Second World War

Why HDFC Finds Homes to Be More Affordable, When They Clearly Aren’t

Summary: HDFC is getting better home loan customers that doesn’t mean homes have become more affordable. HDFC’s conclusion of homes becoming more affordable is an excellent example of survivorship bias.

Before I start writing this, I have a confession to make. I have written about this issue before, around five years back. But given that things haven’t really changed since then, it is a good time to write about it again. Hence, to all my regular readers who have been following me over the years and might have read this earlier, sincere apologies in advance.

Home loans in India are given by two kinds of institutions – banks and housing finance companies (HFCs). Among the HFCs, Housing Development Finance Corporation (HDFC) has been a pioneer in the area of home loans.

The company regularly publishes an investor presentation along with every quarterly result.

I am not sure for how long the company has been doing this, but its website has these presentations going as far back as March 2013, a little over seven years. Since then, the company has had a slide in its investor presentation which talks about the improved affordability of owning a home in India. Usually, it is the eight or the ninth slide in the presentation (sometimes, but very rarely tenth).

This is the slide in the latest presentation for the period April to June 2020.

Improved affordability of homes

Source: HDFC Investor Presentation, June 30, 2020.

Let’s look at the chart between 2000 and 2020, the last two decades. The home loan market in the country before that was too small and evolving and hence, prone to extreme results. So, it makes sense to ignore that data.

What does the chart tell us? It tells us that affordability of homes in the country has gone up over the years. The chart defines affordability as home price divided by the annual income of the individual buying the home.

In 2020, the average home price has stood at around Rs 50 lakh. Against this, the average annual income of the individual buying the home stands at around Rs 15 lakh. Given this, the affordability factor is at 3.3 (Rs 50 lakh divided by Rs 15 lakh).

Hence, the average individual in 2020 is buying a home which is priced at 3.3 times his annual income. (Please keep in mind that the property prices are represented on the left-axis and the annual income is represented on the right axis).

As can be seen from the chart, the affordability factor at 3.3 is the lowest in twenty years. Hence, affordability of homes has gone up. QED.

The trouble is, this goes totally against what we see, hear and feel all around us. Real estate companies have lakhs of unsold homes with absolutely no takers. They have thousands of crore of unpaid loans. The banks and non-banking finance companies (NBFCs) have restructured these loans over the years and not recognized them as bad loans in the process, with more than a little help from the Reserve Bank of India (RBI). Bad loans are loans which haven’t been repaid for a period of 90 days or more.

Further, investors who bought real estate over the years have been finding it difficult to sell it. Indeed, if homes had become more affordable, this wouldn’t have been the case. Real estate companies would have been able to sell homes and repay the loans they have taken from banks and NBFCs. And the RBI wouldn’t have to intervene.

So, what is it that HDFC can see that we can’t? Before I get around to answering this question, let me tell you a little story. During the Second World War, the British Royal Air Force (RAF) had a peculiar problem.

It wanted to attach heavy plating to its airplanes in order to protect them from gunfire from the German anti-aircraft guns as well as fighter planes. The trouble was that these plates were heavy and hence, had to be attached strategically at points where bullets fired by the German guns were most likely to hit. The British couldn’t plate the entire plane or even large parts of it.

The good part was that they had historical data regarding which parts of the plane did the German bullets actually hit. And this is where things got interesting. As Jordan Ellenberg writes in How Not to Be Wrong: The Hidden Maths of Everyday Life: “The damage [of the bullets] wasn’t uniformly distributed across the aircraft. There were more bullet holes in the fuselage, not so many in the engines.”

So, historical data was available and hence, the decision should have turned out to be a very easy one. The plates needed to be attached around the plane’s fuselage. But this logic was missing something very basic. The German bullets should have been hitting the engines of airplanes more regularly than the historical evidence suggested, simply because the engine “is a point of total vulnerability”.

