Friday, August 12, 2016

Dealing with absurdities : Take small and tactical risks

National Day is over so it's time to address some of the absurdities which I have raised in the previous article on the Singapore Dream.

One way to deal with the absurdities is to take a risk.

Sometimes absurdities arise because of the way we approach risk. Take for instance, in the field of investments. If you want higher returns, you have a to buy equities and take on some market and credit risk. If your investment fails, it will take you further from your goal of financial independence. Financial bloggers always support the idea of investing in equities over time horizons. This way, the efforts have a much better chance of bearing fruit although you will end up owning horrible companies being run by occasional crooks.

I recently took an academic risk and signed up for International Moots. It's not a subject I am familiar with from my work experience and previous degrees and a lot of young hotshots are taking the subject in the hopes of representing the University. From a risk-return perspective, this move is not particularly rational because it takes up a lot of  a student's time. But the subject has coaches from the private sector and the folks who speak get a moment of 1-1 coaching which is hard to get in a University environment. Of course, representing the University can look really good on a student's resume.

This the essence in dealing with absurdity #4.

In the local education system, we stick to something that we are familiar with so that we will get a better grade on it but the tradeoff is that we learn less because we are not exploring new territory and developing new and unique capabilities. My personal experience is that grading by the curve creates this kind of effect on students. I think students make a fundamental mistake when they see their education as a portfolio of bonds which give steady but guaranteed returns, there is no room for innovation. At a broader level, rewards systems in a meritocracy run by similar principles. Reporters are only good to a sportsman only after he has achieved a significant result. No points are given for effort.

In a system where rewards commensurate only with  results, one possibility is to take small and steady bets on games of high volatility. An Olympian who gets gold for Singapore becomes an instant millionaire and gets an entry into the history books. This is an amazing result.

This is the essence of my foray into cryptocurrency mining. Some contracts have very low rates of return but I have targeted currencies with a high volatility to take advantage of the currency highs which happen throughout the life of the contract. Some bets starts to take on the character of a call option - something which may expire worthless but may also result in extraordinary returns.

Therefore, the to crack some of the absurdities of the Singapore Dream, not everything you do has to be ultra-stable and involve the well-trodden paths of other Singaporeans. One way of winning the Game of life is to have a broad general approach to minimise your risks in major areas of your life ( like a basic job ), but allocate a certain amount of time to take small amounts of risks which would mostly return nothing much, but has the odd probability of outstanding returns.

Due to my International Moots schedule, this blog will slow down it's updates until early September.

Unless something sensational happens, see you next month !



5 comments:

Bapu said...

Antifragility (=

ted said...

Interestingly many concepts dovetails into each other kinda like Munger's latticework of mental models. Even Bapu's comment.

An engineer tends to have a pessimistic mindset due to thinking about and preventing unwanted scenarios. Read somewhere about this advice (which is a variation of your article's idea):
"If the impact of failure is small, think optimistically."

Christopher Ng Wai Chung said...

You might be right.

I read Latticeworks by Robert Hagstrom quite a while ago.

Naturally I am a huge fan Taleb.

Rebekah Pauli said...
This comment has been removed by the author.
Rebekah Pauli said...

Nice post. It utterly suits for these who are go in for education in Singapore