A Wendy’s Wednesday Whimsy
In my last post, Questioning … Processing … Evidence-Based Investing, I offered a mind dump of some of the questions I’ve been considering since I attended last November’s Evidence-Based Investment Conference.
I may or may not comment further on the entire list of questions. That’s where the whimsical part comes in. Today, I want to air my views about the first question I posed:
How important is the “evidence-based investing” name to begin with? Must it be tightly defined, or is a loose confederacy all well and good?
Personally, I’ve decided I can live with the loose confederacy. In fact, we are probably best served by it … if we embrace our inner Bob Dylan.
What do I mean by that? If you’ve not checked out Dylan’s Nobel banquet speech, I recommend it. Wonderfully Dylan, the man may be one of the few people alive who can get away with unblinkingly comparing his work to Shakespeare’s, and use “reckon” as he does so:
“I would reckon [Shakespeare] thought of himself as a dramatist. The thought that he was writing literature couldn’t have entered his head. His words were written for the stage. Meant to be spoken not read. … I would bet that the farthest thing from Shakespeare’s mind was the question ‘Is this literature?’”
Dylan concludes: “Some things never change, even in 400 years. Not once have I ever had the time to ask myself, ‘Are my songs literature?’”
Segue to our world. When I first started writing about evidence-based investing in 1998, we usually referred to what we were doing as “passive” versus “active” investing. We were even mostly okay when a financial reporter lumped us in with indexing. Vanguard, Dimensional … whatever. If anyone was covering us at all, it was cause for celebration.
To this day, that still happens – most recently when The Wall Street Journal used a brush about as wide as Wall Street, both sidewalks included, to cover a spectrum of so-called “passivist” investing strategies.”
Okay, still whatever. But …
There’s the discomforting reality that some of the strategists lumped into the WSJ’s “passivist movement” smell an awful lot like activists to me.
Take, for example, one of the WSJ passivist pieces entitled, “Active vs. Passive? Choose Both.” With the proper talking points about how evidence-based investing isn’t fully either, this title could have worked. But that’s not what happened. The piece is by a co-CEO at MFS Investment Management, who concludes: “Investors caught in the active/passive debate need to understand the issues—but stay focused on the outcome. Market returns might look appealing. Excess return will matter more. And managing the downside is essential. Long term, the bipartisan portfolio probably wins.”
What?? No, no, and again … no! This is the same old obfuscating double-speak from a band-wagon jumper who has not embraced the essence of what we’re about. It’s not bipartisan. It’s bipolar.
The same could be said for some of what I heard at the November Evidence-Based Investing conference. Then again. Not all of the more active-y edges of this evidence-based envelope should be pushed out of consideration. A few of them will probably germinate the next important insights that, while thought-provoking and still in beta-testing today, will become our evidence-based future.
How do we know which is whom at this point? There are the obvious clunkers. But on the more promising possibilities … we cannot yet know. After all, at the time, who would have guessed that a disenfranchised Romance language student would end up co-authoring the Three-Factor Model?
What I’m getting at is this. The very nature of true evidence-based investing means it will never lend itself to a perfect label. That’s because it will never stop evolving in response to that “one good financial idea every decade or so” that rocks our world all over again. (Thanks to Ben Carlson for featuring this excellent Fama quote in his Wealth of Common Sense blog.) As University of Oregon President Michael Schill recently observed in my local paper, “Knowledge accretes over centuries.”
This means that true evidence-based investing is always going to get lumped in with bigger, less ideal labels and less durable investment strategies. Whether we’re too closely compared with full-on passive, or too carelessly associated with blatantly active trickery, it’s a fact of evidence-based life.
Which brings me back to Mr. Dylan. When we listen to him, what are we hearing? Poetry? Music? Literature? Whatever. We’re listening to Dylan. Clearly, he’s too busy producing his work to fuss over what else it’s associated with, who else he’s compared to … or even who wants to laud him for his efforts.
Similarly, I know evidence-based investing when I see it. I also know outright rubbish by the same name. So do you. I plan to remain open to the ideas that aren’t yet fully shown to be one or the other. I plan to keep helping evidence-based advisors like you focus on showing and telling your clients what you do and why you do it.
Beyond that, let’s not worry too much if our label is somewhat south of perfect. It can’t be helped. The evidence-based times, they are (always) a-changin’.