Shooting, investing and the hot hand

A couple of years back I got introduced to “Stumbling and Mumbling“, a blog written by Chris Dillow, who was described to me as a “Marxist investment banker”. I don’t agree with a lot of the stuff in his blog, but it is all very thoughtful.

He appears to be an Arsenal fan, and in his latest post, he talks about “what we can learn from football“. In that, he writes:

These might seem harmless mistakes when confined to talking about football. But they have analogues in expensive mistakes. The hot-hand fallacy leads investors to pile into unit trusts with good recent performance (pdf) – which costs them money as the performance proves unsustainable. Over-reaction leads them to buy stocks at the top of the market and sell at the bottom. Failing to see that low probabilities compound to give us a high one helps explain why so many projects run over time and budget. And so on.

Now, the hot hand fallacy has been a hard problem in statistics for a few years now. Essentially, the intuitive belief in basketball is that someone who has scored a few baskets is more likely to be successful in his next basket (basically, the player is on a “hot hand”).

It all started with a seminal paper by Amos Tversky et al in the 1980s, that used (the then limited) data to show that the hot hand is a fallacy. Then, more recently, Miller and Sanjurjo took another look at the problem and, with far better data at hand, found that the hot hand is actually NOT a fallacy.

There is a nice podcast on The Art of Manliness, where Ben Cohen, who has written a book about hot hands, spoke about the research around it. In any case, there are very valid reasons as to why hot hands exist.

Yet, Dillow is right – while hot hands might exist in something like basketball shooting, it doesn’t in something like investing. This has to do with how much “control” the person in question has. Let me switch fields completely now and quote a paragraph from Venkatesh Guru Rao‘s “The Art Of Gig” newsletter:

As an example, take conducting a workshop versus executing a trade based on some information. A significant part of the returns from a workshop depend on the workshop itself being good or bad. For a trade on the other hand, the returns are good or bad depending on how the world actually behaves. You might have set up a technically perfect trade, but lose because the world does something else. Or you might have set up a sloppy trade, but the world does something that makes it a winning move anyway.

This is from the latest edition, which is paid. Don’t worry if you aren’t a subscriber. The above paragraph I’ve quoted is sufficient for the purpose of this blogpost.

If you are in the business of offering workshops, or shooting baskets, the outcome of the next workshop or basket depends largely upon your own skill. There is randomness, yes, but this randomness is not very large, and the impact of your own effort on the result is large.

In case of investing, however, the effect of the randomness is very large. As VGR writes, “For a trade on the other hand, the returns are good or bad depending on how the world actually behaves”.

So if you are in a hot hand when it comes to investing, it means that “the world behaved in a way that was consistent with your trade” several times in a row. And that the world has behaved according to your trade several times in a row makes it no more likely that the world will behave according to your trade next time.

If, on the other hand, you are on a hot hand in shooting baskets or delivering lectures, then it is likely that this hot hand is because you are performing well. And because you are performing well, the likelihood of you performing well on the next turn is also higher. And so the hot hand theory holds.

So yes, hot hands work, but only in the context “with a high R Square”, where the impact of the doer’s performance is large compared to the outcome. In high randomness regimes, such as gambling or trading, the hot hand doesn’t matter.

Famous people from little-known countries

I recently finished reading Svetlana Alexievitch’s Second-hand Time, a memoir of people in the erstwhile Soviet Union as the union broke down in 1991. It’s a long and rather intense book, and maybe it wasn’t the best choice for reading on days when I wasn’t able to sleep.

I don’t, however, regret reading the book at all. It was incredibly enlightening and taught me a lot of life in the Soviet Union and in the post-Soviet republics. This is what I wrote in review on Goodreads:

Absolutely brilliant book. Very very informative and enlightening, especially for someone for whom “USSR” was this monolith growing up, and then finding out that it was actually 15 different countries.

Only reasons I didn’t give it 5 stars are that it’s a bit too long (though at no point did I want to give up on the book – it’s very good), and that some of the stories are a bit too similar.

Also I would have preferred more stories from the non-Russian republics.

One of the stories in the book is about migrant workers from Tajikistan in Moscow, and how they are ill-treated and racially abused. They are called “blackies”, for example, a term that puzzled me since to my knowledge Tajiks are rather fair-skinned.

