Who Can We Trust, A Better Crystal Ball, Growth Investing

November 6 2020

“The main thing is to keep the main thing the main thing.”

- Steven Covey

“Don’t be the best. Be the only.”

- Jerry Garcia

"Do not seek to follow in the footsteps of the wise; seek what they sought"

- Matsuo Bashō


A. Who Can We Trust?

Two of the most interesting people I follow are Joe Rogan and Glenn Greenwald.

Most people know Joe Rogan, but Glenn Greenwald is not a household name.

Glenn is an American journalist, author, and former attorney.

In 2013, he published a series of reports detailing previously unknown information about American and British global surveillance programs based on classified documents provided by Edward Snowden. Along with other reporters, Greenwald won both a George Polk Award and a Pulitzer Prize for the reporting.

He also wrote the great book - No Place To Hide, amongst 3 other books.

Joe and Glenn discussed a wide range of issues: media censorship in general & on Biden, free speech erosions, surveillance & privacy, the Snowden story, the injustice of his exile and Assange's prosecution, why journalists don't care more, also lots of in-depth examination of Brazil, Bolsonaro and the role played by CIA and UK in its dark history.

I believe one of the problems leading to a divided world is that we all live in filter bubbles. This is not just because of Facebook. It’s a function of how we get our news, our own biases and the biases of those giving us information.

The media has a huge role to play in what we perceive as our reality, and in the last twenty years we have witnessed first hand the weaponising of mainstream media.

We live in a world where the media & press has a number of other incentives apart from the central goal of finding and sharing the truth.

This has led to a huge loss of trust in the Press .

You can see that our society is much less trusting today than twenty or thirty years ago. As trust disappears, society fractures.

What is the media’s incentive today? Who is benefiting from this and what are we made to think?

Highly recommend the entire 3 hour podcast, but if you just have 5 mins then watch this:


B. A Better Crystal Ball

Prof. Phil Tetlock and Peter Scoblic wrote a fantastic article for The Foreign Affairs Magazine titled - A Better Crystal Ball: The Right Way to Think About the Future.

The article tries to help policy makers (and you & me) make better decisions about the future and can be useful to anyone of us running a business or managing capital.

Decision makers have historically followed two schools of thought when it came to decision making - Scenario Planning and Probabilistic Forecasting.

Scenario planners maintain that there are so many possible futures that one can imagine them only in terms of plausibility, not probability. Scenarios are not supposed to be predictive. They are meant to be provocative, challenging planners’ assumptions, shaking up their mental models of how the world works, and giving them the cognitive flexibility to better sense, shape, and adapt to the emerging future.

By contrast, forecasters believe it is possible to calculate the odds of possible outcomes, thereby transforming amorphous uncertainty into quantifiable risk.

Phil Tetlock is best known for his book Superforecasting.

The core thesis of Superforecasting is that we need to think about the future probabilistically.

To think more probabilistically one must be less like a “hedgehog” or an expert in a narrow area. Some one who knows one thing very well.

Instead Tetlock’s research showed that to be better at forecasting you were better off putting together a lot of “foxes” - people with greater curiosity and open-mindedness. People who know a little about many things.

Tetlock discovered that the key to more accurate geopolitical forecasting was to take people who were naturally numerate and open-minded, train them to think probabilistically and avoid common biases, and then group them so they could leverage the “wisdom of the crowd.”

How can we link these different approaches to anticipating the future?

Quoting from the article:

The answer lies in developing clusters of questions that give early, forecastable indications of which envisioned future is likely to emerge, thus allowing policymakers to place smarter bets sooner. Instead of evaluating the likelihood of a long-term scenario as a whole, question clusters allow analysts to break down potential futures into a series of clear and forecastable signposts that are observable in the short run.

Questions should be chosen not only for their individual diagnostic value but also for their diversity as a set, so that each cluster provides the greatest amount of information about which imagined future is emerging—or which elements of which envisioned futures are emerging.

As a result, the seductiveness of a particular narrative will not tempt decision-makers into mistaking plausibility for probability.

