Vous êtes sur la page 1sur 4

BijaAdvisors

Better Decisions, Better Results

Seeds of Thought
Cognitive Science Meets Investment Management

Issue 15-2
January 14, 2015
Supply, Demand and the Price of Oil
Twitter limits thoughts to 140 characters. Instagram allows the sharing of just 15 seconds of video. VH-1
has a new feature called “Stopwatch: A whole song in 60 seconds.” ADD diagnoses is at an all time high.
38% of people who open an electronic article “bounce” before they ever engage with the content.
In a world where brevity to the point of zero engagement is the norm, it makes sense that Occam’s Razor
would be so often referenced by the Intelligentsia these days. (No, the irony is not lost on me.) To review,
the principle states, "other things being equal, simpler explanations are generally better than more complex
ones.”
We don’t like to admit that we’ve become more superficial, that our waning attention spans could possibly
be harming us. Instead, we put a positive spin on our lack of focus and need to skim. We pretend that we
can multi-task, in spite of the volumes of data proving otherwise. Occam’s Razor fits beautifully, offering
an intelligent sounding argument for keeping things simple, when in reality it is a crutch, an excuse to keep
from having to think too hard or dig too deep.
Case in point: Oil. Having collapsed more than 50% in less than 6 months, everyone now seems to know
why. I’ve read that it was supply side driven. Some cite the economic slowdown in China and Germany or
the Saudi’s desire to drive shale producers out of business. Still others claim it’s politically driven to put
pressure on Russia’s saber rattling vis-à-vis Ukraine.
The implications of low oil prices can be huge for interest rates, growth, inflation and even housing. The
key to how big its impact will be, and in what direction, is knowing whether or not it is a short term
phenomenon. While all of the explanations I mentioned above are very rational and Occam’s Razor would
suggest you could accept any of them, because they
are all simple and provide the same outcome to date,
they don’t all provide the same duration or strength
of conviction going forward. So, if all we want to do
is explain what has already happened, I would agree
with Occam, it doesn’t really matter which
explanation you choose to accept. However, if we
are going to use what has happened so far, in order
to extrapolate out where we are headed from here,
we should be a lot more critical in our thinking.
Did you know, since 1984, on average, the annual
global demand for oil has outstripped supply by a
mere 0.4%? Since 2000, supply has outpaced
demand by an average of just 0.3% annually. It begs
the question, what is the real relationship between
supply, demand and the price of oil?
“Everything should be made as simple as possible, but not simpler.” - Albert Einstein

!
Copyright © 2015 by Bija Advisors LLC.; BijaAdvisorsLLC.com
Reproduction or retransmission in any form, without written permission, is a violation of Federal Statute
Important disclosures appear at the back of this document
Bija Advisors’ Seeds of Thought Issue No. 15-2

