A Wendy’s Wednesday Whimsy
Continuing to explore some of the questions I raised in my post-EBI Conference post, Questioning … Processing … Evidence-Based Investing, today I’ll touch on another question I posed, but left unanswered:
When describing investing to the general public, is it better to go with terminology that is more accurate or more familiar?
To be honest, I’m still not sure I have an easy answer.
Clearly, the term evidence-based investing is more accurate. It’s closer to the essence of how most advisors with whom I collaborate are serving their investor clients.
After all, if the best available evidence suggested that stock-picking skills and market-timing reflexes generated true alpha over time and after costs … that’s what we’d be doing. Some might call that “active,” but the justification would still be evidence-based.
Similarly, the opposite of active – passive – doesn’t make a whole lot more sense for describing what we’re actually doing. It’s just that the evidence has suggested that variations on an approach that is closer to passive than active have generated better outcomes for most investors.
By referring to evidence-based investing, the focus rightfully remains on substantiating or refuting the evidence, instead of just taking pot shots at popular labels. Active, passive … whatever. The evidence is the “why” behind the way … and that’s important.
Then again, consider this interesting anecdote I ran across recently. If you’re not Canadian you may not realize it, but an identity crisis arose a couple of years ago when our northern neighbors discovered they had no national bird to call their own.
“That would not do,” explained The New York Times coverage of this ornithological oversight. “The United States has the bald eagle, Mexico the golden eagle, France the rooster. Down in El Salvador they have the turquoise-browed motmot. But Canada, one of the world’s major bird habitats, had gone a century and a half without ever choosing an avian avatar.”
The country hopped right to it after discovering the error of its ways. The Royal Canadian Geographic Society agreed to lead the charge in a two-year decision-making process that included public input and a #CanadaBird hashtag.
The popular favorite was not a huge surprise. The common loon took first place in a Society-sponsored online poll in which some 50,000 people cast their votes. Yes, that’s the same bird that appears on their $1 coin — the loonie. That would have been my vote too. Growing up in Wisconsin, I can personally attest there’s nothing quite like the sonorous song of a lone loon, piercing through a misty morn.
The final selection, however, championed by the academic community in charge of the decision, was the gray jay.
Cute little thing, but I’ve never heard of it either. Admittedly, the academic community defending the selection had some great reasons for why the less familiar pick was still the most appropriate. McGill University professor emeritus of wildlife biology David Bird (yes, really) summarized the bird’s best qualities: “You’ve got loyal, you’ve got friendly, you’ve got smart, you’ve got hearty: That’s what Canadians think we are.”
So this circles us back to pondering which is preferred when choosing names, birds and investment strategies: Should you go for the more appropriate or the more approachable contender?
With respect to the bird, Parliament is apparently on the fence about deciding either way. In response to The New York Times query, a representative commented: “At this time, the government of Canada is not actively considering proposals to adopt a bird as a national symbol.”
With respect to our investment strategy, the analogy intrigues me, and gives me pause. The appropriate term, evidence-based investing, is more deserving. But the familiar one, passive investing, may be more widely and readily embraced. If either gets someone to the right place, does it really matter which you use?
At least for now, like the gray jay, we may just have to keep winging it.