Skip to main content

Napoleon’s Lucky Generals: "I know he's a good general, but is he lucky?"

With most market participants making money this year, the timeless quote by Napoleon in the subject line rears its head, once again. Regular non-readers know the wonderment I have on the impact of luck on investment outcomes.

The markets have been on a tear (sure you didn’t notice), and my mailbox/chat is seeing two polarized stances. On one side is the Bullish Apology. Where market participants pre-emptively share justifications for continued strong markets everywhere. This group exhibits hyper optimism, using recent history as the periscope through which to peer at and gauge the future. 

The second, and potentially, the more interesting group, is the Bubble Babble crowd. This group looks askance at the rallies, and deems things a bubble. This year has given this group a great polarizer. Bitcoin. A tiny bit know much about it. Most know a bit about it; yet there is a growing supply of those sharing their two coins, calling Bitcoin a bubble.

Both groups share certain characteristics. They are tenanted with folks that have ridden the high tide and exhibit a sense of triumph. Both exude high conviction; in their own, and others’, interpretation of reality. Rather than reality itself. 

Both have vociferous voices. Of those that missed out on the rally and/or entered belatedly. Many suffer from bouts of ignorance, which is quickly anesthetised with conviction in their own, and others’, interpretation of reality. 

This belief inhibits both groups from acknowledging the charms of Lady Luck in influencing investment outcomes.

India Equity Universe: Falling strike rates of Napoleon’s Lucky Generals.

The experience illustrates why a probabilistic psyche and a healthy prescription of humility are such useful attributes in investing.

The optimal strategy is to participate in games where one has reason to genuinely believe that they: 

1) understand the game.

2) have favourable long-term odds. 

Here’s my bullish apology at bursting the CAGR bubble. 

Most of us are unlikely to ever be Napoleon’s Lucky Generals over long periods. Positing investment decisions on being one is fraught with the risk of ending with globules in one’s bank accounts.
Labels:

Comments

Post a Comment

Popular posts from this blog

Greece: A 2,500 year parallel

Old habits die hard . So the adage goes. As the Greece bailout drama unfolds, the curious mind began prodding, ' M aybe its in their history?'. The questioning mind always seems to find a way to some provisional answers. Till more questions goad it on to continue the journey.  5th century BC Greece's economic history, interestingly, provides some thought-worthy parallels to Greece's present-day problems.  History The discovery of gold and silver mines at Siphnos provided Greece access to easy revenues. As was the flavour of the day, once the Gods took their share the rest of the profits from the mines were distributed among the subjects. The Greek citizens abhorred direct taxes but approved taxing foreigners, taxing property and indirect taxes. The easy prosperity somewhat fuelled imperial ambitions and marked the beginning of a sense of entitlement among the subjects.  While rulers in Asia managed to impose a direct tax on their subjects, Greece ...
2 comments
Read more

'CORN'y Connection

A common theme in investing is that, in the long-term, asset prices adhere to fundamentals. The road to adherence is often an irregular one, prices overshoot and undershoot along the way...but ultimately, they behave like obedient children. Sometimes though, the relationships between asset prices are hidden from the eye. Peer through the layers and one might just be able to come up with a relationship that could form the basis of a trading strategy. 'Corn'y Connection , is one such linkage... The Craze for Maize Lot of factors have driven corn (maize) prices of late. The rush of demand for et hanol has ensured that corn finally got its due. Apart from the fundamental factors of demand and supply, speculative demand for the commodity has served to increase the volatility in corn prices. Not surprisingly, corn prices have surged quite a bit (refer adjoining figure) . Along with the rise in corn prices, the 200-day historic volatility has increased significantly. Cor...
7 comments
Read more

One Small Voice

Continuing in the spirit of Haphazard Linkages, I look at the consequences that a false sense of ‘progress’ has on an economy. Things may look ‘good’, but is it a true and justified reflection of the resources at a country’s disposal? Can things be made better? An economist aims for efficiency. A state where one individual cannot be made better off, without making another worse off in some way. On the 60 th anniversary of India ’s independence, patriotism and a sense of well-being abounds everywhere. People are mostly unanimous in their verdict that India had arrived and bask in glory…The Times of India headline, “60 and getting Sexier” couldn’t have captured it better. Every news channel and celebrity waxed eloquent about how much progress India had made during this time. Waxed eloquent about India ’s stupendous GDP growth…about India Shining. Did this appraisal reflect reality? Or was it just another day where patriotism oozed out of wherever anybody cared to look?...
5 comments
Read more