It was a mid-December afternoon when the phone rang as we were wrapping up the year, signing Christmas cards, and planning the firm’s Christmas party. On the other side of the line was a voice telling me that he was with the Securities and Exchange Commission (SEC), and he and his staff would be paying us a visit that next week.
It is part of the job. We are regulated by the SEC, and they will periodically come to inspect our operation. I was not worried, but I was a little miffed, since an SEC exam does not exactly get one into the holiday spirit. From the SEC staff’s perspective, this was great – they were from the Atlanta office literally one block away from us. They could get in one more exam and still be home in time for Santa.
The exam went smoothly and was done in time for our firm party. During the standard wrap-up briefing they went over all their findings, and I will never forget the interaction about our website. They found no issues with it but reminded us that we are not allowed to make exaggerated claims. I jokingly said, “So I can’t claim to be the greatest investor who ever lived?” The agent laughed and said that’s right, “besides, I have already met him.” I thought he was joking, but he wasn’t – they had actually found an adviser who claimed on his website to be the best investor ever.
Years earlier, the head of sales for Invesco’s retirement division liked to say that he was often wrong but never in doubt. I would always respond that the investment team was seldom wrong but always in doubt. Overconfidence is a death knell to investors. It is one of the first life lessons anyone in this business learns. I didn’t need to meet “Mr. Greatest Investor Ever” to know that eventually his clients would regret they ever did.
Of course, overconfidence was not this gentleman’s only sin. Hyperbole: “Exaggerated statements or claims not meant to be taken literally,” according to the Oxford dictionary. Today we swim in an online ocean of hyperbole: People begging for attention, posting about their lives, and then anxiously waiting to see how many likes they get. Experience in the real world will teach you that humility is the better path, but humility doesn’t excite the algorithm. Hyperbole, on the other hand – that gets people’s attention.
As an investor, one needs to learn to sniff out hyperbole. Management is always putting the best foot forward, and a good analyst needs to be able to read through that when listening to earnings calls. However, hyperbole has become so prevalent today that many forget about not taking it literally; some people are not capable of discerning the difference between hyperbole and fact.
The only thing more common online than hyperbole is the ever-present “straw man.” When I was a young analyst, many investment teams would assign two analysts to work up a specific company. One analyst would build the case for investing while the other would build the case for selling. They would debate each other in the investment committee meeting, and the arguments had to be sound and strong. Sadly, this is not what happens in our divided world today. Today, the algorithm will find someone – anyone – making the claim it thinks you want to hear. That person will then tell you what the other side’s argument is, except what he really tells you is what is known as a straw man.
The best example I remember of the straw man was during the 2010 great debate over the Affordable Care Act (ACA). There were lots of good arguments against the ACA – cost, complexity, unintended consequences. However, ACA’s proponents did an amazing job of creating a straw man to beat them all: if one were against the ACA, it meant she didn’t want people to have health care. In my memory, this was the first time that people really started to believe that the “straw man” they had created was actually the real argument of the other side. This was the beginning of the other guys not just being wrong, but being evil; who could possibly want people to be denied health care? Any rational person would know that no such person exists, but not everyone who reads posts online is rational.
This brings us to the tragedy of Charlie Kirk. Last Sunday he was the subject of our adult Sunday School class. He wasn’t meant to be, but how could he not? We noticed something frightening about our world: the more liberal members of our group found nothing in their social media feeds but references to Kirk being evil and hateful, while the more conservative members of our group found nothing but references to him being the greatest citizen this country has ever seen. The algorithm constantly feeds what we want to hear.
What are good people to do about this? The biggest obstacles to investing success are the psychological traps: We overestimate risk; we believe that whatever is happening at the moment will keep happening; we are too quick to sell winners to lock in gains, and too slow to sell losers because we want to get back to even and not take a loss. I could go on and on. The most important thing for the professional investor to remember is that he is just as human as his clients and has all the same flaws. We can’t magically make them go away, but we can be aware of them and guard against them.
“Let your yes be yes and your no, no. For whatever is more than these comes from the evil one.” Matthew 5:37. We need to recognize that most of what we hear and read online is hyperbole, and while we can’t stop it, we can be aware of it and refuse to participate. We can also learn to recognize straw men, and again, stop participating. You and I might recognize that these are exaggerations not meant to be taken literally, but not everyone is as mentally well.
I have been writing about economic issues for a long time. I always kid that I must be doing a good job, because I get yelled at by both sides. The truth is that I mostly get positive feedback, and I get it from both sides. When we actually talk about policy and the real-world impacts, we discover that the online myth of a divided country is hyperbole. If we can just stop the hyperbole and burn down all the straw men, then we will find a much better world – a world in which we can once again debate solutions to our problems with substance. At the end of the day this is what Charlie Kirk tried to do, and the world would be a better place if we followed his example. At least that is my perspective.
Warm regards,
Chuck Osborne, CFA
