Bogle’s Actual Folly

 

There isn’t an evidence-based investor or advisor around who doesn’t owe an enormous debt of gratitude to John “Jack” Bogle for popularizing index fund investing. He was able to see – and more importantly, stubbornly stick with – a vision of what it could bring to everyday investors, even when his peers were taunting his idea as “Bogle’s Folly.”

Hooray for Bogle; he not only got the last laugh on his detractors, it’s been an incredibly long and lucrative laugh. Well-deserved!

Which brings me to this week’s Wall Street Journal op-ed by Bogle, “Bogle Sounds a Warning on Index, Funds.” In it, he warns of potentially dark days ahead in an industry that could end up being dominated by a few massive fund managers.

Far be it from me to assume Bogle is wrong. There are certainly lessons to be learned from those who laughed at him the last time he stuck to his vanguard guns (pun intended).

That said, I do have a quibble with how he communicated his message. In particular, his data visualization, i.e., the charts and graphs, struck me as disturbingly disingenuous.

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Color Me Communicative

© Can Stock Photo / roxanabalint

A Wendy’s Wednesday Whimsy

Did you catch Jason Zweig’s recent post, “It’s the Little Things That Can Color an Investor’s Outlook”? In it, he shared the results of a recent study on how strongly we behaviorally biased humanoids can be swayed simply by the color in which our investment choices are displayed. When participants saw financial losses in fire-alarm red instead of benign black and white, their responses were more frequently stained with the telltale fingerprints of fear and risk aversion … unless, unsurprisingly, they were colorblind.

So that’s one interesting data point suggesting that the colors in your communications may matter more than you realize, and not always as you might expect from a financial accounting point of view.

This important message, often overlooked, reminds me of an article I stumbled across recently by software developer Nick Babich, entitled “Red, White, and Blue.” Babich is a self-described “UI/UX lover,” which may sound nefarious but it means he concentrates on how to improve websites’ user interface (UI) and user experience (UE).

In other words, colors are his bag, baby. He offers several other reasons you should be more in touch with your and your clients’ inner rainbow than you may currently be.

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Ensuring the Evidence Is Evident

© Can Stock Photo Inc.
© Can Stock Photo Inc.

As I’ve covered in past posts, it takes years of painstaking academic inquiry to gather the right data and perform the right analyses to support your evidence-based investment strategy. Then, there’s step two: Effectively communicating what you’re doing to everyday investors. As fond as I am of the written word, data visualization – those tables, charts and graphs that accompany your prose – is also essential to ensuring that investors internalize the “what” as well as the all-important “why” that will help them stay the course in turbulent times.

Data visualization is for sharing data in ways that our dominant sense — sight — can readily interpret. Or, as Edward Tufte, an early leader in data visualization, says, data visualization occurs when “clear and precise seeing becomes as one with clear and precise thinking.”

A few years ago, to learn more about data visualization, I attended a Visual Business Intelligence workshop offered by Stephen Few of Perceptual Edge. Few, an author and expert in applied data visualization, cuts to the essence of effective delivery with a three-step process:

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