December 22, 2021

Human Nature

Science and the stock market both aim for outcomes data don’t support.

I’m going to take you on a short but intense journey, with ground rules. I’ll ask that you check politics at the door.  Keep an open mind.

I’ll take Science first.  Suppose it was a business plan.  You craft an objective, and the path to achieving it.  It’s something I know after roughly 30 years in business.

Science said it aimed to flatten the Covid curve. That we could create a vaccine that would immunize us all, and we’d be free.

Now pelting toward two years of Covid, a great bulk of the population is vaccinated, many boosted too, and Covid abounds.

I’m vaccinated but not boosted and I had it.  Karen and I heard CNBC’s Jim Cramer, perhaps the World’s Most Vaccinated Person, Friday, and looked at each other and said, “He’s got Covid.”

Sure enough.

Here’s the point. Science has known for decades that coronavirus vaccines don’t work because the viruses constantly mutate.

I think mRNA research will be a boon for treating pathologies from cancer to respiratory disease. But Science did what science shouldn’t do.  It gambled.  Dismissed known data, central tendencies, facts. Proclaimed it would eradicate the virus.

You’d expect that from inveterate optimists like entrepreneurs, cowboys riding the bull that’s never been ridden, politicians, the Cinderella team playing the reigning champs.

That’s hope.  Hope isn’t a strategy.

Religion is in the hope business.  Science is supposed to be in the data business.  If we’re objective, stripped of politics, zeitgeist, predilections – shall I say hope – we have to say Science failed.  We didn’t conquer Covid. Our immune systems did.

Can we admit we were wrong?

Yeah, but vaccines lower severity.

That’s an assumption. A hope. And it wasn’t the objective.

Let’s shift to the stock market.  Regulation National Market System is 524 pages dictating a mathematical continuous auction market that works only with pervasive mandatory intermediation and a market-maker exemption from short-locate rules.

It is by design not rational but mathematical.  Yet everywhere, in everything we hear, read, see, is a thesis that the stock market is a constant rational barometer.

The stock market was declining because the Fed was tapering.  Then on the day the Federal Reserve met, stocks soared. Oh no wait, markets like rising rates because it means the economy is better.

Then stocks plunged. It’s Omicron.  Then stocks soared. Omicron fears have faded.

For God’s sake.

The problem is the explanation, nothing else. We know how the market works. It’s spelled out in regulations.  If you want a summary, read the SEC’s Gamestop Memo.

Options expired last week, while the Federal Reserve was meeting. You should expect bets. Indexes rebalanced Friday and demand was down.  So with new options trading Monday, the market fell.

Then Counterparties squared books yesterday, and one would naturally expect a big surge in demand for options at much better prices.  Stocks surged.

VIX volatility hedges expire today. If money sees a need for volatility hedges, stocks will rise.  If not, they’ll fall.  But that’s not humans reacting to Omicron. It’s programmed.

Weather forecasts are predicated on expert capacity to measure and observe weather patterns.  It’s data science.

The stock market is data science. 

If we have vast data science on weather, coronaviruses, the stock market, why would we hope rather than know? 

It happened to Copernicus too.  The sun is the center. No, shut up or die.

Science thought so much of itself that it believed it could do what they say can’t be done.  Save that for Smokey and the Bandit.

What happened?  Human nature. No matter how much one claims to be objective, there is confirmation bias, a belief – hope? – in one’s desired outcome.

Is the investor-relations profession able to let go its predilections, its hope, and shift to objective data science on what drives shareholder value?

What matters is the whole picture. Do you know if Story, Characteristics and capital allocation mesh, or contradict each other? If you’re a long or short trade?

Math. Measurable.

Illustration 131408341 © Zybr78 | Dreamstime.com

It’s of no help to your executive team and Board to paint an unrealistic picture that says Story drives value when the data tell us the opposite. Who cares what drives price? So long as we understand it.  That should be the view.

Humorously, there is hope.  Hope is like faith, a belief in things unseen, in outcomes no data yet validate. There’s hope we’ll come around to reality.  We can help you get there.

And with that, we hope your reality for the Holiday Season 2021 is blissful, joyful, thankful. Merry Christmas! We’ll see you on the far side. 

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