When will they ever learn?
“The most contrarian thing of all is not to oppose the crowd but to think for yourself” - Peter Thiel (US based serial start-up investor/entrepreneur)
“When we long for life without difficulties, remind us that oaks grow strong in contrary winds and diamonds are made under pressure” - Peter Marshall (Scots/American preacher, born in Coatbridge)
“What are the similarities between a forecaster and a one-eyed javelin thrower? Neither is likely to be very accurate but are typically good at keeping the attention of the audience” - Terry Smith, (Fundsmith)
“Once I gave a presentation about the virtues of long-term investing. I talked about the power of compounding, about ignoring short-term fluctuations and the folly of forecasting. The very first question I got was this- and I’m not joking- ‘what’s your outlook for the next 6 months’” - Christopher Mayer, (Investor and Finance Author)
“Truth is like the sun. You can shut it out for a time but it ain’t going away” - Elvis Presley
In case you’ve forgotten what month it is, this is the first LfL of 2021. Before I start writing I spend weeks reading books, listening to lyrics, downloading reports and articles that look interesting to an old sceptic like me. And thanks to house arrest over the 2020 Festering Period I found more time than usual to browse away to my heart’s content, wine glass never far away. I haven’t bought a newspaper since March because of the gloom on every page but Fran succumbed one Sunday and while reading ‘said gloom’ remarked “this newspaper used to be twice the size.” And I replied -“that’s because they used to print both sides of the story.”
And that’s why I write these monthly letters - hopefully an antidote to the one-sidedness that pervades ‘the News’ today. Every month I first think of a title, much in the way I suppose artists think of what they want to capture as an end-result instead of simply slapping on paint willy-nilly and hoping for the best. (Mind you I’ve seen some ‘paintings’ where you wonder how much alcoholic ‘influence’ the artist had imbibed). Then I look for quotes I hope will stimulate our little grey cells, and if I’m really lucky they’ll quietly weave themselves into the body of the Letter.
The 5 books I read while in festive captivity were an eclectic bunch, including a history of the 1720 South Sea Bubble in Thomas Levenson’s ‘Money For Nothing’ ( no chicks for free, though most speculators back then ended up in dire straits). This month’s LfL title in part came from all the generations since sucked into bubbles or scams, and partly from the chorus in a famous Pete Seeger song. And I read again Matthew Syed’s ‘Black Box Thinking’ which is about the Cognitive Dissonance virus so difficult to cure in Medicine, the Law, Economics and in Government circles.
Next up (and read previously too) was Christopher Mayer’s fascinating (if a bit mind-bending) ‘How Do You Know?’ in which he challenges nonsense terms and loose jargon used by ‘legendary’ stockmarket and economic forecasters. And sticking with investment matters I also read Terry Smith’s new book ‘Investing for Growth’ in which in his own inimitable style he explains why his method of investing is simple yet effective, and how most ‘experts’ who criticise his approach constantly fail their followers. Well worth a read. (Be aware! Terry doesn’t take prisoners).
The fifth book was a bit of a difficult read, much like Christopher Mayer’s, but just as eye-opening, so it’s worth the effort and it’s available on Kindle. Isn’t it amazing that ‘stuff’ invented by clever nerds on t’internet use words that meant something completely different to us old fogies? To my generation Kindle started coal fires, if you remember what they were. By the way, if you know what an Alexa is and you don’t want ‘her’ listening to your conversations, I’m told Amazon is introducing a male version called Alec and guaranteed not to listen to a word you’re saying!
Sorry, I digress. The book referred to is Stuart Ritchie’s ‘Science Fictions’, subtitled ‘Exposing fraud, bias, negligence and hype in Science’ and which catalogues 1000s of research ‘findings’ by eminent scientists that later prove to be deeply flawed thanks to fraud, bias or negligence. But when these research findings are challenged regarding significant errors, cognitive dissonance kicks in to protect their reputations. Ritchie cites many examples right across medicine and science. In his introduction he wrote- “Science, the discipline in which we should find the harshest scepticism, the most pin-sharp rationality and the hardest-headed empiricism, has become home to a dizzying array of incompetence, delusion, lies and self-deception.” And he added the following quote - “Now THAT is a scientific fact. There’s no evidence for it, but it’s a scientific fact.”
Sadly it’s the same story in investment and economics. In ‘Black Box Thinking’ Matthew Syed writes of the published open-letter sent in 2010 by eminent economists and professors, to Ben Bernanke, Chairman of the US Fed, informing him he’d made a dreadful mistake introducing Quantitative Easing, and that it should abandoned immediately because it would lead imminently to high inflation and recession. Despite being wrong (as the last decade clearly shows) the critics refuse to admit it. That’s a classic example of Cognitive Dissonance.
