Daily Intent

Santa Barbara, CA

Have you ever witnessed an upset?  Watched as the heavily favored team lackadaisically meandered through a game, while the “wunderdogs” played hard on every play, eventually winning enough points, having enough plays fall in their favor to win the game?

If you were a fan of the favorites, you walked away saddened, perplexed, and maybe even angry.  Your team was said to be the “expert” heading into this match.  They were the Goliath.  They had more experience.  They were bigger.  They were taller.  They were even said to be smarter than their opponent.  But something went terribly wrong.  There was a “failure of the expert”.

Malcolm Gladwell, spoke to this point last night at the Arlington Theatre in Santa Barbara, California.  He addressed the full house, balancing seriousness and wit, using history, psychological studies, and current market meltdowns, to drive home a new perspective on an oft witnessed occurrence.

“Miscalibration”, the failure of an expert due to extreme over confidence.

General Hooker had all the information, the savvy, and the charisma to defeat the greatest general of the South, Robert E. Lee, at the Battle of Chancellorsville.  He had the best team of spies and brilliant strategists that afforded him the positioning of surrounding the South’s army on three sides.  The positioning was perfect.  And his army size and supplies, double that of the South, further enhanced his surety of victory.  However, this brilliance, it is posited, got to his head.  Now in perfect position to dominate his opponent, he chose to wait, sit back, relax, ignore the latest information supplied, eat a fine meal, and let his opponent make the next move.   And a genius move the South made, leaving the North ultimately running for their lives.  Miscalibration.

Miscalibration, Mr. Gladwell believes, is the reason, too, for the financial collapses of 1929 and 2008.  The smartest men and women, from the most prominent university, working for the leading investment banks in the world, fell into the spell of overconfidence.  And this overconfidence led to incompetence.

They believed they had created all the tools, surrounded themselves with all the market’s brilliance, had perfect information, and, thus, could predict the market swings with pinpoint accuracy.  Their failure resulted from their inability to listen to the present and new information coming in.  Their overconfidence inhibited them from properly diagnosing the problem.  They became blind to that which was happening around them.

To this point, Mr. Gladwell stated, “what we need from our experts is not their expertise [in these moments], but what we need from our experts is their humility.”  Were these Wall Street experts to recognize the fact that they didn’t have “perfect information” and they must always be seeking out new challenging data, they would have made different and better choices.   For the most dangerous decisions are made when one believes they have all the information to make the perfect decision.

It was concluded that leaders must build in strong mechanisms to prevent miscalibration.  They must get “steady, accurate, and immediate feedback.”  Warren Buffett and Santa Barbaran, Michael Towbes, both have exemplified a wonderful ability to remain humble enough and connected to their roots enough to prevent themselves from overconfident, dangerous and delusional decisions.

Our personal decisions may not have the impact of such leaders, but they do impact our friends and family.  I encourage you to analyze what instances in life you’re considered the “expert” and where temptations might lie in “miscalibrating” the reality to your detriment.
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PLAN
Catalyst for Thought - MINDS Lunches.  The next two will be focused on Green Businesses.  Gillian Christie, founder of Christie Communications, March 18th.   David Fortson, founder of LoaTree, April 1st. Mid-April we’ll have Wayne Rosing, early participant in the creation of Google and founder of Las Cumbres Observatories.  Register at www.CatalystforThought.org to ensure you receive the registration emails.
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LEARN
Buzzword: Fairway Bond
“A type of bond that accrues interest if the embedded index or interest-rate option underlying the bond remains within a specified range.  The fairway in golf is like the index or interest rate range.  The outlook is positive if the ball lands on the fairway; if the ball lands in the rough, the outlook is negative.  Also known as a ‘corridor bond’, ‘index range note’, ‘range accrual note’, or ‘index floater’.

Conservative investors tend to choose this type of bond in the hope of maximizing the yield when they believe that the option will remain within a certain range during the time the bond is held.  Investors may profit the most during a sideways market.  Should the option remain out of range, the least the investor can expect is a return of principal.”  -Investopedia.com

  Six Points to Ponder:

   1. St. Patty’s Positives.  The Markets received many positive data points this week.  EU Industrial figures posted their strongest monthly gain on record.  American household positioning and spending look better. - The Dow saw modest gains to 10,611. The S&P 500, 1149.  And the Nasdaq up, 2367.  Oil is down, $81/bbl.
   2. “Democratic Marvel”.  The WSJ proclaimed. 62.9% of Iraqi voters turned out to vote this week in elections that will determine the next Iraqi prime minister. 23 percent of the  votes have been counted.
   3. “Cautious Pro Spending”.  Retail sales were up 0.3% in February despite abnormally cold winter weather in much of the country and lower car sales. 
   4. Disney Diverts.  Disney has shifted its focus away from terrible one-off comedies toward popular cartoon characters. 
   5. $15Bn Adds a Zero.  The jobs bills went from $15Bn to $150Bn.  Tax credits for businesses and individuals. 
   6. March Madness Builds.   Nationwide conference tournaments are being played out to see who gets automatic bids to the big tourney.  Upsets are everywhere as nerves escalate and experts “miscalibrate”.     

Positives:

    * US consumer debt was down in 2009.  It fell by 1.7% which is the largest drop in 60 years.  At first glance you could conclude Americans are starting to take ownership over their debts and give value to saving.  However, the reality is this lowering of debt levels stemmed from massive defaults of credit cards and mortgages.  The positive is the cleansing of debt for consumers.  The future positive will occur if these same people learn to be better with their money.  There is hope for this as 4.1% of disposable income was saved in Q4 ‘09.
    * Nearly two-thirds of the Iraqi voters took a stand.  This progress and participation gives hope to American troop withdrawl come the summer months.  The turn out was highest in the Sunni regions, more so than the Shiite areas.  This could shift power as Shiite’s have held the power to this point.  Questions still remain about whether the loser will accept defeat.
    * Retail sales numbers are always important to the US economy given the fact that personal spending represents 70% of overall demand (aka GDP).  Some interesting categories within this figure that were up: Restaurants and bars, up 0.9%;  electronic and appliance stores, up 3.7%; sporting goods, hobby, book and music stores, up 1.2%.  It appears, in short, that people in February were in need of satisfying their entertainment urges.  January they took a break after the spending during the holidays.  30 days is all they could suffer.  It is also important to note year over year sales were up 6.8%.
    * The Senate didn’t shy away from passing a new measure, in addition to the current $15Bn bill awaiting a vote in the Senate, given employments importance to the USA’s overall economic health.
    * Disney’s new approach will save us all from “Old Dogs” or “Surrogates” in the near future, as these recent one-offs were flops and Pixar, Marvel and Disney Studios continues to succeed.  There focus will afford them more confidence in fan base, an important detail given typical studio investments of $300m to $400m in these projects.  Moreover, 3D box office numbers continue to surge.  “Alice and Wonderland” filled the seats in dramatic numbers last weekend.

Negatives:

    * While more bills are passing to support employment, the monthly federal government deficit ballooned by over 10% this past month.
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GET INVOLVED
Local:

Shamrock 5 Miler
Where: UCSB Lagoon
When: Saturday, March 13th
Cost: $25
Why:  Dress in Saint Patty’s Green and get a solid run in to start the weekend.
For other fun ideas, go to www.lovemikana.com

Live and Be Well,

Jeff Bochsler