Thursday, August 20th, 2009
in a number

Returning from a hiatus, it is always hard to grasp the markets.  The nuances are certainly not apparent at first look, and even the big picture can appear quite a bit different than it had only a short time before.  The “tells” are harder to tell and the story line not as easy to discern.

To return to the golf analogy at least one more time,the research puzzle | My last effort, “competitive keys” focused on attributes featured in the Tiger Woods Accenture print advertisements. it is not dissimilar from trying to understand what was going on at the PGA Championship last week while doing my duties for the championship and the club.  I was up close with the players at times, but elsewhere on the grounds at other times.  I could see things that most people couldn’t, but I actually had less of an idea of some developments than those watching at home.

Even for those glued to their televisions, I doubt that many thought that Padraig Harrington would be lost at sea for the second week in a row, since he looked so solid.   (Like market players, he should have brushed up on his history, since getting too aggressive on Hazeltine’s eighth hole has cost others championships over the years.)  The dynamics of the battle between Tiger Woods and Y.E. Yang was another matter entirely.  Most thought that one would pull off incredible shots and the other would fold, it’s just that we had the roles reversed because we were conditioned to believe that was the order of things.  Some inklings of the surprises to come, those “tells,” were available to the viewing audience getting close-ups of the players’ behaviors and reactions, but most didn’t believe them.

That all changed when Yang hit his magnificent shot into the eighteenth green.  When it landed, the realization was instantaneous:  Our assumptions were all wrong.

One of the challenges of the investment business is playing the odds yet preparing for different outcomes.  Too often we fail to see the whole picture, and it’s easy to become a “special kind of dimwit” by ignoring all of the possibilities.ABC News | The Irish betting parlor Paddy Power paid out early on Woods as the winner and used that phrase in announcing its unforced error. We’ve seen a lot of that in the two years since the first cracks in the market appeared.

As behavioral finance has taught us, we often grasp at rules of thumb and anchor to that which we think we know, even if it is no longer representative of the world.  Time will tell if this year’s PGA will mark a turning point in the career of Tiger Woods or the future of men’s professional golf.  The possibility exists.  His 14-for-14 record of winning when leading major championships going into the final day seemed to indicate something on which we could rely.  But it did not.

And so, back to work we go.  One of the first things I saw this morning was this sentence from a market commentator:  “Asian stocks renewed gains after a sticky week so far, with the Shanghai composite rebounding, moving out of the bear market territory it hit yesterday with yesterday's losses.”  It’s amazing to me that such drivel is published on websites and in the leading newspapers of the day and said on financial television by otherwise cogent commentators.  Unlike the Woods record, which actually meant something, a market being down twenty percent means nothing in and of itself, and those who persist in ascribing some mystical properties to that demarcation are useless as guides.

What’s in a number?  Most of the time, less than you think.  The world changes and you best be prepared for it.