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In Investing, as in Politics, It’s Wise to Stay Focused on the Evidence


In Investing, as in Politics, It’s Wise to Stay Focused on the Evidence

A haloed professional or politician gives a speech and repeats something we have heard many times before.  The audience nods their heads in approval and cheers.  At the end someone says, “Wow, that was quite persuasive.”

The only problem is: “It just ain’t so.”

As we are unfortunately reminded in political debate and claims on social media, “just ain’t so” happens too often.

Mark Twain is widely reported to have said, “It ain’t what you don’t know that gets you into trouble, it is what you know for sure that just ain’t so.”

Why do I mention this and then write the words “widely reported’?

Well, according to research done in the U.S. Library of Congress’ book Respectfully Quoted, Twain saying this “just ain’t so.”

As Forbes and others have reported, the phrase should be attributed to a Josh Billings book called Everybody’s Friend from 1874.

In saying this, I am not trying point fingers at anyone and I’m certainly not knocking Mr. Twain.

Humans are hardwired to anchor on repetition and comments from prominent members of the community, and Nobel prizes have been won for research on what is called the Halo Effect and Availability Bias.

Our behavioral tendencies are very helpful when it comes to things like children following the advice of their parents and, as an example, not touching a hot stove when they are told repeatedly it will hurt.

When we’re acting as consumers, however, it’s important to remember that marketing and sales professionals are well-versed in taking advantage of these biases.

Of course, most advertising and political copy is not intentionally false.  But we can’t be reminded often enough that, when making an important decision, it is often prudent to “trust but verify.”

Related to investing, an example from a prominent investment-oriented national newspaper might serve as a good example.

The story was well-written and quite memorable, focusing on what is reported to be an impressive, long-term investment track record that “wins clients” and “instills confidence”.

Related: The New Stock Market Normal Is Not What You Think!

What was the problem?

At the time of the article and according to the manager’s own website, the manager had underperformed his declared benchmark over the past 1, 3, 5, 10 and 15 years, which isn’t that impressive and doesn’t instill confidence.  As an example, after fees, he had lagged his index by approximately 5.5% per year for the past 5-years.

I am leaving out links to the article on purpose and not mentioning the manager because my point is not to call out a specific manager or the publication writing about him.

My only point is that it happens often and that, as in many things, investment buyers or readers should often beware.

I could go on an own about this, but before voting in an election or voting by hiring an investment manager, fact check carefully and watch out for what the Pulitzer Prize winning website Politifact, calls “Paints On Fire” quotes.

As it relates to the next great presentation about a hot investment product, manager or prognostication you hear from Wall Street, consider clicking on the following links:

Of course, outlier investment managers exist and some professionals on Wall Street have been able to provide predictions that are worth considering.

Just don’t be a sheep blindly following what you read or hear into a vote or an investment without remembering what Mr. Billings actually wrote back in 1874:

“Wisdom doesn’t consist in knowing more that is new, but in knowing less that is false”

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