A statistician named Abraham Wald realised where the problem was. As Ellenberg writes: “The armour, said Wald, doesn’t go where bullet holes are. It goes where bullet holes aren’t: on the engines. Wald’s insight was simply to ask: where are the missing holes? The ones that would have been all over the engine casing, if the damage had been spread equally all over the plane. The missing bullet holes were on the missing planes. The reason planes were coming back with fewer hits to the engine is that planes that got hit in the engine weren’t coming back.” They simply crashed.

This is what is called survivorship bias or the data that remains and then we make a decision based on it.

As Gary Smith writes in Standard Deviations: Flawed Assumptions Tortured Data and Other Ways to Lie With Statistics: “Wald…had the insight to recognize that these data suffered from survivor bias…Instead of reinforcing the locations with the most holes, they should reinforce the locations with no holes.”

Wald’s recommendations were implemented and ended up saving many planes which would have otherwise gone down. (On a different note, both the books from which I have quoted above, are excellent books on how not to use data, especially useful if you are in the business of torturing data to make it say what you want ).

If you are still scratching your head and wondering what does this Second World War story have to do with HDFC finding homes more affordable, allow me to explain. Like the British before Wald came in with his explanation, HDFC is also looking at the data it has and not the overall data.

Look at the left-hand of the corner of the chart, it says based on customer data. The analysis is based on HDFC’s own historical customer data. When HDFC talks about an average home price of Rs 50 lakh and an income of Rs 15 lakh, it is basically talking about the set of people who have approached the HFC for a loan and gotten one. Hence, HDFC’s conclusion of better affordability is drawn from the sample it has access to.

But does this really mean that affordability has improved? Or does it mean that the quality of HDFC’s customers has improved over the years? The customers that HDFC is giving a home loan to are ones who can afford to buy homes. The HFC clearly has no idea about people who want to buy homes but simply do not have the financial resources to do so.

They don’t show up as a part of any sample, hence, the evidence on them is at best anecdotal. These people are like planes whose engines were hit and hence, they did not make it back to their base, in the Second World War. And like there was no data on the planes which got hit and didn’t make it back, there is no data on these people as well. Basically, HDFC’s data and conclusion are victims of the survivorship bias

In fact, HDFC’s investor presentation has always carried another interesting slide on low penetration of home loans in India. The following chart is from the latest presentation.


Home loans as a percentage of GDP

Source: HDFC Investor Presentation, June 30, 2020.

Total home loans outstanding given by both banks and HFCs in 2020 stands at 10% of the GDP (On a slightly different note, the ratio of homes loans given by banks to home loans given by HFCs is 64:36). In March 2014, the total outstanding home loans in India had stood at 9% of the GDP. If homes indeed were affordable this ratio would have gone up faster.

To conclude, it’s time that HDFC remove this misleading slide from its investor presentation or at least say that the affordability has improved for its customers and not for the country as a whole.

How I Knew Demonetisation Was Going To Be A Disaster Right From Day 2

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The recent past has seen even the biggest supporters of prime minister Narendra Modi concede that demonetisation was a disaster that the country could have done without. A major reason for this has been the gross domestic product (GDP) data for the year 2016-2017, which was published on May 31, 2017.

As per this data, the growth for the non-government part of the economy crashed to 5.6 per cent in 2016-2017, after having grown by 8.5 per cent in 2015-2016. In fact, even the 5.6 per cent growth might be an overstatement given that the GDP data does not capture informal sector data well enough. And the informal sector has been in a large mess post demonetisation.

The trouble is that anyone who had any basic understanding of economics or had read up on some economic history, would have known this from day one. And if not from day one, at least from day two.

I wrote my first piece on demonetisation within hours of the announcement to demonetise the Rs 500 and Rs 1,000 notes. As a freelance writer, I am expected to react to things as soon as they happen. The first piece I wrote had a neutral tone to it, where I tried to explain as to why the government had done what it had done.

With the benefit of hindsight, I can say that the first piece was written too quickly and at the same time was highly influenced by the government’s press release explaining the decision. But from Day 2 onwards, I went back to basic economics to essentially say that demonetisation would turn out to be bad for the Indian economy as it eventually has.