I had to “see it to believe it”, and what did I do? I googled the photo of perhaps the only Tajik I’ve heard about – Ahmed Shah Massoud, late leader of the Northern Alliance who fought in the early 2000s to expel the Taliban from Afghanistan.

(Now I learn that Massoud was Afghan and not Tajik, so I was actually mistaken. I somehow remember him as being the leader of the ethnic Tajiks in the battle against the Taliban (and General Abdul Rashid Dostum being an ethnic Uzbek leader as part of the Northern Alliance) ).

In any case, now that it turns out that Ahmad Shah Massoud wasn’t actually Tajik, it turns out that I don’t know of even a single Tajik. Not one. So this got me thinking about countries that have very few people who are present in popular imagination.

And I don’t think there are too many countries from where there are so few little-known people (I consider my own “general knowledge” to be pretty good, so me knowing someone “famous” from a country should count).

Some countries have charismatic or otherwise popular political leaders, and you are likely to know them by face. Then, there is sport – if you follow a handful of sports, you are likely to know at least a few people from most countries.

For example, my ability at guessing a European’s nationality from their first name comes from my following of football, a sport that is popular all over Europe, and has famous players pretty much from all countries (I admit I don’t know anyone from Moldova or Belarus, though the latter has a rather famous and nicely named football club).

I know of people from a lot of former Soviet republics (but not any Tajiks, or Uzbeks or Kazakhs) because I follow chess. Paul Keres from Estonia, Mikhail Tal from Latvia, Levon Aronian and Tigran Petrosian from Armenia, Teimour Rajdabov and Shakhryar Mamedyarov from Azerbaijan and so on are among the very few (or only) people I know from their respective countries.

Think about it – which are the countries from which you can’t name a single person? How many such countries might there be? In my case there may be a maximum of 50 such countries (there are about 200 independent countries in the world, IIRC).

I recently came across this blog post in EconLog which made a pretty interesting point comparing blacks in the US to Uighurs in China, which possibly prompted my post:

In most cases, oppressed groups tend to be relatively poor and powerless, and thus are often invisible to outsiders. Can you name a single member of the Uyghur minority in China?

It seems to me that African-Americans are somewhat different. Correct me if I’m wrong, but aren’t most well informed people in other countries able to name and identify quite a few African-Americans? In politics the most obvious example is Barack Obama…

I can’t think of a single Uyghur either. Oh, and I forgot to mention the role of movies and books and other methods of popular culture that give you exposure to people from different countries.

What Makes The Athletic Great

In recent times I’ve bought subscriptions to two online media outlets – The Ken and The Athletic. I’d subscribed to the Ken a year ago, and was happy enough with the hit rate of their pieces (I’d find one in two pieces insightful) that I extended my subscription for three years earlier this year.

And since I did that extension, the product has been disappointing. They lost half their team to The Morning Context, a breakaway (and similar) outlet. They decided to expand in South East Asia, and since I have little interest in articles about that reason (at least not enough to pay for the writing), that automatically means less content that interest me. In some senses their quality is slipping. All this together means that I find less than one in five articles in The Ken compelling, and with the frequency of their publication (one article every weekday) I’m pretty disappointed.

Maybe it has to do with Marie Kondo’s popularity, or interest in behavioural economics research about the paradox of choice, but organisations are starting to make minimalism and limitations in inventory a virtue. The Ken started with the aim of “exactly one long form article every day”.

Having less choice, and being minimalistic, is good when this limited choice fits the appetite of the customer. However, if the choice isn’t particularly relevant, then minimalism becomes a bug rather than a feature – the customer doesn’t find what she is looking for and goes on to another outlet.

In that sense, I quite like the model of The Athletic, which I bought a year-long subscription to a year back. The Athletic’s model is just the opposite – massively high volumes with a highly curated personal feed. And maybe they’ve got their curation right, in terms of getting customers to click on the right kind of tags at the time of sign up, but so far I’ve found at least two useful articles on their site every single day since I turned up. And that’s insane value for money!

And that is despite me being interested in exactly one out of the nine sports that The Athletic covers (it’s mostly US-centric, and I don’t follow American sport at all. However I guess I’ll find it useful when I have to follow any controversy in American sport). And I’m interested in a subset of that – I follow one league (English Premier League) and games played by a handful of clubs in that league.

