In this article, Srivatsan (a regular and popular freefincal guest author) offers a different take on the lemon spoon race video which recently went viral.
Srivatsan, who would only like to be referred to as a “long-time reader” of freefincal has written several articles here before and is responsible for adding the Earnings power box feature to our stock analyser. His previous articles are listed below.
- We spotted a “Multi-beggar” stock 3 years back – You can, too!
- Forget Buffettisms/Mungerisms: try these 2000-year-old personal finance tips!
- Financial lessons from our childhood stories!
- Ten Amazing Similarities between Poker, Stock Markets and Life
- It’s Earnings That Count: Forget the next Infy; Can you identify the next Satyam?
- PMC Bank Fraud: Lessons from Sanjay Gulati’s story
- Automated Earnings Power Stock Analysis With Screener.in data
- Want financial success? Budget time & energy before money!
- Are you a DIY investor? Be careful what you read and how you apply the stuff.
- If BJP loses Lok Sabha Election 2019, will the stock market crash?
I recently shared [read as bulk WhatsApp forward] the below video and asked my friends, “what do you see from this gif”?
The majority of the responses were, “slow and steady wins the race always”. This response is not wrong, but (1) It depends on the race Usain Bolt might disagree! and (2) we can infer so much more. So, off I went on a rant to whoever cared to listen which I reproduce here.
What is a lemon spoon race?
Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email! 🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥
The lemon spoon race has 2 simple rules [emphasis mine]
- You place a lemon on a spoon. Hold the spoon in your mouth. Whoever reaches the finish line first – wins the race
- If the lemon falls before you cross the finish line – You are out of the race
Einstein supposedly said:
“You have to learn the rules of the game. And then you have to play better than anyone else.”
Watch the video again.
What did everyone except the one boy do? – They shot off their marks to reach the finish line quickly – They latched on to Rule 1
What did they forget? – Rule 2
Rule 1 is your classic return maximization rule
Rule 2 is the catch – your risk minimization rule
To quote Taleb, this is a race where the risk of ruin is many-fold compared to the risk of gain. Or to quote Kahneman, the regret of lemon dropping is many-fold more than the joy of winning the race.
To go back to Einstein’s quote: this is a race that is won by minimizing the risk (lemon not falling) throughout the race and not by maximizing the return (how quickly you reach the finish line).
What did the winning boy do those others did not?
- Throughout the race, he was focused on only one thing: The lemon should not fall
- He took measured steps (call it slow if you want): He took the maximum possible stride which would propel him forward at the same time not make the lemon fall off
- For three-quarters of the race, he was the only person left to run the race. He still had a long way to go! If he had dropped the lemon, he would have still lost!
- Also note, that he had to sidestep other failed contestants, people cheering, egging him on right in front of him. His steps became even shorter, he was watching the lemon even more!
- If you notice, he did not end up in the same lane where he started! He was so focused on the lemon, that he veered to the right and switched lanes
Sounds familiar?
Here are my inferences
- The lemon can be your health, wealth, career, <insert any aspect here important to YOU>. In fact, we are running multiple lemon spoon races at best; or a race with multiple lemon spoons in one mouth at worst. Watch that lemon carefully!
- The length of stride you can take yet not make the lemon fall off is in essence your return vs risk decision. How fast you need to go, how fast you can go, how fast you want to go, and how fast you are forced to go are all different things!
- Whether there are other people around or not does not matter. It is not a race vs others. It is not even a race. It is you, your finish line, your lemon, your journey. It is not a straight-line shortest path from starting point to the ending point. You can veer off, come back and course correct.
- The race is won by taking measured, sustainable steps with every step just long enough to move forward yet safe enough for the lemon, till you reach the finish line.
Now you know what Prof. Pattabiraman means when he says, “risk is in the journey”; “you need to progressively de-risk your portfolio closer to the goal” and why he keeps chanting, “minimize risk” as a mantra or motto of freefincal!
Let me tell you 2 more secrets:
- There is Rule 3:
- If you change lanes during the lemon spoon race, you are disqualified!
- The boy actually did not win the race! Never lose sight of facts/fundamentals especially when faced with compelling emotionally stirring narratives (a.k.a viral/WhatsApp forward tempting) or logically convoluted /rambling writing like this one 😊
- There is also Rule 4:
- In real life, it is OK to drop the lemon, go and retrieve it, resume the race, find another lemon, stay out of the race, or go find an orange.
- After all, it is your life and your lemon. You make the rules, and you play your game better than your former self.
- In real life, it is OK to drop the lemon, go and retrieve it, resume the race, find another lemon, stay out of the race, or go find an orange.
[Hat tip: Morgan Housel – Keep it Going]
Tl;dr version:
When you focus on return at the exclusion of risk, you try to take more risk to get the return; you get the risk but may or may not get the return.
If you focus first on the risk and mitigate or avoid or reduce the risk, then you’ve protected the downside, and then maybe you get the return. – Seth Klarman
🔥Enjoy massive discounts on our courses, robo-advisory tool and exclusive investor circle! 🔥& join our community of 5000+ users!
Use our Robo-advisory Tool for a start-to-finish financial plan! ⇐ More than 1,000 investors and advisors use this!
New Tool! => Track your mutual funds and stock investments with this Google Sheet!
We also publish monthly equity mutual funds, debt and hybrid mutual funds, index funds and ETF screeners and momentum, low-volatility stock screeners.
- Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
- Have a question? Subscribe to our newsletter using the form below.
- Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.
Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email!
About The Author
Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 3,000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market condition is!! Watch the first lecture for free! One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course! Increase your income by getting people to pay for your skills! ⇐ More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!
Our new book for kids: “Chinchu Gets a Superpower!” is now available!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook is for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Do you want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or get the Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low-volatility stock screeners.
About freefincal & its content policy. Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
- Twitter @freefincal
- Subscribe to our YouTube Videos
- Posts feed via Feedburner.
Our publications
You Can Be Rich Too with Goal-Based Investing
Published by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want
This book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.Your Ultimate Guide to Travel
This is an in-depth dive into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically, with links to the web pages and hand-holding at every step. Get the pdf for Rs 300 (instant download)