## Friday, December 12, 2008

### Bernstein on hesitation

I have always liked Peter Bernstein, one of those Wall Street gurus whose names you can always find plastered in any finance bookshelves. Somehow he seems different from all the rest who practically scream, "LOOK AT ME! I AM RICHIE RICH!" while jamming their books with bland MBA-lingos exhorting you to worship themselves above all else. Probably through his eloquent writings, his reverence towards history and his sensitivities towards the arts and literature, Bernstein has managed to distance himself from the MBA pack.

And this is what he had to say about hesitation in the face of uncertainty. Common knowledge has it that "he who hesitates is lost". Going on to quote Hamlet "the native hue of resolution is sicklied o'ver with the pale cast of thought, and enterprises of great pith and moment lose the name of action.", he went on to debunk the consensus:

Yet once we act, we forfeit the option of waiting until new information comes along. As a result, not acting has value. The more uncertain the outcome, the greater may be the value of procrastination. Hamlet had it wrong. He who hesitates is halfway home.

My trigger-happy fingers have caused me much grief in the *past.I need to get this drummed into my head.

*(only last night) I had been trying to get into BAC, but I knew the market was very choppy. The ticker was bouncing between 16 and 16.2 for a few hours. Hindsight and common sense is to stay away tonight, but at that moment, when it rose, I was filled with dread that it would run away, and when it fell, I was filled with anticipation to buy. And when it went down to 16 again, I just had to buy at 16, all because I thought I had stayed up all night, and I deserved some action. Almost immediately after the order was filled, it plunged drastically down, closing at 14.9 for the day. The instantaneous reaction from the market was surreal, almost as if some higher being out there was observing you with glee. That sickness in the stomach, familiar eh?

## Thursday, December 04, 2008

a list i mentally compiled to myself along the way...

1. If you find yourself 15% up in a day, you can also be 15% down tomorrow. It's called volatility. Liquidate.

2. Do not trade pre-market. Do not trade in the 1st 15min. Have a feel for general sentiment of the day before committing.

3. Asia lags US. Do not use Asian markets to predict US movements. Not even for identical company stocks listed across different exchanges.

4. Do not worry if a trading strategy is sound. If enough people use it, it is sound. E.g. moving averages technical analysis. Just use it as another indicator.

5. Do not be worried about low volume declines.

6. US stocks can be very volatile. Be careful with the stop-loss. If you do not have a stop-loss, justify it. If you have a stop-loss, justify it too. Move on.

7. In general (only for buy), do not queue for stocks at a price a few notches lower than market price. It's completely pointless. If it decides to fall, it will fall through your queue price, and you are wasting time and effort monitoring the stock. Better to have your button on market order once the price stabilises.

8. Try to time the market if you can. Some days you get it right, some days you get it wrong. Plain wrong. Do not over-obsess over the difference of a few ticks. Feel you could have bought at US$0.20 lower? Yea it sucks. Learn from your mistakes and compile a list of WHAT-NOT-TO-DO, like this one. Now for a real test of my mettle. To the frontline... 2:00am Las Vegas Sands Corp. LVS 5.39 +0.75 (16.16%) LVS is up 16% in a day. According to Rule No 1, I should sell. Should I? 2:08am Las Vegas Sands Corp. LVS 5.27 +0.63 (13.58%) Indecision...din sell. 2:15am Las Vegas Sands Corp. LVS 5.09 +0.45 (9.70%) Ok. The ship has sailed. Queueing to sell at 5.40. Goodnight. 2:20am Las Vegas Sands Corp. LVS 5.04 +0.40 (8.62%) That's what i get for NOT following my own rules!!! 3:00am Las Vegas Sands Corp. LVS 4.87 +0.23 (4.96%) *nothing to say* 3:13am Las Vegas Sands Corp. LVS 5.25 +0.61 (13.15%) Beautiful play of geometric brownian motion here. 3:35am Las Vegas Sands Corp. LVS 5.41 +0.77 (16.59%) SOLD! 4:09am Las Vegas Sands Corp. LVS 5.03 +0.39 (8.41%) a foolish game of randomness, but seriously addictive...it's bouncing up and down like a yo-yo, almost predictably, dare i say? must...get...some...sleep... ## Tuesday, November 25, 2008 ### Why I long Citigroup *disclaimer* Nothing on this blog shall be considered a solicitation or offer to buy or sell any security, future, option or other financial instrument or to offer or provide any investment advice or service to any person in any jurisdiction. Nothing contained on the website constitutes investment advice or offers any opinion with respect to the suitability of any security, and the views expressed on this website should not be taken as advice to buy, sell or hold any security. (just in case, you never know these days...) 1. Citigroup is a bank deemed too large to fail. Heck, it has assets larger than the GDP of most countries, with 2 trillion worth of assets (unfortunately I must add, with 2 trillion worth of liability too). With 350,000 employees scattered all over the world from Bugis to as far away as Boon Lay, I'm sure they can clobber up a decent swim team to compete in the Olympics. A disappearance of Citigroup under our radar might spell the end of the modern world as we know it. 2. Oh...and 52,000 employees have been asked, politely I'm sure, to leave. Some may say this smacks of desperation, but I prefer to see it as aggressive cost-cutting. 3. Sorry people from the manufacturing industry, the financial industry, save for porn, is more important than any other in the world. GM can go on their knees and plead for all they want, and the US government just won't budge, but the same government did not hesitate to write a blank cheque to Citigroup in the blink of an eye. Some are just more equal than others. 4. How ironic that capitalism has created a peculiar state of affairs: profits are privatised, but losses are socialised. But that's the way it is these days. I am not here to moralise on the issue, but if you can't beat them, join them. 5. Citi is not AIG. The US Govt sacked the entire AIG board of directors (BOD), but gave a vote of confidence to Citi BOD. Robert Rubin and co have some serious connections. 6. It has a mega-business model that has proven to be hugely profitable in good times. Citibank is a brand which comes with certain prestige. To borrow a cliche from sports, form is temporary, but class is permanent. 7. Mark-to Market (MTM) accounting (fair value) might be scrapped when the ruling is up for review next year. In the event of that happening, the liquidity crisis might just vanish overnight. 8. When a$5 bill can buy you a stake in one of the largest corporations in the world, and have some change left over for a $2 chicken rice, this is an early Christmas gift presented to us by the bungling duo of Irrationality and Fear. 9. Vikram Pandit and various other directors have bought massively (US$8 million of personal wealth is quite a lot, to me anyway) into Citi shares. This apparent show of confidence is reassuring.