If I compare The Athletic to Netflix (both subscription-driven media outlets with large volumes of content), where the former scores is in its discoverability.

Maybe sport is easier compared to movies/tv shows in order to understand someone’s interests. Maybe it is that The Athletic, right up front, asked me to identify which sports, leagues, authors and teams I’m interested in (Netflix never made an attempt to do that). Maybe it is that The Athletic, with loads of fresh content every single day, is able to serve my preferences far easier than Netflix.

In any case, reading the Athletic makes me think that if I were to run a media outlet some day, I would want to follow that kind of a model – produce lots of content, so that lots of people will be interested in buying subscriptions, and then hope to use superior algorithms to make sure that people can see what they want and not have to cut through too much noise in order to do so!

Video Geographic Monopolies

There is one quirk about video which we don’t face with print – some content is simply impossible to access legally in some parts of the world.

I’m specifically talking about BBC’s Match Of The Day, their end of day highlights package covering the English Premier League. It was one show that I watched unfailingly during my time in London, both for the match highlights, and for the quality of the discussion featuring Gary Lineker, Alan Shearer, Ian Wright et al.

Now I find that the show is simply not available in India – some youtube channels illegally offer the show (before they are taken down, I guess), but without the bits that show pictures of the game (which they are not allowed to show). And that makes for rather painful watching, knowing that you’re watching something substandard.

This is not the case with something like text – as long as I’m willing to pay, I’m able to access content produced anywhere in the world. I can sit here in Bangalore and buy a subscription to the New York Times, and access all its content. Audio is also similar – I can sit here and subscribe to any international podcast, and be able to access the content.

Video doesn’t work that way. The problem is with the way rights are sold – the Star network, for example, has a monopoly on showing pictures from the Premier League in India (having paid a substantial amount for it). And part of their arrangement means that nobody else is allowed to broadcast this material in India. A consequence of this is that we are stuck with whatever (mostly crappy) analysis Star decides to provide around its games. Stuff that is unwatchable.

There is a lot of great sport content online, but the video part is constrained by the inability to show pictures. Check out analysis by Tifo Football, for example – it’s absolutely top class. However, for most games, they have to rely on stock images and block diagrams since they can’t show the pictures which someone has a monopoly on. And that makes the analysis less rich (the Athletic, which I have a subscription to, “solves” this in an interesting way – by using screenshots of the TV footage of the game as part of their text analysis).

I wonder if there is a way out of this. Some leagues such as the NBA have shown some enlightened thinking on this – while they are anal about copyright of their live feed, they don’t care about copyrights on recorded footage. This means that anyone can use footage from historical NBA games as part of their analysis. Better analysis means more people interested in the sport, which means more people watching the live feed, which makes more money for the league (read this excellent interview of NBA Commissioner Adam Silver).

I’m also beginning to think if there is a regulatory antitrust response to this issue. Video distribution (especially of live content) is a natural monopoly, so it doesn’t make sense to have competing broadcasters. However, I wonder if there is any regulation possible for historical feeds that makes them more tradable (with the rights holders getting appropriately compensated without much transaction costs)!

One can only hope..

Magnus Carlsen’s Endowment

Game 12 of the ongoing Chess World Championship match between Magnus Carlsen and Fabiano Caruana ended in an unexpected draw after only 31 moves, when Carlsen, in a clearly better position and clearly ahead on time, made an unexpected draw offer.

The match will now go into a series of tie-breaks, played with ever-shortening time controls, as the world looks for a winner. Given the players’ historical record, Carlsen is the favourite for the rapid playoffs. And he knows it, since starting in game 11, he seemed to play towards taking it into the playoffs.

Yesterday’s Game 12 was a strange one. It started off with a sharp Sicilian Pelikan like games 8 and 10, and then between moves 15 and 20, players repeated the position twice. Now, the rules of chess state that if the same position appears three times on the board, the game is declared a draw. And there was this move where Caruana had the chance to repeat a position for the third time, thus drawing the game.

He spent nearly half an hour on the move, and at the end of it, he decided to deviate. In other words, no quick draw. My suspicion is that this unnerved Carlsen, who decided to then take a draw at the earliest available opportunity available to him (the rules of the match state that a draw cannot be agreed before move 30. Carlsen made his offer on move 31).

