Not all minutes are equal

I seem to be on a bit of a self-reflection roll today. Last night I had this insight about my first ever job (which I’ve  said I’ll write about sometime). This morning, I wrote about how in my 15 years of professional life I’ve become more positive sum, and stopped seeing everything as a competition.

This blogpost is about an insight I realised a long time back, but haven’t been able to quantify until today. The basic concept, which I might have written about in other ways, is that “not all minutes are created equal”.

Back when I was in IIT, I wasn’t particularly happy. With the benefit of hindsight, I think my mental illness troubles started around that time. One of the mindsets I had got into then (maybe thanks to the insecurity of having just taken a highly competitive, and status-seeking, exam) was that I “need to earn the right to relax”.

In the two years prior to going to IIT, it had been drilled into my head that it was wrong to relax or have fun until I had “achieved my goals”, which at that point in time was basically about getting into IIT. I did have some fun in that period, but it usually came with a heavy dose of guilt – that I was straying from my goal.

In any case, I got into IIT and the attitude continued. I felt that I couldn’t relax until I had “finished my work”. And since IIT was this constant treadmill of tests and exams and assignments and grades, this meant that this kind of “achievement” of finishing work didn’t come easily. And so I went about my life without chilling. And was unhappy.

The problem with IIT was that it was full of “puritan toppers“. Maybe because the exam selected for extreme fighters, people at IIT largely belonged to one of two categories – those that continued to put extreme fight, and those who completely gave up. And thanks to this, the opinion formed in my head that if I were to “have fun before finishing my work” I would join the ranks of the latter.

IIMB was different – the entrance exam itself selected for studness, and the process that included essays and interviews meant that people who were not necessary insane fighters made it. You had a rather large cohort of people who managed to do well academically without studying much (a cohort I happily joined. It was definitely a good thing that there were at least two others in my hostel wing who did rather well without studying at all).

And since you had a significant number of people who both had fun and did well academically, it impacted me massively in terms of my attitude. I realised that it was actually okay to have fun without “having finished one’s work”. The campus parties every Saturday night contributed in no small measure in driving this attitude.

That is an attitude I have carried with me since. And if I were to describe it simply, I would say “not all minutes are created equal”. Let me explain with a metaphor, again from IIMB.

The favourite phrase of Dr. Prem Chander, a visiting professor who taught us Mergers and Acquisitions, was “you can never eliminate risk. You can only transfer it to someone who can handle it better”. In terms of personal life and work, it can be translated to “you can never eliminate work. However, you can transfer it to a time when you can do it better”.

Earlier this evening I was staring at the huge pile of vessels in my sink (we need to get some civil work done before we can buy a dishwasher, so we’ve been putting off that decision). I was already feeling tired, and in our domestic lockdown time division of household chores, doing the dishes falls under my remit.

My instinct was “ok let me just finish this off first. I can chill later”. This was the 2002 me speaking. And then a minute later I decided “no, but I’m feeling insanely tired now having just cooked dinner and <… > and <….. >. So I might as well chill now, and do this when I’m in a better frame of mind”.

The minute when I had this thought is not the same as the minute an hour from now (when I’ll actually get down to doing this work). In the intervening time, I’ve would’ve had a few drinks,  had dinner,  written this blogpost, hung out with my daughter as she’s going to bed, and might have also caught some IPL action. And I foresee that I will be in a far better frame of mind when I finally go out to do the dishes, than I was when I saw the pile in the sink.

It is important to be able to make this distinction easily. It is important to recognise that in “real life” (unlike in entrance exam life) it is seldom that “all work will be done”. It is important to realise that not all minutes are made equal. And some minutes are better for working than others, and to optimise life accordingly.

If you’ve gotten this far, you might think this is all rather obvious stuff, but having been on the other side, let me assure you that it isn’t. And some people can take it to an extreme extreme, like the protagonists of Ganesha Subramanya who decide that they will not interact with women until they’ve achieved something!

Fifteen years of professional life

I was supposed to begin my first job on the 1st of May 2006. A week before, I got a call from HR stating that my joining date had been shifted to the 2nd. “1st May is Maharashtra Day, and all Mumbai-based employees have a holiday that day. So you start on the second”, she said.

I was thinking about this particular job (where I lasted all of three months) for a totally different reason last night. We will talk about that sometime in another blogpost (once those thoughts are well formed).

