Saturday, 24 January 2015

Burger or Lobster?

18:20 Posted by The Thalesians (@thalesians) No comments

There is a restaurant (or indeed several) in London, called Burger & Lobster. There is no menu. Instead your server asks whether you would like to eat (yes, you guessed), a burger or a lobster, which are both the same price. Of course, there are many further permutations, would you like cheese on your burger, would you prefer lobster or lobster roll and so on.

The restaurant has now opened up in New York, offering the same spartan menu, albeit for a cheaper price than its London cousins (unfortunately, there always seems to be some invisible London tax on burgers and steaks).

So which you should choose, the burger or the lobster? From a purely financial point of view, surely the lobster. After all, if the burger and lobster are priced at the same level, you are either getting an outrageously expensive burger or a somewhat better value lobster. However, when we go out to a restaurant, is our objective is to engage in financial arbitrage between menu items? I could say no. We might all wish to have a cheaper bill, but in this instance our choice will not change the final price we pay.

The problem I generally have, is I love burgers, a good burger really is joy (as the photo above suggests)! Indeed, whenever I travel, I will invariably check the local burger joints before go (I have already done this, for a trips to Geneva and Hong Kong in February). The burger served up at Burger & Lobster, is perhaps on the large size and is therefore somewhat difficult to eat with your hands as a result. However, if you are able to conquer this challenge, your taste buds will thank you for the quality of the burger you have entrusted them to sample. Despite, loving burgers, should I pick lobster, purely to have the feeling of getting a better value meal? I say no!

The problem is that when it comes to financial markets, people choose the lobster over burger regardless of their initial preferences. Trading might be about making money. Yet when using that as your sole metric for success, it can be perversely self defeating and the wrong metric to use, just as in our burger and lobster example. Indeed it is one of the major themes in my book Trading Thalesians - What the ancient world can teach us about trading today, that simply running after maximising returns can result in excessive leverage in a portfolio. Indeed, Aristotle tells us the story of Thales, who made what is now his famous, trade on olive presses. His objective was not to profit from the trade, but to show that he could make money, if he put his mind to it. We can emulate Thales today. It seems far better to approach trading indirectly, understanding the risks you are taking and then keep them in check, to have a more sustainable stream of returns, rather than immediately aiming for high returns.

When it comes to Burger & Lobster (& financial markets), more burger, less lobster

Like my writing? Have a look at my book Trading Thalesians - What the ancient world can teach us about trading today is on Palgrave Macmillan. You can order the book on Amazon. Drop me a message if you're interesting in me writing something for you! Also come to our Thalesians systematic trading workshop at alphascope in early February in Geneva, sign up here


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