HUMMONEY - Preaching to the Choir (Perspective)

- by Greg Lewin

I have been told by some pretty fancy preachers that if you want somebody to get the message make sure you tell it to them 3 times. Now think how often you have heard, “If we hadn’t taken action our economy, financial system and our nation would have been in deep trouble”, or possibly, “Our swift action helped us avoid the next Great Depression.”  Well if the preachers are right your antennae should be way up because someone wants you to buy what they are selling.

Let’s look a little closer on how and why this speech making device was and continues to be used so regularly. If you were a strategic thinker, let alone a political strategic thinker, you would want to construct a game you couldn’t lose.  Now how might you swing such a slick maneuver? Let’s say there is a choice to be made between A or B. This would mathematically calculate that you have a 50:50 chance of success. To improve your odds you might engage in some sort of study to aid in making the best choice, but maybe you are insecure enough that research alone does not give you the edge you desire. Maybe, if you are a little crafty, you decide against more research and turn your attention toward actively depreciating the choice not taken. Now if you can accomplish this, think how the odds of success might change. If you actively kill the choice not taken, then if your choice is correct you win but if your choice fails it is no worse than the choice not taken, or at worst your failure is neutral. Now that is a much better game. So investing your energy in the non-choice can be a far better strategy, in certain fields of endeavor, than investing time and energy in the research driven choice. Sound familiar? So our government and assorted luminaries took action and selected massive financial warfare to combat this recession, as they simultaneously invested considerable time and effort in explaining the risks of inaction.

Even though you may now know the game they are playing, it still may be reasonable to ask, should you buy what they are selling? After a brief review of the outcomes I believe the answer is clear. Did they think that 1 ½ years following their initial important policy decisions we would still be burdened with record high unemployment, home foreclosures, personal bankruptcies, federal debt and Wall Street  profit, to name just a few unintended consequences?  With this tremendous record, do you think it deserving that we concede 20:20 vision to these policy makers regarding the consequences of the road not taken?

Whenever you engage in a game where someone else can’t lose that probably means you can’t win. As an investor it serves you well to repeatedly analyze your assumptions and carefully separate facts and opinion. Because in the investment game you only get credit for the decisions made and the only insurance against loss is to align yourself with an economic reality that validates your decision. Simply stated, we play in a world of win and lose and we use research to improve the ratio of risk to reward. All else is just preaching to the choir.

 ---The views expressed here are of the author, HUMMoney contributor Greg Lewin; currently a General Partner at TLF Capital, an investment management firm. During the past 26 years he has been a senior money manager or partner in Wall Street firms including Neuberger Berman, Charter Oak Partners and Sailfish Capital.