10. History never looks like history when you are living through it. It always
looks confusing and messy, and it always feels uncomfortable. It may look shitty now, but humankind from the beginning of time has seen off so many disasters, imagined or otherwise, that I'm sure this too will pass.

## Tuesday, November 18, 2008

### My old friend

I don't know exactly when, but I have almost completely lost focus in whatever I am supposed to do. I don't really know what hit me, but it must have been the day i inadventently let my old friend back into my life. I thought it was just a harmless chill-out, to catch up for old times' sake. After all, one needs a breather from time to time. But when the time came to bid goodbye, he feigned ignorance. I shouted at him in desperation. He just smiled.

I should have known better. Procrastination has found me out, and is now clinging onto me with a newfound fervour, as if to make up for lost time. Where once I could spend days poring through stochastic calculus, subscript by painful subscript, and actually admiring the level of mathematical abstraction that is being communicated in written text, I can only now stare blankly back at them. Where once I could eagerly devour technical articles on the complex subjects of financial derivatives, I can only wonder on the meaninglessness of it all. Where once I could wake up afresh in the morning and plan my day in exactitude, now the hours just melt into days, and days into weeks. I grieve at my lack of determination, and he sings softly into the air, "If the days they seem to fall through you, well just, let them go."

It does not help that no less an intellectual authority as Bertrand Russel once said, "The time you enjoy wasting is not wasted time." In more enlightened days, to idle away was a sure sign of nobility, for only the aristocrats could afford to indulge in their whims and fancies. Lord Byron wrote Hours of Idleness in celebration of slouth. Hemingway and Fitzgerald spent a good portion of their lives frolicking in the French Riveira. But somewhere along the way, idleness fell out of favour--big time. With papers to chase and rat races to run in a never-ending cycle, it's as if all the world's a large treadmill, and we are just going through the motion, pounding away till the day our heart stop. How delightful.

In the midst of it all, it is difficult to say no to this charming blob of consciousness, this Procrastination, whoever he is (perhaps a subconscious rebellion of our modern times). He is an interesting companion, even in the worst of times. He has even equipped himself with a new technological tool, Youtube, which streams whatever video your consciousness demands at any moment. And from there, I was introduced to the comedic duo of David Mitchell and Robert Webb, whose Peep Show provided me with endless hours of laughter and pleasure.

He is an artful one. Music is the headiest of drugs, and he feeds me incessantly with a potent brew of Federic Chopin, Joy Division, and Magnetic Fields. And soon I am possessed with an otherworldly fervour to master the hauntingly relentless Scherzo No 1. And movies! Out of nowhere, I was brutally thrown a copy of Michel Gondry's The Science of Sleep. I don't know, but the spectre of Charlotte Gainsbourg's Stephanie has been lingering in my mind since. Delicately devoid of makeup, she has an indescribable elegance, that certain "je ne sais quoi" that the French would say. Sometimes she looked so fragile and goofy that I wish I could just wrap her around my arms and tell her that everything's all right. But she's an independent spirit--she doesn't need that--and that's what so alluring about her. And she doesn't believe in marriages. There is just this vague familiarity about her where reel and real starts to blur. And that is the beauty of life, no?

Ok, another day gone to dust. Tomorrow will be a brand new day. I will get back my focus. I will rediscover the joys of mathematics. I will immerse myself in my studies. In the background, a familiar voice, ever so languorously, sings, "Yeah, yeah, yeah...tomorrow comes today."