After the first piece was published I happened to remember a story that was a part of my first book Easy Money–Evolution of Money from Robinson Crusoe to the First World War.
The story was about cigarettes being used as money in the prisoner-of-war camps that cropped up all over Europe during the Second World War. The prisoners used to receive standard food parcels from the Red Cross during the war. The parcels included biscuits, butter, cigarettes, canned beef, chocolate, jam, milk, sugar, etc.[i]

As soon as the rations arrived, prisoners used to start exchanging them. One of the earliest transactions used to be nonsmokers exchanging their cigarettes for chocolates that the smokers had got. Sikhs, who had been fighting for the British Army, used to exchange their allocation of beef for other goods like butter, jam, and margarine. But gradually cigarettes went way beyond the status of a normal commodity and became the standardized medium of exchange. A prisoner of war even recalls exchanges like “cheese for seven cigarettes” happening in the camps. He also recalls an individual who sold coffee, tea, or hot chocolate at the rate of two cigarettes a cup. This individual eventually scaled up his business but failed, making losses of a few hundred cigarettes.[ii]

Sometimes, the weekly Red Cross parcels which had cigarettes in them, did not arrive. At other times, the stress of heavy air raids near the camps made peo­ple smoke away their money, that is, cigarettes.[iii]

In such situations, there was not enough money (i.e., cigarettes) going around in the prison economy and led to a situation where prices fell. Since people did not have cigarettes to buy goods, those who were hoarding food, toiletries, and so on, had to cut prices in the hope that they are able to make a sale.

This story tells us a lot about how demonetisation has played out.

Money basically has three functions. It is a medium of exchange, a unit of account and a store of value. It’s function as a medium of exchange is its most important function. People use money to buy and sell things i.e. to carry out economic transactions, with the buyer paying money to the seller every time he sells a product or a service.

In the above example cigarettes were used as money. And when a war camp ran out of cigarettes, or there was a shortage, the economy inside the camp collapsed or slowed down considerably.

How is this relevant to demonetisation? Any economy needs a certain amount of money to function properly. Demonetisation at one go rendered 86.4 per cent of the currency useless. While currency is not the only form of money in India, it is the major form.
Like with cigarettes at prisoner-of-war camps, suddenly there wasn’t enough currency going around post demonetisation. Hence, the rupee’s function as a medium of exchange came to a standstill.

The Reserve Bank of India (RBI) has replaced this money at a very gradual pace. In fact, even now the currency in circulation is at 84 per cent of the currency in circulation that prevailed before demonetisation. This shortage of currency over the last seven months has led to a slowdown in the buying and selling of things i.e. people haven’t been able to carry out economic transactions.

The slowdown in economic transactions has ultimately led to a slowdown in economic growth. In fact, when there weren’t enough cigarettes going around, prices collapsed in the prison economy. Along, similar lines prices of agriculture produce, have collapsed since demonetisation, as cash in agriculture trade has dried up. This has led to the farmers protesting across the length and breadth of the country.

Anyone who had studied some economic history would have known from the beginning that demonetisation would turn out to be a disaster that it has. Anyone who understood the functions of money, would have argued along similar lines.

But that is not how it has turned out to be. Economists have gone on and on, about how demonetisation will prove beneficial to the nation, especially in the long run. Some have even built models to show the success of demonetisation.

But the fact of the matter is that you can keep building models to justify demonetisation but that doesn’t change the basic fact that with less money going around an economy contracts or grows at a slower pace.

Because with less money people cannot carry out economic transactions of buying and selling things. And without that economy grows slower or contracts.

Yes people can move onto digital payments. But digital payments haven’t grown fast enough to be able to bring down the influence of cash in the Indian economy. This means people still prefer cash or they are simply not confident about spending money in any form at this point of time.

[i]  C. Desan. Coins Reconsidered: The Political Alchemy of Commodity Money (The Berkeley Electronic Press, 2010).

