About Bob Seawright

Robert P. Seawright is the Chief Investment & Information Officer for Madison Avenue Securities, a boutique broker-dealer and investment advisory firm headquartered in San Diego, California.

Myopinion

with-stupidNoah Smith (@Noahpinion on Twitter) made an interesting assertion yesterday about the purpose of argument. Smith began by noting Boston University economist Laurence Kotlikoff’s op-ed in Forbes in which he acts as a concern troll toward New York Times columnist (and noted economist himself) Paul Krugman because Krugman allegedly called Congressman Paul Ryan stupid. To be clear, Krugman’s primary point was not that Ryan is stupid, but that he is crooked, especially as it pertains to his budget proposals. Smith uses this context for looking at arguments in general, and he makes an excellent point.

[A]s a society, we use arguments the wrong way. We tend to treat arguments like debate competitions — two people argue in front of a crowd, and whoever wins gets the love and adoration of the crowd, and whoever loses goes home defeated and shamed. I guess that’s better than seeing arguments as threats of physical violence, but I still prefer the idea of arguing as a way to learn, to bounce ideas off of other people. Proving you’re smart is a pointless endeavor (unless you’re looking for a job), and is an example of what Stanford University psychologist Carol Dweck calls a “fixed mindset.” As the band Sparks once sang, “Everybody’s stupid — that’s for sure” [even though nobody wants to be called stupid]. What matters is going in the right direction — becoming less stupid, little by little.

But I think Smith’s ideal isn’t all that practical. To begin with, as Megan McArdle emphasizes, by calling one who disagrees with you stupid (even implicitly) “you have guaranteed that no one who disagrees with you will hear a word that you are saying.” Thus “calling people stupid is simply a performance for the fellow travelers in your audience” as well as a means of asserting superiority.

My sense is that the key element to this discussion is that most partisans see “their side” as not just true, but obviously true. It’s a by-product of bias blindness, or selective perception.  We tend to see bias in others but not in ourselves. Therefore, our strongly held positions aren’t really debatable — they’re objectively and obviously true. After all, if we didn’t think our positions were true, we wouldn’t hold them. And (our thinking goes) since they are objectively true, anyone who makes the effort to try should be able to ascertain that truth. Our opponents are thus without excuse.  Continue reading

Robin Williams: In Memoriam

williams-coverThe great comedian and actor Robin Williams was found dead on Monday afternoon of an apparent suicide. The loss is an enormous one. The tributes have been many and appropriately so. I’d like mine to be relevant to the usual objects of discussion here. I trust you’ll not find it forced.

In the film Dead Poets Society, Williams brilliantly plays John Keating, an unorthodox teacher who rejects the strictures of the elite Welton Academy and implores his students to search for meaning in their lives. In a crucial scene, Williams tells his students that “we don’t read and write poetry because it’s cute, we read and write poetry because we are members of the human race.” He goes on to quote Walt Whitman’s “O Me! O Life!,” a poem that ends by speaking directly to its readers: “the powerful play goes on and you may contribute a verse.” Williams repeats that great line again and then turns to his students to ask the telling question: “What will your verse be?”

But this powerful climax matters more when considered in context with what happens just prior. Take a look.

Continue reading

Trouble in Paradise

troubleIt’s a problem that is now — finally — discussed and sometimes dealt with. Increasingly, investors of various type are questioning high-cost, high-risk strategies (often purveyed by hedge funds) because they have performed so poorly. Indeed, hedge funds as a class have performed much worse even than U.S. Treasury bills. As a consequence, few can expect to achieve success in that market, as I have argued repeatedly (see here, here, here and here, for example). Calpers, the public pension giant here in California, is a leader in this trend that is demanding accountability, putting new investment proposals on hold while weighing whether to exit or substantially reduce bets on commodities, actively managed company stocks and hedge funds.

The general problem is well illustrated right here in San Diego and outlined in a terrific column in the San Diego Union-Tribune yesterday by Dan McSwain. Many cities have a pension crisis. San Diego’s is particularly bad, as outlined definitively by the great Roger Lowenstein in While America Aged. McSwain’s piece does an excellent job of examining how the City is responding to the problem in terms of investment management and contrasting the City’s efforts with what the County of San Diego is doing with its pension dollars.  Continue reading

“So you’re telling me there’s a chance”

As I pointed out in my previous post, we can only advance scientifically indirectly — via falsification — rather than by confirmation. Correlation does not imply causation. And that rankles us. We want certainty.

But, to be clear, some things are so well supported that we can assume them to be true even while acknowledging that falsification remains possible, as the clip below so humorously illustrates.

Part of the problem is that we are so bad at math and at probability. Another part is that we misunderstand what theory means in science and, as in the video, overstate the amount of hope our discredited ideas truly justify.

Proof Negative

DisconfirmationI have regularly argued that in investing, as in most things in life, disconfirmation is more valuable than confirmation (see here, for example). In other words, we learn more from what doesn’t work than from what does. That’s largely because induction is the way science advances.

We want deductive proof, but have to settle for induction. That’s because science never fully proves anything. It analyzes the available data and, when the force of the data is strong enough, it makes tentative conclusions. But these conclusions are always subject to modification or even outright rejection based upon further evidence gathering. The great value of data is not so much that it points toward the correct conclusion (even though it does), but that it allows us the ability to show that some things are conclusively wrong.

In other words, confirming evidence adds to the inductive case but doesn’t prove anything conclusively. Correlation is not causation and all that. Thus disconfirming evidence is immensely (and far more) valuable. It allows us conclusively to eliminate some ideas, approaches or hypotheses. Continue reading

Happy Blogiversary to Me!

HappyBlogiversaryI have been writing Above the Market for three years as of today: August 1, 2014. I began and still write largely to clarify my own thinking and to force and enforce commitment on my part. Actual readers are a lovely bonus I didn’t expect when I started. Nearly 900 posts and now, well over half a million readers later, I remain astonished at the level of interest Above the Market has received — it is far beyond what I thought possible, much less likely. According to analytics powered by BrightScope, ATM is the #7 advisor blog in terms of readership and influence. Who’d-a-thunk-it? I appreciate each and every reader. Anyone who writes wants to be read most of all.

As always, a few people deserve special mention and thanks.

Tom Brakke (his terrific blog is The Research Puzzle) generously offered outstanding help and guidance before I even had any readers to speak of and continues to offer wise counsel whenever I ask. Tadas Viskanta provided my first distribution (exactly one month in) to the expert community he serves via his blog, Abnormal Returns, which remains the standard for its type. Joe Calhoun upped my exposure tremendously via Real Clear Markets. I am grateful and humbled to be featured often at both of those excellent sites.

According to Investment News, Above the Market is a blog “for all financial advisers to follow.” Thank you, Michael Kitces, for saying so. Financial Planning, the CFA Institute, Financial Social Media, Inomics, Insider Monkey and even The Irish Times have honored Above the Market as among the best of its type anywhere. Wade Pfau has been a great help too (be sure to read his blog and his site if you don’t already). Thanks also to some of the “big boys” (of both sexes) for help and encouragement or for simply liking or linking my work (Jason Zweig, Cullen Roche, Carl Richards, Christine Benz and Barry Ritholtz, among others). Special thanks too to my firm for encouraging this endeavor.

My “top ten” posts this year, based upon reader numbers, follow in order of popularity. I hope you will give them a look (or another look).

  1. Investing Successfully is Really Hard
  2. A Short Introduction to Investing (in 400 words)
  3. The Tragedy of Errors
  4. Something Wicked This Way Comes
  5. Missed It By *This* Much
  6. We Are Less Than Rational
  7. Five Stinkin’ Feet
  8. Get Real
  9. Active Management Required
  10. The Culture of Charade

My all-time “top ten” posts, again based upon reader numbers, follow in order or popularity. I hope you’ll check them out (or check them out again).

  1. Investors’ 10 Most Common Behavioral Biases
  2. Financial Advice: A Top Ten List
  3. Establishing Your Top 10 Investment Default Settings
  4. My Investing Checklist
  5. Math Suckage and Dave Ramsey
  6. Top Ten Ways to Deal with Behavioral Biases
  7. Investing Successfully is Really Hard
  8. Saving Investors From Themselves
  9. We Suck at Probabilities
  10. Is the Yale Model Past It?

Finally, I’d like to focus on the following “not top ten” posts that didn’t get nearly as much attention — sometimes because they appeared before I had many readers — but which I think are worth reading. I encourage you to check them out.

  1. Beguiled By Narrative
  2. Financial Products are Sold, Not Bought
  3. It’s Not You, It’s Me
  4. Just Put the Ball in Play
  5. Gaming the System
  6. The Semmelweis Reflex
  7. Bias Blindness and Political Polarization
  8. Demand for Hitmen and Yield
  9. Luck, Skill and Jim Harbaugh
  10. Librarius Booker, Confabulation and Choice Blindness

To everyone who has read, supported and helped me with this effort: Thank You! I hope three years leads to many more.