## Wednesday, October 29, 2008

### Life is a supermartingale

Hyperinflation - The money is disappearing even as I sit here and contemplate it.
Arbitrage - You are being paid to receive money (positive cashflow)
Markov - Throw away all your financial news articles. History has no bearings on the future.
Supermartingale - Life is a supermartingale. Expectation decreases as time passes.

A friend recently shared a reflection with me:

Man can afford to be stupid, but not lazy.

This is so true, especially in the modern-day context. Day by day, resources are getting scarcer, but the competition is getting keener. It used to be enough to be good at something. Then the bar was raised--one must specialise. Now, you have to be at the pinnacle of your game. In this winner-takes-all society, only the ones at the top are ambly rewarded with riches. The rest are left scraping at the bottom of the barrels. Just spare a thought for the otherwise supremely gifted Olympic sprinters and swimmers of the Beijing 2008 cohort, who had trained all their lives for their one moment of glory, and turned up only to be left floundering in the wake of Bolt and Phelps.

Faced against insurmountable odds, it is easy to throw in the towel, and give up the fight. Fair enough. There's alternative ways of living than just about fighting for the scraps in life. For those who choose to soldier on, here's a rallying cry. We must persevere, in spite of our stupidity (or limitations). Because, quite frankly, that is all we have left.

As for the other reflection that life is a supermartingale, this is what Emanuel Derman has to say:
At age 16 or 17, I had wanted to be another Einstein; at 21, I would have been happy to be another Feynman; at 24, a future T.D. Lee would have sufficed. By 1976, sharing an office with other postdoctoral researchers at Oxford, I realized that I had reached the point where I merely envied the postdoc in the office next door because he had been invited to give a seminar in France.

In much the same way, by a process options theorists call time decay, financial stock options lose their potential as they approach their own expiration. They call this the negative theta factor θ. It is all too easy to let our thetas rise (much like entropy), but to bring our thetas under control requires a lot of determination and stomach for a fight. The struggles of life has now been neatly encapsulated into a symbol.

An aside,
Tourist: How do you get to Carnegie Hall?
New Yorker passer-by : Practice, practice, practice!

## Friday, September 19, 2008

### The Domino Effect

Before the turn of the decade, 2 events have already earned their place in the history books: the 9/11 terrorist attacks and the end of an era for investment banking. The current crisis has yet to be played out, and it remains to be seen how this tragedy from the world of high finance impacts the everyman world we live in. The volatility index, the so-called "fear factor", are at levels not seen since World war II. The signs have been there for a while. Dow Jones have been swinging up and down with the regularity of a roller-coaster ride since the start of 2008. As of now, it appears, government attempts to save the world have succeeded in placating the markets quite a bit. The cost of saving these financial institutions have effectively been transferred to the everyman taxpayer. If there ever were a game that goes "heads I win, tails you lose", this is it. The bankers who wrote the CDOs in the subprime boom may have lost their jobs, but they had already made their hay while the sun was still shining, hay that would take the rest of the populace a few lifetimes to make.

Such is the moral quandry facing the Fed. AIG have been described as having "tentacles all over the world". The collapse of AIG would leave gaping holes so large that the world would just implode on its own. With US$1 trillion in counterparty assets, this is no exaggeration. Even Freddie Mac and Fannie Mae have exposures to the tune of some US$8 billion in bonds bought by Bank of China and various other Asian banks. The Fed bailout of these firms, thus guaranteeing the securitised loans, have somewhat sheltered Asia from the financial storm. So far it seems, only Lehman Brothers have filed for the dreaded Chapter 11 bankruptcy. We can only observe with baited breath the fallout following the collapse of the 4th largest investment bank in the world. Not as spectacular as what an AIG collapse would induce --it's more fun reading about the Great Depression than living it--but still worth a look.

List of Counterparties and exposure to Lehman Brothers:

JAPAN

Aozora Bank $463 mln Loan Mizuho Trust$382 mln "
Shinsei Bank $231 mln " UFJ Bank$185 mln "
Sumitomo Mitsub Bk $177 mln " Chuo Mitsui Trust$144 mln "
Shinkin Central $93 mln " Nippon Life Ins$46 mln "

TAIWAN

Investments

Shin Kong Fin (2888.TW: Quote, Profile, Research, Stock Buzz) $78 mln Cathay Fin (2882.TW: Quote, Profile, Research, Stock Buzz)$33 mln
Central Reins (2851.TW: Quote, Profile, Research, Stock Buzz) $32 mln Entie Bank (2849.TW: Quote, Profile, Research, Stock Buzz)$24 mln
Bk of Kaohsiung $18 mln Polaris Securities$11 mln
SinoPac Fin $2 mln Bank loans Hua Nan Fin (2880.TW: Quote, Profile, Research, Stock Buzz)$59 mln
First Financial (2892.TW: Quote, Profile, Research, Stock Buzz) $25 mln Bank of Taiwan (unlisted)$25 mln
Fubon Fin (2881.TW: Quote, Profile, Research, Stock Buzz) $10 mln AUSTRALIA Commonwealth (CBA.AX: Quote, Profile, Research, Stock Buzz) Below$123 mln Range of products
ANZ (ANZ.AX: Quote, Profile, Research, Stock Buzz) $120 mln Mostly to subsidiaries Westpac (WBC.AX: Quote, Profile, Research, Stock Buzz) Below$8 mln
NAB (NAB.AX: Quote, Profile, Research, Stock Buzz) Below $81 mln HONG KONG Citibank (C.N: Quote, Profile, Research, Stock Buzz) HK branch$275 mln Loan

