Thursday, January 8th, 2009
painting your face

Tonight is the national championship game of college football and the bigger, faster, stronger guys will soon be playing for the Lombardi Trophy, so it is prime time for the face painters.  There have always been people who lived and died with their team, although archival photographs readily show that they didn’t dress the part as they do today.  Or undress the part, since painting letters on your belly is now de rigueur, with extra credit given if the thermometer touches zero.Someone should do a study of when “fandom” changed.  I’ll go with the early Seventies, when you first could see a Hawaiian wedding complete with palm trees amidst the tailgating at a Minnesota Vikings game in December.

The painting is just one more manifestation of the culture of belief that surrounds sports, with a logo required on your hat and an expensive jersey of the right color on your back (when it’s not bared), hopefully one with the name of the player on it who makes the great play today, so that you can walk a little taller after the game.  But what if the best play, the one that won the game, is from someone from the demon opposition?  It could be the greatest play of all time and you couldn’t applaud — it wouldn’t look good on SportsCenter for you to acknowledge it while wearing your colors.

Moving from pigskins to politics (since we have a new administration soon to be upon us), we can see the “real world” problems that such flaws can engender.  There’s nothing so similar to a staunch conservative as a staunch liberal.  While their beliefs may be completely different, how they think is remarkably similar, as is apparent from observation and academic studies.  According to one of them, “ideological subgroups failed to update their beliefs when presented with corrective information that runs counter to their predispositions.”Duke University | “When Corrections Fail:  The Persistence of Political Misperceptions” is a paper by Brendan Nyhan of Duke and Jason Reifler of Georgia State.  I don’t know if they had their respective jerseys on when writing it. And every event and factoid must be spun by believers according to the party line, sometimes triggered by daily talking points, phrases from which show up verbatim in the words of politicos and radio talk show hosts and then the faithful.  A recent editorial in the Wall Street Journal referred to “the political left’s wonderful talent for overstatement.”  So true, and so applicable also to the “right.”

And how does this all fit into the world of investments?  We can easily fall into the same trap, of not acknowledging the merits of arguments that are opposed to our own, of being blinded by our emotions and unable to see things for what they are.  These are instinctual traits that are part of our need for communal beliefs and bonding rituals, but they inhibit the process of rational decision making.

I always laugh when portfolio managers put brokers into “the penalty box” (sorry for the mixing of sports metaphors, but that’s what they call it) when one of their favorite holdings is downgraded by an analyst.  When loyalism is prized over clear thinking, no matter the field of endeavor, trouble is ahead.  Over and over, investment firms go on the rocks because views are held as sacrosanct rather than continually poked and prodded and challenged.

A chief investment officer has no greater responsibility than to ensure that the process for making decisions is unbiased.  Unfortunately, he can sometimes be the one with the painted face.