30 April 2021
The siren call of the pandemic has been “Let the Data Decide”. “I am a scientist, I let the data decide” is a comment that seems to command respect and awe, almost being used as a badge of ‘cleverness’. But let’s be honest – had we “let the data decide” throughout human history, we most likely would still be living in caves.
Christopher Columbus would have perhaps spent his life propping up the bars of Lisbon had he let the data decide, rather than sailing into the unknown. Charles Darwin’s theory of evolution would cease to exist had he waited for all of the data to be collected before publishing his timeless works. Darwin even hypothesized the existence of a moth that would have a proboscis 11 inches long, a prediction made from an orchid he discovered in Madagascar. Nothing of the sort had ever been discovered before and it was not until twenty-one years after his death that the moth was found. In 1903, it was classified as ‘Xanthopan morgani subspecies praedicta’ – The Predictor Moth. If Darwin had waited for complete data to prove evolution, we would probably still be waiting.
Great breakthroughs and progress have not been made by ‘letting the data decide’, but by interpreting the available data and making a judgement call based on the data’s quantity and quality. The vaccination rollouts in the UK and the EU have starkly contrasted by the need, or lack thereof, for the data to decide. Data is useless without interpretation and interpretation means judgement. Letting the data decide means there is no room for judgement. You will not get it wrong, but you are likely to be too late to reap the rewards.
Investment decision making, encouraged by the fear of failure, has fallen into the same well-intentioned trap of letting the data decide. The consequences are stratospheric valuations of megacap stocks driven by index funds that let the data decide. Putting most of your savings in what is already the world’s most successful company seems oxymoronic at best!! But everyone is doing it.
Letting the data decide and allowing machines to rule tends to feel safe. That is, until an unpredictable force comes out of the blue. As the cartoon alludes, by totally relying on data, we are trying to fit things into nice, neat boxes that, by their very nature, do not fit. Thus, relying totally on the data, as is becoming increasingly common, makes the process of surviving unpredictable events so much harder. Partly, of course, because we have given up making judgements and so lose the valuable experiences of getting things wrong.
At MVAM, it may come as no surprise, we prefer to use our judgement in full acknowledgement that we will get things wrong at times. Investment is about taking risk, which means using incomplete data to make a judgement, evaluating the potential upside compared with the risk of loss. You risk looking the fool but at least when the unpredictable happens, you have had the experience of making that judgement call to learn from in the future.