[ii] R.A. Radford, “The Economic Organisation of a P.O.W. Camp,” Economica 12 (1945): 189–201.

[iii]  Desan 2010

The column originally appeared in the Huffington Post on June 17, 2017.

What we can learn about Indian economic growth from the Second World War


On May 29, 2015, the ministry of statistics and programme implementation declared the gross domestic product (GDP) growth numbers for the last financial year 2014-2015, as well as the period between January and March 2015. The GDP is a measure of the size of an economy, and the GDP growth is essentially a measure of economic growth.
The GDP growth for 2014-2015 came in at 7.3%, whereas the GDP growth between January and March 2015 stood at 7.5%. The trouble is that these numbers which are theoretical constructs don’t seem believable once we start looking at real economic numbers.
Bank lending remains subdued. So do car sales. Corporate profitability is at a one decade low. And exports are stagnant. Capacity utilization continues to remain bad. And so does investment. In fact, the Reserve Bank of India governor, Raghuram Rajan even said the following, in an interaction he recently had with the media: “In the eyes of the rest of the world, it is a discrepancy why we feel the need for rate cuts when the economy is growing at 7.5%. Most economies growing at 7-7.5% are just going gang-busters and the issue there would be to restrain rather than accelerate growth.”
It seems that the Indian GDP number may have become a victim of what economists call the “survivor bias”. Before I get into explaining this bias some background information is necessary. In late January earlier this year, the ministry of statistics and programme implementation released a new method to calculate the GDP.
In the old method of calculating the GDP one of the key sources of information about the private sector was the RBI Study on company finances, which took into account financial results of around 2500 companies. The new GDP series uses the database of ministry of corporate affairs (MCA).
As Deep N Mukherjee of India Ratings recently wrote in a column on Firstpost: “The new series justifiably attempts to increase the coverage of the corporate sector and has used the MCA21 database maintained by the ministry of corporate affairs. Approximately 14 lakh companies are registered with MCA, of which 9.8 lakh companies are active. Post filtering for data availability, 5 lakh companies have been analysed and used for GDP estimation for 2011-12 and 2012-13.”
On the face of it, this sounds like a good thing to do. The trouble is that since 2013-2014, the number of companies on the database has come down to 3 lakhs.
“This is an outcome of companies not reporting possibly because they are closing down their operations. Thus, if out of 5 lakh companies 2 lakh have not reported, it should normally set alarm bells ringing about the economy. How the current methodology addresses this ‘survivor bias’ in the data is not clear,” writes Mukherjee.
And what is survivor bias? Let me recount a story from the Second World War in order to explain this. During the Second World War, the British Royal Air Force (RAF) wanted to protect its planes from the German anti-aircraft guns and fighter planes. In order to do that it wanted to attach heavy plating to its airplanes.
