Lies and Statistics

A few quotes to kick off this Letter from a man I have quoted before, the philosopher who said “You should always side with the minority because that’s where you will find the more intelligent” - Johann Wolfgang von Goethe (1749 to 1832).  Great advice from 200 years ago, and even more appropriate today is the following short selection.  Keep them in your thoughts as we leave 2020 behind.

“I have come to the frightening conclusion that I am the decisive element.  It’s my personal approach that creates my climate. But it’s my daily mood that creates my weather.” 

“In the realm of ideas everything depends on enthusiasm. In the real world all rests on perseverance.”

“There is nothing more frightful than ignorance in action.”

“We do not have to visit a madhouse to find disordered minds.  Our planet is the mental institution of the Universe”

And before I add my thoughts this month, here are a couple of more recent quotes I also find appropriate……

“Nothing is as good or as bad as it seems”
- Scott Galloway, Professor of Marketing, NYU

“There are decades where nothing happens and there are weeks where decades happen”
- Vladimir Lenin

Most of you will be aware that I was lucky to be born comfortably siding with the minority although apparently at school it made me a right pain in the arse.  Twitter pessimistic devotees still think I qualify.  (RESULT!)  I must have had an amygdala removed at birth which makes it comfortable being outside the herd, which for investors over the years has been the best strategy for producing wealth. 

The amygdala has been described as the brain’s panic button.  Seems it evolved over many 1000s of years when we were a favoured main course on lunch menus of man-eating tigers and the like.  So an early-warning system kept you safer by sticking with the herd.  Early contrarians were unlikely to survive so the genes passed down through the generations were from herds of scaredy custards.  Well it may have worked well ‘way back when’, but with today’s obsession with bad news your amygdala keeps you in constant fear.  Not a great recipe for benefitting from investment opportunities that spring up in times of crisis.  Go check the last 200 years.

I’ve read a few fascinating books while avoiding pessimists 24/7’s predictions on Bad News on Telly.  In Rutger Bregman’s ‘Human Kind’ he includes a calendar which takes the history of life on Earth (4000 million years) and represents it as one full calendar year.  First life occurred on January 1st and Dinosaurs went extinct on Christmas Day (if I’m allowed to call it that).  The first humans appeared at 11pm on Hogmanay (also banned this year apparently) and at 2 minutes to midnight on the 31st December the farmers eventually turned up.  Everything else we call history happened in the last 60 seconds to midnight.  How’s that for perspective? 

Something else I learned is that genetically we’re 99% the same as chimpanzees and 60% identical to bananas. Maybe that explains why some investors are attracted to too much monkey business and why for too many of us ‘Breaking Spirits’ drives us bananas.  But should we believe popular headline genetic comparisons?  I ploughed through Adam Rutherford’s ‘A Brief History of Everyone Who Ever Lived’ (all 400 words including the appendix).  I learned that headlines claim that humans are 99.9% the same at the level of DNA which I found hard to believe when thinking of how much I differ from my wife when making ‘joint decisions’. 

However he explains that our DNAs vary on average by one part in a 1000.  Given we each have about 3 billion letters of genetic code, one thousandth of that comes to 3 million individual points of variation.  And that by my reckoning explains a lot. 99.9% the same, and yet so far apart.  When you see the name Adam Rutherford you’d assume he is Scottish and has red hair.  And you’d be so wrong.  Read the book to discover why, and at the same time you can learn why only men are colour blind, why wet ear wax is significant, and why Allan Wells was the last white -skinned male to reach the Olympic 100 metre final. 

It also appears to be the case that certain strands of our DNA can make us more vulnerable to coronaviruses.  But nothing makes us more vulnerable, despite what our politicians and their favourite medical pessimists tell us than age, pre-existing serious illnesses and obesity.  It’s hard to get behind the published ‘official statistics’ of rising cases, but there’s only one place in the world which keeps detailed records of Covid fatalities by age group in 5 year cohorts from the newly born, all the way up to age 110.  And that’s Pennsylvania, which has been in the news recently thanks to the unseemly rammie following the US Elections early this month.  Incidentally Pennsylvania has a 12.8 million population which if it were a European country would make it bigger than Belgium currently in 11th place.  So their statistics are significant in the grand scheme of things.

