On the Role of Luck and Extra Cookies, YTD Equity Performance, Policy Actions and an Ayurvedic Approach to Sleep Disorders-Part 5!

From: Aditya Rana
Subject: On the Role of Luck and Extra Cookies, YTD Equity Performance, Policy Actions and an Ayurvedic Approach to Sleep Disorders-Part 5!


To take a break from covering writings on financial markets, this week we turn to the key role that luck plays in our lives. Michael Lewis, the well known writer and commentator on financial markets, made a short speech to the 2012 graduating class at his alma mater Princeton University, on how we constantly underestimate the role of luck in our success. To summarise:

-Lewis maps out how he joined Salomon Brothers in the mid-eighties purely by chance , and how that experience sowed the seeds for his literary ambitions, commencing with the publishing of his best-selling book Liar’s Poker which sold a million copies, making him a successful author at the age of 28.

-While the world eulogised his writing skills, Lewis knew that what was more critical to his success was a series of chance events, illustrating that “success is always rationalised” and that people typically don’t like to hear that success is due to luck – especially successful people.

-In his book “Moneyball” he showed that the poorest professional baseball team (Oakland A’s) was winning as many game as its richest team – the Yankees. This is because the rich teams did not understand who were the best players, and were routinely misvaluing them because they were not taking into account the role of luck in baseball success.

-The message from the “Moneyball” story were at two levels – from a practical aspect, it was about finding value by analyzing better data and exploiting market inefficiencies. At a deeper level, it was about luck being the critical component in determining life’s outcomes.

-A recent experiment conducted at Berkeley University was very informative – a group of six students was broken into two groups of three students and a person was arbitrarily appointed to be the leader of the group. They were then assigned some complicated moral problems to solve. Every thirty minutes the experiment was interrupted and four cookies were brought into the room for the group to eat. The process was then restarted.

-Incredibly, the person arbitrarily appointed the leader consistently ate the fourth cookie – and with a lot of gusto. The leader performed no special task and was randomly appointed just thirty minutes earlier, but still felt he deserved the extra cookie. The experiment provides an insight into the issue of Wall Street bonuses and CEO pay.

-It also has a lesson for the young graduates of Princeton University, as they have been given the extra cookie and will be given even more over time. It would then be easy to fall into the trap that they start believing they deserve the extra cookie. But they will be happier, and the world better off, if they at least pretend that they don’t deserve the cookie, and realise that they owe a debt to the unlucky.

A refreshingly honest and thought provoking piece! As the work of Nobel winning psychologist Daniel Kahneman and others convincingly demonstrates, we are constantly undervaluing the role of luck in our lives – and treating our successes with more humility would go a long way in making society (and our minds) more peaceful!

Looking at the year-to-date performances of the major equity markets around the world leads to some surprising observations – after the Nasdaq (up 9.72%), the second best performing market is India (up 8.2%) – despite all the negative news on India! China (up 3.7%) ties at fourth. So our year-end theme of “reversal of fortunes” for 2012 seems to be intact!

We are entering into an important period for global financial markets, with the Greek and French elections this Sunday, the Fed meetings on the 19th and 20th, culminating in the euro summit on June 29th &29th. The scope for supportive policy action has moved higher significantly as this comment from Goldman summarises (they estimate a 75% chance of Fed easing at their meeting):

“Even more important than these in the short term, we think that after two months of negative data, bad markets and little policy response, the pendulum is likely to swing back towards policy intervention. In the US, we continue to expect some fresh easing moves at the June 20 FOMC, and recent remarks by Fed officials have taken a more dovish tone. In Europe, more proposals, and atmospherics, on deeper institutional arrangements – deposit insurance, fiscal risk-sharing and “banking union” – are likely as we move towards the June 28-29 Eurogroup summit. And while the Greek election result is likely to begin a messy negotiation process, the market already expects that and we have argued that concerns about an imminent exit – which gripped the market a week or two ago – are overblown. China’s easing process has taken another step forward too, with the rate cut. Even if these moves ultimately have limited effectiveness, we think markets could easily continue yesterday’s move higher if policy activism increases”.

“In light of the weakening data and the intensification of the Euro area crisis in recent weeks, Fed officials have started to raise the possibility of additional monetary easing. Fed Vice Chair Janet Yellen and New York Fed President William Dudley, for example, identified three conditions that would warrant additional easing. These include: (1) an unsatisfactory pace of economic recovery, such that little or no improvement in labor market conditions is made; (2) sufficiently large downside risks to the outlook; or (3) a notable decline in core inflation below the FOMC’s 2% objective.”

At the same time the Financial Conditions Index has shown a substantial tightening.

The chart below shows the Fed’s easing probability as a function of GSFCI, which puts the probability for the next FOMC meeting at around 75%.

An Ayurvedic approach to Sleep Disorders – Part 5 (Dr. Vasant Lad):

To follow-up on last week’s note on the causes and different types of migraines and their relationship to sleep disorders, the focus for this week are lifestyle tips for managing migraines and herbal cures:

Healthy lifestyle Tips for Migraines:

-Sufficient sound sleep

-Avoid artificial sweeteners and MSG

-Avoid prolonged exposure to sunlight-wear a hat and sunglasses.

-No smoking or drinking alcohol

-Avoid excessive sexual activity

-Take time to relax

-Increase intake of magnesium containing foods – green leafy vegetables, pumpkin seeds, oats, barley, soy beans.

-Drink enough water.

-Avoid foods to which you are allergic

-Cool the scalp by applying coconut oil and brahmi oil.

-Take a brisk walk or do exercises early morning (khapa time)

-Rest, read and relax during the day (pitta time)

Management of Chronic Migraines:

-The following herbal formula thrice a day: dashamula 500mg, shatavari 300mg, kama dudha 200mg, tagar 200 mg, and jatamansi 200mg

-Half a tsp of bhumi amalaki nightly with warm water.

-Do nasya (nasal drops) daily: 1) vacha oil for vata types or 2) brahmi ghee for pitta types.

-Rub bhringraj oil and brahmi oil on the scalp and soles of feet before bedtime.

Here is to luck shining on you!




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