The trouble was that the plates that were to be attached were heavy and hence, they had to be strategically attached at points where bullets from the Germans were most likely to hit.
An analysis revealed that the bullets were hitting a certain part of the plane more than the other parts. As Jordan Ellenberg writes in How Not to Be Wrong: The Hidden Maths of Everyday Life: “The damage[of the bullets] wasn’t uniformly distributed across the aircraft. There were more bullet holes in the fuselage, not so many in the engines.”
This essentially suggested that the area around the fuselage was getting hit the most by bullets and that is the area that had to be plated. Nevertheless, the German bullets should also have been also hitting the engine because the engine “is a point of total vulnerability”.
A statistician named Abraham Wald realised that things were not as straight forward as they seemed. As Ellenberg writes: ‘The armour, said Wald, doesn’t go where bullet holes are. It goes where bullet holes aren’t: on the engines. Wald’s insight was simply to ask: where are the missing holes? The ones that would have been all over the engine casing, if the damage had been spread equally all over the plane. The missing bullet holes were on the missing planes. The reason planes were coming back with fewer hits to the engine is that planes that got hit in the engine weren’t coming back.” They simply crashed.
As Gary Smith writes in Standard Deviations: Flawed Assumptions Tortured Data and Other Ways to Lie With Statistics: “Wald…had the insight to recognize that these data suffered from survivor bias…Instead of reinforcing the locations with the most holes, they should reinforce the locations with no holes.”Wald’s recommendations were implemented and ended up saving many planes which would have otherwise gone down.
Interestingly, survivor bias is a part of lot of other data as well and leads to wrong analysis at times. Take the data for judging the performance of mutual funds over a long period of time. The numbers typically end up overstating the returns earned primarily because something’s missing. As Ellenberg writes: “The funds that aren’t. Mutual funds don’t live forever. Some flourish, some die. The ones that die are, by and large, the ones that don’t make money. So judging a decade’s worth of mutual funds by the ones that still exist at the end of ten years is like judging our pilot’s evasive manoeuvres by counting the bullet holes in the planes that come back.” Hence, it makes sense to be sceptical about any mutual fund study that shows high returns. The first question you should be asking is whether the study has taken the performance of dead funds into account or not.
Now how is this linked to the Indian GDP? It is possible that the data being used to calculate the Indian GDP is not taking into account the fact that out of the five lakh companies on the MCA database around two lakh companies have not reported their numbers and may have possibly been shutdown. And if that is the case the corporate growth numbers are possibly being overstated and in the process pushing up the overall GDP number as well.
The economists need to be able to crack this puzzle and tell us the real story.

