Love v/s Arranged Marriage: An Analogy with Investing

Act 2, Scene 2:
The candidate is facing the interviewer. He has confidently answered most of the questions till now (weeks of mugging is paying off). The question which is to follow is not going to be difficult, too.

Interviewer : Why do you want to pursue management?
Candidate : There are two reasons. Firstly, a management degree will accelerate my career growth by providing me a holistic overview of business. Secondly, it will enable me to achieve my long term goal of someday becoming the CEO of a company.

Of course, our candidate has coached himself into not speaking the third reason for pursuing management. The third reason, never acknowledged in an interview, nevertheless ubiquitously dominant in driving the decision to do an MBA is dodging the parental pressure to get married. By the way, this is also a fairly common reason among the fairer sex to do an MBA, lest they presume the not-so-fairer sex is the one afraid of commitment, afraid of marriage. In this case, we all sail in the same boat. Well, after getting into IIM things definitely get more dynamic.

I acknowledge that I did have THE third reason. But little did I know, that I can run but never hide. As soon as I had returned home after the convocation and was having my first meal, the dreaded question was asked "So, you also should get married next year" (I know it is not a question, but it is a trick parents use: make an assertion but tone it like a question, out of respect you would not dare defy them, you would prefer not to answer - neither accepting nor declining - hoping your silence to be interpreted as a state of deep thought or even no... however, parents gladly interpret it as a Yes.) I had expected it; but not that soon. Anyway, I had a premeditated strategy for such an eventuality. (All those in need for tricks can get in touch with me in person).

But, that triggered my thought process about marriages. And so it follows. We will consider the Indian context for the purpose of the discussion here.

Marriages can be classified into two kinds - Love and Arranged. There is a cooked-up third kind, Arranged Love marriage which is basically a love marriage only. For the uninitiated, love marriage is when A and B fall in love (with / without knowledge / permission of parents), court each other for a period of time and then finally, if things are working out for them, get married. In Indian context, the courting will very rarely imply a live-in relationship. It would however imply watching a lot of movies together and/or spending time at a remote CCD in afternoon hours looking into each others eyes and/or having candlelight dinners/wada pav/pav bhaji/moongfali/paani puri and/or giving missed calls to each other every 5 minutes from office or college and/or walks along Marine Drive and/or sitting together in a secluded spot at Bandra bandstand for hours together, etc.

In an arranged marriage on the other hand, you like a photograph of a prospect, your parents/guardians talk to the prospect's parents/guardians, if both parties are interested then a self-proclaimed expert in the science of prediction is summoned who on the basis of comparison of position of cosmological elements like stars, planets, moon and sun at the time of your and prospect's birth delivers a figure - the number of common traits - (anything above 20 is considered good, the desperate kind settle for 10 to 20 common traits and below 10 is a reject), followed by settling concerns related to financial assets of the prospects, wedding expenses, dowry, etc and fixing dates for engagement and wedding. Depending on the wedding date, the to-be-weds may or may not get an opportunity to court each other. In most cases, an initial conversation between the to-be-weds precedes the summoning of the prediction expert. And most often, it is a mere formality to ascertain the truth in the claim of the photographic advertisement of the the prospect, as well as to determine any hidden catch in the deal.

At any point of time in either process, the deal could be called off. In the former case, it could lead to removal of the partner from all possible friend lists, orkut, yahoo, gtalk, hi5, linkedin, tagged, etc. Yeah, also deletion of all SMSes, emails, etc. No, gifts are not returned. In the latter case, however, it would depend on the stage in which the deal was. The earlier the deal is called off, more peaceful would be the end while later, it could lead to considerable melodrama on part of either party followed by extensive mudslinging for an extended period of time. Most often, gifts will be returned. For a demonstration, of what happens in this latter case, I would recommend watching K-Soaps or some Hindi films like Virasat. It would give one a more or less accurate picture of what happens.

I believe that love marriage is better than arranged marriage. To explain how, let me draw an analogy between love and arranged marriages and investing. The asset that one looks to invest in here is the a person of the opposite sex, the statistically significant case. Investment here would imply a long term commitment in the asset. The most common way of expressing this commitment is to marry the other person. It is a financial and emotional commitment.

Now, we know that every market has its speculators and its fundamental investors. Speculators gamble in the market while fundamental investors take well-understood risks. Warren Buffet is a fundamental investor - never had a loss making year. Most of all who lose in the market are speculators (at least when they lost).

Arranged marriage is essentially a speculative investment. It is like I look at the P/E of the stock I am looking to invest in and the P/E of the Market, and if the former is lesser than the latter, I go on and invest. Making decision on such criteria may pay off in 1 in 1000 cases but not always. Similarly, just by looking at the position of the cosmological elements and predicting if you are going to be happy with someone in a marriage is a mere speculative investment. 1 in 1000 times it may pay off. Of course, in the stock market, I can simply dump the stock and limit my losses. But, in a marriage if you dump your investment, by means of divorce, you end up losing cash in the form of alimony continuously. Also, in the stock market you can maintain a portfolio of assets and diversify your risk. Polygamy is now legally illegal in India (wasn't in the old times - One Hindu God as we know had a very large portfolio) and thus such diversification is not possible. Also, just as by looking at the financial assets of a firm, we can't judge its ability to generate value, it is difficult to judge if a marriage prospect is going to generate value - keep one happy - by observing the financial assets of the prospect.

Love marriage, is however a fundamental investment. As a fundamental investor, one tries to learn about the industry environment, the competitive positioning of a firm in the industry and most importantly understand which assets generate value for the firm - the operating assets. In a love marriage, one gets time to value their may-be-to-be-partner, through courting. One gets knowledge about how your partner is differentiated from the bunch. Also, beyond the financial assets, we learn about the operating assets that will keep us happy - it may be the smile, the understanding s/he shows, the sex, etc. One also learns about the risk of making the investment - the in-laws factor, the factor being socially outcast, etc. Thus one understands the risk-return trade-off before making the investment. Thus such fundamental investment is always a sound investment.

However, in an arranged marriage, the amount of time and money that you invest is lower compared to a love marriage. Thus in terms of returns, the returns could be comparable to love marriage if the investment pays off in the arranged marriage.

Again, in both kinds of marriages, there is the risk of being cheated. Some hidden catch may be revealed only after marriage in case of arranged marriage. In case of love marriage one could be provided wrong information which would lead to incorrect valuation (watch the movie Khoon Bhari Maang for an example of this). This is primarily, because of the absence of a regulator like SEBI in the marriage market. In a stock market, the management of the company would be held accountable for providing any information that misleads the investors. However, in the marriage market, there are no such deterrents for lack of a regulator. However, with a fundamental investing style one would still be in a better position to identify the risk of being cheated as one takes time in to understand the investment.

Thus in many ways, love marriages are better than the arranged marriages. But, somebody has to lose in the market for somebody to gain. I can't say if playing in the marriage market is the zero sum game, but if it is then without the speculators the fundamental investors will have nothing to gain :)