The Great Sorting

In this article, I highlight that for the serious investor, the truth matters. Your wealth depends on the truth, so it is important to try and recognize it when you see it.

Parting Words from a President

During his farewell speech, Barrack Obama gave the American public a cautionary reminder as he addressed a topic that has been slowly simmering in 2016, and will likely boil over in 2017:

“For too many of us, it's become safer to retreat into our own bubbles, whether in our neighbourhoods or on college campuses, or places of worship, or especially our social media feeds, surrounded by people who look like us and share the same political outlook and never challenge our assumptions. The rise of naked partisanship, and increasing economic and regional stratification, the splintering of our media into a channel for every taste — all this makes this great sorting seem natural, even inevitable. And increasingly, we become so secure in our bubbles that we start accepting only information, whether it's true or not, that fits our opinions, instead of basing our opinions on thet evidence that is out there.”

Obama touched on an important point. For investors, it is critical to recognize the "great sorting", and to objectively question where in it you stand, and how you got there. In 2016, many were caught off guard with Brexit and the US election because they weren’t aware of their own place in the sorting, or that they had even been sorted at all. The great sorting is worrisome because it shades investors from the truth.

The great sorting is worrisome because it shades investors from the truth.

Three Dangers of the Sorting

In 2017, questioning the accuracy and motivation of your media will be important, especially if you plan on investing. Who wrote the article? What do they know? Is it true? What bias does the organization have? What does the source have to gain or lose from presenting the information?

A great investor uses market intelligence, not stories; research, not news; advisors, not journalists, and their own ideas, not the opinions of others.

From my experience, in order to develop a working investment philosophy, a great investor uses market intelligence, not stories; research, not news; advisors, not journalists, and their own ideas, not the opinions of others.

Here are three dangers of the great sorting:

1) You may be limited to your bubble

Imagine holding a glowing orb of a colour that you have never before seen… You can’t. Get it? Being limited to your bubble means being sorted from the truth: you will never see new colours, or even know that they exist.

2) You may be missing opportunities

Imagine hovering over a timeline of your life, you can see key moments below you stretching all the way back to your childhood. Imagine looking at that timeline and feeling regret. Why? For the first time, you can see with clarity the countless opportunities missed simply because at some point in time you assumed that they weren’t opportunities at all.

3) You may be operating from fear

Imagine, as opposed to operating from a mentality of fearful scarcity, you proceed from a frame of limitless abundance. As Bob Marley sang, “emancipate yourself from mental slavery”. Do not sort the world into us/them, popular/unpopular, right/wrong, enough/not-enough, secure/unsecure etc… they are all two sides of the same coin. See the coin.

Investment Lesson: Cutting through the noise of the media and discovering the truth yourself can be net-worth changing. Those who understood the history of the 2008 financial crisis (or those who watched The Big Short) know that a group of individuals ignored the mainstream dialogue, did their own primary research, bet against the prevailing real-estate mania and made a fortune in doing so. Why? They simply bet on the truth.

Quick Distinction- Information vs. The Truth

Information is a message that is perceived through observation. For example, we see the sky as blue, this is information. We see that Volkswagen (VW) improved the cleanliness of their diesel technology, this is information. We see home prices rising year over year in the GTA, this is information.

The truth? Well, the truth is something different. The truth is what is really there - whatever that means. Personally, I am a systems-thinker, I believe in looking at entire systems, not just at a single property of a system in isolation and mistaking that for the entire event.

The blueness of the sky is a property of complex systems operating both inside and outside of our bodies: saying that the sky is blue is merely a simplification. An independent scientist falsified VW’s claims, the diesel technology was not clean. Rising home prices in the GTA are also symptoms of some underlying cause. When looking for the truth, try looking at entire systems; including the underlying cause, the trigger mechanism, and the symptom.

Do your homework and be brave enough to stand alone.

Investment Lesson: Not doing your due diligence and relying on the assumptions passed on to you from the media, from friends - or from anyone for that matter - is an unwise investment philosophy. Do your homework and be brave enough to stand alone. Don’t confuse a symptom for the underlying cause. Don’t confuse information for truth.

The Media is Sensational, the Truth is Subtle.

There is nothing wrong with appealing to the senses: they are stimulating, fulfilling, exciting (good or bad), and meaningful. However, media is sensational, and being sensational is about stimulating the senses to create excitement: not about the truth.

Fear, above all else, has the power to stimulate our senses. Fear is a reaction that has been hardwired into our bodies and minds through billions of years of evolution. Fear can be triggered. Fear captures attention. Fear sorts. Fear controls, and the media knows it.

Investors, remember, our senses are liars, big time- don’t be fooled by fear. Reality is encased within many layers of illusion, and the truth can be hard to realize because it’s hidden, misunderstood, buried, not yet known, or simply so obvious that you miss it completely. Information that appeals to your senses, to excite and to reinforce your place in the sorting is no substitute for the truth.

Fear, above all else, has the power to stimulate our senses... Fear controls, and the media knows it.

Investment Lesson: When you are making life decisions, planning for the future, investing your savings, forming ideals about the world, how it works and your place in it- relying on your senses to know the truth may not be in your best interest. For the investor, don't make rash decisions driven by the sensational media. Remember that fear is often an illusion. Don't be sorted into fear.

Cut Through the Noise.

Don’t fall for fear, it’s a trap. Fear will keep you down. Consider that every world-ending scenario, fearful change, and pending doomsday apocalypse has passed and we are still here, not only surviving, but thriving.

Absolutely massive wealth creation has already happened, is happening, and will continue to happen

Investment Lesson: The truth is optimistic. We are entering a world of advanced medicine and clean energy; a world where hundreds of millions are joining the middle class. We are entering a world where entire nations are arriving at the global stage. We are entering a world of improving health, driverless cars, artificial intelligence, burgeoning space travel, and a sharing economy. Not to mention the pending arrival of blockchain, worldwide interconnectivity, robotics, facial recognition, nanotechnology, and super-computers in the hands of nearly every human on earth. Absolutely massive wealth creation has already happened, is happening, and will continue to happen, but you’ll miss it if fear is keeping you on the investing sidelines.

First, Know the Truth…

The great sorting will trap you within your bubble: burst it. Operating based on the assumptions of others will limit your scope: expand it. The sensational media will inspire fear: ignore it.

Warren Buffet has a metaphor for the truth. Buffet says that in investing, he looks for “economic castles protected by unbreachable moats”. In investing, the truth is foremost about figuring out what qualities really make a castle strong and a moat unbreachable, and then finding that solid castle with that dark moat. Buffet, as did Obama in his farewell speech, tapped into something powerful: that you first must know the truth before knowing what is true.

Obama was not the first president to warn about the independent nature of the truth. Another president, James Madison (in office 1809-1817), had a personal motto which read "Veritas non verba magistri" - "Truth, not the word of teachers." Madison understood that the truth is constantly veiled, and it is not wise to simply assume what someone says is truth. We have to know the truth for ourselves.

First know the truth, and then know who tells the truth.

Watch out for the great sorting and your place in it. In investing and life, don’t wait for a majority to agree with you, by that time it will be too late. Likewise, don’t agree with a majority just because they posit what they say to be truth. Do your homework. Make your own decisions. Be objective. Look at the situation from the sides of those with whom you disagree, and try and understand what is really going on.

The truth, it's worth it.