# Petals Around The Rose, 2020 Edition

Submitted by Nicholas Colas of DataTrek Research

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.

“Petals” is a puzzle made famous during the early days of computing for stumping Bill Gates, but not a marketing staffer at PC Magazine. It involves throwing a few dice and deciphering a specific numerical outcome from that roll. The only clue is that the name of the puzzle is significant.

Here are 3 examples of dice throws and their solutions:

This time the answer is 10.

And this last one is 12.

The solution to the puzzle: count the number of “petals” (dots) when a die has a center dot (the “rose”) and add those together. If it does not have a center dot (i.e. 2, 4, 6) that die has no “petals”. 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.

I’ve shown this puzzle to scores of people over the years, and finance people always have an inordinately difficult time solving it. 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. The instinct to make every problem about “the numbers” is strong on Wall Street.

• The quantitative mental processes we all share as finance professionals leave a systematic blind spot.

• Technologists share this myopia (which is why even Bill Gates couldn’t solve “petals”). This means they are prone to building algorithms that can count dots efficiently but never see the “rose”.

• 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).

Today we want to add to these observations with 3 more thoughts:

#1: Nonmathematical answers face a high bar to engender trust and confidence, whether it be in a puzzle or in economic/capital markets systems. “Petals” always has just one answer, and everyone who knows the trick to solving it can agree on a given throw’s numerical score. But if you can’t crack the code, the problem can seem frustratingly intractable. Bill Gates resorted to memorizing throws in his attempt to solve “Petals”, but Paul Allen just walked away rather than face further angst. I often think economics and capital markets behavior are ultimately a lot like the “petals” puzzle. 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. This year has been especially fraught with this conflict.

#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. George Soros realized central banks couldn’t fight economic reality, no matter the size of their balance sheets. Warren Buffett saw that American brands could scale globally and productively compound capital employed far longer than investors were discounting in stock prices. 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. 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”.

#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. Everyone from seed round venture capitalists to Apple, Microsoft and Amazon (a.k.a. 17% of the S&P 500) are competing to identify and create business models that may not seem obvious or even logical but actually adhere to a novel and specific paradigm. I think about “Petals” almost every time I read the S-1 for a well-known tech disruptor, because I start off thinking “this is a bit dopey” but walk away realizing the management is counting petals rather than trying to shoehorn a tech-enabled answer into a traditional commercial approach. That doesn’t mean all these will work as investments, just that their playing a very different game.

Summing up: “Petals Around the Rose” is a great reminder that the answer to a problem is often right in front of you, thinking creatively is sometimes the only way to find it, and “creatively” can mean momentarily forgetting everything you know.