CHINA

Bank of China New York $50 mln Loan (3988.HK: Quote, Profile, Research, Stock Buzz) (601988.SS: Quote, Profile, Research, Stock Buzz) SOUTH KOREA The Bank of Korea said the country's financial institutions had exposure of a combined$1.34 billion to Lehman and Merrill Lynch (MER.N: Quote, Profile, Research, Stock Buzz) as of Aug 31.

THAILAND

Central bank said Thailand's 14 commercial banks had only $124 mln of direct exposure to Lehman and more than that in foreign exchange contracts. Bangkok Bank BBL.BK said it holds$101 million in senior, unsecured bonds.

SINGAPORE

DBS (DBSM.SI: Quote, Profile, Research, Stock Buzz)^ Insignificant
UOB (UOBH.SI: Quote, Profile, Research, Stock Buzz) Very small
Bank of Nova Scotia(BNS.TO: Quote, Profile, Research, Stock Buzz) $93 mln loan (Singapore branch) PHILIPPINES The Philippines' two biggest banks -- Metropolitan Bank and Trust Co. (MBT.PS: Quote, Profile, Research, Stock Buzz) and Banco de Oro Unibank (BDO.PS: Quote, Profile, Research, Stock Buzz) -- on Tuesday set aside nearly$100 million to cover exposure to Lehman Brothers but the central bank said the total exposure of the local financial sector was small.

What exciting times we live in!

## Tuesday, September 02, 2008

### The Blitzkrieg

The Eiffel Tower is already in their sight. They have scented blood and are moving in for the kill. In a week's time, they would come with guns-ablazing, and we would know our fate. Resistance is almost futile now. A 5 week onslaught have totally caught us by surprise, and left us bereft of manpower, time, resources and food. Extremely low on morale, the soldiers are bordering on mutiny. Some divisions are even deserting their positions. What's worse, the trail of defeats has left confidence totally shattered. We are only fighting on adrenalin, fighting only because red blood still courses through our veins. The citizens are engulfed in a myriad of emotions, ranging from the defiant, to the fearful, to the desperate, to resentment, and now resignation. Fate is no longer in our hands. The Maginot Line--our sentinel, our saviour, our fortress, which we have painstakingly built up over the past year, has turned out to be a just another cruel illusion. It was never enough. We were totally out of our depth, totally outplayed, out maneuvered, out-thought, and out-fought and now we face the consequences of our CARELESS mis-steps. We only have ourselves to blame for the dire state we find ourselves in. But now is no longer the time to talk of recriminations. The hour has cometh. Make a last-ditch stand. Recall the spirit of Verdun. Fight till the last drop of blood is shed. Fight to reclaim our dignity. Ils ne passeront pas. Hollow words they shall remain to be unless we take ACTION!

Paris,
June 2 1940

## Monday, July 14, 2008

### The Postmodern Traveller

He cuts through the heart and soul of the city, gliding effortlessly around the urban jungle. He weaves in and out of traffic, at once part of it, at once apart from it. He observes in motion, taking in the vibrant sights and sounds, witnessing a dynamic city life as it courses through the streets, but never lingers longer than his welcome stay. The city appears aloof, yet it is he who has accepted the city for what it is. Trains, benches, subways, bridges, cars, even the dreaded authorities--they are but mere entities that he accepts as part of the landscape. He breathes the city through his skin. He caresses the pavements like a familiar lover, and leaps through obstacles as if they exist in different spatial dimensions. He knows every nook and cranny, every creek and crevice. The city resists, but to no avail. He is an antiauthoritarian, a quicksilver, a free spirit, a loner, a transcendental traveller. He is the postmodern poet on wheels.

I am inspired. But considering my dexterity, I would most probably elicit some headlines that reads:
Boy,29, dies trying blading stunts at HDB void deck

## Sunday, June 15, 2008

### Last Chance Saloon

For a waiting room of sort, it was a large one. From where I sat, I could only see endless rows of nameless, faceless souls lined up quietly, backs to wall, with their eyes closed. They seemed deep in thought, as if they were keeping a long uneasy vigil, or they could just as well be dozing off to the stultifying boredom. The air was stale with cigarette smokes and broken dreams. The walls, yellowed with age, had seen better times. Grafitti was sprawled all over. Perhaps there was nothing else to do. Perhaps the inmates merely wanted to mark the passage of time.

I looked around me. Sometimes I could make out a familiar face or two. It was all very hazy. There were murderers and drink-drivers who shattered lives--other people's lives--in moments of insanity, doctors and lawyers whose lives did not turn out the way they wanted, engineers and scientists disenchanted with the lousy capitalist world, writers and poets cursed with a chronic discontent they could not identify, and above all, the common people. Yes, common people who yearn for something greater. Common people whose lives had somehow slid out of view. Common people anonymous to all but God.

