Only slightly bent

Speaking at a conference gave me a chance to visit Bordeaux, France for some days – my first time in Bordeaux. Below you can find some sample photos; click on them to get a bigger version. You’ll also find more photos from the Bordeaux photo gallery.

I’m sure nobody wants to hear any boring musings & ramblings on the great-when-it-works public transport in Bordeaux, on the friendly-but-English-challenged French people, on the nice fashion, on the ubiquitous WLANs (17 networks visible at a remote tram stop!), on the +24C-and-sunny-weather or stuff like that, so let’s just say it was a nice place and leave it at that.

These days with the economy being on the news on a daily basis – when was the last time the stock market moves made main headlines every single day anyway? – it’s good to put one thing into perspective: analysts.

As I write, I’m listening to CNN stating that “According to analysts…” this and that. I’m also reading one of the, if not the, best management book ever, “What were they thinking?” by Jeffrey Pfeffer. More about this later, but I just wanted to pick out the following quote from there. This is just passingly mentioned when talking about companies’ obsessive, misplaced focus on shareholder return, but is a gem in its own right:

..the fact that running a company to please the analysts means, for the most part, running a company to satisfy the demands of relatively young individuals with little or no experience actually running anything or even with much detailed knowledge about the products and the customers in the industry they cover.

That’s just priceless. And something to keep in mind with the constant barrage of “According to analysts…”

Another book down on my to-read list; The Tiger That Isn’t: Seeing through a world of numbers by Michael Blastland and Andrew Dilnot. The title is quite descriptive – this is a book teaching normal people to understand numbers, especially those often ill-presented and trusted by the media and/or politicians. One can hardly look through a single page in a newspaper these days without seeing a barrage of numbers being quoted, whether it’s on the stock market or a latest crime statistic or something else. So it’s obviously an important thing to understand the numbers to see if a) they’re telling the truth and b) whether the attached story agrees with the quoted numbers?

The book starts from the very basics; for example, whenever you encounter a figure such as, say, €100M, it’s very important to ask one simple question: Is it a big number? A deficit of €100M can seem absolutely huge when quoted in a headline, but it can in fact be inconsequentially small depending on the case. Other critically important topics include chapters on the importance of chance, how numbers just move up and down naturally and many others. Statistical caveats such as sampling and probabilities and percentiles are thoroughly discussed.

The book is filled with frankly appalling examples on how governments trust and act on figures that don’t even remotely represent the truth, how people are absolutely terrible in determining the scale of some things and so on. It also shows how horribly inaccurate – at best – most data is, but remembers to remind us in detail of the difficulties in gathering quality data. And also, importantly, stresses that just because getting good numbers is difficult doesn’t mean we should throw our hands up in the air and give up on all numbers altogether – they do have immense power if done right.

It is easy to concur with New Scientist’s comment on The Tiger That Isn’t, namely: “Every journalist should get paid leave to read and reread The Tiger That Isn’t until they’ve understood how they are being spun” – and the same actually goes for politicians and everyone who wishes to understand how we are daily being misled.

On a negative side, the writing was sometimes even too spelled-out and simple, leading to sometimes slow progress on the actual topic. Also, by far the most examples were from the UK; I would’ve preferred a more international approach. Fortunately, similar examples than what are quoted are available from most other countries, with equally appalling handling of the figures. Another aspect that could be seen as negative is that the writers tend to – though rightly so – downplay the likelihood of rare possibilities whereas the media often emphasizes the extreme possibilities. Unfortunately, as was the case with house price collapse in the US and UK, the extreme forecasts sometimes are the accurate ones. While it does nobody any good to focus solely on the most unlikely events, the possibility of black swans shouldn’t be dismissed altogether either.

Overall, I would classify the book as a very good (I would say) introduction to the importance of data and properly made statistics, a good teaching aid to detect numbers that aren’t up to snuff as well as a stern warning against relying on numbers that could’ve just as well been made up. Asking a few relatively simple background questions when you’re faced with a number will give you a much better understanding on its importance. If you already don’t do this, reading this book will make you look at statistics with a new sense of interest, skepticism and, hopefully, strive to understand them better and get to the bottom of things.

Here’s Kauppalehti’s online front page from today:

For those who don’t read Finnish, the first headline says “Analysts eulogize Nokia – share price is going down” and the second says “Nokia a disappointment – on all indicators”.

These articles nicely contradict each other and create a situation where once again, Kauppalehti fails to produce anything meaningful or useful in terms of news by providing useless pseudoanalysis or self-contradiction.

Of course, Kauppalehti is not alone. 99% of the financial news and analysis in particular are becoming somewhat of a farce – they’d be so much fun to read if they weren’t on such serious topics or if they didn’t have real impacts on the markets. The following quote from State Street Global Markets from last year comes to mind that is now true more than ever:

Market participants don’t know whether to buy on the rumor and sell on the news, do the opposite, do both, or do nothing, depending on which way the wind is blowing.

What is the value of analysts in situations like the past few weeks when the analysis they produce are outdated and irrelevant just 24hrs after publication?

The fall, huh? There are actually two of those going on:

Interpretation 1: we’re living the best of the fall season in Finland right now.

Interpretation 2: the market crash.

I’m feeling ambivalent about both. Here’s – briefly – why:

As for the fall the season, I love the awesome colors but I don’t like what fall as a season heralds. I like the clean, fresh and moist air but I don’t like the inevitable rain or the cold temperatures. I welcome the dark nights and the evenings, but I loathe the darkness’ intrusion into the daytime hours.

And as for the fall the crash, I like the fact that with this, some more people might understand that infinite growth is not possible. I don’t like it that it started from the financial sector or that it’s spilling over that now. I would’ve preferred the crisis to having been caused by the realization of Peak Oil or something similar because had that been the case, maybe the trillions of dollars now being spent in an attempt to stem the crisis could’ve produced some good, tangible results instead of trying to desperately clear up a mess created by financial wizardry-gone-awry.

I like the fact that some of the most absurd salaries in the financial sector will now come down. I don’t like the fact that we can’t get any of those hundreds of millions of dollars back that have already been paid to the executives responsible for this mess. I don’t like the privatize profit, socialize risk-schemes and the enormous consequences they have.

Last Sunday night the first real autumn gale hit us; from the inside, it was nice to look at the flying leaves, leaning trees and water spray whizzing in the air. But I wouldn’t necessarily have wanted to be outside – good thing this took place in the night, as both yesterday and today dawned as nice and sunny.

Yes, sunny – this is the time of the year when us Finns are starting to say goodbye to the sun for the next months to come – the length of the day is now shortening by more than 5 minutes every single day here in Helsinki. While there’s still more than two months to go to the worst of it, it’s depressing to realize just quickly the daylight minutes are dwindling.

Luckily I managed to take a few shots outside over the weekend before the storm hit us and stripped the trees of some of the best color. [Click on the photos to get a bigger version]