The column originally appeared on The Daily Reckoning on June 10, 2015 

HDFC finds India’s real estate to be affordable. Here’s why it is wrong

India-Real-Estate-Market
The home loan lender HDFC in its latest investor presentation says that homes have seen an “improved affordability”. This goes against everything that one sees in the real estate sector these days, where prices have gone so high that most people wanting to buy a home to live in, can’t.
So how did HDFC manage to come to such a conclusion? Allow me to explain.
In a graph in the presentation, HDFC points out that homes are more affordable than they have been at any point of time in the last ten years. It defines affordability as property prices divided by annual income. This number for 2015 comes in at 4.4. In 2014 it was at 4.6. In 2013 it was at 4.7. The last time the affordability number was lower than 4.4 was in 2004, when the number was at 4.3. Hence, homes are now more affordable than they were in the last ten years.
So far so good. What does affordability of 4.4 really mean? It means that the property values in 2015 were 4.4 times the annual income. The average annual income considered by the company is around Rs 12 lakh. And the average property value considered by the company is around Rs 52 lakh. Hence, while the property prices have been going up, so have incomes – hence housing has become more affordable. QED.
Of course, something is not ‘quite’ right about this calculation. But before we get into that, let me recount a war story here. During the course of the Second World War, the British Royal Air Force (RAF) wanted to protect its planes from the German anti-aircraft guns and fighter planes. In order to do that it wanted to attach heavy plating to its airplanes.
The trouble was that the plates that were to be attached were heavy and hence, they had to be strategically attached at points where bullets from the Germans were most likely to hit. Historical data on where exactly the German bullets hit the RAF planes was available. As Jordan Ellenberg writes in How Not to Be Wrong: The Hidden Maths of Everyday Life: “The damage[of the bullets] wasn’t uniformly distributed across the aircraft. There were more bullet holes in the fuselage, not so many in the engines.”
If the data were to be interpreted in a straightforward manner, it would mean plating the area around the fuselage because that was what got hit the most. Nevertheless, the German bullets should also have been also hitting the engine because the engine “is a point of total vulnerability”.
A statistician named Abraham Wald realised this anomaly. As Ellenberg writes: ‘The armour, said Wald, doesn’t go where bullet holes are. It goes where bullet holes aren’t: on the engines. Wald’s insight was simply to ask: where are the missing holes? The ones that would have been all over the engine casing, if the damage had been spread equally all over the plane. The missing bullet holes were on the missing planes. The reason planes were coming back with fewer hits to the engine is that planes that got hit in the engine weren’t coming back.” They simply crashed.
Another example that can be considered here is of people in a recovery room in a hospital. There will be more people with bullet holes in legs in comparison to people with bullet holes in chests. This in no way means that people don’t get hit in chests. They sure do. It’s just that people who get hit in the chest don’t recover.
As Gary Smith writes in Standard Deviations: Flawed Assumptions Tortured Data and Other Ways to Lie With Statistics: ‘Wald…had the insight to recognize that these data suffered from survivor bias…Instead of reinforcing the locations with the most holes, they should reinforce the locations with no holes.’ Wald’s recommendations were implemented and ended up saving many planes which would have otherwise gone down.
But why are we discussing wars and hospitals, when we started of with HDFC. The data used by HDFC to arrive at the conclusion of “improved affordability” also suffers from survivor bias. Allow me to explain.
When HDFC considers an average home price of around Rs 52 lakh and an average income of around Rs 12 lakh, it is possibly referring to a set of people who have approached HDFC for a home loan and bought one. In short, it is referring to a sample that it has ready access to.
But the people approaching HDFC are possibly those who can still afford to buy a home. And they can do that primarily because their incomes have kept pace with the rise in home prices.
Nevertheless, what about all those people out there who want to a buy a home to live in, but can simply not afford it. Their incomes are simply not high enough and haven’t kept pace with rising home prices. These people possibly do not form a part of HDFC’s sample. And hence, the data suffers from a survivor bias. Given this, the conclusion of “improved affordability” is essentially wrong.
There are other points that can be made against the “improved affordability” argument. If the affordability has improved why are there so many unsold homes all over India? Reports put out by real estate consultants regularly point out to the huge number of unsold homes all over India. (You can read about it here and here).
Further, if the affordability has improved why is there such a huge shortage of homes in urban areas. As the latest Economic Survey points out: “The widening gap between demand and supply of housing units and affordable housing finance solutions is a major policy concern for India. At present urban housing shortage is 18.8 million units of which 95.6 per cent is in economically weaker sections (EWS) / low income group (LIG) segments and requires huge financial investment to overcome.” Obviously, HDFC does not cater to this group.
To conclude, it is worth remembering here what American writer Upton Sinclair once said: “It is difficult to get a man to understand something, when his salary depends on his not understanding it.”
HDFC as a company has been doing well. In fact, in the last one year its loan book grew by 20%. Having said that, it is in the business of giving out home loans and it would like to think that “all is well,” with the real estate sector and homes are affordable, but that is really not the case.

(Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek)

The column originally appeared on Firstpost on May 19, 2015

Yun hota to kya hota?