For all the souls packed in here, the room was eerily quiet. When people spoke, they did so in hushed tones. We all shared a common destiny, but there was nothing we wanted to do with one another. Sometimes we stared, with our glazed eyes, right through one another. It was rumoured that Edward Hopper drew his artistic inspirations from this very spot, but we all know it isn't true. We are better than them--those alienated figures who hung about in the vast emptiness of his canvases. For one, there is still hope. Someone has forgotten to tell us that hope and despair are two sides of the same coin.

A young migrant, as if reading my thoughts, turned to me and said, "If the door is closed on me, I'll just open another one. And if it doesn't open, if I just knock long and hard enough, somebody might just wake up." his dirty face creased with hope as he spoke. There was an unmistakable fire in his belly, an all-too-rare commodity in a place chokeful with cynicism and spite. I was grateful for the warmth, for otherwise we would have succumbed to the cold long ago.

I pressed my nose against the window pane. It was dusk, and the heavy rain in the afternoon had gradually given way to a light drizzle. It was my kind of day. I wished I was out there, out on the rain-scented sidewalks. It always smells like springtime again after a rain. The roads shimmered under the neon lights, and the rough edges were blurred and smudged in fragrant swirls. People and cars zipped about in a kind of absurd hurry, probably with lovers to meet, places to go and parties to dance to till dawn. Looking through the window, darkly, I was suddenly overwhelmed by a sad realisation that life was happening elsewhere, and passing me by. Then I remembered the rules, communicated to us with a thinly veiled threat. "One. Check your regrets at the door. Two. Self-pity will not be tolerated. Three. Get lost if you must. "And despite our anti-authoritarian slurs, we all complied. Otherwise we wouldn't have come here. This is no time for wallowing.

One particular graffiti, scrawled in angry red ink, caught my eye. "Fuck you Godot, waited all my life for you!", it spits with no little contempt. I never really understood what it meant. Someone explained to me that it was a reference to "Waiting for Godot", an absurdist play in which the characters waited in vain for a Godot who never arrived. Must be a disheartened religious zealot. Ahh...It's just as well this Godot never arrives. We are all broken souls who have, at one time or another, followed the wrong gods home.

There was Harry Silver, a handsome articulate man in his mid-thirties who had everything going for him till his one-night stands crawled into daylight and wrecked his marriage. Wait a minute. Wasn't he a fictional character from the literary world of Tony Parsons? Kid in tow, I swore he was as real as can be. Pleading under his breath, to no one in particular, he was asking for a second chance. All too easy, Harry, all too easy.

We all know the story of Richard Buckminster Fuller, who was once on the verge of suicide but decided to check himself here. The rest is history, so they always say. He made good his time, invented the geodesic dome, and carved his name into eternity. There is even a soccer ball, the Buckminster ball, named in his honour. He is regarded as a folk hero here but not all are as lucky or as determined.

Jack Kerouac checked in and out oftentimes. A familiar figure, he left after the stunning success of "On the Road" brought him instant fame. He never returned. He was last heard to have drunk himself to death on the edge of town. Could this be the metaphorical Hotel California, where you could check out anytime you like, but you could never leave? Probably not. As perverse as it sounds, Kerouac simply gave up on life.

The world is especially cruel to men of science. The guy who invented the zipper died penniless. I can't even recall his name, but I offer a prayer for the man every time I zip up safely. Georg Riemann, Georg Cantor all had it tough. Born to the wrong centuries and derided despite their immense contributions to mathematics, they eventually lost their sanity. I could name more. Antoine Lavoisier, Alan Turing, they didn't even have chance.

That reminds me. I must return to my task at hand. When I came here with my books, all of them shrouded in an arcane language that speaks of Martingales and Markovs, Measure Theory and the Black-Scholes, I was told they could very well be my ticket out of the godforsaken. My life had never been simpler. All I had to do was to unravel the secrets contained within the tomes. Everything else was noise. Staring at the symbols for the longest time, I was beginning to develop a sense of weary affection for them.

But demons lurk within. Paulo Coelho once wrote, " When you want something, all the universe conspires in helping you to achieve it." I'm sure he wrote it just to sell his books, to appease some sort of commercial deity. The parallel universe which I had known all my life is at best merely indifferent, and at worst, it conspires to disrupt you. I come here to concentrate, but I keep losing focus. A slight distraction at the door will have me scurrying to find out what happens, but people come in and out all the time here.

As I am speaking, there is a real commotion now at the door. A group of people, dressed in blue, are awaiting outside. The air is thick with goofy euphoria, the kind which happens only when celebrities are spotted among us commoners. In sauntered a familiar figure, lanky and languid. Thierry Henry! Then I recalled, France was recently humiliated 4-1 by Holland in the Euro2008. It was the kind of things which you thought could only happen to other teams, to other people, sort of like getting AIDS or being struck by lightning. It must have been particularly painful for the French, whose years of strutting about in their cloak of invincibility had come and gone. Now that the cloak is gone, all that is left is ridicule, mockery and disillusionment. But this is no time for recriminations nor self-pity. The French team has decided to check into the last chance saloon.

