Facebook has found what appears to be a Russian plot to interfere with the 2018 mid-term elections. This is the breaking news of the week. What has become obvious to most observers is that Russia is not trying to influence the results of elections as much as they are trying to further divide our already divided electorate.

Of course this is unprecedented, except that it probably isn’t. Creating fake news about one’s political opponents has been around at least since the founding of our nation and probably a lot longer. Benjamin Franklin used his printing press to help spread some fake news, as did his political rivals. My ancient history/Shakespeare is a little rusty, but weren’t there some false rumors involved in the eventual assassination of Julius Caesar by a crowd of conspirators, including his good friend Brutus? Et tu, Brute?

I certainly don’t mean to downplay the seriousness of Russia meddling in our politics, but it does seem to me that there is an easy solution to all of this: Bring back common sense, and don’t believe everything you read. I would add to this one further instruction: …especially if you want to believe it.

One of the benefits of spending my adult life in the investing world is that I get to spend a lot of time learning about how humans make decisions. Investing is, after all, about making decisions. Most people think decisions are made by carefully analyzing data and using our reasoning skills to identify the right path. To invest or not to invest, or to vote for this candidate over that one.

This is not actually how humans make decisions, unfortunately. We make decisions mostly with our emotions, and then we look for facts that support the decision that we have already made. When data comes in that supports what we want to believe, then we accept it as true. If, on the other hand, we receive data that runs counter to our beliefs, then we reject it as false. Most in our society have long held the outlook that we are intelligent and everyone who disagrees with us is stupid. The troubling thing about our politics today is that we seem to be drifting toward a more serious view of, “we are virtuous and anyone who disagrees with us is evil.”

One can’t do this in my field, because the measuring stick for our decisions is absolute. An investment either worked out well or it didn’t. This blunt reality makes it harder to lie to oneself. That is a great lesson, but most people never learn it.

As a result, when a Trump supporter reads some story which makes Trump look good and his opponents look bad, they tend to believe it; and when someone who does not care for Trump reads something that makes him look bad, they tend to believe it. These stories can both be fact, or they might both be fiction.  How are we supposed to know?

Simple: Be skeptical, especially when you hear something that you would like to be true. Question the source. Likewise, don’t just dismiss those who disagree. They are not any more stupid than we are, after all. They might even be correct about some things.

In her book, Thinking in Bets, professional gambler Annie Duke suggests putting some money on the line. Investors learn to overcome their natural bias because if they don’t, they lose money. The same is true for gamblers. So, put some money on the line. The next time a friend tells you that the guy running for Congress in your district is actually a member of an alien race trying to take over planet earth…instead of just believing it, ask them how much they are willing to bet. Just like we did when we were kids. If they hesitate, then that will tell you if it is truth, or fake news.

Warm regards,

Chuck Osborne

~Fake News

“If you don’t have time to do it right, when will you have time to do it over?”  – John Wooden

One could live his whole life based on John Wooden quotes and do pretty well. This is one of my favorites. I suppose that is because I had an uncle who used to say something very similar. He would say, “Do it right the first time and you won’t have to do it over.” That advice has saved me a lot of time throughout my life.

It seems so simple, yet it isn’t. If I watch TV it is usually sports. As such, unlike many who now binge-watch shows commercial-free, I am still a slave to commercial breaks. While watching the recent NBA Championship I witnessed perhaps the strangest commercial break of my life.

The first commercial was for Facebook. It showed how wonderful the service was when it started, then how they had abused their users’ data. They apologized and promised to get back to what made them great in the beginning.

The second commercial was for Wells Fargo. It showed the storied history of one of the nation’s oldest banks, and talked about how they were built on trust, right up until the moment they betrayed that trust to create fake accounts. They apologized and promised to get back to what made them great in the beginning.

The third and final commercial was from Uber. You’ve got it: They showed how wonderful they used to be, apologized for their founder’s behavior, and promised that the new management would get back to what made them great in the beginning.

You just can’t make that up. Three commercials in a row with companies apologizing for not doing the right thing, but promising to do it over. It makes one wonder what in the world is happening in our corporate culture?

As a backdrop I am watching these commercials at a time when Norfolk Southern had decided it was a good idea to park idling trains behind our neighborhood for 19 straight days. Now we knew there was a train track back there when we moved into the neighborhood many years ago, and the passing trains have never bothered me. In fact, it is kind of cool. However, having a train stay there, constantly running for 24 hours a day for 19 days, is something completely different. Our oldest neighbors have been in the neighborhood for more than 40 years, and this had never happened in their memory.

