The day I learnt to stop worrying and learnt to protect myself

For at least six years, from early 2006 to early 2012 I “suffered” from what medical practitioners term as “anxiety”. It was “co-morbid” with my depression, and I think it was there from much before 2006. I would frequently think about random events, and and wonder what would happen if things happened in a certain way. I would think of “negative black swan” events, events with low probability but which would have a significant negative impact on my life.

While considering various possibilities and preparing for them is a good thing, the way I handled them were anything but good. Somewhere in my system was wired the thought that simply worrying about an event would prevent it from happening. I once got fired from one job. Every day during my next two jobs, I would worry if I would get fired. If I got an uncharitable email from my boss, I would worry if he would fire me. If my blackberry failed to sync one morning I would worry that it was because I had already been fired. Needless to say, I got fired from both these jobs also, for varying reasons.

I used to be a risk-taker. And it so happened that for a prolonged period in my life, a lot of risks paid off. And then for another rather prolonged period, none of them did (Mandelbrot beautifully calls this phenomenon the Joseph effect). The initial period of successful risk-taking probably led me to take more risk than was prudent. The latter period of failure led me to cut down on risks to an unsustainable level. I would be paranoid about any risks I had left myself exposed to. This however doesn’t mean that the risks didn’t materialize.

It was in January of last year that I started medication for my anxiety and depression. For a few days there was no effect. Then, suddenly I seemed to hit a point of inflexion and my anxious days were far behind. While I do credit Venlafaxine Hexachloride I think one event in this period did more than anything else to get me out of my anxiety.

I was riding my Royal Enfield Classic 500 across the country roads of Rajasthan, as part of the Royal Enfield Tour of Rajasthan. The first five days of the tour had gone rather well. Riding across the rather well-made Pradhan Mantri Gram Sadak Yojana (PMGSY) roads set across beautiful landscapes had already helped clear out my mind a fair bit. It gave me the time and space to think without getting distracted. I would make up stories as I rode, and at the end of each day I would write a 500 word essay in my diary. All the riding gear meant that the wind never really got into my hair or my face, but the experience was stunning nevertheless. For a long time in life, I wanted to “be accelerated”. Ride at well-at-a-faster-rate, pulling no stops. And so I rode. On the way to Jaisalmer on a rather empty highway, I even hit 120 kmph, which I had never imagined I would hit on my bike. And I rode fearlessly, the acceleration meaning that my mind didn’t have much space for negative thoughts. Things were already so much better. Until I hit a cow.

Sometimes I rationalize saying I hadn’t consumed my daily quota of Venlafaxine Hexachloride that morning. Sometimes I rationalize that I was doing three things at the same time – one more than the number of activities I can normally successfully carry out simultaneously. There are times when I replay the scene in my head and wonder how things would have been had I done things differently. And I sometimes wonder why the first time I ever suffered a fracture had to happen in the middle of nowhere far off from home.

It had been a wonderful morning. We had left the camp at Sam early, stopping for fuel at Jaisalmer, and then at this wonderful dhaba at Devikot, where we had the most awesome samosa-bajjis (massive chilis were first coated with a layer of potato curry – the one they put in samosa – and then in batter and deep fried). For the first time that day I had the camera out of its bag, hanging around my neck. I would frequently stop to take photos, of black camels and fields and flowers and patterns in the cloud. The last photo I took was of Manjunath (from my tour group) riding past a herd of black camels.

I function best when I do two things at a time. That morning I got over confident and did three. I was riding on a road 10 feet wide at 80 kilometres per hour. I was singing – though I’ve forgotten what I was singing. And I was thinking about something. My processor went nuts. While things were steady state on the road there was no problem. There was a problem, however, when I saw a bit too late that there was a massive herd of massive cows blocking my path further down the road.

There was no time to brake. I instead decided to overtake the herd by moving to the right extreme of the road (the cows were all walking on the road in the same direction as me). To my misfortune, one of the cows decided to move right at the same time, and I hit her flush in the backside. The next thing I remember is of me lying sprawled on the side of the road about five metres from where my bike was fallen. There was no sign of the cow. The bike was oozing petrol but I wasn’t able to get up to lift it up – presently others in my tour group who were a few hundred metres behind reached the scene and picked up my bike. And I don’t know what state of mind I was in but my first thought after I picked myself up was to check on my camera!

The camera wasn’t alright – it required significant repairs after I got back home, but I was! I had broken my fifth metacarpal, which I later realized was a consequence of the impact of the bike hitting the cow. There were some gashes on my bicep where the protective padding of my riding jacket had pressed against my skin. I still have a problem with a ligament in my left thumb, again a consequence of the impact. And that was it.

I had had an accident while traveling at 80 kmph. I had fallen a few metres away from the point of impact (I don’t know if I did a somersault while I fell, though). I fell flush on my shoulder with my head hitting the ground shortly. It was a rather hard fall on the side of the road where the ground was uneven. And there was absolutely no injury because of the fall (all the injury was due to impact)!

It was the protection. No amount of worry would have prevented that accident. Perhaps I was a bit more careless than I should have been but that is no reason for there not being an accident. When you are riding on a two wheeler at a reasonable pace on country roads, irrespective of how careful you are there is always a chance that you may fall. The probability of a fall can never go to zero.

What I had done instead was to protect myself from the consequences of the fall. Each and every piece of protective equipment I wore that day took some impact – helmet, riding jacket, riding gloves, knee guard, shoes.. Without any one of these pieces, there is a chance I might have ended up with serious injury. There was a cost I paid – both monetary and by means of discomfort caused by wearing such heavy gear – but it had paid off.