I wish France all the best.

## Wednesday, June 11, 2008

### France vs Romania JokeFest

Football journalists were busy whipping out their poison pens after France and Romania threatened to bring the beautiful game into disrepute, an accusation more often levied at "enemies of football" such as Jose Mourinho and er..Marco Materazzi. Even England, like an unfortunate kid picked on for no apparent reasons, was not spared the collateral damage. From perennial underachievers to plucky minnows? Ha!

From Guardian:
To be fair, Romania have only ever won one game in the Euros and that was against plucky minnows England.

From International Herald Tribune:
On a mild and sunny evening, the best that could be said of the tired spectacle was that the grass was a particularly restful shade of green and, to the naked eye, appeared to be growing well.

Unfortunately, there was nothing of wit from Soccernet this time. When it comes to wit, no other publication does it better than Guardian. Here are some Guardian gems to savour(drawn from other occasions and in no particular order):

[England-Croatia]
After all the debate over the shape England ought to adopt, Croatia decreed that it would be a severely dented one.

[France-Italy WC 2006]
Zidane looked relaxed, sharing a joke with Fabien Barthez who, coincidentally, has often been described as a joke.

[France-Romania Euro 2008]
For the first time in a year or so, Malouda broke dangerously down the left. He jinked into the box but his shot sailed somewhere over the Alps.

[France-Brazil WC 2006]
Now that the over-hyped Ronaldinho has been absolutely rubbish in the entire World Cup as well as the Champions League final, thus shrinking continuously in the big stage, could he be dubbed the New Old Thierry Henry?

[Man U-?]
Wayne Rooney struggled to contain his fiery temper and screamed 'You Kant' at a linesman when called for offside, and then 'Foucault' at the referee. Rare for a player to react to an unwelcome decision by critiquing the philosophical underpinnings of the rules.

## Monday, June 09, 2008

### Hedging

One of the many financial terms which have been creeping into our daily lexicon
is hedging. While it sounds impossibly arcane, no thanks to the dark reputations that hedge funds have acquired of late, hedging is actually a simple strategy of reducing risk by taking protective, and sometimes painful, measures against our life utility. In finance-speak, hedging must involve taking opposite positions in various products which are correlated. So if we have to talk about hedging, we must have a common platform--utility, which is not a problem since our singular objective on earth is to maximize our utility, according to economists.

For example, paying life insurance premiums is a type of hedge for human capital in the event of death. Wearing seat belts is a matter of hedging comfort for safety. Socialise with a wider network of people. Do not over-commit in a relationship. Never burn your career bridges. All these social rules have their roots in hedging. If you look hard enough, hedging is something ordinary folks--those of the more conservative types anyway--have been practicing all their life.

And it is not unwise to do so. To take an opposite stance from hedging is to go all-in with guns a-blazing, with the all too familiar result of burning out way before your prime.

"This too will pass" is a philosophical hedge against the extremities of the human condition. Whether you be mired in the throes of despair or be lost in the joys of happiness, be awaiting death as a hangman or be sitting on a pile of capitalist gold, be in the company of or be grieving for your loved ones, the simple realisation that the human condition is essentially transitory tempers all sadness and happiness. Congratulations. You are now a Stoic.

I too have been hedging all my life. France vs Romania is those types of matches which I will bet draw, for fear of suffering the double whammy of France dropping points and losing money at the same time. I would much prefer to lose a small amount of cash and see my favourite teams triumph. Obviously the more important the match features in my heart, the larger the hedge needs to be against potential disappointment. I hedged a considerable sum against Manchester United winning the 2007-2008 Champions League, but actually forgot to cover penalty shootouts. Such is life.

And for all the broken-hearted in the world, it's time to learn how to hedge your pain away. Channel your negative energies into activities of the more productive types--the more utility they earn for you, the better. It's easier said than done, but get that first dose of utility in, and savour the soothing effects of utility on your broken heart. So stop spinning songs of nostalgia and start unravelling the secrets of the universe. Or start a veritable porn collection, if you so wish.

P.S.
The idea of hedging is not new. The average German would pay 80 euros to win Euro2008, while the French, averse to such displays of patriotism as usual, would only offer 13 euro.
http://www.lloyds.com/CmsPhoenix/DowJonesArticle.aspx?id=391960

OK! Placed my bet (draw for France vs Romania). Hope I lose.

## Thursday, February 21, 2008

### Why Liverpool?

Why, of all things, would I fall in love with a perennial loser like Liverpool? There was no denial the stinging mockery in the question often posed to me, after yet another disastrous English League result.