The other day I was thinking about how I have changed since the time I was working. I mean there are a lot of cosmetic changes – I’m older now. I can claim to have “experience”. I have a family. I have a better idea now of what I’m good at and all that.

However, if I think about the biggest change from a professional front that has happened to me, it is in (finally, belatedly) coming to realise that the world (especially, “wealth games”) is positive sum, and not zero sum.

The eight years before I started my first job in 2006 were spent in insanely competitive environments. First there was mugging for IIT JEE, where what mattered was the rank, not the absolute number of marks. Then, in IIT, people targeted “branch position” (relative position in class) rather than absolute CGPA. We even had a term for it – “RG” (for relative grading).

And so it went along. More entrance exams. Another round of RG. And then campus interviews where companies came with a fixed number of open positions. I don’t think I realised this then, but all of my late teens and early twenties spent in ultra competitive environments meant that I entered corporate life also thinking that it was a zero sum thing.

I kept comparing myself to everyone around. It didn’t matter if it was the company’s CEO, or my boss, or some junior, or someone completely unconnected in another part of the firm. The only thing that was constant was that I would instinctively compare myself

“Why do people think this person is good? I’m smarter than him”
“Oh, she seems to be much smarter than me. I should be like her”

And that went on for a while. Somewhere along the way I decided to quit corporate altogether and start my own consulting business. Along the way I met a lot of people. Some were people I was trying to sell to. Others I worked with after having sold to some of their colleagues. I saw companies in action. I saw diverse people get together to get work done.

Along the way something flipped. I don’t exactly know what. And I started seeing how things in the real world are not a zero sum game after all. It didn’t matter who was good at what. It didn’t matter if one person “dominated” another (was good at the latter on all counts). People worked together and got things done.

My own sales process also contributed. I spoke to several people. And every sale I achieved was a win-win. Every assignment came about because I was adding value to them, and because they were adding (monetary) value to me. It was all positive sum. There were no favours involved.

And so by the time I got back to corporate life once again at the end of last year, I had changed completely. I had started seeing everything in a “positive sum” sort of way and not “zero sum” like I used to in my first stint in corporate life. That is possibly one reason why I’m enjoying this corporate stint much better.

PS: If you haven’t already done so, listen to this podcast by Naval Ravikant. It is rather profound (I don’t say that easily). Talks about how wealth is a positive sum game while status is a zero sum game. And to summarise this post, I had spent eight years immediately before I started building wealth by competing for status, in zero sum games.

JEE Rank, branch position, getting the “most coveted job” – they were all games of status. It is interesting (and unfortunate) that it took me so long to change my perspective to what was useful in the wealth business.

PPS: I’ve written this blogpost over nearly two hours, while half-watching an old Rajkumar movie. My apologies if it seems a bit rambling or incoherent or repetitive.

 

 

Uncertain Rewards

A couple of months back, I read Nir Eyal’s Hooked. I didn’t particularly get hooked to the book – it’s one of those books that should have been a blogpost (or maybe a longform article). However, as part of the “Hooked model” that forms the core of the book, the author talks about the importance of “uncertain rewards”.

The basic idea is that it is easier to get addicted to something when the rewards from it are uncertain. If the rewards are certain, then irrespective of how large they are, there is a chance that you might get bored of them. Uncertainty, on the other hand, makes you curious. It provides you “information” each time you “play the game”. And you in the quest for new information (remember that entropy is information?), you keep playing. And you get hooked.

This plays out in various ways. Alcohol and drugs, for example, sometimes offer “good trips”, and sometimes “bad trips”. The memory of the good trips is the reason why you keep at it, even if you occasionally have bad trips. The uncertain rewards hook you.

It’s the same with social media. This weekend, so far, I’ve had a largely good experience on Twitter. However, last weekend on the platform was a disaster. I’d gotten quickly depressed and stopped. So why did I get back on to twitter this weekend when last weekend was bad? Because of an earlier weekend when it had provided a set of good conversations.

Even last weekend, when I started having a “bad trip” on Twitter, I kept at it, thinking the longer I play the better the chances of having a good trip. Ultimately I just ruined my weekend.

Uncertain rewards are also why, (especially) when we are young, we tolerate abusive romantic partners. Partners who treat you well all the time are boring. And there is no excitement. Abusive partners, on the other hand, treat you like a king/queen at times, and like shit at other times. The extent of the highs and lows means that you get hooked to them. It possibly takes a certain degree of abuse for you to realise that a “steady partner who treats you well” makes for a better long term partner.