Here are examples of much publicised predictions by ‘top experts’. In Jan 2010, US mag ‘Business Insider’ carried this headline “US stocks surge back towards bubble territory,” featuring research by Nobel Prize winner Robert Shiller which stated that his “cyclically adjusted P/E ratio shows US stocks are now more than 30% overvalued.” (Hands up if you understood that). And then it went on to predict that US stocks were priced to return no more than 3% to 4% a year for the next 10 years, after inflation. (By the way, the US S&P 500 index total return since has returned about 4 times that). Fellow Nobel Prize winner Paul Krugman, also feted for accurately predicting dire economic events, on the 8th November 2016 wrote this in the New York Times - “If the question is when markets will recover, a first-pass answer is never.” Good job we didn’t believe him eh? The S&P 500 is up 83% since.
But unfortunately too many investors still listen to pessimists quoted in the mainstream media. Last week The Guardian ran an article under ‘The Age of Extinction’ with its headline “Top Scientists Warn of Ghastly Future of Mass Extinction and Climate Disruption.” Cheery stuff eh? And this prediction was from ‘an international group of scientists’- 17 experts, including Professor Paul Ehrlich from Stanford University. Anybody remember him? This is what he predicted in November 1967 in the Los Angeles Times – “It is already too late for the world to avoid a long period of famine. The time of famines is upon us and will be at its worst and most disastrous by 1975.”
In August 1969 in the New York Times he followed that up with this beauty - “We must realise that unless we are extremely lucky, everybody will disappear in a cloud of blue steam in 20 years.” A year later in a Californian newspaper he predicted “The oceans will be as dead as Lake Erie in less than a decade. America will be subject to water rationing by 1974 and food rationing by 1980.” (Blue steam? Eh. Wonder where he got that from?)
There’s more, there’s more. Let’s take climate change. In 1972, 42 ‘top’ experts wrote to President Nixon requesting he take action to ward off the imminent ice age. In January 1974 The Guardian joined in with “Space Satellites Show New Ice Age Coming Fast” quoting climatologists at Columbia University and the University of East Anglia (who in The Independent in March 2000 then announced “Children aren’t going to know what snow is.” The Independent in October 2009 quoted Gordon Brown with his “We have fewer than fifty days to save the planet.” I recall he also wasn’t too hot at predicting Gold prices either. I’ve a file packed with these awful erroneous predictions.
In Christopher Mayer’s book “How Do You Know” he reminds readers that too many commentators use loose words and jargon to explain stockmarket movements day by day, often with single factors to explain a rise or more typically a fall. Let’s face it when stockmarket indices rise, even significantly, that’s either ignored completely or ‘it’s a better day.’ But when they fall, it’s headline news which usually involves quite a few ‘plummets’ or ‘plunges’ with investors ‘worried’ about this or that. Technical terms are wheeled out like ‘value’ or ‘growth’ and statements like ‘the market average P/E is too high.’ As Mayer points out, average isn’t what you should be striving for. Do check him out. He also has a fascinating blog, free to subscribe to, called WOODLOCK HOUSE. But before we leave Christopher, here’s what he has to say about GDP -
Prior to the late 1930s there was no such thing as GDP. It didn’t exist. It was invented by an economist as a best guess on how to measure progress of an economy. But imagine for a moment the enormous differences between the 1930s and today. And GDP figures today are nonsense in a world where technology and global competition drops costs, and the internet gives so much value away for free. And he explains – “if you and your neighbour cut your own lawns, nothing is added to GDP, but if you cut his and he cuts yours, and you pay one another other £20, then £40 is added to GDP.” Daft or what?
My experience since I started in Actuarial 52 years ago suggests we have to be really careful simply accepting the consensus view on claims made by ‘top experts.’ No matter what the subject matter, the “Nullius in Verba” rule is invaluable in uncovering the truth. I don’t want to say much about Covid19 but our local undertakers claim that the true death rate in 2019 was much lower than average. That’s borne out by Swedish data which show that from 2015 to 2020, deaths from all causes in 2019 were 6% lower than average, and 2020 was 3.6% greater than average. I find that interesting given what we’re told by experts. I also find it remarkable that we are all locked down when The Office of National Statistics show that in 2020 only 377 people under age 60 died with Covid19, yet 655 died falling down stairs. They’ll be banning two-storey houses next.
But we are where we are and it’s worse than hugely frustrating. However for a bit of perspective I learned during my captivity that the worst-ever year in human history was 536AD when thanks to a cataclysmic Icelandic volcanic eruption the Northern Hemisphere was covered by an ash cloud blocking out the sun for two years, so crops failed, temperatures plunged and thanks also to a bubonic plague almost half the world’s population died. “It could’ve been a lot worse” as my granny McKay was fond of saying every time a crisis came along.
Meantime let’s pay attention to fund managers like Terry Smith who advise “Ignore headlines. Invest in world class companies. Buy them at a fair price. Then do nothing.” Hopefully we’ll soon be able to get back to normal and be able to spend some of the tax free gains we made ignoring pessimists over the last ten years.