Investing is a mystery, not a puzzle

Dear Clients and Friends,

Dr. Greg Treverton, a former Director for Risk and Security at RAND described the difference between a puzzle and a mystery.  He proposed this distinction to help intelligence agencies understand the threat that Osama Bin Laden and Al Qaeda posed to the future of foreign affairs.  He argued that, finding the whereabouts of Osama bin Laden was a puzzle, but the impact of Al Qaeda was a mystery.  He proposed that puzzles can be solved given the right information, and with mysteries they can only be framed because the answer is contingent.  The construct that investors use today should look more like a mystery than a puzzle – allow me to explain.

Seventy years ago, in medicine the physician had very few tools to diagnose, so the pursuit of differential diagnosis looked a lot like a puzzle.  After an exam and a few tests, the puzzle was solved and the next step was obvious, regardless of outcome.  Today the physician has vast reservoir of tools (evidence-based medicine included) that provide much greater insight into the differential diagnosis, which makes modern differential diagnosis look more like a mystery.  Just as in medicine, the information drought for investors is over and today the information flood has created a mystery.  All of the information is readily available, but developing the information into a coherent thesis is much more difficult.

There was a time in the market where investment banks owned a toll bridge to both information and stock and bond markets. Analysts were privy to information that others were not, and the ability for retail investors to gain access to the market was only through a representative of an investment house.  For those that had the access the investment strategy was fairly simple, buy a handful of large companies and some decent bonds. Today you can buy and sell stocks at little to no cost, and the information the pros use is the same information that the retail customer has access to.  The investment world is awash with information and advice, but the mystery remains.

What investors crave today is certainty, but this is not new.  I hear the uncertainty issue mentioned often when the market is going down, and not mentioned when the market is going up. Do you think Coke or Pepsi are considering the collapse of their business when they look this claim or uncertainty?  So the paradox we see in markets is not one of too little information, it is one of asking the right questions and framing the mystery.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All investing involves risks including loss of principal. No strategy assures success or protects against losses.

The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

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