Is there a solution to this? I don’t think so. As we learn in either thermodynamics or information theory, entropy or randomness is equal to information. And because we have evolved to learn and get more information, we crave entropy. And so we crave the experiences that give us a lot of entropy, even it that means the occasional bad trip.

Finally, I realise that uncertain rewards are also the reason why religion is addictive. One conversation I used to have a lot with my late mother was when I would say, “why do you keep praying when your prayers weren’t answered the last time?”. And she would quote another time when her prayers WERE answered. It is this uncertain reward of answers to prayers (which, in my opinion, is sheer randomness) that keeps religion “interesting”. And makes it addictive.

In appreciation of Tom Vadakkan

The former Congress spokesperson had said on national TV that ‘a tweet is a very lonely man who needs counselling’. While he might have been misinformed on that count, I do think that social media nowadays overindexes on spreading mental illness. 

Let me get the most controversial statement out of the way right upfront – most activism relies on creating anxiety. Yes, I just said it. I must mention that creating anxiety may not be the express intention of the activism. However, it is an inevitable effect.

I had written about this a long time ago, specifically in the context of environmental activism. Basically, things like carbon taxes (and other Pigouian taxes) and other price-based measures of environment regulation mean that things have been priced in by the time an ordinary person comes across it.

“Should I take the plastic cup from the coffee shop?”. Has already been priced in in the price of plastic.

“Can I take shower for another 15 minutes extra today?”. If I’m paying fair price for the water this ceases to be a moral question.

“Is it okay to drive across the city each day by my own car? Wouldn’t it result in extra emissions?”. If the price of the extra emissions has been included in the price of fuel, again don’t need to worry.

On the contrary, you might see that a lot of activism (and left-wing activists are generally against the price mechanism) is about creating guilt. It’s about making you think at every point in time because the price mechanism doesn’t account for it. And it is not just about environmental activism.

Take political correctness for example. A lot of jokes from my childhood (and even from a few years ago) are not kosher any more because they hurt the sentiments of some minority or another. So, while we’ve been conditioned to make these jokes as if they are normal, now there is an extra layer of thought, leading to anxiety.

And activists won’t let you be in peace either. For example, one rational response to things being shit all around us (like it is right now, as covid cases are raging, and bodies have to wait for days together to get cremated) is to just ignore it all, get into our little bubbles and move on. Activists don’t let you do that. It’s not uncommon to see tweets of the nature of “how can you sleep soundly when <some unknown person you wouldn’t normally care about> is dying on the street?”. It’s about creating guilt.

A few days back, I put this tweet (of late, all my blogposts seem to be expansions of random thoughts I would’ve thrown around on twitter):

I guess this deserves an explanation. I keep quitting social media, and while I’m on it, I keep unfollowing (and muting, and blocking) people who post too much negative or “outrage-y” stuff. The reason I go on social media is to have some nice discussions, see some ideas and so on. For news, I have my morning bundle of The Times of India, The Business Standard and The Economic Times.

“Why do people outrage so much on social media”, I was wondering aloud to my wife the other day. I wasn’t talking about people giving their opinions on what is wrong or how it should be done (that at least adds SOME value). I was talking about tautologies of the like of “oh, Kumbh Mela is being allowed to go on”. Or “migrants are dying due to the sudden lockdown”. No opinion. No value addition. Just selective amplification of news that people will get from the next morning’s papers anyways.

My wife and I had a long discussion. One of the points that came out of the discussion is that people seek some solidarity on social media. People are anxious, have nobody around them to share their anxieties with, and if they can find like-minded people on social media who share their anxieties and empathise with them, it is rational to rant on social media. The downside, of course, is that you might lose the people who don’t share your anxieties.

One of my links above refers to Jordan Peterson’s 12 Rules For Life (another source of anxiety that activism creates – “what will people think of me given that I’m quoting someone they’ve ‘cancelled’?”. It results in self-censorship. And by not expressing your thoughts your mental health becomes worse). I think that was his Rule 11. I want to now bring up his Rule 1 (later on I might bring up his Rule 12. Most of the rest are not worth quoting).

In the first chapter of his book, he talks about anxiety and depression, taking the case of lobsters. The thing about anxiety (I’ve just about gotten off another round of medication for it) is that you get into a situation of heightened defences.

