do you remember?” event, the world and the US would, perhaps, have been better off if the US had forgotten about it over time.

In the 10 years after that, while nothing of anything close to that scale happened in the US, 38 blasts of some kind happened in India. And we are not counting the ones before 2001. The ones between the original Mumbai blasts and the Twin Tower attacks. I am sure the total will exceed 50 at least. And Indians chose to forget those blasts, more or less.

Hence, we did not have citizens living in fear (in fact life resumed in most cases in a day), perhaps there were other things to be afraid of. Nor did we have increase in defense spend, perhaps there were other things to spend on. While we reached close to war once (in 1999 after the nuclear tests), we did not have a war due to this – apparently we could not afford a war. But the attacks continued, spurring us on. In trains, in buses, in markets wherever. We chose to forget the attacks, and good harmless people continued to die. Eventually we were told to live with it as we were in a troubled neighbourhood. And we started thinking of even major blasts like road accidents. They happen.

So the US had one 9/11 and major wars after that, huge defense spends leading mostly nowhere. But they had no other attacks after that. And India had 50+ attacks, no wars, even arrests of the terrorists in some cases, but still leading more or less nowhere. But the attacks continued.

Our responses to “Do you remember?” events have been different. India’s approach has been to forget, while the US approach has been to remember. I am not sure which is better eventually.

A Matter of Faith: The Role of Reason and Belief in Investing

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“Can you guarantee it?” asked my South Indian friend Swami, when my broker Jigneshbhai asked him to hold on or add to his investments saying that markets will recover. Jigneshbhai said, “Boss, there are no guarantees, but they should recover eventually.”

Swami continued, “But when? For the last 4 years, the returns from my investment are less than 5% annually. I would have been better off with my fixed deposits. Today they give 9% at least. If you cannot give guarantees, what’s the use?”

This conversation was getting a bit heated. It always happens when it is about money. I continued sipping my hot coffee watching them talk.

Finally, Jigneshbhai got up in a rage, and asked, “You do your puja everyday Swami. Can your God guarantee that you will not die tomorrow?”

This was something Swami did not expect. This was about money, not God, he thought. “Don’t change topics”, he said in a disillusioned manner. Sensing that this was going awry, I intervened, and finally we changed topics and started talking about somewhat milder things like the weather, cricket and politics. Eventually a dissatisfied Swami left, as unhappy as he had come.

Jigneshbhai turned to me after Swami had left. “I will tell you boss, I have been in this profession for the past twenty years. Reason alone is not enough to invest. Beyond a point, you also need faith. And people like Swami have faith in everything else but the markets. Of course, markets do not cover themselves in glory to attract faith. But you must have some faith in the future. Who knows what will happen tomorrow. How can I give guarantees when God himself does not?”

He continued, still a bit angry. “You tell me, are there any guarantees that if you do your rituals, God will always oblige?” “Of course not”, I said nodding in agreement, hoping that this will cool him down. But he continued, “Similarly, there is a rationale that if you follow your investing ‘rituals’ well, the God of markets will oblige. But there are no guarantees.” “Right, makes sense”, I added, trying to fill the conversation up.

“And your friend Swami does not even follow the investing rituals.”, Jigneshbhai argued and continued, “Finally, at an individual level, it is a matter of faith.” I felt that I was hearing some words of wisdom from a true believer in markets.

I felt, perhaps, that is true in every sphere of life. Reason can get you ahead, but only so much. Like all other endeavors, reason is important as it sets goals, makes plans for you, helps you make the right choices and decisions. But there are no guarantees that it will work all the time. Beyond a point, and especially when the plans do not work as planned, finally, I guess, it is a matter of faith.

God no.1: Celebrating Ganesha Festival in Mumbai and Bangalore

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The festival of Gowri-Ganesha in Bangalore has quite a few differences from the festival of Ganpati in Mumbai.

gowriganeshabloreIn Bangalore, it is a private festival while in Mumbai it is a public festival. Almost everyone in Bangalore gets a ‘मूर्ति’ at home. While in Mumbai it is generally restricted to the eldest member of the extended family, though that is changing too with shrinking families, I think.

Everyone goes to everyone’s home for ‘दर्शन’ and ‘प्रसाद’ and some gossip-gupshup in Mumbai. Once they know you have an idol at home, you get on to their annual visit list. No one does that unless invited in Bangalore – partly also because it is a private festival, partly because everyone has their own idol at home.

