The RBI does a Ramanamurthy

This is the second time in a few weeks I’m referring to this scene from Ganeshana Maduve. Please watch it first.

To repeat the story:

Ramanamurthy the owner of the “vaTaara” (a kind of apartment that was popular in Bangalore till the 1980s, with lots of small houses in the same compound) wants to whitewash his house. The residents of the vaTaara  demand that if he whitewashes his house he should whitewash the entire vaTaara. After a long and protracted negotiation, Ramanamurthy agrees to their condition – he doesn’t whitewash his house!

It is a similar story with taxi operators in India. Uber (the Ramanamurthy) figured out a way to bypass RBI’s two factor authentication system and offer seamless payment options for their taxi services. Soon other taxi operators like TaxiForSure and Ola started crying foul saying they too wanted their houses painted, i.e. they too wanted to locate payment servers abroad to accept one factor authentication credit cards.

And now RBI, like the rent controller ubiquitous (in mention only) in movies of the late 80s has stepped in and stopped Ramanamurthy from painting his house, too – they’ve barred Uber from charging in US dollars for Indian rides. It would be interesting to see how the market will develop now.

My personal opinion is that RBI’s insistence on two factor authentication is half-assed. They should make every effort possible to increase the number of credit card (or account-to-account) transactions. On one hand it decreases flow of black money but more importantly it means that people will keep more cash within the banking system (rather than as hard cash) which will have a multiplier effect on money available for lending and all that.

It’s fine to have regulations in place such that credit card fraud is minimized but that doesn’t mean cutting credit card transactions altogether! Hopefully the RBI will see the light of day on this one soon.

Ramanamurthy, barbells and the bimodal distribution

One of my favourite movies (perhaps my favourite movie) is this 1990 Kannada movie called Ganeshana Maduve (Ganesha’s marriage). It takes off on the 1940 James Stewart starrer The Shop around the corner – ok the story of the movie doesn’t matter here so I’ll stop this digression.

One of the pivotal scenes in the movie is where Ramanamurthy the owner of the “vaTaara” (a kind of apartment that was popular in Bangalore till the 1980s, with lots of small houses in the same compound) wants to whitewash his house. The residents of the vaTaara  demand that if he whitewashes his house he should whitewash the entire vaTaara. After a long and protracted negotiation, Ramanamurthy agrees to their condition – he doesn’t whitewash his house! This negotiation can be seen in this landmark scene from the movie:

In one of his books (perhaps “The Black Swan”) Nassim Nicholas Taleb talks about what he calls the “barbell distribution” for investing. Most of your money, say around 80-90%, he says, should be invested in risk-free securities such as government bonds. The rest, he recommends, should be invested in extremely high risk high return investments – like venture capital or far out of the money options. This kind of investing strategy, he says, produces superior long-term returns than the conventional investing model.

Both the “Ramanamurthy principle” (as I call it, starting with this blog post) and the barbell distribution are instances of “bimodal distributions”. You can also think of bimodal distributions as being a strategy.

To refresh your statistical knowledge, a bimodal distribution is one that has two “modes”. The histogram of this distribution looks something like this (now you might get why Taleb, a self-confessed body builder, likens this to the barbell):

Based on this distribution one can craft a “bimodal strategy” for life – including investing. You either take extremely low risk or extremely high risk – nothing in between. You completely stop taking sugar in your coffee but have the occasional dessert. You either paint the entire building or don’t paint the building at all (like Ramanamurthy). Stripping off all the technical content, this strategy can simply be described as “don’t do things in half measures” or “not spreading oneself too thin”.

Of late I’ve found this kind of a strategy rather useful in my work and other life. One example is the sugar distribution – a little sugar in every cup of coffee doesn’t particularly give much pleasure but adds on to my blood sugar content. The occasional dessert (after having eschewed sugars entirely), on the other hand, can lead to insane pleasure.

Then there is the fitness regime that I’m trying to follow. The classic gym routine is to do a lot of warm up, and then some weights, generally exercising just one muscle set, and this is to be done every day, for over an hour a day. The routine I’m trying to follow dispenses with these warmups and light weights and focuses on lifting a few repetitions of very heavy weights, three times a week.

These are only a few examples of where this kind of a strategy can prove useful. Maybe you should think of where this might be applicable – and it is likely that it will work better than your little bit of everything model!