In behavioural economics, Endowment Effect refers to the bias where you place a higher value on something you own than on something you don’t own. This has several implications, all of which can lead to potentially irrational behaviour. The best example is “throwing good money after bad” – if you have made an investment that has lost money, rather than cutting your losses, you double down on the investment in the hope that you’ll recoup your losses.

Another implication is that even when it is rational to sell something you own, you hold on because of the irrationally high value you place on it. The endowment effect also has an impact in pricing and negotiations – you don’t mind that “convenience charge” that the travel aggregator adds on just before you enter your credit card details, for you have already mentally “bought” the ticket, and this convenience charge is only a minor inconvenience. Once you are convinced that you need to do a business deal, you don’t mind if the price moves away from you in small marginal steps – once you’ve made the decision that you have to do the deal, these moves away are only minor, and well within the higher value you’ve placed on the deal.

So where does this fit in to Carlsen’s draw offer yesterday? It was clear from the outset that Carlsen was playing for a draw. When the position was repeated twice, it raised Carlsen’s hope that the game would be a draw, and he assumed that he was getting the draw he wanted. When Caruana refused to repeat position, and did so after a really long think, Carlsen suddenly realised that he wasn’t getting the draw he thought he was getting.

It was as if the draw was Carlsen’s and it had now been taken away from him, so now he needed to somehow get it. Carlsen played well after that, and Caruana played badly, and the engines clearly showed that Carlsen had an advantage when the game crossed move 30.

However, having “accepted” a draw earlier in the game (by repeating moves twice), Carlsen wanted to lock in the draw, rather than play on in an inferior mental state and risk a loss (which would also result in the loss of the Championship). And hence, despite the significantly superior position, he made the draw offer, which Caruana was only happy to accept (given his worse situation).



Randomness and sample size

I have had a strange relationship with volleyball, as I’ve documented here. Unlike in most other sports I’ve played, I was a rather defensive volleyball player, excelling in backline defence, setting and blocking, rather than spiking.

The one aspect of my game which was out of line with the rest of my volleyball, but in line with my play in most other sports I’ve played competitively, was my serve. I had a big booming serve, which at school level was mostly unreturnable.

The downside of having an unreturnable serve, though, is that you are likely to miss your serve more often than the rest – it might mean hitting it too long, or into the net, or wide. And like in one of the examples I’ve quoted in my earlier post, it might mean not getting a chance to serve at all, as the warm up serve gets returned or goes into the net.

So I was discussing my volleyball non-career with a friend who is now heavily involved in the game, and he thought that I had possibly been extremely unlucky. My own take on this is that given how little I played, it’s quite likely that things would have gone spectacularly wrong.

Changing domains a little bit, there was a time when I was building strategies for algorithmic trading, in a class known as “statistical arbitrage”. The deal there is that you have a small “edge” on each trade, but if you do a large enough number of trades, you will make money. As it happened, the guy I was working for then got spooked out after the first couple of trades went bad and shut down the strategy at a heavy loss.

Changing domains a little less this time, this is also the reason why you shouldn’t check your portfolio too often if you’re investing for the long term – in the short run, when there have been “fewer plays”, the chances of having a negative return are higher even if you’re in a mostly safe strategy, as I had illustrated in this blog post in 2008 (using the Livejournal URL since the table didn’t port well to wordpress).

And changing domains once again, the sheer number of “samples” is possibly one reason that the whole idea of quantification of sport and “SABRmetrics” first took hold in baseball. The Major League Baseball season is typically 162 games long (and this is before the playoffs), which means that any small edge will translate into results in the course of the league. A smaller league would mean fewer games and thus more randomness, and a higher chance that a “better play” wouldn’t work out.

This also explains why when “Moneyball” took off with the Oakland A’s in the 1990s, they focussed mainly on league performance and not performance in the playoffs – in the latter, there are simply not enough “samples” for a marginal advantage in team strength to necessarily have the impact in terms of results.

And this is the problem with newly appointed managers of elite football clubs in Europe “targeting the Champions League” – a knockout tournament of that format means that the best team need not always win. Targeting a national league, played out over at least 34 games in the season is a much better bet.

