Category Archives: arbit

Bayesian Recognition and the Inverse Charlie Chaplin Principle

So I bumped into Deepa at a coffee shop this evening. And she almost refused to recognise me. It turned out to be a case of Bayesian Recognition having gone wrong. And then followed in quick succession by a case of Inverse Charlie Chaplin Principle.

So I was sitting at this coffee shop in Jayanagar meeting an old acquaintance, and Deepa walked in, along with a couple of other people. It took me a while to recognise her, but presently I did, and it turned out that by then she was seated at a table such that we were directly facing each other, with some thirty feet between us (by now I was positive it was her).

I looked at her for a bit, waiting for her to recognise me. She didn’t. I got doubts on whether it was her, and almost took out my phone to message and ask her if it was indeed her. But then I decided it was a silly thing to do, and I should go for it the natural way. So I looked at her again, and looked at her for so long that if she were a stranger she would have thought I was leching at her (so you know that I was quite confident now that it was indeed Deepa). No response.

I started waving, with both arms. She was now looking at me, but past me. I continued waving, and I don’t know what my old acquaintance who I was talking to was thinking by now. And finally a wave back. And we got both got up, and walked towards each other, and started talking.

The Charlie Chaplin principle comes from this scene in a Charlie Chaplin movie which I can’t remember right now where he is standing in front of a statue of the king. Everyone who goes past him salutes him, and he feels high that everyone is saluting him, while everyone in effect is saluting the statue of the king behind him.

Thus, the “Charlie Chaplin Principle” refers to the case where you think someone is smiling at you or waving at you or saluting you, and it turns out that they are doing that to someone who is collinear with you and them. Thus, you are like Charlie Chaplin, stupidly feeling happy about this person smiling/waving/saluting at you while it is someone else that they are addressing.

Like all good principles, this one too has an inverse – which we shall call the “Inverse Charlie Chaplin Principle”. In this one, someone is smiling or waving or blowing kisses at you, and you assume that the gesture is intended to someone else who is collinear with the two of you. Thus, you take no notice of the smile or wave or blown kiss, and get on with life, with the likelihood that you are pissing off the person who is smiling or waving or blowing kisses at you!

Both these effects have happened to me a few times, and I’ve been on both sides of both effects. And an instance of the Inverse principle happened today.

Deepa claimed that she initially failed to recognise me because she assumed that I’m in Spain, and that thus there’s no chance I would be in Jayanagar this evening (clearly she reads this blog, but not so regularly!). Thus, she eliminated me from her search space and was unable to fit my face to anyone else she knows.

Then when I started waving, the Inverse Charlie Chaplin Principle took over. Bizarrely (there was no one between us in the cafe save the acquaintance I was talking to, and I wouldn’t be waving wildly at someone at the same table for two as me; and Deepa was sitting with her back to the wall of the cafe so I presumably could not have been waving at anyone else behind her), she assumed that I was waving to someone else (or so that was her claim), and that it took time for her to realise that it was her that I was actually waving to!

Considering how Bayesian Recognition can throw you off, I’m prepared to forgive her. But I didn’t imagine that Bayesian Recognition would throw her off so much that it would cause an Inverse Charlie Chaplin Effect on her!

Oh, I must mention that I have grown a stubble (the razor I took on my trip to Europe was no good), and that she mentioned about not wearing her glasses today. Whatever!

Where you get coffee and tea

An old cranky professor once joked that “cafeteria” should be pronounced as “coffee tea area”, since it was the area where you got coffee and tea. We had laughed back then, both at the poor joke, and at the poor professor who attempted the poor joke. He was out of his wits as usual, we had assumed.

After my recent trip to Spain, though, I realise that he was not actually joking. “-eria”/”-aria” is a Spanish suffix that indicates a place where the prefix is sold. So a place where they sell Cerveza (beer) is a Cerveceria. A place where they sell Bombon (chocolate) is a Bomboneria. I even saw a “Churreria”, where they sold Churros.

So what is a cafeteria? The Spanish word for coffee is “cafe”. The Spanish word for tea is “te” (pronounced thay or something of that sort). So what would you call a place where you get cafe and te?

Cafeteria, of course! The old cranky professor wasn’t so cranky, after all.

Good and bad NED

Since I woke up this morning I’ve been “suffering” from a rather heavy bout of NED. But I shouldn’t be saying “suffering”, since I haven’t been suffering at all. I’ve been quite happy all day today, just that I don’t feel like doing anything.

Normally, NED is associated with something negative – when you have no enthu to do something, it implies a feeling of negativity – that you don’t want to do something. Sample this extract from one of my first ever conversations with the person who is now the wife, back from 2007. This was after she had seen me at the Bangalore Landmark Quiz 2007, where we went to the finals and lost. She is not to be confused, of course, with this girl I had seen at the Bangalore Landmark Quiz in 2005 (and whom I’ve never seen subsequently).

Priyanka: Hmmm …
  Tell me about your work!
 me: not now
NED
 Priyanka: okay!
  What about NED?
 me: no enthu i meant
 Priyanka: :P
  Don’t ever use your team name in our conversation again!
me: why not?
  it’s a concept
  not just a team name
 Priyanka: That im not too fond of!
 So your team symbolizes arrogance?
 me: what has arrogance got to do with it?
 Priyanka: Well thats just my take on it. But you tell me why you call yourselves NED?
  QED is so positive!

But what I’ve been going through this morning is not negative at all. I had a wonderful dinner last night (at this place called La Tertulia in Les Corts). It was a very interesting menu, and we finished the dinner with a dessert which was “chocolate 4 ways”. One of the 4 ways was a dark chocolate mousse (it was so awesome I wonder why it’s not more popular – dark chocolate mousse that is). And then I slept wonderfully.

I slept so deeply that when I woke up this morning it took time to recollect who I am and where I am and what I’m doing here and all that. I then dragged myself to a nearby cafe for breakfast, where I had more chocolate – the chocolate croissant there had much more chocolate than a normal chocolate croissant does.

So I’ve been feeling so peaceful and contented and happy that I just don’t feel like doing anything. I have less than three more days in Barcelona on this trip, and I want to go out and explore parts of the city I haven’t seen so far. But then NED is taking over. I’ve been feeling so blissful since this morning that I just don’t feel like going and doing anything! So I’m vegetating, sitting with my laptop and looking at websites on tourist attractions in Barcelona!

I remember being in this state of mind for most of the latter half of 2005. I was on a perennial high, and so high that I would just vegetate and not do anything! Not that it’s a bad thing but the long-term consequences aren’t great!

PS: Going through my blog archives, I find that even in the Bangalore Landmark Quiz in 2007, I had found “a cute chick” sitting in the audience. I didn’t make such a big deal about it, though, and I now don’t remember what she looked like. Going by this and other information I’ve presented in this post I wonder if I’m married to her now.

Business School WAG series – day out with baby bulls

Ten years ago, I was studying in a business school. A few weeks before I joined IIM Bangalore, a friend told me about the concept of a blog. I was told about the existence of blospot and livejournal, and the concept of blogging seemed exciting (I’d just started writing earlier that year and quite enjoyed it). I signed up on blogspot and wrote a post perhaps in June or July 2004 (I’ve deleted the blog, and so have forgotten when). Then I found that most of my IIMB friends were on LiveJournal and I moved my blog to skthewimp.livejournal.com .

My blogging ramped up slowly during my two years at business school – the first increase in momentum was during my summer internship in an investment bank, when my readership improved. A series of fairly controversial posts in the next one year further improved readership. And then the blog did me a lot of good.

I’ve found a client and a couple of other business leads thanks to my blogging. It was also my blogging through which I got to know of the existence of <lj user=”favrito”> eight years ago. Four years ago, I married her, and earlier this year, she decided to go to business school. And I thus became a business school WAG.

My status as a business school WAG was first established two months or so ago when I got an email from “Club – IESE Partners and Families”. These business schools try to take themselves too seriously and sound too politically correct – they could have simply called it the IESE WAG Club (there is merit in the usage of the term WAG (with its origins as “Wives and girlfriends”) as a unisex term). But anyway, I’ve continued to get emails from this club about its various activities. So far none of them have impressed me, but some have freaked me out, such as “day out with kids at the beach”.

My status as IESE WAG was further enhanced earlier this week when I made it to Barcelona, albeit for a short period of time. I visited the school yesterday, where <lj user=”favrito”> introduced me to one and all and sundry, and they eschewed the “three way cheek peck” which is supposedly popular in these parts of Catalunya in favour of the humble handshake. I spent the day in the cafeteria sipping Coke Zero and Dark Hot Chocolate and watching students crib about their performance in placement tests, talk about “arbit CP” that others put in class, and indulge in the kind of nonsense that all business school students indulge in (I surely did ten years ago) which recruiters (mostly business school alumni themselves) pretend doesn’t exist. It was interesting to say the least, but not interesting enough to deserve a blogpost for itself.

I further embellished my credentials as a WAG today, though, as I accompanied <lj user=”favrito”> and some of her classmates on a sort of picnic today. There was a fair number of WAGs at the picnic today, though I suspect I was the only male WAG. And I got introduced to a new “sport” in the course of the picnic today – amateur bullfighting, or as <lj user=”favrito”> described it, “Rajnikanth bullfighting”.

So there is a bullring. And they let a bull into the ring (it was a young bull that was in the arena today). And people can get into the ring by way of a ladder. There are these hiding posts all around the ring, behind which people can stand and be safe from the bull. And more than one human being can be in the ring at that point in time.

And they taunt and tease the bull, inviting him to attack and gore them. The bull is young and his horns aren’t sharp, so it is unlikely that it will cause much damage. But the bull is easily ruffled, and he gives short chases to the humans, who having provoked the bull in the first place try to dodge and evade the bull. Some wusses run to the shelter of one of the hiding posts when the bull is about ten metres away from them. Other wusses (including Yours Truly) don’t even bother entering the bullring, preferring to guzzle on the beer and sangria available and make pertinent observations.

And so it was an unequal battle, with several humans and one bull, though in true Rajnikanth tradition only one human would physically interact with the bull at one point in time (though others would hoot and clap and jeer). I was about to use the word “grapple” in the previous sentence but there was no grappling here – the bull would charge you and try and knock you down, and you would try and evade it. Some people even fell while trying to evade the bull and got hit by it, yet seemed unhurt.

This went on for a short period, and soon there were so many people in the bullring that there was no merit in entering it – the bull would surely get confused. And then we retired to this resort somewhere else in rural Catalunya for lunch and more drinks.

Later in the evening, at this resort, I visited the urinal. It was fairly busy at that point in time, with all stalls occupied. The guy to the left of me and the guy to my right had both brought a beer bottle along – they held the beer bottle in one hand and their penises with the other as they input and output liquids simultaneously.

I had half a mind to indicate to them that they could just eliminate the middleman, but then I thought it wasn’t appropriate for a business school WAG to give such advice, and moved on!

I plan to make a series on life as a business school WAG. Not sure how regular this will be though since I don’t plan to spend too much time in Barcelona. 

Pseud tick mark

As I write this post I’m ticking off one of those “to-dos” I had listed for myself a long time back – to sit at a hipster cafe in continental Europe, drink overpriced bad cappuccino and use an Apple laptop to write!

I’m writing this from this cafe whose name I don’t remember in the “nine streets” area of Amsterdam. I’ve had an interesting day today – attending a free concert at Concertgebouw, following it up with a massive and thoroughly enjoyable Indonesian lunch at this place called “Sampurna” at the flower market, and then going on a nice slow walk around the nice areas of Amsterdam city.

At the end of it my shoulder was hurting from carrying my one-shoulder messenger bag, which is all loaded up today since I’ve checked out from my hotel, and so after I “snapped” in terms of not being able to carry the bag any more, I settled down in the first cafe I encountered.

Everyone else here also seems to have a laptop, and everyone except one has an Apple laptop. I have no clue who these people are and what they’re working on, but the sense I get is that they are locals and not tourists. And so I’ve joined them, as I type on my Mac – I’m trying to restart this book I wanted to write ages back and had given up upon – perhaps being at a hipster joint might help revive the book – though the horrible cappuccino doesn’t help.

As I enter the home stretch of my holiday in Amsterdam I must mention that I have fallen in love with the bakeries of this city and haven’t for once regretted booking a hotel room that did not have breakfast included in the package. This morning I was at this bakery whose name I forget where I had absolutely splendid apple cake and cappuccino (which came out of a Lavazza machine – no clue why Barista Lavazza can’t make such cappuccino in India).

Ok I’m off now, back to my temporary hipster life, as I continue on the book!

Geek Talk

So I was talking to the wife using Viber when Viber acted up and disconnected. This happened a couple of times. Then I moved to FaceTime, but that too had problems, and started acting up. Finally I got irritated and decided I wouldn’t mind spending some money for uninterrupted conversation, so picked up my phone and dialled ISD.