hitlerVivek Kaul

In August 2014, the world marked the hundredth anniversary of the outbreak of the First World War. Over the years, a lot of analysis has happened on why the First World War happened. But what most historians do not talk about in their elaborate theories is that the War might have started just because a car happened to take a wrong turn.
At around 11 AM on June 28, 1914, a chauffeur of an automobile carrying two passengers in Sarajevo, happened to make a wrong turn. The car wasn’t supposed to make this turn and leave the main street. But due to the mistake of the chauffeur it ended up in a narrow lane and stopped right in front of a Gavrilo Princip, a 19-year-old student. But that wasn’t Princip’s only identity. He was also a member of the Serbian terrorist organization Black Hand.
Princip couldn’t believe his luck. He drew out his pistol and fired twice killing the two passengers in the car. Princip had recognized them and gone ahead and pulled the trigger. They were Archduke Franz Ferdinand and his wife Sophie of the Austro-Hungarian Empire. Earlier in the day, Princip and his friends who “wanted to promote the cause of a greater Serbia,” had unsuccessfully tried toassassinate Archduke Ferdinand by lobbing a grenade at him. The attempt had gone wrong and Princip had escaped and walked into the narrow lane to have a light snack. And there he ran into Archduke Ferdinand.
The assassination led to a series of events in a politically fragile Europe and started what was first known as the Great War and later came to be known as the First World War. As Mark Buchanan writes in Ubiquity “The First World War is the archetypal example of an unanticipated upheaval in world history, the war sparked by ‘the most famous wrong turn in history,’ and one may optimistically suppose that such an exceptional case is never likely to be repeated.
Historians over the years have analysed a number of reasons that caused the First World War. As Ed Smith writes in Luck—A Fresh Look At Fortune “In this version of history, the assassination merely lit the fuse, but the tinderbox would have surely exploded anyway.”
Would that have been the case? “Perhaps. But had Princip not killed Ferdinand in Sarajevo, the outbreak of the First World War would have at the very least been delayed. A war delayed is a war averted.”
Hence, it is a very interesting “counterfactual” to consider as to “what if” the Archduke’s chauffeur had not made that wrong turn that he did in June 1918. Possibly, the First World War would have never happened and the world would have turned out to be a much safer place. As Buchanan writes “When the First World War ended five years later, 10 million lay dead. Europe fell into an uncomfortable quiet that lasted twenty years, and then the Second World War claimed another 30 million. In just three decades, the world had suffered two engulfing cataclysms. Why? Was it all due to the chauffeur’s mistake?”
A few years after the chauffeur’s wrong turn, on December 13, 1931, an English politician “perhaps forgetting that American cars drive on the right-hand side of the road” met with an accident. The car was travelling at the speed of 35 miles per hour and could have easily killed him. But he survived and even wrote a 2400 word article detailing his “near-death” experience and made £600 in the process. The politician was Winston Churchill, who would successfully defend the United Kingdom against Germany during the course of the Second World War.
The question to ask if what would have happened if Churchill had died on that day. “There would have been no Churchill…to take over from Neville Chamberlain, no Churchill to galvanize Britain as it stood alone in 1940. What then? A successful German invasion…an occupied Nazi Britain…an isolationist America staying out of the War…And the whole history of the second half of the twentieth century would have been radically different,” writes Smith.
All this because there would have been no Winston Churchill to take on Adolf Hitler. But what if there had been no Adolf Hitler? A few months before Churchill was knocked down in New York, a young Englishman called John Scott-Ellis was spending sometime in Munich, Germany so that he could learn a new language.
As Smith points out “After a week in his new city, on a clear sunny day, Scott-Ellis bought his gleaming red Fiat and gave it a test drive around the streets of Munich…But a pedestrian crossed the road without looking left – just as Chruchill would do on Fifth Avenue[New York] four months later. ‘He walked off the pavement, more or less straight into my car,’ Scott-Ellis recalled.”
The pedestrian did not seriously injured himself. Three years later while waiting for an opera to start Scott-Eliss ran into that man again and introduced himself. He asked the man, whether he remembered about the accident, the man did.
Scott-Ellis did well in life and “became one of the great British racehorse owners”. As Smith writes “He often told the story of that crash in Munich in 1931: ‘For a few seconds, perhaps, I held the history of Europe in my rather clumsy hands. He was only shaken up, but had I killed him, it would have changed the history of the world.”
Scott-Ellis had run his car into Adolf Hitler.
History is influenced by fairly random small events, which have an overbearing impact on it. But these small random events do not make for ‘sexy’ theories that historians and analysts like to come up with and in the process these events get lost from public memory.
As Buchanan writes about all the history that has been written around what caused the First World War: “On the matter of the causes and origins of the First World War, of course, almost nothing has been left unsaid…The number of specific causes proposed is not so much smaller than the number of historians who have considered the issue, and even today major new works on the topic appear frequently. It is worth keeping in mind, of course, that all this historical ‘explanation’ has arrived well after the fact.”
To conclude, it is worth remembering, what the great Mirza Ghalib, who had a couplet for almost everything in life, had to say on this: “hui muddat ke ghalib mar gaya par yaad aata hai wo har ek baat par kehna ke yun hota to kya hota.”

The column originally appeared in Mutual Fund Insight magazine dated Oct 2014

(Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek)