Hi Guys,
Collecting information is crucial to successful investing. Most of us get a major part of that information from our readings. Those readings are usually not of equal value. Some writers carefully select data sets, especially timeframes, to boost their arguments. Others are politically biased. Still others honestly misinterpret the data analyzed. Some are simply selling. Many pitfalls exist so as usual buyer beware is not a bad practice.
Here is a Link to an article that features a cautionary warning about articles and article headlines that misinform:
http://awealthofcommonsense.com/2017/01/how-to-read-financial-news-headlines/The Wealth of Common Sense article is based on insights developed by another writer in an earlier article. That article is also a worthwhile read. Here is a Link to it:
https://blogs.cfainstitute.org/investor/2016/08/09/how-to-read-financial-news-tips-from-portfolio-managers/This piece provided 3 relevant questions that defined the direction the articles would take. The three questions were as follows: "(1) Is the article based on data or opinion?, (2) Is it descriptive of past conditions or predictive of the future?, and (3) Does the article have a testable hypothesis?"
I am always alert for the distinction between a data based presentation and an opinion. I always go with the data. I am also always alert to articles that are politically inspired. Money doesn't care about the politics. That rule is occasionally violated on MFO submittals.
Best Regards.
Comments
When I posted initially I submitted the Link in great haste. I was anxious to get to the Presidential Inauguration TV coverage. In my haste I neglected to include one of the most famous quotes that address mistakes in general. I'll correct that omission now.
From Mark 'Twain: " 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."
But we often don't know what we don't know. As Laurence Peter observed: " A man doesn't know what he knows until he knows what he doesn't know." That bit of convoluted wisdom is from the guy who postulated the Peter Principle.
You remember that, according to Peter, a man rises to a position of incompetency. Mr. Peter generated dozens of insightful, sarcastic quotes. He's a great resource. Unfortunately, he passed away a number of years ago.
I feel much better now. My posts seem incomplete without a pertinent quote or two.
Best Wishes.
Good article. Very true, indeed. Frankly I rarely pay serious attention to much of the official financial news media anyway for just these reasons (and more).
Zweig's "Wall Street Devils Dictionary" from last year is an excellent read along these lines, too. Highly recommended and can be read in an evening.
If you look at the backgrounds of successful financial managers (including mutual fund managers) you'll find a good many come from seemingly non-related fields like medicine, engineering or law. That's because the ability to read and think critically isn't confined to any one area of endeavor.
How do we obtain those skills? They are learned through experience and practice. Where do we receive experience and practice in critical thinking? Lots of places of course. But I'll submit that the value of a formal education (especially post-high school) is greatly under-appreciated by a large segment of our population.
Is that a reference to one of George Orwell's novels?
Thanks for participating in this discussion with your special insights. They added much perspective to this exchange.
After posting, I gave the topic some further thought. I became a bit more alarmed given my skeptical perception of many published columns. These columns are written by folks with an agenda, and hence biases are a potential integral part of the material selected in the presentation. Many times this selected material takes a more sinister form. It is paltering.
Paltering is using Truthful Facts to Deceive.
I have been familiar with this technique for a number of years, but I recently read an article that provided the specific definition that I quoted above. Here is a Link to that article:
https://hbr.org/2016/10/theres-a-word-for-using-truthful-facts-to-deceive-paltering
I suspect we're all guilty of using this unbalanced selective technique when defining and defending our case. This is just another reason why we should be hugely skeptical whenever reading any source on a subject of interest. There's plenty of noise that makes decision making more difficult.
Best Wishes.
If you want a clearer Harvard writeup of palter, see Deceiving with the Truth
The paragraph in the HBR article describing Kaine's comment about releasing tax returns is IMHO not an example of paltering. Rather, it is an example of the writer's using "look at the squirrel" (aka irrelevancy) to try to make the author's (not Kaine's) point.
Trump said that he could not release his taxes because he was under audit, not because he was under audit and campaigning. Kaine responded with a counterexample precisely on point as to what Trump had falsely claimed. The counterexample was Nixon releasing taxes while under audit. That Nixon did this post-election is an irrelevant fact that does not affect the answer to the question: can tax returns be released while under audit?
Had Trump said, oh, by the way, I can't release my taxes because I'm campaigning, he would have been laughed off the stage (or at least one hopes so).
Besides, Conway announced that Trump won't release his taxes even after audit. With 20/20 hindsight, was Kaine paltering or prescient?
As much as I hate to cite Cliff Notes, I thought their depiction of one Orwellian character best illustrates the conduct of KAC on Sunday's Meet the Press. Kudos to Chuck Todd for standing up to her.
https://www.cliffsnotes.com/literature/a/animal-farm/character-analysis/squealer
Squealer (is) a clever pig who (as the animals say) "could turn black into white." Throughout the novel, he serves as Napoleon's mouthpiece and Minister of Propaganda." ... His physical "skipping from side to side" during such explanations parallels his "skipping" words, which are never direct and always skirt the obvious truth of the matter at hand. As the novel proceeds, he excuses Napoleon's tyranny and sullies Snowball's reputation, just as Napoleon desires. The most outrageous demonstration of his "skipping" is when he convinces the animals that Boxer was taken to a veterinary hospital instead of the knacker's.
Cliff Notes Analysis: George Orwell's Animal Farm
Wikipedia has a good analysis of "Squealer" as well. But I couldn't provide a workable link. Seek and ye shall find.
I haven't thought much about Animal Farm since it was assigned as reading material way, way back in my High School days. I sure don't recall much about the story or its main animal characters. I do remember that the storyline allegorically represented the 1917 Russian revolution that ended in Communism and Stalin's dictatorship.
That certainly doesn't in any way represent the manner in which the Trump presidency will probably govern. He will likely advocate not simple Capitalism, but a Supercapitalism. According to a very recent Barron's article, he is likely to administer more in the spirit of an Ayn Rand capitalism. Here is a Link to that article:
http://www.barrons.com/articles/will-trumps-ayn-rand-capitalism-work-1484931305
Enjoy! I have no idea if Trump's programs will succeed or fail. They will be aggressive. Time is needed before an evaluation is possible. I,wish us all luck.
Best Wishes.
Rand, a laughable writer and thinker. For "misunderstood" teenagers. Herself profoundly misrepresents both capitalism or altruism.
Which books starts off w/ a rape? (In her own dreams.)
I can't recall who said "Anyone who thinks altruism doesn't exist will believe anything."
Check
http://www.pbs.org/newshour/making-sense/column-this-is-what-happens-when-you-take-ayn-rand-seriously/
And note the Sears example proof.
Thanks for the heads up on the needed "farm" correction. I made it in my post.
Best Wishes.
Animal Farm is an allegory. As such it's timeless and may appropriately be applied to other human conditions. In a respect, it's a lot like Miller's The Crucible, for which it would be a mistake to assign relevance only to Joe McCarthy's anti-Communist hearings of the 1950s. Some will also find Orwell's central paradoxes in 1984 of relevance today: "War is Peace", "Freedom is Slavery", "Ignorance is Strength". These (obviously contradictory) phrases comprise the slogan of Oceania's ruling party, serving to rouse the populace behind the party's programs and to assure that it remains in power.
While I found MJG's linked checklist on how to read financial headlines simplistic (and probably unworkable in practice), I believe a good well rounded education, one which includes the study of great literature, to be highly beneficial in sharpening critical thinking skills. Those skills are at the heart of the checklist MJG linked - but are applicable to so much more than reading news headlines.
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@MJG: It appears from your last post you are engaging in a typical diversionary stunt to shift the emphasis of what Mark first observed (and I reinforced) away from our observations about skillful (albeit deceitful) use of language to an argument over Donald Trump and his programs. I for one won't take your bait - and I suggest others not as well. Why must any criticism of a particular statement/action by any member of his team need to be somehow turned into a heated "Us against Them" brawl? Your initial post deals with thinking about what we read and hear in the media. I broadened that out a bit to incorporate "critical thinking skills" into our assessment of all print/spoken word. I suggest we remain on focus.
PS - Those wishing to watch the Conway interview by Chuck Todd last Sunday will find it on utube.
You misstate my position on this matter by a huge margin. I'm puzzled by how you found my checklist "simplistic". It doesn't exist.
I never wrote about my checklist on this matter. I do not have a reading checklist! Checklists are useful in some applications, but I was never motivated to generate one for reading or selecting reading material.
I titled my submittal as such because that was the title of the article I initially referenced. I rarely recommend or comment on anything to MFO without reading it in its entirety.
Recall in my original post I said: "Here is a Link to an article that features a cautionary warning about articles and article headlines that misinform". Often a title itself misinforms a perspective reader about the content in the text.
I certainly agree that a well rounded education is "highly beneficial in sharpening critical thinking skills". Continuous learning however accomplished, when augmented by experience, by keeping an open inquisitive mind, and by exposure to the diverse thinking of experts on a subject, increase the odds of successful decision making.
This is confirmed by Phil Tetlock's extensive studies on developing forecasting skills. The more you know, the higher the probability of a good decision. Simply reading headlines will never cut the mustard.
Best Wishes.
Three Questions to Ask
Is the article based on data or opinion?
Is it descriptive of past conditions or predictive of the future?
Does the article have a testable hypothesis?
Best Practices
Understand the Consensus
Seek Disagreement
Question the Narrative
Respect the Data
Avoid Partisan Interpretation
Pardon me Sir! But these concepts, while noble, belong in a high school textbook on rhetoric, argumentation or problem solving. If you see one there that doesn't involve basic critical thinking skills, kindly point it out. We can quibble over whether or not the list constitutes a checklist. I coined the term euphemistically to highlight that I thought the concepts pretty basic - something any wise consumer of media would do.
I'll readily admit (perhaps in agreement with you?) that the average American reader is too quick to seize on information presented in the media without applying to it the due diligence that this list entails. A sad situation for sure. Thanks to MJG and others for resisting the temptation to turn this into a partisan political debate. We've all seen where those go.
Regards
Thank you for your prompt reply. I believe we are close to 100% agreement on this subject. From my perspective, this matter is closed. Then again, I'm often overly optimistic!
I also agree that political debates are a waste of time on a forum such as MFO. In fact they're a waste of time on any forum.
Best Wishes.
Any debate is a waste of time if your mind is permanently closed.
I couldn't agree more. Fortunitely most folks are at least a little more flexible in their thinking. I suspect most follow the wisdom embedded in J.M. Keynes famous quote: "When the facts change, I change my mind. What do you do, sir?"
Of course, that's not always the case, and sometimes the resistance to change comes from an unlikely source. One such example comes from the debate over the Monte Hall problem.
You probably recall that in the Monte Hall problem, a guest is given the opportunity to trade his selected unknown gift which he chose from behind 3 closed doors. Monte Hall would open one of the remaining doors to reveal a near worthless gift. Should the guest player keep his unknown gift prize or trade it for the remaining uncertain gift?
The correct choice is to change. By doing so the odds of winning the major prize are increased from a 0.500 to a 0.667 likelihood.
The surprising fact is that many economists and mathematicians make the wrong decision using faulty logic. Some even maintained their wrong position after they were exposed to a formal mathematical proof. Almost all were finally persuaded after experimental data and/or Monte Carlo simulations were also presented. Changing minds can be arduous work.
From the Simon and Garfunkel song: " a man hears what he wants to hear, and disregards the rest". That's a losers game, especially when making investment decisions.
Best Wishes.
EDIT: in my original post, I neglected to mention the name of the Simon and Garfunkel song that I quoted. The saying is taken from " The Boxer". It is a terrific song. If you are so motivated, here is an address that will get you into the ballpark of a Link to it:
simon and garfunkel the boxer
Enjoy.
That's a low blow IMHO. MJG and I had ironed things out and you come along and pour kerosine on the embers. You are hereby assessed 15 yards for clipping.
Thanks for your courteous reply MJG. I do appreciate your original post. My point was really that those issues go well beyond reading financial news.
Regards
Not quite. The odds are increased from 1/3 (not 1/2) to 2/3. There are two choices (once one is eliminated). The odds of one of those two choices being the major prize must sum to 1, not 1.1666...
Here's your error: The initial selection has a 1/3 chance of being correct. Revealing a known wrong choice has no effect on that past selection. What information is gained is that instead of each of the other two options having a 1/3 chance of being correct, the odds have shifted between those two (leaving the contest's original choice unaffected). Since the odds of the two other choices sum to 2/3, and the odds of the one revealed have dropped to zero, the remaining choice's odds must now be 2/3.
Regards
Thank you for taking time to respond.
I agree that when making the initial door selection the odds of a successful pick is 1/3. However, the game is so constructed that the player has an optional choice after one door is exposed as beng a loser. At that juncture, the odds of a successful selection have been increased to one out of two doors. It is that 1/2 possible positive outcome that I stated.
The additional information that showed a losing door improved the odds since the player is allowed an option to change or stay with this updated information. The updated odds were what I quoted. That's also why I quoted Lord Keynes in my post. I'm sure a probability expert (definitely not me) can express it more properly, but as the sample space decreases by exposing a losing door, the odds of winning should increase as the sample space is reduced.
My 1/2 number is based on this reduced sample space. Sorry if I did not clearly make that point.
Best Wishes.
Let's try again. Contestant makes a selection. With absolute certainty, at least one of the other two options is wrong. Monte knows which option or options are wrong and shows one of them. Contestant has gained no extra information regarding the original choice.
Contrast that with the situation where Monte doesn't know. He opens one of the other choices. Now there is a real possibility (1 in 3 to be exact) that he shows the winning choice and blows the game. 2/3 of the time he doesn't. In those cases, contestant has gotten additional information, and the probabilities of each of the remaining choices being the winner increases to 1/2. In that situation, there is no benefit to changing selection.
Here it is in gory detail ...
In the permutations below, the first is door number 1, the second is door number 2, the third door number 3, and the contestant has picked door number 1. We'll call the winning choice W, and the losing choices L1 and L2.
There are six permutations:
1) W L1 L2
2) W L2 L1
3) L1 W L2
4) L1 L2 W
5) L2 W L1
6) L2 L1 W
In exactly two of these permutations, the contestant has picked W. If Monte knows where W is, he will show one of the Ls. He hasn't eliminated a single one of these permutations. Six permutations remain, where the contestant picked the winner in (1) and (2). That is, the contestant won in 2 out of 6 possible permutations.
Monte has not eliminated any permutations, but he has eliminated one wrong option, regardless of the permutation. So he's left the contestant with the following possibilities:
1) W L (it doesn't matter which door he opened)
2) W L (likewise)
3) L1 W (he opens door 3)
4) L1 W (he opens door 2)
5) L2 W (he opens door 3)
6) L2 W (he opens door 2)
You can't magically move W from another door to door 1 by opening a losing door. The odds of the door selected by the contestant (door 1) being the winner remain 1/3. Not 1/2, even though there are only two doors remaining.
In contrast, suppose Monte has no idea where W is. Since the contestant has picked door #1, we'll say that Monte picks door #2. Now let's look at the possibilities:
1) W L1 (revealed) L2
2) W L2 (revealed) L1
3) L1 W (revealed) L2
4) L1 L2 (revealed) W
5) L2 W (revealed) L1
6) L2 L1 (revealed) W
Permutations 3 and 5 - Monte has revealed the winning door and the game is over. The odds of the contestant winning are zero.
So we're left with permutations 1,2,4, and 6. In half of those (1, 2) the contestant wins by staying put, in half (4, 6) the contestant wins by switching.
The facts have not changed, but perhaps you will change your mind anyway.
Your analysis doesn't motivate me to change my position. The game is conducted in two stages with information added in the second stage. That reduces the possible outcomes and changes the odds.
Your own analysis recognizes that fact. Near the end of your presentation you concluded that "Permutations 3 and 5 - Monte has revealed the winning door and the game is over. The odds of the contestant winning are zero." Monte's stage 2 action does impact the odds.
Of course Monte never selects the winning door to sustain the game suspense. And the player can either stay put or change. Only two possibilities are open to him at that juncture so he now has an updated perceived winning probability of 1/2. He gets an opportunity to pick again. From his perspective it's a fair coin toss. In reality, it's to his advantage to change according to the super smart folks like Marilyn vos Savant. Check this Link out:
http://marilynvossavant.com/game-show-problem/
Even the highest IQ person ever measured endured a ton of flack over her analysis of the Monte Hall problem.
Note that I'm quoting a perceived probability (from the player's perspective), and not the actual probability. That difference is what a gambler depends on when extracting money from a less knowledgeable victim.
Best Wishes.
See also https://en.wikipedia.org/wiki/Monty_Hall_problem
... nearly all people still think each of the two unopened doors has an equal probability and conclude that switching does not matter.... This "equal probability" assumption is a deeply rooted intuition .... People strongly tend to think probability is evenly distributed across as many unknowns as are present, whether it is or not ... Pigeons repeatedly exposed to the problem show that they rapidly learn always to switch.
Only if his actions are random. That was why I gave two sequences - one where he acts randomly and one where he does not. To compare and contrast. To see that Monte's selection can indeed affect the odds as people expect, but only when his actions are random.
As you note immediately after the quoted statement, his actions are not random: "Of course Monte never selects the winning door." What you quoted from me applied to the sequence where Monte selected randomly; wrong sequence to quote.
The crux of the matter: "Note that I'm quoting a perceived probability (from the player's perspective), and not the actual probability. "
You never identified your 1/2 as a (false) perception. You wrote: "At that juncture, the odds of a successful selection have been increased to one out of two doors." Not erroneously perceived to be one out of two, but actually one out of two.
Your original statement was that "By [switching doors] the odds of winning the major prize are increased from a 0.500 to a 0.667 likelihood." Were you talking perception or actual probability? Either way, you were wrong.
If it was people's perception you were were writing about, your whole point had been that people (wrongly) believe the odds of either door to be 50/50. Not the 50/67 you wrote.
If it was actual probability you had in mind, the chance of the initial door being correct was and is 1/3. Not the 1/2 that you wrote.
Or were you switching between perception and reality in mid sentence? A poor bit of legerdemain that I've now called out. Just as I did implicitly before, by stating that your probabilities summed to more than certainty (1).
"You can now take advantage of this additional information. Your choice of door A has a chance of 1 in 3 of being the winner. I have not changed that. But by eliminating door C, I have shown you that the probability that door B hides the prize is 2 in 3"
Same thing I said differently: "You can't magically move W from another door to door 1 by opening a losing door."