This is a natural reaction. If you are walking in the jungle and hear a lion roar, you better have heightened defences. The problem with chronic anxiety is that you are always in a state of heightened defences. You are always worried that something might go wrong. This means you have less mental and physical energy for more productive stuff. And so it hampers your life.

Being in a state of anxiety means you want to get early information of anything that might go wrong. This makes you an ideal candidate for “24×7 news” – since that sets you up and prepares you well in time for anything that might go wrong. Depending on your persuasion, you either get your news from television, or from social media. Thus, on the margin, mentally ill people are MORE LIKELY to be on social media all the time, and be on it for the sake of news.

Let’s put things together.

  • Anxious people are more likely to be on social media for news
  • They are more likely to get triggered by news, and become anxious about it.
  • They want some release from the anxiety, and that can come by way of empathy from people with similar anxieties. This means they tweet (or post) their anxieties. Sometimes it could just be tweeting tautologies.
  • At other times it is retweeting activism from people they empathise with. And activism fundamentally causes more anxiety (as explained above)
  • Thus, anxious people end up spreading their anxieties through social media. And when someone says they don’t care about these anxieties, the privilege card gets brought out.
  • And so, on the margin, spending more time on social media can make you anxious, by increasing your exposure to tweets that create anxiety.

Unfortunately I’m unable to find the video (it seems to have been removed from YouTube). So I’ll just link to this blogpost by Vadakkan’s then co-panelist Amit Varma.

And how do I plan to deal with all the shit happening around? By following Jordan Peterson’s 12th rule. I spend half an hour in the morning reading newspapers. Given what’s happening around, I feel depressed and worried. And then by the time I have moved to the business newspapers I am feeling better. And then I get on with life. And work. And keeping my family and myself safe. And I only use twitter one day a week.

PS: I learnt while researching this post that Tom Vadakkan is with the BJP now.

Shankersinh Vaghela

Ever since I returned to India 2 years back, my roasted peanuts of choice have been the one by Haldiram. I used to even buy them to grind them to make peanut butter until I discovered MyFitness Peanut Butter almost exactly a year back.

Recently, though, I hadn’t been able to procure Haldiram’s peanuts. And on a random trip to a supermarket, I found a brand called “Jabsons”. I bought it on a whim, and was super impressed.

The nuts themselves are larger than Haldiram’s, and are crispier. And I notice that the brand markets that it’s from Gujarat, where a lot of peanuts are grown. So far, so good.

And then on twitter, people recommended that I try their flavoured peanuts as well. For the longest time I haven’t been a fan of flavoured peanuts, maybe because I’ve had a few bad ones. I mean, I like the local shop ones, the yellow split masala ones called “Congress” and the red roasted ones called “Communist“.

In any case, inspired by the responses to my tweet, I decided to pick some variants of the Jabsons peanuts on the next visit to the supermarket. I started “safely”, with Black Pepper.

And that was insanely brilliant. Very very awesome. Among the best flavoured roasted peanuts I’ve ever eaten. I even crafted a tweet in my head to appreciate it, but couldn’t post it then because I was on a mini twitter break. I’m writing it here.

Jabsons black pepper peanuts kicks the ass of both Congress and Communist. Given that it comes from Gujarat, I hereby christen it “BJP”. 

And my quest for other flavours of Jabsons peanuts continued. I soon picked up a “spicy masala” flavour. It was a bit spicy for my liking, but I found that it goes brilliantly with curd rice. And then I acquired a taste for it.

Thinking about it, the Jabsons spicy peanuts are somewhat like Congress, but not quite Congress. And they come from Gujarat. Sort of Congress from Gujarat, but not quite Congress. Who does that remind you of?

Well, Shankersinh Vaghela, of course.

So I hereby christen the Jabsons Spicy Peanuts Shankersinh Vaghela. Goes very very well with curd rice.

Diabetes, sugar and insulin

Last weekend I finished off Jason Fung’s The Complete Guide to Fasting. Like his earlier book that I read (The Obesity Code), this book makes a very compelling case to fast as a means of reversing type 2 diabetes, lose weight and generally have a much better life.

I’m compelled enough by the book to have put its message into practice immediately. Apart from days when I go to the gym early in the morning, I’ve been making it a point to not eat breakfast (this isn’t the first time I’m trying this, I must mention). And while the weighing scales haven’t moved yet, I’m pretty happy.