What Dieting Taught Me About Consuming Information


In 2007, I was on the verge of breaking the 200 pound barrier, in the wrong direction. A lifetime of dietary
habits that would have made Morgan Spurlock’s “Super Size Me” look like a healthy alternative, had
finally caught up with me. I had just moved from London to Santa Barbara, which seemed a logical time to
make some adjustments that would nip this problem in the bud. The problem was, I had no idea where to
start. So I did what anyone who wants a six-pack stomach would do. I asked someone with rock hard abs
for advice. In my case, it was my wife’s new yoga instructor. “Sugar,” she said. “You have to avoid sugar if
you want to get rid of the layer of fat that is hiding your abs.”
Exactly what I was hoping to hear. A succinct, simple formula that I could focus on to accomplish my goal.
For the next 48 hours, I read every label and investigated the composition of every food that didn’t have a
package. I was a man on a mission to eradicate sugar from my diet. In no time, I would be walking shirtless
everywhere I went.
Entenmann’s donuts? No more. Honey Bunches of Oats cereal? Nice try. Sounds healthy, but it’s got sugar.
Box of raisins? Wait, raisins have sugar? I was like a deer caught in the headlights. I couldn’t find any food
that didn’t have sugar in it, so I went two full days without eating a thing.
What sounded like a simple formula for achieving my goal was actually an impossible task. I was so
focused on this one thing, I missed all the other important elements, including how sugar factored in with
the whole.
Truth is, this wasn’t the first time I had rushed into an idea with vim and vigor. Years earlier, I announced
to my wife that I wanted to learn how to speak German. A few days later she tells me that the kid who
washes her hair at the salon is from Germany and that he would be happy to teach me. “Really nice guy,”
she said. It was great. He came to the house on my schedule and the lessons were cheap. I worked with him
for a few weeks before it dawned on me that I had in no way vetted his linguistic skills other than knowing
that he was from Germany. “What if he is teaching me the equivalent of street slang or even just poor
grammar?” I had no way of knowing, so I stopped the lessons immediately and opted for a more structured
and reputable methodology.
Getting back to my six-pack conundrum, it was clear I had committed the same error here as I had with my
language lessons. By simply exhibiting the characteristics I desired, in this case six-pack abs, I jumped to
the conclusion that this woman actually understood how she came to possess them, and that she had the
ability to transfer that knowledge on to me. I was wrong on both counts, for a second time.
I decided to take matters into my own hands. It was clear that I needed an education, but the first step had
to be vetting potential sources of information. I went to the bookstore in search of a book about food, and
how it affects our bodies. I needed to understand how it all works together. With so many talking heads on
television, infomercials, hundreds of books on dieting, thousands of fad diets, weight loss solutions and
gimmicky products designed to help me achieve my goal, I needed a checklist to weed out the charlatans
and block out the noise. With as little as I knew about this topic, I did know one thing for certain. Almost
everyone who attempts to lose weight and improve their health, fails. For many, it is over before it even
begins. For others, it slips away over time. For most, it is a roller coaster ride of success and failure,
repeated ad nauseam, fueled by a lack of discipline and knowledge.
I was determined to avoid failure, so I set out for the biggest bookstore I could find, in search of a book(s)
on the subject of food that abided by two rules, at a minimum. It could not have the word “Diet” in the title
and it could not have a picture of someone wearing their old “fat pants” to show how much weight they
had lost. You see, just as simply being from Germany doesn’t qualify you to teach the language, having lost
weight at some point in your life, no matter how much weight, doesn’t necessarily qualify you to teach
someone else how to do it.
I opted for the very bland looking, well-written, fact supported collection of diet related information titled,
Eat, Drink, and Be Healthy: The Harvard Medical School Guide to Healthy Eating by Walter Willett, MD. I
read, highlighted, re-read the book, and then boiled what I learned down to a few very simple, easy-to-

