Friday, August 5, 2016

Elusive truth and a reason to follow prices and models

The truth is sometimes a poor competitor in the marketplace of ideas - complicated, unsatisfying, full of dilemmas, always vulnerable to misinterpretations and abuse.
-George Kennan

In a time of universal deceit, telling the truth is a revolutionary act.
-George Orwell

It is difficult to get a man to understand something when his salary depends upon his not understanding it.
-Upton Sinclair 

If you look for truth, you may find comfort in the end; if you look for comfort you will not get either comfort or truth, only .. wishful thinking to begin, and in the end, despair.
- C. S. Lewis 

Truth, you can't handle the truth!
- Col Jessep, "A Few Good Men"

An era can be said to end when its basic illusions are exhausted.
- Arthur Miller 

Listening to many politician, policy-makers, media talking heads, and market analysts, there seems to be a shortage of truth. We are not actually saying that there are lies being told although that does occur rather there is more a willingness to present explanations or stories with a bias or an agenda that may not try to present alternative causes or explanations. 

In a world where there are shades of reality, some only use one color. This is an avoidance of presenting the whole truth. The truth is messy and often does not present what an audience wants to hear. The truth is often nuanced with alternative explanations fitting the facts. Truth on a simple level is just stating facts, but even stating facts without context avoids the truth. Truth as explanation is much harder yet they should be our goal.

The search for truth can start with looking at prices. This is why the price is the best foundation for analysis. Prices do not lie. They may suspend with rationality, but at any time the price is willing to serve as a mechanism for allocation, as the level for transacting, and the aggregation of all weighted opinion good or bad, fully formed or not. You may not like the price. You may not agree with the price, but the price is where a market is willing to transact.

By extension, models which use price and other data in some form of weighing scheme is truthful. The truth is not in the fact that the model will be a good forecast, but in the reality that it tells us past relationships between data. Models are truthful in that it can tell us the amount that can be explained. In essence, it can often tell us that our ability to explain the past is often very limited. Our interpretation of the model is what may be less truthful. 

Prices and models based on data are close to current reality and truth. They do not have to be right, but they should be an unbiased representation of what we know. 

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