Kim Aaschariyam?

In the Indian epic, the Mahabharata, there is a small story of a time the five Pandava brothers get lost in the forest. Being thirsty, the eldest brother asks the youngest to search and get water. Nakula finds a pond but before he can drink the water, the guardian spirit of the lake asks him to halt and answer his questions first. Nakula in his impatience and arrogance ignores this warning and drinks the water and promptly dies.

Similarly, Sahadeva, Arjuna and Bhima meet the same fate. When Yudhistira finally goes in search and finds his dead brothers he weeps. The guardian spirit explains how they died and tells him the same thing. He has to answer his questions if he wants to drink the water from the pond. Yudhistira being a patient and wise man agrees to the condition. It is then that the spirit asks him "Kim Aashchariyam" which translates roughly in English as "What is surprising?" It is then that Yudhistira answers "Everybody sees people dying regularly around them and yet live as if death will never visit them. That is the most surprising thing in this world"--which of course was the right answer.

This story applies to everybody and everything. From the smallest trader to the largest bank. JP Morgan escaped the 2008 crisis relatively unscathed but then believed its own myth of its superior risk management abilities. Instead of looking at 2008 and thanking their luck that they were relatively less exposed to the CDOs and CDSs they understood their relative outperformance to mean that they are better than everybody else. What else can explain their increased risk appetite in a game where somebody has to lose for someone else to win? What made them believe that they were better?

What is even more surprising is that people are even willing to play this game of betting against one another in the belief that they alone possess better skills, understanding, knowledge or any other thing that they believe is required to beat their counterparty. But when people can live as if they alone are immortal, then they can believe anything about their own abilities I guess.

I too am not immune to this (possibly misplaced) confidence in my own abilities. So I continue to trade in a zero sum game. I am short Nifty from 5200 (I have not written this note for a long time and hence you will have to take my word for it) and will cut my short positions and go long only above 4955.