Finally, there is also the issue of variance. A higher variance in performance means that observations of a few instances of bad performance is not sufficient to conclude that the player is a bad performer – a great performance need not be too far away. For a player with less randomness in performance – a more steady player, if you will – a few bad performances will tell you that they are unlikely to come good. High risk high return players, on the other hand, need to be given a longer rope.

I’d put this in a different way in a blog a few years back, about Mitchell Johnson.


It’s been over eight years since I last played the game, but if I were to pick one outdoor game in which I’m best at (relative to other games I’ve played) it’s volleyball. And when I say I’m best at that, it’s on a strict relative basis – in undergrad, I struggled to get into my hostel team (let alone college team). It just goes to show how bad I’ve been in other outdoor games! I’m a successful cricket and football-watcher, though!

The thing with volleyball is that my game runs counter to how i play other games, and my life in general. In general, I’m an extremely high-risk person – I’m not into adventure sports, though, but have a Royal Enfield motorcycle – I take chances where possible and go for the spectacular. It is hard for me to be “accurate” and “correct”, and given that I know that I’m prone to making mistakes I try to maximize the outputs from the times when I don’t make mistakes, and thus go on a high risk path.

So I’ve quit my job without something else in hand four times, now freelance as a management consultant, blog about every damn thing – things that have promises of big upsides, but also risks of downsides. It also reflects in how I sometimes talk to people – I sometimes try too hard to make an impression – which can potentially get me big returns, but end up saying something stupid at times, and end up sounding arrogant at other times. Those are risks I willingly take.

And this risky nature has reflected in most games I’ve played, also – again nothing in the recent past. In chess, I get bored of slow technical Carlsen-esque positions, and am prone to go on Morphy-esque attacks that can backfire spectacularly. Playing bridge, I finesse way more than I’m supposed to – making some otherwise unmakeable contracts, but going down in contracts I should have otherwise made.

Back in school, when we played cricket with rubber and tennis balls, I would bowl leg spin, and using a light bat, would try to hit every ball for four or six, rather than trying to bat steadily. And while playing basketball (my “second best” outdoor game, after volleyball) I have a propensity to go for long shots.

What sets volleyball apart is that my game completely runs counter to who I am. In volleyball I’m a solid player – don’t spike too much (can’t jump!!), but can set spikes well, block well and can lead a team well from the back line. In fact, my best volleyball games have been those when the team has had to carry some weak links, and I’ve led from the centre of the back line, lending solidity and helping build up attacks. It definitely doesn’t reflect what I’m like otherwise.

But volleyball has also been the game where I’ve had a large number of spectacular failures. At every level I’ve played, I’ve had some responsibility thrust upon me, and I’ve buckled under the pressure. It’s volleyball that comes to mind every time I let down people’s trust because I do badly a something I’m supposed to be good at.

1. Voyagers versus pioneers, 1999: This was the school inter-house tournament. We go two sets up. They win the next two. Down to the decider. We lead 14-13, and its our turn to serve. Our captain purposely messes up our rotation such that I can serve (I had a big serve – one attacking aspect of my volleyball). The serve clips the net on its way across (back then, a let was a foul serve in volleyball). We lose.

2. NPS Indiranagar versus NPS Rajajinagar, 1999: Then I get selected to represent my school. I’m on the bench, and am subbed in right on time to serve. I decide to warm up with an underarm serve (before I start unleashing my overarm thunders). Hit it into the net. Opponent’s serve comes to me and I receive it badly. Get subbed out.

3. G block versus F block, 2004-05: Semi finals of the IIMB inter-hostel championship. We have two big spikers, two decent lifters and defenders (including me) and two who had never played volleyball in their lives, but were chosen on the basis of their physical fitness alone. Down to third set (best of three). We lead 25-24 (new scoring system). I’m playing right forward. Ball comes across the net. All I need to do is to set it up for a big spike, but I decide to spike it directly myself. And miss. Then I serve on the next match point. Decide to go for a safe serve, gets returned. We lose.

4. Section C versus Section A, 2004-05: Again similar story. I don’t remember the specifics of this, but again it was heartbreak, and I think I missed my serve on match point.

I guess you get the drift..

Why is Ten Sports sitting on so many rights?

I wanted to stay up last night. I wanted to stay up and watch the WI-Eng match till the very end. Waking up this morning and checking the scorecard, it seems like it was a really good match. And Fidel Edwards seems to have become a last-day-shutdown specialist. This is the second time this series he’s hung on. And he’d done so once before against India at ARG.

