What are the Chances?

The correct lesson to learn from surprises: the world is surprising.“ – 

Daniel Kahneman.

You are late for an appointment, however on your way you get all green lights, and you make for the appointment on time.

Walking along the lake you see an eagle swooping on a tortoise and riding on its back.

Sounds amazing but are the odds really that miraculous.

John Littlewood, the Math Professor proposed the Law of miracles.

According to Littlewood, there is a one in million chance of sighting a miracle and that it can happen once every 35 days.

This is based on the assumptions that humans are awake and alert 8 hours in a day and that events occur once every second.

The real point

What Prof. Littlewood was trying to prove was not the probability of experiencing a miracle but the fact that events happen all the time and some of them will surprise you which would mean that they are mere coincidences, which by the way happen all the time.

If I throw a fair coin twenty times and note down the result, then with mathematical certainty the odds of me having got  this exact sequence THHHTTHHHTTTHHTHHHTT is 1:1048,575.

Now, you may consider this as a miracle that surprises you or a mere coincidence or probability playing its role.

Surprises follow unanticipated paths

There are intended consequences and then there are unintended consequences.

While you plan the intended consequences, the unintended one are often a result of what we don’t anticipate.

It might surprise you that the whale (largest fish in the ocean) once lived and walked on 4 legs.

It might surprise you that the whale (largest fish in the ocean) once lived and walked on 4 legs.

In fact, its land-dwelling ancestors, Pakicetus (the name is a giveaway) were found in the Indian sub-continent around 50 Mn years ago.

These ancestors could survive underwater and eventually because of series of evolutionary actions evolved into what we see today as the largest sea animal.

Illusions around reality

The ex-Reserve Bank of India Governor, Mr. Subbarao once said in a press-conference

That every policy action has unintended consequences along with the intended ones.

However, we often take the gains from an action without thinking about the other side of the coin.

Hindsight makes us all seem wise; however, it doesn’t help if we don’t learn from it.

The cycle of optimism/pessimism is known but not appreciated.

You are playing a cricket match and your strategy is to attack from the ball one and keep attacking irrespective of how it goes.

What would you do if you lose quick wickets or as a bowling side get hammered all over the place.

How would you adjust your game.

China’s “zero-covid” policy is an example.

You shut down the economy, what do you think will happen.

Businesses will suffer, supply chain will get disrupted and economy will shrink causing wide-spread distress which is not limited to you own country.

Nothing will ever prepare you

Preparing for a surprise can be adopted as a strategy, however you don’t know what’s a surprise so how you would ever prepare yourself.

For years investors blamed Fed for propping up asset prices beyond fair price and at the 1st sight of Fed tightening, they are all on the other side of table criticising Fed for negative impact on the asset prices.

You can’t keep worrying about surprises, they will come maybe once in a month or once in a year-you don’t know when.

However what you can do is to have a plan and stick to it.

The plan always reflects your risk-profile and your circumstances and anchors your investments to the same.

Account for the fact that there will be a periodic surprise and have a little cash set aside to take advantage instead of getting scared.

In the end-Stay the course and you will be fine

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