Copyright © 2015 by Bija Advisors LLC.; BijaAdvisorsLLC.com


Reproduction or retransmission in any form, without written permission, is a violation of Federal Statute
Important disclosures appear at the back of this document
Bija Advisors’ Seeds of Thought Issue No. 15-2
implement guidelines that I would follow, just as I suggested in Marginally Speaking. By doing so, I got
back to my fighting weight of 175 and have stayed there ever since. (If you’d like to see the guidelines,
shoot me an email.)
So how does this relate to the consumption of information? People have developed shortcuts, as a way to
become more efficient. We pigeonhole, categorize and bucket information without even knowing it.
Importantly, we outsource the vetting of information, often times to people we’ve never met ourselves and
without knowing their true qualifications. Credibility is inferred through connection, even flimsy ones. It
happens all the time, and often with disastrous consequences.
Bernie Madoff understood this and took full advantage. His connection to a charity, bestowed credibility
onto him in the eyes of a few wealthy elites, which then endowed him with further status. One connection
after the next relied on the first, effectively outsourcing their critical thinking to an entity many times
removed.
In an age when the original source of misinformation can be very quickly lost in a web of reposts, forwards
and cut & pastes, we must be even more diligent in our vetting. When smart people forward articles even
before they’ve read them, the problem becomes infinitely worse for society as a whole, for it is the
intelligent, particularly those with a reputation for it, to whom we most often outsource our vetting process.
The “Availability Cascade” is defined as a self-reinforcing process in which a collective belief gains more
and more plausibility through its increasing repetition in public discourse (or "repeat something long
enough and it will become true”). It’s a dangerous flaw in our cognitive process, because it can be easily
capitalized on by the deceitful and the hucksters. We are their prey and our only defense is to be more
critical in our thinking.
I’m not suggesting that you should be overly cynical about every bit of information that comes your way,
but simply that you take a minute to vet your sources properly. By doing so, you can actually let your guard
down a bit, leaving you to absorb the truly valuable thoughts and information.
By the way, what the yoga instructor should have said when I asked her how to get a six pack, was,
“Calories consumed minus calories burned equals weight change. Burn more calories than you consume
and VOILA! you lose weight. To reduce the calories consumed, eat stuff that keeps you full longer. To
increase the calories burned, move more than today than you did yesterday. It’s that simple.” Would I have
listened? Probably not.
PS
“The greatest enemy of knowledge is not ignorance, it is the illusion of knowledge.” - Stephen Hawking.
Actually, Stephen Hawking didn’t say it. Well he may have requoted it, but the original author was Daniel
Boorstin, in his 1985 book titled, The Discoverers: A History of Man's Search to Know His World and
Himself. That doesn’t stop it from being attributed to the brilliant Mr. Hawking on the Internet, because
let’s face it, Hawking lends more weight to the message. I mean, I can argue with Daniel Boorstin, but
who’s going to question the thinking of Stephen Hawking.
This may sound like an innocuous point, but what happens when slightly more offensive, harmful or
simply erroneous material is wrongly attributed to someone with credibility, and it is then repeated,
forwarded and reposted? The message itself gains credibility, and ceases to be questioned. That can be a
very dangerous thing indeed.
About the Author
For nearly three decades, Stephen Duneier has applied cognitive science to investment and business
management. The result has been 20.3% average annualized returns with near zero correlation to any
major index, the development of a billion dollar hedge fund, the turnaround of numerous institutional
trading businesses and career best returns for experienced portfolio managers who have adopted his
methodologies.

Copyright © 2015 by Bija Advisors LLC.; BijaAdvisorsLLC.com


Reproduction or retransmission in any form, without written permission, is a violation of Federal Statute
Important disclosures appear at the back of this document
Bija Advisors’ Seeds of Thought Issue No. 15-2

Mr. Duneier teaches Decision Analysis in the College of Engineering at the University of California
Santa Barbara.
Through Bija Advisors' publications and consulting practice, he helps portfolio managers and business
leaders improve performance by applying proven decision-making skills to their own processes.
As a speaker, Stephen has delivered informative and inspirational talks to audiences around the world
for more than 20 years on topics including global macro economic themes, how cognitive science can
improve performance and the keys to living a more deliberate life. Each is delivered via highly
entertaining stories that inevitably lead to further conversation, and ultimately, better results.
Stephen Duneier was formerly Global Head of Currency Option Trading at Bank of America and
Managing Director of Emerging Markets at AIG International. His artwork has been featured in
international publications and on television programs around the world, and is represented by the world
renowned gallery, Sullivan Goss. He received his master's degree in finance and economics from New
York University's Stern School of Business.
Bija Advisors LLC
Web: BijaAdvisorsLLC.com
Email: info@bijaadvisorsllc.com
Twitter: @BijaSeeds
Podcast RSS: BijaSeeds
LinkedIn: Duneier
Phone: 805.452.9429

In publishing research, Bija Advisors LLC is not soliciting any action based upon it. Bija Advisors LLC’s publications contain material based upon publicly
available information, obtained from sources that we consider reliable. However, Bija Advisors LLC does not represent that it is accurate and it should not be
relied on as such. Opinions expressed are current opinions as of the date appearing on Bija Advisors LLC’s publications only. All forecasts and statements
about the future, even if presented as fact, should be treated as judgments, and neither Bija Advisors LLC nor its partners can be held responsible for any
failure of those judgments to prove accurate. It should be assumed that, from time to time, Bija Advisors LLC and its partners will hold investments in
securities and other positions, in equity, bond, currency and commodities markets, from which they will benefit if the forecasts and judgments about the
future presented in this document do prove to be accurate. Bija Advisors LLC is not liable for any loss or damage resulting from the use of its product.

Copyright © 2015 by Bija Advisors LLC.; BijaAdvisorsLLC.com


Reproduction or retransmission in any form, without written permission, is a violation of Federal Statute
Important disclosures appear at the back of this document

Centres d'intérêt liés