URSABLOG: Hope Dies Last

Albert Einstein once never said “The definition of insanity is doing the same thing over and over again and expecting different results”, but like all misattributed quotes it rings a bell, and rings true. I also like to think of it as an appropriate definition of competitive shipbroking. We shipbrokers are generally an optimistic bunch, but it turns out we have to be in order to simply survive.

I have often wondered – and commented on – why market reports and analysis for the majority of the time remain positive. I used to think that this was almost fraudulent because when it was obvious to anybody reading the news and thinking about the markets and world events, most of the time the news was never that good. These people, I thought, are trying to trick people into buying ships, using whatever silver lining they can find to chase the dark clouds away. This conclusion was one of the reasons I started to write this blog, to provide an alternative to the usual run-of-the-mill weekly reports, with (I hope) good writing, a bit of a story, providing food for thought but most importantly telling it as it really is. A quick review of my blogs suggests that I am as prone to over-optimistic forecasting as anyone else.

Take two examples. After reading Superforecasting: The Art and Science of Prediction by Philip E Tetlock, I set about trying to prove whether my forecasting of the market could improve by predicting the future prices of ships on a monthly basis. Every month I calculated the current values of different types and ages of bulk carriers, and forecast what their values would be in three months, six months, one year and two years. The results, I am sorry to say, were not impressive, and for a while I became quite depressed about my lack of success. Then I started to rationalise and justify them by being affected by the over-used phrase of Black Swan Events. However I really did not have any excuse because having read the brilliant book by Nassim Nicholas Taleb I came to realise that all the events I was using as an excuse were in fact highly predictable, including the COVID-19 pandemic and the invasion of Ukraine by Russia, both of which had been predicted with some accuracy.

The reason my predictions were so off was because although I did take into account all that I saw that was going on in the world, which was by no means exhaustive, I was too much influenced by my own feelings at the time of prediction, and tended to be over optimistic. All of the time. If I wanted to be pessimistic it was either in the long run (and in the long run we’re all dead anyway so we can afford to be pessimistic) or in the very short run because of something that I had just seen, or experienced. In the medium term, consistently, I was positive. ?I had to be, I’m human.

The second example comes directly from my most recent blogs. I am positive about the dry bulk market, and the tanker market, but less so about the strength of the container markets. I am asked my opinion on a regular basis: I am a shipbroker and even if I do not know what I am talking about, I am expected to have an opinion. It is like talking about the weather in England, it is the essential polite small talk of our community when we don’t know what else to talk about, or haven’t got around to what we really want to say or hear yet. But my optimism surely flies in the face of more and more unremittingly bad news. Ukraine, lockdowns in China, hyperinflation, stagflation, a decrease in both economic and trade growth. “Ah, so what?” I say. “Look at the fundamentals.” That being the supply and tonne-mile demand of ships. Without either having the time or the tools to actually calculate this in any detail (that is what the research departments of large shipbrokers is for, after all, however they seem to be reluctant to calculate this in any detail, or if they have, publish their findings, perhaps because they are less than conclusive, or worse, pessimistic) I can do a back of the envelope calculation, embellish any statement with a few pertinent, and maybe even relevant, examples that help the story, and lo and behold, I have found another reason to be cheerful.

Not that I don’t take this seriously. Me being optimistic and sharing this with my clients means that I affect (maybe I am being a bit too self-important here, but I like to think my opinion matters) their investment decision making, which is their livelihood after all. Maybe I take this too seriously (and in conversation with some of my brother and sister brokers it appears that I do), but it matters to me, and to my sense of myself as a broker.

But it turns out that I am not being fraudulent, I am being human, and an optimistic one at that. And it also turns out that the only reason I am still a competitive broker is that I am optimistic, because that is a pre-requisite of the job. Here are a few things to note, from Thinking, Fast and Slow by Nobel Prize winning psychologist (and by extension behavioural economist) Daniel Kahneman:

-?????????90% of drivers believe that they are better than average

-?????????Most people generally believe that they are superior to most others on most desirable traits

-?????????The survival rate for small businesses in the US is 35%, but most entrepreneurs believe that their chance of success is 60%, 81% said they had a 7 out of 10 chance, and 33% said they could not fail

-?????????50% of inventors who had their idea audited and analysed, and were told it was hopeless, still continued to develop it (the analysis was accurate – only 5 out of 411 projects given the least chance reached commercialisation, zero succeeded)

-?????????11,600 forecasts by CFOs of large corporations of the performance of the S&P index for the coming year resulted in a correlation of slightly less than zero. It simple words, their forecasts were less than useless

I could go on, but you get my point. People, and people in business (and competitive shipbrokers in particular) are always optimistic, and have great faith it what they think. Most successful people are self-confident, and have to be to inspire others, whether employees, clients or counterparties. They find the story they need to make sense of their optimism and will use this, ignoring all other unhelpful evidence. And if you think that this is restricted to pushy shipbrokers, or business people in general, think again. Doctors have, have to have, confidence in their diagnoses in order to make clinical decisions. This can lead them to have over-confidence, and can lead to bad decision making. It is even true of academic scientists according to Mr Kahneman:

“I have yet to meet a successful scientist who lacks the ability to exaggerate the importance of what he or she is doing, and I believe that someone who lacks a delusional sense of significance will wilt in the face of repeated experiences of multiple small failures and rare successes…”

This, you will have noticed, is also a very good definition of a successful competitive ship sale and purchase broker.

This came up in conversation in the office yesterday over a cigarette with some of my chartering colleagues. We have to almost suspend disbelief to get up in the morning and do our work. Hope has to win out against experience, we have to belief not only that difficult things can be solved, but the impossible can become possible. It was a flash of self-recognition to the experienced brokers, and food for thought for the more cynical – and perhaps bruised – younger brokers.

In fact any business activity has to have optimism, but not to the point of self-delusion. In shipping we have many examples of over-optimism leading to hubris, leading to failure. One thing that Kahneman suggests that investors do before making a final decision – and away from the siren songs of brokers I would suggest – is to do a premortem, i.e. gather the most important decision makers and say:

“Imagine that we are a year into the future. We implemented the plan as it now exists. The outcome was a disaster. Please take five to ten minutes to write a brief history of that disaster.”

This would focus minds on something other than certain success. Most of us know, particularly in shipping, that nothing, especially strong markets, last forever. This process legitimises doubts, measures risks, looks for hidden dangers not perhaps thought about in the optimistic push in, say, acquiring a new ship.

I can imagine my brother and sister brokers saying now “Don’t give them ideas to think about the deal too much, it’s hard enough as it is.” But most owners automatically discount their brokers’ optimism anyway, and in any case, we brokers should be less optimistic about how much we can actually do to persuade buyers and sellers to do things that we want them to do and concentrate more on delivering what our clients want. To be optimistic about our abilities to do that is perhaps worth more personal investment than being simply optimistic that good markets bring good deals. Indeed, it is our continual optimism that we can be better, do better, and live better that keeps us all alive, and, well, hoping for the best despite the continual evidence to the contrary.?

Simon Ward

www.ursashipbrokers.gr