In any case, in both his books, one thing that Fung rails against is the conventional medical practice of telling people suffering from Type 2 Diabetes to “eat 6 meals a day”, while most medical research shows that this leads to higher insulin resistance (and thus worse diabetes), and that what is better is to eat a smaller number of meals in a day.

So a few days ago, I came across this tweetstorm by this guy who installed a continuous glucose monitor in his blood. The tweetstorm is very instructive.

And this helped explain to me why despite research showing the contrary, eating “several meals a day” has been part of the treatment manual for diabetes, even if in reality (as per Fung’s book), it hasn’t helped.

This graph from the tweetstorm is instructive:

Blood glucose spike after a meal

Look at how his blood glucose spiked immediately after a meal that he ate after a longish fast. The conventional medical wisdom has been that if a diabetic eats infrequently, every meal will spike his blood glucose, which then leads to a spike in insulin, and that is not good for the person.

Instead, the wisdom goes (I’m guessing here) that if you have several small meals, then you don’t have a single big jump in glucose levels like this. And so you don’t have single big jumps in insulin levels.

Moreover, the big risk with Type 2 diabetes is hypoglycemia – where your blood sugar drops to such a low level that you start sweating rapidly and come under the risk of a heart attack. And when you don’t eat frequently, your blood sugar can drop like crazy. And so several small meals works.

Logical right? I guess that’s what most doctors have been thinking over time.

The little problem, of course, is that if you eat too many meals (and small meals at that), your blood glucose doesn’t spike by a lot at any one point in time. However, that you haven’t given sufficient gap in your meals means that your insulin levels never drop below a point. And that means that your body becomes resistant to insulin. Which means your diabetes becomes worse.

So what do you do? How do you let your insulin level drop to an extent where your body is not resistant to it, while also making the spike in insulin when you finally eat not so much? Again, I’m NOT a medical professional, but seems like what you eat matters – fat spikes insulin much less than carbs or protein.

Maybe I should change the nature of my lunch on days I don’t eat breakfast.

PS: This entire blogpost is entirely my conjecture, and none of it is to be taken as any kind of medical opinion.

 

Clubhouse and Reputation Building

For a couple of weeks after I joined Clubhouse (about a couple of months back, I think), I was enthusiastic about the platform. Every evening, when I was bored, I would log on to see if there was some interesting conversation happening. I participated in a few. I even blocked one (particularly obnoxious) guy.

Now I’m beyond it. I still check the app out of habit to see if something interesting is happening, but most of the time nothing interesting is. I don’t know if people are using Clubhouse the way they used to.

In any case, I was just thinking of Clubhouse in the context of reputation building. The thing with Clubhouse is that it is truly a “social network” – to create anything you need a “society” to create it with.

Blog is individual – everything that comes here is pretty much my own effort. Twitter as well. Even Instagram. And TikTok. All these mediums allow solo creators to create stuff, get following based on that and then build a reputation.

A few months back I had written about “credentialed and credential free network“, in terms of whether “external credentials” are useful in making someone successful on a particular social network.

Blogging, as it grew through the noughties, was largely credential-free, and most people built reputations through the sheer quality of their content. TikTok is similar as well. As for Instagram and Twitter, while people have managed to build a following and reputation through their content alone, having credentials outside of the social network has provided a big step up. So the people with the most following on these platforms aren’t necessarily the best at the art of these platforms.

As I think about it, Clubhouse represents one extreme of credentialing – it is virtually impossible to build your own reputation on the platform.

It has to do with the way content is created. Clubhouse content is 1. ephemeral (conversations are not recorded); 2. socially created (you need to get into a room with people who invite you to speak to create content).

The combination of the two means that it is virtually impossible for a newbie to make an impression on the platform. Yes, you can create your own rooms and deliver fantastic monologues  there (that’s a great use case for clubhouse). However, unless you are already connected with the “right people” (in which case you’re “importing credentials”), there is no way for people to discover your awesome content.

The other way to get noticed on Clubhouse is if you are seen talking in rooms where other popular people are speaking. However, the format of Clubhouse means that you need to be invited to speak. If you don’t already have credentials, the likelihood that you’ll be “admitted on stage” when you raise your hand is low, and you get a small number of short intervals to make an impact.

Thus, if you are a “nobody”, unless you are incredibly lucky (and say some spectacular things in the few opportunities when you’re allowed to speak in popular rooms), there is NO WAY you can become a somebody. And that is a problem. And that means that Clubhouse will forever remain a “circlejerk” for people who have built their reputations elsewhere.

