A Winning Investment Concept: De-Emphasize Transparency
It is quite natural to value transparency. Understanding our world makes us more comfortable and confident.
Continuing my discussion of good ideas for 2010 that did not quite fit into my overview article, I want to introduce an idea that does not get much attention.
We all over-emphasize what is specific and known. This focus on the tangible effects of the past hampers our ability to identify good future opportunities.
I have a number of examples in mind, but a recent article by Joe Weisenthal provides an excellent starting point. In a perceptive analysis of Jim Grant's current economic views, Joe puts his finger on the key point:
What makes Grant refreshing is his unwillingness to say how the
recovery will work. Take, for example, the unemployment situation:
In a worrying climate of dying
professions, it’s hard to get a grip on what takes their place. “Though
we humans do our best,” he wrote, “we usually underestimate the
capacity of market economies to reinvent the nature of work.” How
exactly it will work this time, says Grant, we don’t know. We never
know until after the fact.
By contrast, Wells Fargo's John Silvia, in an interview with Bloomberg's Tom Keene (a great series, available by podcast), emphasizes that some of the old jobs are never coming back. We have seen structural changes that spell the permanent end of some manufacturing jobs. Silvia notes that the new jobs are not in the same locations, a special problem since the poor housing market limits mobility. Keene draws out some additional interesting points. Silvia refuses to agree that a service job is worse than a manufacturing job. He maintains that only a subset of the manufacturing jobs represented very high wages. He also points out that we export services in unusual ways — when foreign students enroll in a US university, for example.
Both of these sources provide interesting, accurate, and helpful information — well worth your time, but you will get more investment impact from Grant. Why? The unemployment rate and discouraged workers are "old news" and therefore reflected in the market. The Grant perspective is fresh and counter intuitive for most. It is more difficult to grasp, even though he provides a good historical basis.
The economy loses jobs in obvious, identifiable, and well-publicized clumps. It gains them in smaller less visible pieces.
The politicians need to prove (or disprove) how many jobs were created. They need to point to them and count. We are free to use more powerful methods and accept estimates instead of a roll call.
It is better to look into the murky future rather than fixate on the certainties of the past.
I will highlight more examples of this concept in coming weeks, but if you keep the idea in mind it will be a constant source of ideas.