Sunday, May 1, 2011

Royal Numbers

The royal wedding is over and the royal honey moon has begun. CBC carried a story that Great Britain lost 5 billion pounds because of the wedding. Who could know how much theoretical revenue the British people lost because they stayed home to watch the wedding on the telly. They also reported that security cost the British people 20 million pounds: that’s $31.6 million Canadian. That’s interesting for Canadians: in June 2010, we spent $1,000 million (that’s $1 billion) on security for the G20 conference. Who would possibly believe that the Canadian government spent over 30 times the money on security for a one-week conference than the British paid for a one day event?

Who comes up with these crazy numbers? And who believes them?

In my investment book, Beyond the Bull, I warn about believing financial data. If a writer is trying to persuade his audience, the data he uses is suspect. If that British reporter was one who believes the British monarchy should be abolished, he might exaggerate the wedding’s expense as a way to support his anti-monarchist views. He might be inclined to inflate the expense of the royal wedding and understate the increased revenue it generated. His personal bias about royalty would be expressed in his economic estimate.

Financial estimates most often reflect the personal bias of the estimator, not economic reality.

The same can be said for official government statements: their economic “data” might be skewed to make a situation look and feel better than it really is. This is the irony of a free economy. The health of an economy depends on the spending habits of the people. When the down part of the cycle arrives, official government spokesmen act like some British newspaper reporters: they report in terms of official government bias. They try to make the economic situation look safer than it is so people will spend freely. And if their deception succeeds, the economy actually could recover. But if their bias and exaggeration is not believed, the people might curb their spending and make the economy worse! It’s one of those rare occasions when lies, biased reporting and intentional exaggeration is good.

How does this affect your investing?

Whenever you hear financial data, be suspicious. If that data comes from a salesman who is trying to persuade you to buy his product, it is suspect. In my chapter on the different types of lies that permeate the world of the stock market, I recommend that you don’t believe any of the data. Certainly some of the data might be accurate and certainly some is just persuasive bull. But the average investor is not in a position to sort the true information from the persuasive bull. My advice? It’s all suspect because it’s all persuasive. Once a novice investor accepts this premise, he enters a more realistic world: he learns do be an effective investor in the world of the unknown. His suspicion makes him cautious. Cautious investors do better than faithful unsuspecting investors.

To order your copy of Beyond the Bull and the Five Levels of Investor Consciousness CD, or to sign up for Ken’s free monthly webinar, visit (Bullmanship Code = SS32).

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