This method resembles the U.S. defense and intelligence community’s use of indications and warnings.

This is an important point because often, we go into markets and business with our own bias about what is happening and why, and don’t keep re-evaluating based on new data. Given the reflex nature of markets, it’s particularly important to re-imagine the potential outcomes.

In the early 1960s, for example, the National Intelligence Council developed a list of actions—large troop maneuvers, for instance—that might precede an attack by the Sino-Soviet bloc.

Quoting from the article:

The idea was that tactical changes might provide an early warning of future strategic shifts. Indications and warnings have come to play an important role in many national security scenarios. Unfortunately, there are potential problems with scouring today’s environment for hints of tomorrow.

For one thing, as psychological research shows, having envisioned a particular scenario, humans are not only inclined to consider it more likely; they are also more prone to see evidence of its emergence—a form of confirmation bias that U.S. intelligence has battled for decades.

For another, analysts are not particularly good at discerning in real time which events matter—which signposts are actually indicative of a particular future. Developments initially considered to be earthshattering may turn out to be significantly less important, whereas a story buried well beneath the day’s headlines can end up changing the course of history. In a statistical analysis of nearly two million State Department cables sent in the 1970s, for instance, one recent study demonstrated that U.S. diplomats were often bad at estimating the historical importance of contemporaneous events. 

How can we prevent ourselves falling for Confirmation Bias and Narrative Fallacy when making decision.

Linking scenarios to clusters of forecasting questions mitigates these problems.

What does this mean in practice?

First, because the questions must be precise enough to pass the clairvoyance test, there is no wiggle room about what constitutes, say, large troop maneuvers.

Second, because questions that disprove hypotheses often yield the greatest information, selecting questions for their diagnostic value decreases forecasters’ susceptibility to confirmation bias.

Third, much as diversified stock portfolios spread risk through multiple, uncorrelated investments, the diversity of question clusters prevents forecasters from overweighting a potentially unimportant signpost and mistakenly concluding that a particular scenario is coming to pass.

Finally, and most important, because question clusters yield forecasts, one can attach meaningful probabilities to the likelihood that particular events will occur in the future.

This provides a sort of advance early warning system.

Bringing this to today, each of us and the market have expectations and predictions about the future. What we believe will happen based on what we know.

It’s important to firstly think in scenarios and probabilities. Nothing is certain. As Mark Twain supposedly said:

It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.

Then in Bayesian fashion, continue to re-evaluate those scenarios and probabilities. Search for the broadest indicators. Be the fox, not the hedgehog.

Keep narratives out of it, don’t look for explanations for what is happening. This will just take you down one line of thinking and exclude other scenarios and explanations.

Ask diverse, but specific questions and always look for disconfirming evidence to your current world view.

Related to predicting and planning for our future, at 5pm UK today (November 5th) I’m interviewing Marko Papic (Chief Strategist at Clocktower Group and previously at BCA) on behalf of Pi Capital.

Marko is one of the best geopolitical analysts I follow and he does a great job of linking politics to markets (which is all that matters to me).

We covered some of his views and brand new book a few weeks back.

If you want to listen in, shoot me an email.


C. A Few Things Worth Checking Out:

1. Invest Like the Best Podcast: Anu Hariharan – Lessons in Growth Investing.

2. Grant’s Current Yield Podcast: ESG 101

3. Sam Harris on his Making Sense podcast discussing - THE KEY TO TRUMP’S APPEAL. (Thank you Andrew Wynn)

4. Sequoia’s YouTube ThesisSequoia Capital is widely regarded as the best venture capital firm in Silicon Valley. They were early investors in Apple, Google, Oracle, PayPal, Stripe, YouTube, Instagram, Yahoo! and WhatsApp. This memo from 2005 shows how they think about an investment. If you're still curious and want to learn about the firm, I recommend this podcast about Sequioa's history.

5. Solitude and LeadershipThis speech is fantastic. It's about why leaders need to spend time alone, even though most people think of solitude as the antithesis of leadership. It was delivered by William Deresiewicz at West Point. It's as spiritual as it is insightful.