When I started my career I had mentors whose primary strength was common sense. Today we have too many managers whose primary talent is having gone to the “right” business school. They are very intelligent, yet know nothing. My mentors were constantly self-effacing. They would start most sentences with, “You know I’m not that smart, but….” Today we have managers who never seem to question themselves.

Who didn’t question selling peoples’ data without permission? Who didn’t question the wisdom of setting up fake accounts? Who didn’t question the “playboy” culture at Uber? Who decided it was okay to treat a residential neighborhood like a train yard?

Doing the right thing is not just about being ethical – it would be great if we lived in such a world, but that is naive. Doing the right thing is also about having the common sense to understand that not doing the right thing will eventually bite you back. If you don’t do it right, then eventually you will have to do it over. Words to live by.

Warm regards,

Chuck Osborne

~Just Do the Right Thing

This past weekend my family went to see the biggest movie in America. “Avengers: Infinity War” was quit the thrill ride. We would have seen it sooner, except that Marvel has done a great job of interweaving all of their movies and characters. If one is not up to date with the latest Marvel movies then there will be gaps in understanding what the heck is happening and who are all these people? We had to wait because somehow we missed “Thor: Ragnarok” and needed to watch it to understand the beginning of the new Avengers movie. All four of us enjoyed both movies.

The villain in “Infinity War” is Thanos. Thanos is the largest, most evil villain in all of the Marvel universe. His motive? Spoiler alert: Thanos is simply the universe’s biggest, strongest, and most radical environmentalist. He wants to randomly kill half of the universe because he is afraid that population growth will use up all the natural resources, killing planet after planet. The movie ends with him finally relaxing in a nature lover’s shack in the mountains.

Evidently Thanos is a fan Paul R. Ehrlich. For those who don’t know Ehrlich he is a Stanford University professor and author of the 1968 best seller, The Population Bomb. In his book Ehrlich makes the case for Thanos, basically arguing that the growth in population would outpace the planets ability to sustain us. The book began with this statement:

“The battle to feed all of humanity is over. In the 1970s hundreds of millions of people will starve to death in spite of any crash programs embarked upon now. At this late date nothing can prevent a substantial increase in the world death rate..”

Of course none of that happened, but don’t tell that to Ehrlich, who as recently as 2009 stated that “perhaps the most serious flaw in The Bomb was that it was much too optimistic about the future.” To paraphrase another good movie, Facts? We don’t need no stinking facts.

There is a great rebuttal of Ehrlich and his fellow doom-and-gloom forecasters in Ronald Bailey’s The End of Doom. For our purposes it suffices to say that those who can’t imagine a bright future for planet earth continually underestimate the resourcefulness of people who are free to think and do for themselves.

There is much criticism today of the food industry. I’m not going to argue that the industry has not made mistakes, but one thing that they have done which is conveniently ignored by their attackers is eradicate naturally occurring hunger. Unfortunately there are still hungry people in the world, but today unlike the 1970s, it is not because of a lack of food. Politics and war are the causes of hunger in the world today. We no longer hear about famines in Africa causing starvation. That is rarely brought up by anyone who warns of the “dangers” of GMOs, while gladly serving you some organic seedless watermelon.

How have we avoided the disasters forecast by Ehrlich and his fellow doomsayers? We have done it by the market innovations of capitalism. Thanos and those who think like him just don’t understand that innovation can lead to more food being grown in less space. They don’t get that mistakes, like unintended side effects, can also be solved by further innovation.

Thanos himself doesn’t even realize that the same capitalism guarantees us that the question is not whether all those people Thanos killed are really dead, but rather, how Marvel is going to bring them all back and how Thanos ultimately gets defeated. I don’t know about you, but I can’t wait to find out.

Warm regards,

Chuck Osborne, CFA

~Sustainability

Last week we had the tragic engine explosion on the Southwest Airlines flight 1380. Now there are pictures of many passengers not wearing their oxygen masks correctly. Not to diminish the gravity of the situation, but a large portion of the passengers seemed to be unaware that human beings breathe through their noses.

As The Wall Street Journal so eloquently pointed out, the airline industry has spent enormous resources on researching safety procedures yet they cannot fix one huge problem: getting passengers to do as they are told.