And here’s what they show us this year up to the end of October.  More people aged 100 or over died with Covid than those aged below age 45. Almost 55% of Pennsylvania’s population is aged below 45.  Only 0.03% is 100 or over.  So their detailed statistics show that the oldest cohort makes up more Covid fatalities than the under 45s despite the younger group being nearly 2000 times bigger in size.  Surely there was a better way of handling this ‘pandemic’ instead of almost destroying economies? 

Meanwhile back in the UK any expert view which disagrees with Government’s official stance is squashed and censored which is deeply suspicious to those attracted to Nullius in Verba.  Official statistics claim many thousands of cases and Covid deaths but it’s odd surely that the mean age at death in the UK is 81 compared to 83 for those dying with the virus and the average number of pre-existing serious illnesses of the deceased is 2.7. Many experts believe the real Covid death toll lies below 15,000, (0.02% of the population) rather than 55,000.  Given that it’s likely our governments, backed by the wrong medical advice and supported by a doom-laden media now realise the error of their ways they will be looking for a face-saving way out.  About time!

But despite the enormous damage to economies, and also despite the dire predictions of media savvy ‘popular’ pessimists like Nobel Prize winning economist Paul Krugman who following Trump’s surprise victory in November four years ago, wrote the following in the New York Times- “If the question is when will stockmarkets recover a first-pass answer is never.  We are probably looking at a global recession with no end in sight,” patient investors ignoring pessimists and their amygdalas have done remarkably well. Since Krugman’s dire predictions the Dow Jones Index including reinvested dividends is up 67%.  RESULT!

A fluke you might think?  Nope.  When Reagan won back in the early 1980s similar gloom was expressed.  When Clinton came along in 1992 it was the same script and Healthcare as a sector was sold off heavily.  Guess what was the second-best performing US sector during his Presidency?  Same happened when Obama came along.  All gloomy predictions were way off the mark.  And before Biden beat Trump this month it was reported that over 60% of high net worth US investors either moved to cash or sold stock to increase to caution.  Now look what happened. Contrary to gloomy expectations the US stockmarkets had their best November start in 65 years. Now where have you seen that reported?

What a year this has been.  But every year since I started in 1973, has contained umpteen crises, which have kept most would-be investors in constant fear.  Take my Mum and Dad for example.  It wasn’t until my Dad was 56 that I managed to persuade them to have a bash at investment rather than sit in tax and inflation inefficient deposits.  And after that I had to constantly reassure them because they tended to believe what they saw on telly or read in headlines.

Financial writer Morgan Housel whom I rate highly for his eye-opening regular blogs has had a new book published ‘The Psychology of Money,’ timeless lessons on wealth, greed and happiness. I strongly recommend it. It’s full of wonderful insights, such what Ice Ages teach us about growing our wealth, and why avoiding the news is key to allowing compounding to create real wealth and happiness.  I wasn’t previously aware, for example, that 99.6% of Warren Buffett’s wealth accumulated after his 50th birthday.  Hope for me yet.

But of course it helps too if you have the correct savings structure to reduce tax drags  put in place by governments to raise money from us they love to squander against a wall, and to pick the individual investment style that helps you build wealth while helping you sleep at night. And to that end I recommend Terry Smith’s new book ‘Investing For Growth’ which contains priceless advice echoed by all long term successful investors - Buy good companies, Don’t overpay and then Do nothing.

Finally I leave you with some thoughts about a misuse of statistics in the investment industry.  For as long as I can remember it’s been said that 85% of active managed funds ‘can’t beat the index.’  Leaving aside the fact that ‘an index’ is artificial in that the constituents keep changing and skewed to suit winners, what does the 85% refer to, the number of funds whatever their size?  Common sense tells you that if funds do better consistently than others they’ll attract more investors and get much bigger.  And that’s why we spend so much time looking for the best, whatever your risk profile while trying to help you sleep soundly at night. Sleep tight everybody.