Supported by Greenhaven Road Capital, finding value off the beaten path.
This post is part of the TIL2017 Summary Series.
“Trust but verify,” – a Russian expression – is helpful and relevant with more accurate and accessible data. Data is a key to the right lock.
Feelings are not facts said Ray Dalio, Ken Burns, and Travis Sawchik. Each of them encourages us to move from the world we expect to the world that exists. Included in the basket of feelings are opinions, biases, inclinations, and ideas. We have to test that stuff.
One favored verification is out of sample tests. This test, said Cliff Asness, is “very calming.” Dalio suggests we find timeless and universal data.
We don’t tend to do that. Instead, we can get tripped up. Extrapolation is a common downfall in sports like the NFL. Blowout wins in college football, for example, is a poor predictor.
Other times we need to verify how much numbers really matter. Ben Sasse said that a 40:1 student to faculty relationship sounds a lot better than 300:1, but doesn’t matter. So long as there are “five nerds” doing all the talking, the experience for the rest of the students is mostly the same.
Numbers like 99% can be convincing too but upon further inspection may not be. Former football lineman John Urshell expressed doubts about how often brain damage occurs in football.
Other times we can see a complicated system. This is often just marketing said Wesley Gray.
Ideally, we get to control the data from the point of collection. Ben Falk said this is what happens with the Philadelphia 76ers. The team tracks three-point shots made in practice. The players have to prove themselves before they get the green light during a game.
Data control is what sent Esther Duflo into the field. She was concerned that too much foreign aid was assigned by demand and supply wallahs. “Wallah” is Indian for a person involved with a specific thing. Duflo et al. call politicians from both sides to the carpet. Why? They don’t verify their assumptions. Rather than parroting that supply/demand will fix X, run experiments to see what really happens.
When asked about what led him away from market cap weighting, John Montgomery gave Barry Ritholtz this answer, “research.” It’s a funny moment in the interview. Rather than pontificate Montgomery levels. In the same interview, Montgomery explained how he tracks his time. It’s laborious, he said, but it’s something he needs to do if he’s going to verify how he spends his time.
The Nike running team did this with Eliud Kipchoge. Rather than assume that marathon times were a good indicator, they measured oxygen, gait, and diet to verify that the runners were performing at their peak.
Layered on to all this is our biases. The The GMs talk about solving this problem and come up with some good ideas such as writing down your ideas and revisiting and blind voting.
Infinite verification is impossible but basic verification is not. A few calculations or internet searches can give us some idea whether to trust, or verify more.