There was another reason I wanted to stay up last night. I wanted to watch Liverpool play Real Madrid. I woke up this morning and saw that it was an amazing game, too. Looking through the Guardian Football site (btw, Advani seems to be advertising heavily on that site; it’s a pity he never advertises here on my site) I noticed that Chelski-Juve was also a strong game, despite the result. Another reason I would’ve wanted to stay up last night. For the record, I slept at 12:10. Tea-time in the Test match, and before either of the football games had started.

Ten Sports seems to have bitten off more than it can chew. It seems to own the rights to telecast too many different things. I think I have raised this point once earlier, but it pzzles me as to what Ten Sports is trying to achieve by getting rights to telecast so many things, most of which are happening at the same time. For example, over the last couple of weeks I’ve been unable to watch the first hour of WI-Eng even if I’d wanted to, because it was overlapping with the last hour of SA-Aus, which was being telecast at the same time.

The reason I slept off early last night was because I didn’t have the option to watch what I wanted. All the three games that I’d’ve been reasonably interested in were supposed to be on Ten Sports (Zee Sports doesn’t count since Tata Sky doesn’t offer that), and I  realized that I’d be forced to watch what the guys at the Taj Entertainment Network would want me to watch. Denied the option to choose what I wanted to watch, I went to bed.

It puzzles me that Ten Sports isn’t subletting its contracts. Devoid of anything decent to show, I suppose that ESPN or NEO would’ve only been too happy to acquire the rights to telecast last night’s Liv-Real game by paying a fee to Ten Sports. And it would’ve unlocked value at the hands of the remote-holder. Ten Sports need not let go of the rights to show all the games. All they need to do is to sell the “out of money options” – the rights to the game which they won’t be able to telecast anyway.

Now, the problem will be if accounting for all costs, no options are out of money. For example, you know you won’t be able to show Liv-Real. But you think that the loss of brand equity of your channel would exceed the money you’d gain by selling this option to another willing channel. The viewers are the only losers at this game, but I don’t know what can be done. After all, viewers  are way too dispersed in order for them to take any kind of action.

Extending this question, what can a sports body do to prevent a bidder from acquiring rights to telecast and then mess up the telecast (or not telecast it at all) ? After all, the sports body is out there to make as much money as possible from the TV rights, and they need to ensure significant investment into broadcasting by the broadcasters, so the “i’ll give rights to only those channels that are in the interest of the people” model won’t work.

One option would be to sell the rights to two channels in each market. But given that broadcast is a natural monopoly, the sports body will not be able to make as much by selling to two bidders as it can by selling to one bidder. Is there any other solution that you can think of? If yes, unleash.

Revisiting the Queen of Hearts

I stumbled upon this post I had written some two and a half years ago. I had drawn an analogy from bridge and had argued that if your achieving something is conditional on a certain uncertain event, you should assume that the event is going to go your way and take your best shot. I want to add a caveat. Let me take you back to the bridge analogy.

Suppose you are playing for IMPs (international match points). You have bid Six Spades. And after the lead and dummy come down, you know that you will make your contract if and only if the Queen of Hearts lies west. As per my earlier advice, you must just assume that and go for it. Unconditionally.

You think again. You see that there is a risk-free way of getting to eleven tricks – one short. And by taking this approach, you know there is no chance of your getting the twelfth. However, if you play for the Queen of Hearts to be with west, and if she turned out to be East, you will end up going say four under, and will be prone to lose heavily.

My earlier advice didn’t take care of costs. All it assumed was a binary payoff – you either make the contract or you don’t. And in that kind of a scenario, it clearly made sense to go for it, and play assuming that the Queen of Hearts lies West. However, when there are costs involved, and how many tricks you go under by makes a difference, you will need to play percentages. You go for the contract only if you know there is a reasonable chance that the Queen is West (you can figure out the cutoffs by doing a cost-benefit analysis).

There is one thing you can explore, though. Is there a play which gives you extra information about the position of the Queen of Hearts? While still keeping your options open? Can you find out more information about the system while still having the option to go for it or not? I think, if there exists this kind of a play, you should find it and play it. And the letter I wrote last week, I think, falls under this category.