If I were being polite, I would not argue that we are in an age of lies by politicians,
businessmen, or leaders, but what The Economist has called a
"post-truth world". Stephen Colbert described the current environment
as one of different levels of "truthiness". At best, clarity by
leaders and spokespeople is in short supply. Most commentary is done for spin.
Even
central banks provide forward guidance to move expectations not just provide
factual information on policy views. Long commentary is used when short
declarative comments would suffice. Truth is often swept under the rug as
commentary is used to skew opinion and revise thinking not just provide information.
Truth is increasingly viewed as an impediment to getting a message across, and as
something that stands in the way of a greater good. For some, when the truth
makes people uncomfortable or adds to complexity, it is dispensed with like
clutter.
In a less
than truthful world, what is an investor to do? The answer is simple and the
basis for any quant or systematic investing. Follow the data. Of course,
generated data from government or business can be distorted or revised so the
best approach is to use market prices. Let prices tell you the level of
truthiness in the market. Let data that are not easily revised tell you where
the economy is going. Follow fund and capital flows, not commentary
flows.
Being
guided by prices does not mean an investor has to have a strict adherence to market
efficiency. The markets may get it wrong and may be subject to irrationality
but there is no spin and deciphering of honesty. Markets do tell investors that
at a particular point in time there is price where there will be exchange. Statistical
tools and modeling can be employed to find signals within noise without
resorting to digging for the truth. Noise can be smoothed. A lack of truth
cannot be smoothed.
No comments:
Post a Comment