Yes, it's been torturous, even downright maddening at times. In Gerard Houllier's time, you wished you could spin him like a gyroscope after yet another "corner turned". Could we also rotate Benitez somehow, churning his innards inside out after yet another rotational policy that backfired? But some things are inexplicable, much like how we struggle to explain away romantic love. When things got so dark that you think God had switched off the lights at Anfield, The Cheeky One switched it on again with something like this:

Hapless against Barnsley, imperious against Inter Milan (check out the cross-field passes--sublime!) there is simply no team, not even France, like Liverpool. Stay away from Liverpool if you prefer the mundane, but if you happen to enjoy a bit of unpredictability in your life, hop onto this rollercoaster. But don't ask me where it's taking us. I don't have a clue!

## Sunday, January 06, 2008

### Poker: The All-in Flush Draw

Pretend I am TransFish. Now this has got to be one of my favourite poker moments. I hold 2 suited cards (as an example from the picture, AT--short for AceTen) and am heads up against a paired opponent.

Flop comes out 2 suits. The air is thick with anticipation. All is quiet, even as the chatters and shouts and excitement intensify across the table. My face is flushed as I await my flush.

First, the technicalities: What are the odds of me making my flush?

The intuitive answer I gave myself was: 50%.
4 suits. Each suit has 1/4 chance of flopping.
Unfortunately, the actual odds of making that flush is much lower than the intuitive 50%.

We have 3 independent scenarios:
2 more cards of my suit + 1 card of my suit and 1 non suit + 1 non-suit and 1 card of my suit =
*Total of 52 cards. 2 are dealt to you, and 3 are dealt on the flop making a total of 5 known cards for you, and 47 unknown cards. Of the 5 known cards, 4 are of the suit of interest. There leave 9 more suits in the 47 unknown cards.

A better, and mathematically similar approach is:

There is a trick called the Rule of 4 (analogous to the Rule of 72):
We have 9 outs. To get the odds of making your outs come true, simply multiply the number of outs by 4, hence 9*4 = 36% (marvellous approximation!)
(out is defined as undealt cards that are favourable to your cause. The more outs the better!)

Now comes the game theory aspect of poker (with absolute zero knowledge of game theory, I substitute it with the rudimentary knowledge of calculating expectations)

Of course, the concept of "giving a free card" is also very crucial here--not for me, but for my opponents. I have yet to make my hand. I am waiting for a "free card"-- either on the turn or the river. Those who have me beat at the flop should make me pay (by betting heavily before the turn) to get the free card. In case, they don't, I will check quietly, but in case they do, I may just go all-in.
(A case of damned if they don't, and damned if they do, why else would I elect this hand to be my favourite poker moment.)

Why so?

Considering all possibilities when you go all-in. There are 3 and only 3 scenarios:
1) you win the pot outright. Everyone else folds ( the probability here varies. Say, each person has a 10% chance of calling)
P(0 people call) = 0.9^6 = 0.53 (assume 6 people are in the game)
P(at least 1 person call) = 0.47.

We can assume the probability of at least one person calling your all-in to be 50%.
Conversely, the probability of winning the hand outright is also 50% (everybody folds to your all-in)

2) you get called, and win. (0.5*35%=0.175)
3) you get called, and lose. (0.5*65%=0.325)

Calculate expectation.
Let PotMoney = P.
Let your current stack = x.
Let n = total number of opponents who call your all-in
We want the expectation E[all-in] to be as high as possible, and the 2 variables helping us are P and n.

Let's calculate how high P should be for a favourable all-in.
For expectation > 0 (for n=1),
This means that as long as P is 30% of your current stack, it is not too foolish to go all-in (note my cautious choice of words). When n > 1, P becomes immaterial. Simply put, the expectation just gets higher as more people call your all-in. And the best part is, you are taking on the same risks for higher expectation. Mostly, the people who are going to call you are the pairs and the trips. Best if they are holding on to a flush draw like you, but have an inferior high card. The poker people call these suckers drawing dead. (Yea, you keep waiting, keep drawing, and oh thank god when you finally made your flush, but you still get beat!)

Factors to consider before making the quantum leap:
1) The number of people playing
2) The pot
3) How much money I have
4) Chances of anyone making a full house
5) I better be holding the Ace or King of that suit, giving me a nuts flush.
6) Stages of the game (Opening?Endgame?)

I favour amassing chips at the beginning stages of the game. With a large stack, I can proceed to bully the table for the rest of the game, which is something I highly recommend to do once just for the experience. Pointing at my short-stacked opponents, I can either:
1) laugh at them
2) ask, "How much have you?", and throw the amount of bet equal to what they have, forcing them to go all-in for every card they play. And then repeat Step 1.

The gist is: for an all-in, your upside is unlimited (you never know how many "by-catch" are caught on the trailing hook), but your downside is limited to your all-in. When the gambling blood in me goes on full boil, calling all-in is something I relish!

### Things I learnt from William Feller

1. The trial of 1 coin thrown 1000 times is different from the trial of 1000 coins in one instant. That is, given the results (statistical characteristics) of both experiments, one can deduce if its the former or the latter.