I’m not surprised that it has stopped holding my attention.

Confusing with complications

I’m reading this awesome article by Srinivas Bhogle (with Rajeeva Karandikar) on election forecasting. To be fair, not much of the article is new to me – it’s just a far more readable version of Karandikar’s seminal presentation on the topic made at IIT Kanpur all those years back.

However, as with all good retellings, this story also has some nice tidbits. This one has to do with “index of opposition unity”. The voice here is Bhogle’s:

It is easy to understand why the IOU becomes so critical in such situations. But, and here’s the rub, the exact mathematical formula connecting IOU to the seat count prediction is not easy to find. I searched through the big and small print of The Verdict by Dorab Sopariwala and Prannoy Roy, but the formula remained elusive.

Rajeeva suggests that it was likely based on simple heuristics: something like ‘if the IOU is less than 25%, give the first-placed party 75% of the seats.’ It may also have involved intelligent tweaking based on current survey data, historical data, informal feedback, expert opinion, gut feeling, and so on.

I first came across the IOU in Prannoy Roy and Dorab Sopariwala’s book. The way they had presented in the book, it seemed like it is a “major concept”. It seems, like I did, Bhogle also looked through the book trying to find a precise formula, and failed to do so.

And then Karandikar’s insight above is crucial – that the IOU may not be a precise mathematical formula, but just an intelligent set of heuristics, involving intelligent tweaking.

Sometimes putting a fancy name (or, even better, an acronym) on something can help lend credibility to the concept. For example, IOU is something that has been championed by Roy and Sopariwala for years, and they have done so to a level where it has become a self-fulfilling prophecy, and a respected scientist for Bhogle has gone searching for its formula!

Also, sometimes, telling people that you “used an intelligent heuristic” to come up with a conclusion can lead you to be taken less seriously. Put on a fancy name (even if it is something that you have yourself come up with), and the game changes. You suddenly start to be taken more seriously, like Ganesha assumed when he started sending fan mail under the name “YG Rao”.

And like they say in The Usual Suspects, sometimes the greatest trick that the devil ever pulled was to convince you that he exists. It is the same with “concepts” such as IOU – you THINK they must be sound because they come with a fancy name, when all that they apeear to represent is a set of fancy heuristics.

I must say this is excellent marketing.

IPOs and right to match

Long time readers of the blog might know that I’m not a big fan of the IPO pop. I’ve traditionally belonged to the party (led by Bill Gurley) that says that a big IPO pop is akin to “leaving money on the table” for the company.

And so as my party has grown, the IPO process itself has also changed. Way back in 2004, Google allocated shares using a simple Dutch auction. Facebook pushed its bankers hard enough on the IPO price that the IPO “pop” in that case was negative. Spotify and Slack and a few other companies went public in a direct listing. Nowadays you have SPACs. It’s all very interesting stuff for anyone interested in market design.

Over the last few years, though, Matt Levine has been trying hard (and sort of succeeding), in getting to move me to the side that says IPO pops are okay. His first compelling argument was the demand-supply (and market depth) one – in an IPO there is a large offload of shares, and so an IPO buyer can expect to get a discount on the shares. Another is that since the IPO is the first time the stock will be traded, buyers in the IPO are taking risk, and need to be compensated for it in the form of a lower price. Fair enough again.

Matt has outdone himself in his latest newsletter on the topic, where he talks about the IPOs of Roblox and Coupang. About Roblox, he wrote:

I mean, I’ll tell you the answer[1]: Roblox sold stock to venture capitalists at $45, and then it traded up in public markets to $70. In a traditional initial public offering, a company sells stock to mutual funds at $45, and then it trades up in public markets to $70. Venture capitalists are not happy when mutual funds get underpriced stock: It dilutes existing shareholders and “leaves money on the table.” Venture capitalists are of course perfectly happy when venture capitalists get underpriced stock; that’s the business they are in.

This served the purpose of moving me more to his side.

This blogpost, however, is about the Coupang IPO.

All normal enough. But here’s the unusual thing about Coupang. Apparently, of the hundreds of investors who put in orders to buy shares in the IPO—many of whom did roadshow meetings and put in work to understand the company and come up with a price—fewer than 100 were allocated any shares, with most of those shares going to about 25 accounts handpicked by Coupang. Coupang apparently kept tight control over the allocation, choosing its investors itself rather than deferring to its underwriters (led by Goldman Sachs Group Inc.). Now those favored investors—investors favored by Coupang, not investors favored by Goldman—will benefit from the IPO pop. Everyone else, who put in the work and decided they wanted to own Coupang, will have to buy in the aftermarket, from those initial investors, and pay up to do so.