And I told the wife, “I was getting damn irritated with packet switching, so I moved to circuit switching”. And then we got talking on why Viber was so irritating, and we talked about Tanenbaum (both of us really loved that textbook of Networking) and acknowledgements and transmission of messages on unreliable channels – which can only happen by introducing redundancy – which becomes painful in a human-to-human direct conversation.

I have an engineering degree, and am fairly good at maths, and read a fair bit of economics and history, so keep popping up concepts from these in my regular conversation. Some people find it abhorrent, and wonder if I’ve landed from another planet, given that I talk this way. For example, I remember using  the word “incentivise” while answering a question at a quiz (which had nothing to do with economics). I often rationalise purchases saying they offer “option value” – real options are one thing that I think I understand. And so forth.

From this perspective I think it’s really wonderful that I’m married to someone who not only tolerates this geek talk but actively encourages and participates in it! Like the wife has now become a big proponent of the concept of option value (though admittedly she has just joined B-school so is yet to appreciate the finer points of the Black-Scholes-Merton model). I’m not sure if before she met me she would quote as regularly from Harry Potter as she does now (or maybe I’m taking too much credit). And she keeps peppering examples from physics and astronomy and electrical engineering in her normal day-to-day conversation.

And speaking of physics and option theory and sporting analogies, I get damn irritated when people describe curves as the one below as “hockey sticks”.

I’m Indian, and the only hockey I know is “field hockey”, whose stick looks like a J. So whenever someone mentions “hockey stick” I start imagining a J-shaped curve. As for the above curve, I sometimes (especially when I’m hanging out with banker types) describe it as “call option payoff”. When I’m hanging out with more scientific types, I describe it as “photoelectric effect”.

I wonder how our kids will turn out!

A misspent career in finance

I spent three years doing finance – not counting any internships or consulting assignments. Between 2008 and 2009 I worked for one of India’s first High Frequency Trading firms. I worked as a quant, designing intra-day trading strategies based primarily on statistical arbitrage.

Then in 2009, I got an opportunity to work for the big daddy of them all in finance – the Giant Squid. Again I worked as a quant, designing strategies for selling off large blocks of shares, among others. I learnt a lot in my first year there, and for the first time I worked with a bunch of super-smart people. Had a lot of fun, went to New York, played around with data, figured that being good at math wasn’t the same as being good at data – which led me to my current “venture”.

But looking back, I think I mis-spent my career in finance. While quant is kinda sexy, and lets you do lots of cool stuff, I wasn’t anywhere close to the coolest stuff that my employers were doing. Check out this, for example, written by Matt Levine in relation to some tapes regarding Goldman Sachs and the Fed that were published yesterday:

The thing is:

  • Before this deal, Santander had received cash (from Qatar), and agreed to sell common shares (to Qatar), but wasn’t getting capital credit from its regulators.
  • After this deal, Santander had received cash (from Qatar), and agreed to sell common shares (to Qatar), and was getting capital credit from its regulators, and Goldman was floating around vaguely getting $40 million.

This is such brilliantly devious stuff. Essentially, every bad piece of regulation leads to a genius trade. You had Basel 2 that had lesser capital requirements for holding AAA bonds rather than holding mortgages, so banks had mortgages converted into Mortgage Backed Securities, a lot of which was rated AAA. In the 1980s, there were limits on how much the World Bank could borrow in Switzerland and Germany, but none on how much it could borrow in the United States. So it borrowed in the United States (at an astronomical interest rate – it was the era of Paul Volcker, remember) and promptly swapped out the loan with IBM, creating the concept of the interest rate swap in that period.

In fact, apart form the ATM (which Volcker famously termed as the last financial innovation that was useful to mankind, or something), most financial innovations that you have seen in the last few decades would have come about as a result of some stupid regulation somewhere.

Reading articles such as this one (the one by Levine quoted above) wants me to get back to finance. To get back to finance and work for one of the big boys there. And to be able to design these brilliantly devious trades that smack stupid regulations in the arse! Or maybe I should find myself a job as some kind of a “codebreaker” in a regulatory organisation where I try and find opportunities for arbitrage in any potentially stupid rules that they design (disclosure: I just finished reading Cryptonomicon).

Looking back, while my three years in finance taught me much, and have put me on course for my current career, I think I didn’t do the kind of finance that would give me the most kick. Maybe I’m not too old and I should give it another shot? I won’t rule that one out!

PS: back when I worked for the Giant Squid, a bond trader from Bombay had come down to give a talk. I asked him a question about regulatory arbitrage. He didn’t seem to know what that meant. At that point in time I lost all respect for him.