[asa] A parable of three investors

Consider several investors, each with a small amount of money to invest. In
the late 1990s, they all go to the same investment broker who presents an
investment strategy to them (interpretations of what the broker thinks will
happen in the future). The strategy has its particular risks of being right
and being wrong. The broker likes a set of mutal funds which have had good
track record and good management. They are in various broad areas of the
economy, banking, international, commodities, transporation etc. They are
good solid but not stellar investments. They will ensure the money grows,
but not necessarily outperform the market.

The first guy, named Henry, who is the youngest, listens to all the
research and logic of the broker. But he decides that such research is
really designed to prevent him from getting to where the real money is to be
made. Indeed, he thinks there is a grand conspiracy on the part of the
brokers to maintain the fiction that brokers know what they are doing.
Brokers hold their beliefs in order to hold their jobs. This grand
conspiracy uses other people's money to ensure that the conspirators make
money, enabling the conspirators to prevent others from making money and to
prevent others from publishing on how to make money.. Thus, this young
decides that research and sound logic isn't useful in investing. He knows
that if he invests with the right sort of people, people who are good, then
he will make money, he will make money. So, Henry ignores all data, all
research and embarks on his own investment program--one given him by his
friend, the preacher. Enron was the preferred investment vehicle. Henry
heard that the guy at the top of this organization was the son of a
preacher, so he must be the right sort of guy to invest with. Henry gathered
lots of followers with him and they all invested in Enron. Investments,
require having a the approved set of beliefs in order to be successful.

The second guy, named Bob, is appalled at the willingness of this younger
sort of fellow to ignore data.The broker lays out why he should not invest
in technology (this is the late 1990s). They are over priced, the P/E ratios
are too high, they don't' make profits etc. These things are poised for a
fall, the broker says. But Bob likes the tech stocks and doesn't want the
broker's scenarios to be right. He wants this scenario to be wrong, to be
false. He doesn't want the predictions of the models to match reality.
Bob's friends tell him that he shouldn't be that way,but he keeps muttering
something like, the broker's scenarios are not supposed to tell us about the
future or reality. They are merely designed to tell us how to behave--how to
invest. They are rules of the road only, not the road. They don't' tell us
anything factual because they are predictions. They can't be included in the
world of facts.. Also, Bob thinks, it really doesn't matter if it is true or
not; it is a great story of doom and gloom for the tech stocks and it makes
a great allegory of hard times. .This scenario is merely a way for the
broker to tell us about behavior, not true returns on capital employed or
what industries will increase in share price over the next several months..
With Bob, the broker offers his best strategy, one which the broker
recommended, which he firmly believed would make money for the client. Bob
politely declines to invest with this strategy. Bob said, "nothing you say
is meant to match the future, indeed, the future can't be predicted. So what
you are doing is offering grand myths about the future. Knowing this, and
knowing that myths are never meant to be taken seriously as history, I want
to use another strategy." The broker, of course, says, "But if you use
another strategy, you will lose your money." And Bob, says, "I don't like
your strategy, I want it to be wrong so I want to invest in things that
makes your scenario false" So Bob invests heavily in tech stocks

The third guy, named Ken, listens to the broker's claims about the future,
he doesn't like everything he hears, but figures that if he is going to make
money, he better deal with the data--high P/E values, lack of profits in the
tech group. But he tells the broker he wants to invest in oil because there
will be a shortage coming in the next few years.

The broker is apalled. The broker points out that oil is a lousy investment;
oil is so, so, so old industry, indeed dirty industry. It isn't the new
economy; it is a dinosaur industry. Look at all the severe price collapses
oil has had over the past few years. No one else he knows in the oil
industry thinks there will be a shortage. Ken shows him some articles, he
agrees he should avoid tech stocks save as a short play and Ken agrees to
invest some money in the mutual funds. On oil, eventually, Ken wins the
broker over to his position by showing the broker lots of data. Oil will go
up and if one invests now, he will make money. Even the broker invests that
way. Ken doesn't LIKE the fact that oil price will rise, he wishes it
weren't so. But one better deal with reality if money is to be made. Between
the two of them, Ken and the broker, they created a scenario they didn't
like, but which made money and matched reality

Henry lost it all, but he didn't have to accept that silly research, which
made him very happy. He also had lots of followers.. Bob lost 75% but when
last seen was still preferring to invest in things which would not match
reality because reality is so boringly and antiquatedly concordistic. Who
would want that?
Ken, the concordist, and the broker, both of whome wanted the strategy to
match reality, made money.

I would ask, when faced with a choice, one interpretation makes the Bible
capable of matching archaeological and scientific reality and the other
demonstrably makes the Bible false, why on earth do we WANT to chose the one
which makes it factually false? Do we like investing in theories which
makes it false? I suspect we too often do. For the life of me, I can't
figure out why. If one applies such a strategy to life (like investing
where bad decisions lead immediately to great pain), one will lose money.
Maybe we don't have any real skin in the game (there is that word 'real'
again)

I just find it so difficult to understand why people prefer the Bible to be
false to having at least a hope that it contains some history--real history.
As I said to Iain in the discussion about Yeled in Chapter 5. Atheists too
want the Bible to be false. For us to play their game is insanity. Like
Henry or Bob

glenn
They're Here: The Pathway Papers
Foundation, Fall, and Flood
Adam, Apes and Anthropology

http://home.entouch.net/dmd/dmd.htm
 

To unsubscribe, send a message to majordomo@calvin.edu with
"unsubscribe asa" (no quotes) as the body of the message.
Received on Sat Oct 28 13:21:09 2006