Obviously Coupang has left money on the table, but who cares? Coupang underpriced its IPO, but the beneficiaries of the underpricing are the existing investors that it wanted to benefit.

Basically Coupang announced an IPO at a $27-30 price range. It did a roadshow to gauge investor demand. Demand was strong. And then the price range was upped to $31-34. Demand was strong once again. And then, instead of letting its banker Goldman Sachs price the IPO at 34, and allocate the shares to who Goldman thought would make the best investors, Coupang went to its existing investors and told them “we have a bunch of investors willing to buy our stock at $34. What do you think?”

And the existing investors, finding validation, said “Oh, in that case we can pay $35 for it”. In IPL auction parlance, Coupang’s existing investors basically had a “right to match option”. All the other potential investors were asked, and then the existing investors were “more equal” than the others.

The stock duly popped.

Now, right to match in an IPO might be an interesting structure, but I highly doubt that it will sustain. Basically banks won’t like it. Put yourself in Goldman’s shoes for a moment.

They have done all the hard work of pricing the IPO and taking it to potential clients and doing all the paperwork, and at the end of it, their buy side clients are a mostly pissed of bunch – they’ve again done all the hard work of deciding whether the IPO was worth it and then told that they were cut out of the deal.

The least Goldman’s buy side clients would have wanted is the right to match Coupang’s original investors’ offer ($35). Having done all the hard work, and then being forced to buy the stock (if at all) at the popped price of $49, they will be a totally miffed lot. And they would have conveyed their displeasure to Goldman.

One thing about IPOs is that the companies selling the stock play a one-time game, while the bankers (and IPO investors) play a repeated game, participating in IPOs regularly. And because of this, the incentive structure of IPOs is that bankers tend to favour buy side clients than sell side, and so the big pop. And so bankers will not regularly want to do things that will piss off the buy side, such as offering “right to match” to the selling company’s chosen investors.

So will we see more such IPOs?

My take is that inspired by Coupang, some more companies might insist on a right to match while selling their shares in an IPO. And this right to match will piss off the buy side, who will push back against the bankers and demand a right to match for themselves.

And what happens when both sides (company’s favourite investors and bank’s favourite investors) insist on a mutual right to match? We get an auction of course.

I don’t think anyone will have that much of a problem if IPO share allocation gets resolved by a Dutch auction, like Google did way back in 2004.

Finite and infinite games, and questioning elections

I came across this snippet of an interview of Dr. S Jaishankar, India’s foreign minister.

 

In this, among other things, he says that “in India, nobody questions an election” (in the context of some reports that India is not really a democracy).

This can be simply explained by the concept of finite and infinite games, something I’ve spoken here about for a long time now, ever since I read the book of the same name by James Carse.

In general, in a stable democracy, parties don’t question election results because they know that the only way they can get back to power at a later point in time is by winning a similar election. In other words, if a party that loses an election were to question its legitimacy, it’s own victory in a subsequent election can be similarly undermined.

In other words, in a stable democracy, parties play an infinite game, where the potential short-term benefit of questioning an election gets trumped by the long-term benefit of using the same apparatus for winning subsequent elections.

So what explains America and Donald Trump’s questioning of the elections?

Notice that above, I said that “parties play an infinite game”. Individual politicians, on the other hand, can also play finite games. Given his age, Trump pretty much knew that the 2020 election (that he lost to Biden) was likely going to be his last. If he lost these elections (as he did), he would be out of power for the rest of his life. And so it made sense to him to question the results.

I’m pretty sure that the Republican party establishment (or whatever is left of it) wouldn’t have wanted to question the election, because as a party they are playing an infinite game, and what they need is the same election apparatus to come back to power next time round, or some time in the future.

The difference, in this regard, between India and the US, is the form of government. In a parliamentary system (at least in theory), and one with anti-defection laws, the party is supreme. However much a leader tries, he can never be superior to the party. And so the party’s incentives (infinite game) trump’s the leader’s (possibly finite game), and elections are not questioned.

The presidential system in the US means the leader trumps the party, at least within an election cycle, and so Trump’s finite game trumped the Republican party’s infinite game, and the results were questioned.