![]() Everyone from seed round venture capitalists to Apple, Microsoft and Amazon (a.k.a. #3: The combined effects of disruptive technologies like 5G, cloud and quantum computing, artificial intelligence/machine learning and the like are essentially a huge “Petals” puzzle where no one has 100% of the answer just yet. All of these now seem entirely logical and easy to understand, but at their start they were all as novel as the answer to “Petals”. Jim Simons saw a world moving to quantitative asset price setting and positioned his investment approach to be exactly one step ahead of everyone else as this shift occurred. Warren Buffett saw that American brands could scale globally and productively compound capital employed far longer than investors were discounting in stock prices. George Soros realized central banks couldn’t fight economic reality, no matter the size of their balance sheets. #2: Big investment themes are a lot like discovering the answer to “petals”: the insight behind both is based on seeing a pattern others do not. This year has been especially fraught with this conflict. People who understand them get to one generally accepted interpretation of the facts, but that solution is invisible to the much larger group of people who don’t know the system. I often think economics and capital markets behavior are ultimately a lot like the “petals” puzzle. Bill Gates resorted to memorizing throws in his attempt to solve “Petals”, but Paul Allen just walked away rather than face further angst. But if you can’t crack the code, the problem can seem frustratingly intractable. “Petals” always has just one answer, and everyone who knows the trick to solving it can agree on a given throw’s numerical score. #1: Nonmathematical answers face a high bar to engender trust and confidence, whether it be in a puzzle or in economic/capital markets systems. Today we want to add to these observations with 3 more thoughts: Teams of people with diverse abilities have a better chance of solving problems that don’t lend themselves to numerical solutions (witness the PR person who solved “petals” in just a few throws when Gates could not). This means they are prone to building algorithms that can count dots efficiently but never see the “rose”. Technologists share this myopia (which is why even Bill Gates couldn’t solve “petals”). The quantitative mental processes we all share as finance professionals leave a systematic blind spot. When we wrote about this last year, our takeaways were: The instinct to make every problem about “the numbers” is strong on Wall Street. I suspect it is because we immediately put the value of the dice in numerical terms and never consider the solution may be figural rather than quantitative. I’ve shown this puzzle to scores of people over the years, and finance people always have an inordinately difficult time solving it. If the die’s value is greater than one and has a center dot, then its count is the total number of petals around the rose. The solution to the puzzle: count the number of “petals” (dots) when a die has a center dot (the “rose”) and add those together. Here are 3 examples of dice throws and their solutions: The only clue is that the name of the puzzle is significant. ![]() It involves throwing a few dice and deciphering a specific numerical outcome from that roll. “Petals” is a puzzle made famous during the early days of computing for stumping Bill Gates, but not a marketing staffer at PC Magazine. This week we will begin by reprising “Petals Around the Rose”, a theme we introduced exactly a year ago in an early STT but given the growth in subscribers since then it merits a second look. ![]() It even keeps track of how many of your guesses were correct.Submitted by Nicholas Colas of DataTrek Research I really like this online version because it allows you to insert a guess before showing you the score. Shaun actually ended up using Petals Around the Rose with his own students in Australia. It was the last day of school, after all. ![]() My students didn’t seem quite as excited as I did, but oh well… They quickly gave up and turned their attention to their cellular devices. After a few turns, I finally figured it out. I convinced a couple of students that they should play this fun dice game with me. So, that meant quite a few students just didn’t show up at all. But, within an hour or so, he sent me a message saying he had figured it out. He played a couple of games and seemed as confused as I was. Later, I mentioned the game to my boyfriend (now husband!). In my frustration, I allowed myself to get sidetracked. I used the same strategy to guess the score again. I clicked a button to roll the five dice. Intrigued, I googled to find an online version to play. ![]()
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