Reason:
The laws governing prolonged series of individual observation (random walk) is entirely different from the laws derived for a whole population (law of large numbers).
Time average does not have bounded expectation and hence DOES NOT obey Law of Large Number (LLN). Instead it has its own set of "arc sine" laws strictly for waiting times.Ensemble average has bounded expectation and hence obey LLN.

It sounds absolutely preposterous. I must admit the math on LLN and CLT (Central Limit Theorem) get a bit too dense for me here, but please read Feller thoroughly before dismissing the idea. Perhaps ensemble average lacks the dimension of time--that's what makes it different.

2. Given a fixed probability average (which is reasonable if we apply Laws of Large Numbers), increased uniformity in each independent Bernoulli trial increases the variances. For example, given a certain quality p of n machines, the output will be the least uniform if all machines are uniformly equal.

Given a probability distribution of Bernoulli trials with variable probability,

To summarise: Set of the wildly fluctuating {0.1, 0.4, 0.7} is good. Set of the more uniform {0.4, 0.4, 0.4} is no good.

Another shocking revelation. I hope the Six Sigma folks are aware of this fact. I would like to venture forth an analogy from thermodynamics: Entropy of a system is at its maximum when the system is isothermally uniform. Similarly, variance of a system is at its maximum when every point within the system is uniform. Makes one think about our intuitive understanding of the word "variance".

What is Entropy? by Erwin Shrödinger

3. All it takes is 23 people to make it more likely that at least 2 of them share the same birthday than otherwise.

I suspect people who share the same birthdays have an instant affinity to each other because of the perceived rarity of such events. But I for sure won't flinch again if another May girl comes along.

4. German bombs felled over London were found to be perfectly random and homogeneous, despite apparent evidences of some areas being more heavily bombed.

Reason: to the untrained eye, randomness appears as regularity or tendency to cluster.

Anyway, that's what the chi-square tests are for--to determine if the pattern we are seeing is indeed an anomalous pattern or a good fit to the Poisson or Normal distributions, which are essentially random.

5. Given a sampling of German planes and their number plates, statisticians guesstimated the total enemy plane productions in World War 2.

Assumption: the number plates were given sequentially.

6. Even if a game is fair, where the expectation of winning (per trial) = entrance fee (per trial), there is nothing in the law of large numbers to prevent you from losing money with a probability of 1. (= sure lose).
(LLN only says your loss is limited to a magnitude less than n).

Assumption: we are dealing with random variables with divergent expectations (eg random walks)

7. We live in a world of no advance knowledge. For example, even the prospect of the sun rising tomorrow is subject to the conditional probability below:

P( sun will rise tomorrow | sun has risen for past observable 1826213 days)
= n+1/n+2 (Law of Succession of Laplace)
= 1826214 / 1826215
= 0.999999

Assume that we have no prior knowledge of the motions of the celestial bodies that causes the phenomenon we call "sunrise".

Wiki on Sunrise Problem

Proof. Bear with me on this hypothetical situation. Imagine there are 20 parallel universes, each created by a supremely bored Creator who, for pure amusement, determine the lifespan of each universe he created by drawing a ball from an urn containing red balls and white balls for each universe.A red ball drawn denotes the survival of the sun for that year. A white ball drawn means the sun must be extinguished by that year. The 1st universe has an urn of 0 red and 19 white balls. The 2nd universe has an urn of 1 red and 18 white balls and so on... Hence, each universe has different likelihood of being extinguished, with the 1st universe most likely to be dead, and the 20th universe least likely (in fact, impossible, since there are 19 red balls, and 0 white balls, are contained in its urn).

Say, human beings live on one of the universes, but they have no idea which universe they belong to. They have thus far survived for 10 years (i.e. 10 red balls have been drawn).

Let total number of balls in each urn be N.
Let total number of universes be N+1.
Let current number of years the Universe has been around be 10.

The probability of 10 red balls drawn = P(A) =
P(10 red balls from Universe 1).P(Universe 1) + P(10 red balls from Universe 2).P(Universe 2) + ...+ P(10 red balls from Universe 20).P(Universe 20)

The probability of the 11th ball being drawn is red = P(B) = 1/12.
Hence, the probability of the 11th ball being drawn is red, given that the 1st 10 balls drawn are red
=P(B|A) = P(AB) / P(A)
=(1/12) / (1/11)
= 11/12
= (n+1) / (n+2) where n = number of successful observations

Note the interesting and immensely useful approximation:
which works as the Riemann rectangles are being approximated (though underestimated) by a continuous curve x^n, much like how the binomial distribution is approximated by the normal curve. The error becomes smaller as n goes to infinity.

Of course Feller warned that such ideas were already discredited, and could very well be labelled pseudo-science. But the mathematical developments of hyperspace have thrown up the distinct possibility of parallel universes co-existing with our own. Maybe ours might just be the one whose sun goes out tomorrow. Anyway, Pink Martini seems to agree:

If tomorrow's sun doesn't shine,
And no creatures stir in the morning time,
If the clouds go still in the sky,
at least I'll have my Clementine.

If tomorrow's moon doesn't show,
And our dreams go lost in the winter snow,
If the flowers wither and die,
at least I'll have my Clementine.