“We live at the end of the information age.” – a bold statement – starkly at odds with the zeitgeist but apparently justified. The real value is not in information but in how we acquire and analyse it, in “Recognising that I may be wrong.”.
As the information age ends, knowledge is moving from being a closely guarded proprietary treasure of the elite to being a commodity. The speed of this change is accelerating – scribe to printing press, printing press to disk, disk to database, database to internet.
How many people in the developed world can access annual reports of listed companies? About everyone1. How many have the knowledge needed to interpret them? Maybe about a million2
How many professionals are able to effectively apply this knowledge? Recent estimates range from 1 to 14%3 (this isn’t news to any of us). How many retail investors? One estimate suggests c. 3% – with dead people scoring higher4.
Buffett made clear “Basically, when you get to my age, you’ll really measure your success in life by how many of the people you want to have love you actually do love you.”5 – this brings much tougher and more important questions.
How many people own Cialdini’s, Kahneman’s and Tetlock & Gardiner’s books? An estimate of one or two million seems reasonable6.
Of the people you know who can recount the contents of these books, how many can apply this knowledge to make a critical analysis of the decision making of others? Maybe a few – I invite you to send me your estimates based on your own personal experience.
Now the key question: How many can effectively apply this knowledge to analyse and challenge their own thinking, gather and consider disconfirming evidence and apply rational decision making processes to the key decisions in their own lives? Again, I invite you to send me your estimates. From my statistically insignificant sample (which includes me): almost none.
There is a vast gulf between information and understanding. Information is increasingly widespread but the ability to develop deep understanding, the ability to effectively analyse and apply that information, is exceptionally rare and exceptionally valuable.
Are we to draw a dividing line between two classes of mankind? To do so would be unthinkable. We shall do it. Tetlock & Gardiner identified c. 2%7 of a self-selected sample who possessed exceptional forecasting ability. The key determinants of this? The ability to challenge one’s own thinking, to consider a problem from multiple perspectives, to search for and understand disconfirming evidence.
This is not a surprise: “man muss immer umkehren”8, Bertrand Russell: “The fundamental cause of the trouble is that in the modern world the stupid are cocksure while the intelligent are full of doubt.”9, Tetlock & Gardiner “A peculiar type of humility”10, George Soros “Recognising that I may be wrong.”11, Charlie Munger: “One of the reasons Warren is successful is he’s brutal in appraising his own past. He wants to identify misthinkings and avoid them in the future.”12. As the information age ends, the brutal realisation is how few of us can do this.
1 Anyone with an internet connection on computer or smartphone, anyone who can get to a computer at a public library, anyone literate with a postal address
2 The Intelligent Investor “has sold over a million copies” (Amazon), Security Analysis “Selling more than
one million copies through five editions” (Amazon).
3 “99% of actively managed US equity funds underperform Almost all US, global and EM funds have failed to beat their benchmark since 2006” (Chris Newlands and Madison Marriage, FT 26 October 2016).
“A year-end study by S&P Dow Jones Indices found that “over the 10-year investment horizon, 82.14 percent of large-cap managers, 87.61 percent of mid cap managers, and 88.42 percent of small-cap managers failed to outperform (their index benchmarks) on a relative basis.”” (Jeff Brown, USNews 14 April 2016).
“86% of active equity funds underperform” (Madison Marriage, FT 20 March 2016).
“86% of investment managers stunk in 2014” (Matt Egan, CNN 12 March 2015)
4 Myles Udland, Business Insider 4 September 2014.
5 Address to students at Georgia Tech. Reproduced in Alice Schroeder The Snowball: Warren Buffett and the Business of Life – reported by Kathleen Elkins, Business Insider, 25 September 2015
6 Anyone with internet access and above the poverty line, or access to a public library has access to them. How many own them? Cialdini Influence “over 3 million” (Amazon), Kahneman Thinking Fast And Slow “International Bestseller” (front cover), Tetlock & Gardiner Superforecasting – The Art And Science of Prediction “A New York Times Bestseller” (publisher’s website).
7 Tetlock & Gardiner Superforecasting – The Art And Science of Prediction p94 “There were 58 others among the 2,800 volunteers.” (Penguin Random House 2015, ISBN 9781847947154)
8 Widely attributed to Carl Gustav Jacob Jacobi and quoted by Charlie Munger as “Invert, always invert.” – Harvard School Commencement Speech 13 June 1986 quoted on p157, Poor Charlie’s Almanack 3rd Edition
9 Bertrand Russell, The Triumph of Stupidity, Mortals and Others: Bertrand Russell’s American Essays, 1931-1935, v.2, p.28
10 Tetlock & Gardiner Superforecasting – The Art And Science of Prediction p227
11 George Soros Lecture Series: General Theory of Reflexivity Q&A 34:04, Open Society Foundation / Central European University
12 Becoming Warren Buffett 35:11, HBO