Why can’t we follow simple instructions? This extremely human trait starts young. Trust me, I coach youth sports. Many kids struggle with directions as simple as, “we are going that way.” We have a friend whose business is designing home entertainment systems. Clients often call him with problems, and he refers to many of these problems as RTFM issues – which is an acronym for Read The [blanking] Manual. Just follow the instructions! But, surely there is something wrong? There must be a better way, right?

My wife is like most women of her generation, in that she is overly concerned with what she eats and constantly searching for the next most nutritious food. If I just add this seed…or, look I can use applesauce instead of oil and it will taste the same (if you don’t possess taste buds). Many years back she and her friends were discussing this diet and that with a friend of ours who is a doctor. He finally turned to them and said, “Just eat healthy and exercise.” Simple instructions, why can’t we follow them?

Nowhere is this as true as it is in my business. Investment success just isn’t that complicated. Follow the simple instructions: Know what you own and why you own it. Make prudent, long-term decisions. Live on less than you make. Plan for your future by living for today and learning from yesterday. Simple instructions.

I’m not a flight attendant, but I know to pull on the tube and oxygen will start flowing. Use the straps to tighten the mask over your nose and mouth. Place your own mask on before assisting others. Simple instructions. How much easier would all of our lives be if we just followed our friend’s advice and RTFM.

Warm Regards,

Chuck Osborne, CFA
Managing Director, Iron Capital

~It’s the Simple Things in Life

Perspective (noun) 2b : The capacity to view things in their true relations or relative importance.  – Merriam-Webster

If there is anything we are missing in our world today, it is perspective. As we close out March Madness aka the NCAA Men’s Basketball Tournament, we have seen it at full force. The number one team in the nation and overall number one seed in the tournament, the Virginia Cavaliers, fell to lowly University of Maryland Baltimore County, a team that made it into the tournament by barely winning their conference title on a last-second shot, and the last 16 seed, which supposedly means the NCAA considered them the worst team in the tournament. For all of the “greatest upsets ever,” that one may truly be it.

However, we may be numb to it all. We are awash in hyperbole. We hear the words “greatest ever” all the time. We hear “the worst ever” all the time. Recently I saw an article about a financial adviser in California who got in trouble because he posted on his social media outlets that Donald Trump is “the Devil.” Everyone is certainly entitled to an opinion, but as the late Pat Moynihan was fond of saying, “You’re not entitled to your own facts.” I’m not going to tell anyone that they have to like the man, but the Devil?

This is our nature. This election will be the most important ever. This crisis is the worst crisis ever. This restaurant is the best ever. To all of it I have one response, “Really?”

Adding perspective is a large part of our job at Iron Capital. We are often asked to add our perspective to issues not directly related to investing. Other times we are asked our perspective on a specific investment opportunity. To that end, we are introducing a new communication channel. Welcome to our blog, appropriately titled “Perspective.”

So, what is perspective and where does it come from? Merriam-Webster defines it several ways, most fittingly as, “the capacity to view things in their true relations or relative importance.” I believe it comes from a healthy dose of skepticism and, of course, experience.

Skepticism is an underrated quality now a days. One would think that with increasingly more evidence coming out that everything we see on Facebook is staged and/or planted by Russians, we would become more questioning. This is not happening. As Annie Duke points out in her book, Thinking in Bets, we think we create beliefs by hearing things, reasoning what we hear, and deciding whether or not to believe it. That is not actually how we do it. It turns out that we hear, then we believe, and then if we have time some time later we think about what we believe and decide if it is actually true. At that moment we selectively pick and choose facts that support what we already believe.

In other words, we lack skepticism. We need to question what we hear, and we learn this from experience. My wife and I honeymooned in Scotland. Sometime during the planning of our wedding when we were talking about the honeymoon, she mentioned that she had always dreamed of going to Scotland and staying in a castle. Later she asked me which beach destination we were headed to for our honeymoon (after all if one is romantic then he takes his bride to some exotic beach, right?), to which I replied, “We’re going to Scotland.” We did compromise, I left my golf clubs at home and she never got to stay in an actual castle.

We did venture through a few pubs in Edinburgh and one had a plaque on the wall that read: “Good judgment comes from experience. Experience comes from poor judgment.”

Hopefully, our natural skepticism and our experience will collaborate to offer some compelling perspective. We’ll find out together.

Warm Regards,

Chuck Osborne, CFA
Managing Director

~Welcome to “Perspective”