Is Trumps ‘noise’ preventing your capital growing? Peter McGahan argues his point.
I kind of hoped January 1st would have a new morning with new leaders in charge of this financial world. I’ve been in denial since.
Instead, in a world where we try and make sense of information to make good financial decisions, the art of seeing through noise has never been so important.
Noise can easily be defined as ‘unpleasant, or a loud sound’, or in physics it’s less easy to define as it’s just vibrations, but in finance, I just call it fake twaddle. The key is to know it when you see it, and not buy using this ‘new logic’ that has been offered.
In 2008 I was told oil couldn’t go below $100 a barrel by the fund group who amazingly benefitted from prices above that.
‘Investors should be making their decisions around oil staying there, and the impact that would have on the dollar and in turn markets and your pension and investment funds’ they said.
Now I know he was just reciting what his first line boss had told him, just as the news and national papers simply read out what’s sent to them, but their logic was the ‘tar sands project’ in Calgary.
We discussed this potential ‘noise’ and whilst he continued to see he had the number nine in front of him, and from my opposing side I saw a six, no discussion took place. It was only when I focused on what’s right rather than who was right I went off on my merry way to research.
He continued with his ‘confirmation bias’ that he was definitely looking at a nine and looked for all data to prove that.
My logic was that Goldman Sachs were driving the market upwards with their incessant noise, and low and behold, two months later, I was sat on a train with my kids from Bergen to Oslo, and who should sit next to me but someone from an oil company. Bingo. A few direct questions dispelled any ‘facts’ from that previous investment company.
But, like the many ‘decisions’ over this last 18 months, the manager continued with the next stage of his confirmation bias – ‘persistence of discredited beliefs’.
That persistence taught me a lot about financial noise, a skill taught to me well as a training adviser when I blurted out my financial beliefs to a doctor of biochemistry who smiled back with a cross between sympathy and compassion, at my lack of knowledge and unconscious incompetence.
His persistence will then look at all the excuses why oil did indeed do what I forecasted ten months beforehand – fall to its average. As it fell, those who had bet on it going down (shorting) made millions. You might argue they could easily be the same people who talked it up. Yes, you could.
Despite our global ‘leaders’ all proving that incompetence is an easy achievement, and the real skill is in the misinformation to a distracted audience, investors are being fed their financial bias and potentially believing it.
Mr Trump tweeted, (yes that’s how a president communicates data to be relied upon) his success so far recently.
He says there are record jobs, the Dow is flying, and Obama would have had great press coverage if it was him. Two things: No financial person of repute would use the Dow as a measure of anything. I’ve covered it before in detail – It’s absurd and useless – but Obama still won.
However, if we assess his performance against Obama in his first year via the S&P, a year which took a massive downturn three months in with the Iraq war, Obama nails him with more than double Trump’s ‘great year’.
Trump repeats his (or his puppeteered) mantra of it all being part of ‘making America great again’ and irresponsibly eggs on the euphoria regarding jobs and record jobs. It is hard to see how any president’s actions (there haven’t really been any yet) will have created any real jobs in the first year, as it takes much longer for that to make its way through, so it’s just an overflow really.
Noise, along with the countless two way lies alongside cryptocurrencies are 2018’s first two biggest challenges to your capital.
About the author
Peter McGahan is the owner of Independent financial adviser Worldwide Financial Planning, which is authorised and regulated by the Financial Conduct Authority.