Capitalmind
Capitalmind
Actionable insights on equities, fixed-income, macros and personal finance Start 14-Days Free Trial
Actionable investing insights Get Free Trial
General

The Game Of Dice

“I challenge you to a game of dice”, said Shakuni, his various large rings glimmering as he tried to keep his glee under control.

Yudishtir frowned. “Can’t we do poker or teen patti or something?”

“Look, this is the Mahabharata, even before Krish did the Gita, so can you hunker down and get with dice?”

“Oh, okay”, said Yudishtir, trapped in a time warp, “but you gotta play fair, okay?”

“Yeah, right”, said Shakuni, leaving the confused Yudishtir wondering if two positives could make a negative. Not completely convinced, he made one more attempt to clarify.

“Shakuni maama, you don’t play fair in general, that’s why I said.”

“Look, if you want to chicken out, that’s fine”.

Chicken out? No way. Yudishtir couldn’t handle that insinuation. [Ego was big in B.C. Some things never change.]

So Shakuni and Yudishtir played and played, Duryodhana backing Shakuni with money. Yudishtir lost right from the beginning. A string of pearls, gold, chariots, and all the things that kings own. He could make out the game was rigged, and even analyzed the dice, and couldn’t find anything strange. Yet, he would carry on playing and losing.

At each bet, he would sit back, do a quick mental calculation that the next time, by historical numbers, I mean even more historical than this was, which was really historical, he should win. And then, gather all the testosterone he could muster and bet bigger. Soon, he was done

“You have nothing left to bet here, dear king”, said Shakuni, tapping his fingers. “?”

Outraged at being called a pauper, especially since his mental calculator showed that there was 998% probability of him winning the next round, Yudishtir slammed his fist on the table.

“I can still bet other things! I will win the next round and all of my losses will be covered! Shakuni, you twerp, unless you’ve cheated, I have to win”.

Vidura, a spectator but all-round-nice-guy, begged everyone to stop – the big king, Dhritarashtra refused to listen, and Duryodhana taunted Vidura as well.

Behind Shakuni, all the Kauravas sniggered. Duryodhana gave them the look. Don’t give a sucker an even break.

Now, Shakuni shrugged.

“How about betting, like, your car or something? I could do with a Porsche.”

Yudishtir was fuming. “This is like B.C., okay, Maama? Cars haven’t been invented yet. The rings must have stopped the blood flow to your brain.”

“Oh. Yes. That.”, murmured Shakuni. The fate of an epic rested on a car not having been invented yet. But the game, as they say, had to go on.

“I’ll bet my kingdom.”

The Pandavas were shocked. What the Kama was going on? The kingdom? Yudishtir’s mind was running amok. The calculations, sir, the calculations. Mathematically, he couldn’t lose one more time. Just not possible.

And he lost. The kingdom. Then he bet his brothers. It was legal at the time. And their wife (“their” was also legal at the time), Draupadi. And the subsequent humiliation of them all was a precursor to the great epic battle of the Mahabharata.

What we learn, in the trading world:

Don’t bet what you can’t afford to lose. That one’s obvious. This fellow bet his five brothers and wife. He should have stopped long before that. Too much testosterone.

Don’t bet when your instincts say the game’s rigged. The Pandavas knew Shakuni was a trickster. And Yudishtir even mentioned it twice. What the F? They ignored what they knew even after they lost so much money. At this point, they were just being stupid, but don’t we find so many people that even today? They’ll buy stocks purely on tips, knowing the share price is manipulated, hoping that they can get out before the house of cards falls down. A few winners will gloat. The rest will hide their misery. Trust your instincts.

Regulators may be biased. Not all the time will regulators behave. Dhritarashtra was supposed to regulate the game, but he let it carry on. In the US regulators let leverage get too high, and assets become bubbly, and bad mortgage practices thrive. In India, the IRDA let the insurers absolutely loot customers without batting an eyelid. You can’t trust ‘em to be your friend; you’re on your own.

The game isn’t fair. You can do all the historical analysis that you like, but you must allow for some unfairness. We find out from the likes of Rajat Gupta and Ramalinga Raju that the game isn’t entirely fair. You have to give your investments an allowance for that.

This is a perpetual problem for “value” investors and fundamentals based traders. You rely on the numbers and make small concentrated bets, just to find out someone picked the numbers from thin air.

A Chinese stock listed in the US, China MediaExpress Holding (CCME) has been halted from trading since March 11, after auditors Deloitte quit and said that they couldn’t trust management numbers anymore. It did look like a pump-and-dump earlier, but there was not really enough information (there are famous investors in there!). We don’t know what’s going to happen, but the share’s probably going to trade at much lower than the $11 it printed last.

Don’t make this into a broken window fallacy. Yeah, if Yudishtir had walked out before, then we wouldn’t have had the war, we wouldn’t have the Bhagavad Gita, we wouldn’t have the great story of the Mahabharata at all. This is like the broken window fallacy:

A kid breaks a window of a hardware store. The shopkeeper is incensed, but a passer-by mentions that now he must buy a new window, giving the glass factory business. The glass factory buys sand from the local sand-mine, which buys shovels from…the hardware store. The kid should be praised, not abused.

(in my words)

That’s a fallacy – what the kid just did was deploy capital in an ultimately unproductive way; the time and money in this business could have gone to more productive avenues instead. The Mahabharata was fiction, but in real life, if you lose money playing a rigged game, it does you very little good. Lessons needn’t be that expensive. Trading stocks – or even “investing”, whatever the difference may be – is fraught with fraud risk.

(Thanks to one version of the original story here)

  • Anonymous says:

    >Good post as usual… but if you worry about fraud risk then why play at all!

    Ketan
    http://greenbuck.blogspot.com/

  • Deepak Shenoy says:

    >True, but people don't recognise how big it is, especially in the ultra-small-caps.

  • ramesh says:

    >"what the kama" hahaaaa

  • Kiran says:

    >Good one using the Mahabharatha as an analogy!

    And regarding the kid breaking the window pane one, a more real life example. Some analysts started saying that the Japanese earthquake was good because it will involve rebuilding and hence good for the recovery. In your style, after 'What the Kama' expression, I shot back an email to them saying we can have a World War III which will involve a lot more rebuilding and hence a bigger recovery!

    How do these analysts ever get to publish their reports, especially ones that I have just quoted, I have no clue.

  • Indian Thoughts says:

    >Very nicely written and with analogy that all Indian can relate to.

  • Sumant says:

    >Very good, as usual, Deepak. Thank you.

    Just one phrase that stuck out for me, though…."The Mahabharata was fiction". One can't be certain of that, Deepak.

    But please do keep up the great work and I hope your baby, MarketVision, goes on to scale ever greater heights!

  • Anonymous says:

    >The kid's window story sounds like the Economist Keynes who asked the American Government to employ people to dig trenches and then fill them : the salary they drew would help the economy grow!!