Black swans exist. However, worrying about them will not ease them. Those events cannot be prevented. What you need to do, however, is to hedge against the consequences of those events. There was always a finite possibility that I would fall. All I did was to protect myself against the consequences of that!

Despite contrary advice from the doctor, I decided to ride on and finish the tour, struggling to wear my riding glove over my swollen right hand – stopping midway would have had a significant adverse impact on my mental state which had just begun to improve. I’ve stopped worrying after that. Yes, there are times when I see a chance of some negative black swan event happening. I don’t worry about that any more, though. I only think of how I can hedge against its consequences.

Taleb’s Recipe

No, unlike the previous post, this has nothing to do about food. It is about Nassim Nicholas Taleb’s recent op-ed in the Financial Times where he gives his “recipe” for saving the global financial system. Two of my favourite bloggers Arnold Kling and Felix Salmon have responded to it, but I didn’t like either so I thought I should post my response as well.

I borrowed The Black Swan from Aadisht sometime in late 2007. I tried starting to read it several times but never got past Taleb’s childhood stories of his hometown Amioun. I took a couple of months to get past the first 50 pages, I think. And then it was easy reading. I loved the sub-plots. I broadly bought into the main plot. By the time I had finished reading the book, I wanted to ask Taleb to accept me as his sisya. I  bought and read Fooled By Randomness, and liked that too. And then decided to read The Black Swan yet again. It was only a couple of months back that I finally returned the latter book to Aadisht (in the meantime he had bought two other copies of it, and read it).

Till very recently, I would read up any article of Taleb’s that I could find. I wrote to him a couple of times with my CP, and he even responded. I infact wrote to him about “Positive Black Swans and the World of Romance” and he responded with a “Thanks Karthik, Ciao, Nassim”. I had become a worshipper.

However, now I think he’s kinda lost it. I don’t think he intends to write another book and so he has nicely settled down to peddling his last theory (black swan). In response to a recent post on studs and fighters, Kunal had said, “He that is good with a hammer tends to think everything is a nail.”. The same disease affects Taleb I think, as he goes around the world trying to force-fit his black swan model to every conceivable problem.

And then I have a problem with people like Taleb and Satyajit Das, and actually with all those ibankers who are asking for bailouts. These guys made full use of capitalism, and made heaps of money, when things were good. And now that their money has been made, they call for government intervention, and socialism. Taleb and Das are different from the other wall streeters because they are calling for full-scale government intervention, unless the other bankers who are only calling for a bailout!

Now that the elaborate intro is done, let us get to the point. Taleb’s essay consists of ten points. The headings are italicized and there’s a detailed explanation. For purpose of brevity I’m putting only the headings here, and writing my comments after each of them. Go to the FT site to read the full points that Taleb has written.

1. What is fragile should break early while it is still small.

I agree with this. And my take is that competitors need to keep each other in check. For example, if this round of bailouts were not to happen and the biggies were let to fall, no one would grow so big in the future, and even if they did, they would make sure that they were insulated enough from one another. This round of bailouts will make the next crisis (whenever it will happen) worse.

2. No socialisation of losses and privatisation of gains.

Agree with this.

3. People who were driving a school bus blindfolded (and crashed it) should never be given a new bus.

Taleb has clearly not learnt his own lessons (fooled by randomness). I might have crashed the school bus once, but it may not be my mistake. the one data point of one bus crash should not be used to decide my career as a driver. One should look at how the driver drove before the crash to determine whether he gets a second chance. Blanket banning of people involved will not help.

4. Do not let someone making an “incentive” bonus manage a nuclear plant – or your financial risks.

It’s all about structuring. Taleb was a trader and he forgets about structuring. As long as incentives of the employee and the employer are reasonably well aligned, there is no problem with an incentive bonus. The problem in ibanking was that too much emphasis was placed on short-term performance of employees. It’s tragic that the fall of the financial system has brought to an end what was an excellent compensation system (in principle, mind you; not the way it was practised) – where each person was paid fairly based on his/her contribution.

5. Counter-balance complexity with simplicity.

I think the simplest way would be to leave things to the market. Government intervention would lead to a new form of complexity, and in the overall scheme of things increase complexity rather than decrease it. None of the stuff that Taleb has mentioned is easily implementable.

6. Do not give children sticks of dynamite, even if they come with a warning .

Again Taleb prescribes mai-baap sarkaar. Does he realize that if governments had always had tight control over the markets, the markets wouldn’t have crashed on October 19 1987, and he wouldn’t have made any money? (Taleb has reportedly made 97% of his life’s earnings out of this one event). What is “complex derivatives”? And how can you ban it? If you ban it, it’ll go to the black market. You are better off collecting hefty security transaction tax.

7. Only Ponzi schemes should depend on confidence. Governments should never need to “restore confidence”.

I agree

8. Do not give an addict more drugs if he has withdrawal pains.

Agree once again. We need to structurally change things to get to saner leverage than what was practised 1-2 years back. Regulations should be simple and principles-based, minimizing chance for regulatory arbitrage. Remember that the purpose of creation of most “complex derivatives” in the last 25 years is regulatory arbitrage.

9. Citizens should not depend on financial assets or fallible “expert” advice for their retirement.

Bullshit. The point on markets not containing information, that is.

10. Make an omelette with the broken eggs.

None of this makes any kind of practical sense. It’s just an old man ranting. Thanks, guru (pun intended).