Thursday, February 23, 2012

Stomach Churning Poetry

People write songs and poems about feeling in love, it's the feeling that makes hearts tick and pencils scribble. Crazy things happen when someone falls for a boy or a girl - novels and movies are written about the ensuing twists and turns.

What I do every day is about a feeling, unfortunately not love, it's the feeling you get when you are about to make a big decision, that feeling in your stomach when you can't really think straight you just feel a little off colour (or maybe extremely ill if it's a humungous decision).

The bigger the decision the bigger the stakes the more stomach churning the quandry.

Here's an example of a not so risky proposition and something rather more risky (albeit slightly artificial).

Heads I give you a Snickers bar, tails I give you nothing (and you give me nothing either). Good deal eh? (if you are allergic to nuts you can eat around them!) Half the time you will end up with a nice Snickers, half the time nothing happens.

That's a no brainer, not stomach churning at all.

Well what about this for size? Heads I give you a Snickers plus ten thousand bucks; tails you give me ten thousand bucks!

The stakes are waaaaay higher now and if you happened to agree to partake in the game, your palms will probably feel a little sweaty, heart pumping.

Chances are you wouldn't take part in the game, even though it's slightly biased in your favour. In fact it's biased exactly the same way as the first game - that delicious snickers bar - however a chance of losing the 10,000 bucks wouldn't make you sleep well at night.

And that feeling my pals is the nervousness, stomach churningness that is risk. That's what I think about most days and that's what I help describe for hedge funds, pension funds and their investors.

If only I was paid to write poetry and sing songs about risk to said investors instead of spreadsheets and reports.

Thursday, February 09, 2012

Finite Games

At the end of the Super Bowl last weekend there was an odd moment a minute from time.

A New York Giants player found himself rushing towards the goal line and couldn't stop himself from scoring a touchdown. You may think that would be the dream of every American - to score a touchdown and help win the biggest prize in American sport.

The problem was by scoring the New England Patriots then had a slim chance of scoring down the other end in the remaining time. The correct strategy was to not score but keep the ball and wait until the last moment to score a field goal.

The problem of not wanting to score (at least for a period) is a quirk that happens toward the end of games. The same happens in soccer now and again - a team will rather keep the ball than score.

It happens elsewhere also, every relationship or 'game' we have is finite, there's always an end game and it's always plays out differently to what's gone one before.