Also, while I was in Mumbai, I thought Ganesha idols are to be kept for a pre-determined number of days and that is to be followed every year. So you have 1.5, 3, 5, 7, 10 and 11 as the common number of days that idols are kept for in Mumbai. Most public idols and a lot of ‘serious’ private idols are kept for the entire period. In Bangalore it is relatively flexible. Most people do the immersion on the first day, and very few have it for all 10 or 11 days. Some people immerse the idol on weekends as it is convenient. Some people start initially with the intention of immersing in 1-2 days, and then think that maybe couple of days more will do no harm, so let’s extend. So that way it is quite flexible in Bangalore.

In Mumbai, the ‘प्रसाद’ is generally sweet – with ‘मोदक’ leading, but supported by a whole lot of others – almost everyday a new sweet makes its appearance. In Bangalore, it is mostly not sweet – generally rice and ‘चना’, sometimes ‘वडा’, sometimes fruit salad maybe.

The idols are also different. In Mumbai, you have all shapes and sizes, with various contemporary events unfolding on stage as well as in the idol. This year I was told the main ‘themes’ are the World Cup and Anna Hazare. Even small home idols come in all avatars with the Lord sometimes taking forms ranging from the funny to the outrageous. They make them with all materials from clay, plaster-of-paris to whatever. In Bangalore, all idols are more or less standardized, mostly made of mud, and look more or less similar. All you can choose is height that works for you, and maybe the color at best. They are quite understated definitely.

ganeshmumbaiPeople in Mumbai immerse the idols in the sea. So, everyone from the smallest home idols to the largest public idols go to the nearest sea-shore on the west, and make a beeline. That way, Mumbai is lucky that it has a sea – difficult to imagine which other water body could absorb so much, and what a ruckus it would be without the sea-shore (not that it is any lesser now). In Bangalore, it is the lakes with specific designated areas for immersion – it is quite a disciplined affair. People also immerse their idols in buckets or tanks in their homes, and use the water for gardening. Initially, I used to find it awkward, but now I think it is a great idea that everyone should adopt.

Honestly when I look at another year of the Ganpati festival, these differences do not matter much. The styles, rituals, methods may be different, but I think the underlying emotion, perhaps, is more or less the same. Just the scale and grandeur may be different. I also think what a wonderful festival it is, during which people actually bring God to their homes and public places, worship him and then give him a sendoff. And what an idea it was that Tilak came up with, when he decided to literally ‘take it public’.

Therefore, despite the fact that we bring ‘God no.1’ into our homes every year for this period, it is quite ironical that when my son cries as we immerse Ganpati with slogans of ‘पुढच्या वर्षी लवकर या’ every year, I have to tell him, “God is not in that idol, he is in your heart”. He does not seem convinced. He will wait for next year.

The “In-between” Generation of Indians: Caught in Two Worlds or the Best of Both?

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One of the things that I learnt from the recent anti-corruption movement is that I think there is a generation of Indians who are the ‘in-between’ generation. People from the older generation were generally initially quite cynical, the ones from the newer generation were generally quite positive from the start, and a large part of the in-between generation were quite literally ‘in-between’. I may be wrong here, but this is just a point of view.

Generally, people talk of the Indian economy in two parts – the pre-1991 license and government raj and the post 1991 liberalization era. By way of distinct ways of thinking, I think there are three Indian generations. The pre 1991 generation that was born, and more or less done with a major part of their working life by the 1980’s and 1990’s.  Then there is a post 1991 generation, those who were born in the 80’s and 90’s, and who generally cannot quite imagine how life was before the 1990’s. And then there is the ‘in-between’ generation – people born in the late 60’s and 70’s, who grew up in the ‘government era’ and even, perhaps, started working in that era, but who were positioned to be the early beneficiaries of the economic changes happening right under their nose.

Not quite from the old era, not quite fully from the new era. Not quite held back, not quite breaking free, but caught ‘in-between’.

rockandahardplaceLike many of them never went outside India till they finished their education, and still a lot of them have seen the world. So a lot of them are caught between whether they like to stay in India and abroad.

Like many of them have seen job security in the early part of their careers, and then with increasing opportunities, have taken advantage of them, but have also seen the pressure that comes with it, and the demise of guaranteed employment. So a lot of them are stuck between whether it is a ‘me first’ or the ’employer first’.

Like the women in this generation are neither ambitious enough to clearly go for their career over family; nor are they willing to compromise on either one. So they are caught between ‘family first’ or ‘career first’.

Like the men in this generation want to have a life with their wife and kids, but they also think taking care of their parents is their responsibility. So the men are caught between their own family or their parents.

They want the good things that life offers, but have also seen what life used to be and could have been. So they are caught between chasing what is possible and being happy with what they have.

Look at it one way, this generation has been caught between a rock and a hard place. Look at it another way, this generation has got the best of both worlds.

May be there is some sense in this, may be this is fully my imagination. Perhaps the reality is somewhere ‘in between’.

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