Photo: Rawpixel. Source: Pixabay
Every day we take in petabytes of data. What the weather is, how we’re feeling, what the coffee tastes like. But we simply can’t process all the information. Even with built-in DNA computers and quantum computations, our brains can only handle so much. So we construct narratives to put the information into context – to give it meaning – and to help us remember the details.
The problem is, some of those stories are wrong. People look back at the 1950’s today as an industrial paradise, a time when American production and productivity led the world. Naturally, folks say, it had to be. Everyone was recovering from World War II. Europe was flat on its back. Of course the US was dominant. But it didn’t just happen. President Eisenhower was a superb manager – a master of bureaucracy and a shrewd judge of character – who always played a long game. He managed cold war conflict, labor conflict, and the military-industrial complex without seeming to break a sweat. He was far more than the genial grandfather he appeared to be. Americans were right to like Ike, more than they knew.
Campaign button from 1952. Source: Wikipedia
When we look at investments, companies and managers are bound to have stories behind them. But we have to be careful to make sure the story is an accurate representation of what really goes on. For years, Apple had the reputation of the nerd’s paradise – high-end, expensive computers that were more beautiful than functional. The business almost failed twice, until Steve Jobs introduced the iPhone. Now a new story has taken hold. Warren Buffett still enjoys his aw-shucks reputation as a plain-spoken everyman, despite his bizarre personal life and imperious management style.
If we don’t check our stories against the data – a company’s financial reports and products, a manager’s long-term track record – we can be taken for a ride. Future Enrons masquerade as AAA-rated Exxons, hiding their debt with derivatives. Only by digging, asking, and probing can we know the truth, the rest of the story.
Douglas R. Tengdin, CFA