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Weekend reading: People forget that people forget

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What caught my eye this week.

I debated a Tweet of Morgan Housel’s this week, after that excellent financial writer retweeted President Trump’s suggestion that Boeing should rebrand its 737 MAX after two fatal crashes. Morgan thought this good advice from the President. I wasn’t convinced.1

Here it is as a screenshot (I’m not sure if you can embed conversations from Twitter):

You’ll see Morgan has 132 Likes for his Tweet. And you’ll notice my pithy reply has zero.

Morgan replied to me with the example of Arthur Anderson, the scandal-struck Enron accountancy firm that was ultimately renamed Accenture.

A snappy riposte that eight people Liked – including me!

A couple of people Liked my subsequent comments, but really, I mean literally a couple. On the numbers, Morgan had won.

Here’s the thing though. I am right.

Edgy material

Whenever I wonder what my presumed source of edge is as an investor, ten minutes on Twitter puts me right.

It reminds me people prefer to be outraged. People prefer to be melodramatic. People emphasize the recent and close at hand to an insane degree.

Super well-read Morgan knows all this of course, and he could easily have written my reply to him on another day. But I suspect many of his followers cycle from one 24-hour crisis to another, every day watching the world come apart at the seams. Apparently.

So as I say, I’m right – people forget.

A few examples:

  • In 2015 the US Mexican food chain Chipotle saw its shares crash from around $750 to around $250 in the wake of several E Coli outbreaks. Sales fell because people didn’t want to get poisoned. I heard numerous analysts repeatedly write the stock off as dead money. But last year’s revenues were Chipotle’s highest-ever, and it’s smashing expectations again. People forget.
  • After being revealed to have cheated emissions tests, Volkswagen was condemned as having not just trashed its own brand but also that of German manufacturing writ large. It was a scandal! There’d be boycotts, big fines, maybe a restructuring. Yet 2018 was Volkswagen’s best year for car sales ever. People forget.
  • In 1989 we had the Exxon Valdez oil spill in Alaska – one of the worst in history – which trashed the environment and saw Exxon receive additional criticism for its slow response. Never mind, by 2006 it was the most valuable company in the world. People forget.
  • Or how about the terrible behaviour of all the Wall Street banks in the run up to the financial crisis? So bad it almost brought down the global economy. You remember, that guy wrote that book they made into a film. Never again! The big banks had to be broken up! Even I ranted! But were they subsequently taken apart for their sins – by disgusted customers if not by regulators? Yeah, not so much. The biggest Wall Street banks are far bigger than they were before the crisis. People – boom – forget.

I could go on and on – these are just the examples that first popped into my head.

In fact it’s harder to think of companies that didn’t recover from a public relations scandal!

I know what you’re thinking – there was the Ratner jewelry debacle in the early 1990s, when the CEO Gerald Ratner told a business conference that his products were cheap because they were “total crap”. Hundreds of stores were closed in the aftermath. You won’t find a Ratner-branded shop on the High Street today.

True, but that’s because the company was rebranded Signet in the 1990s. It’s now listed in New York and is valued at well over $1bn. So it didn’t die – but it did feel the need to rebrand. I guess we can chalk this one up as a win for Trumpian thinking.

I’m not saying companies don’t fail. They do, all the time. But in my experience it’s rarely because of a one-time issue. They fail because their products or practices become out of step with their markets.

We have to remember survivorship bias – doubtless I’m forgetting companies that did disappear because they, well, disappeared.

But the general point stands – much of the time people forget. They forget the terrible thing that happened a few years ago. They forget who it happened to. They even forget bull markets follow bear markets, as the Of Dollars and Data blog explained well this week.

They forget that they forget.

There are many things eroding edge in the financial markets, but the collective wisdom of Twitter isn’t one of them.

From Monevator

Debate: Should you count your own home in your net worth ‘number’? – Monevator

[Nearly 1,000 of you have voted in the debate and at the time of writing Yes is winning with 52.7%, versus No’s 47.3%. I know, uncanny numbers! Perhaps we could hold a second EU referendum on the cheap on Monevator. 😉 ]

From the archive-ator: What you need to know about risk tolerance – Monevator

News

Note: Some links are Google search results – in PC/desktop view you can click to read the piece without being a paid subscriber. Try privacy/incognito mode to avoid cookies. Consider subscribing if you read them a lot!2

Why almost every adult in the UK could receive a payout from Mastercard… – BBC

…but how likely is it that you’ll get the touted £300? – Guardian

Defaults rise ‘significantly’ on unsecured loans in first quarter of 2019 – P2P Finance News

Half of England is owned by less than 1% of its population – Guardian

UK retail sales smash expectations in March due to shoppers splurging on food… – ThisIsMoney

…but house price growth slumps to lowest level since 2012, with London down 3.8% – ThisIsMoney

“Why I went viral on Twitter after talking about being evicted on Sky News” Guardian

A deep dive into the financial planning requirements of younger people – Kitces

Products and services

In praise of the flexible ISA – Simple Living in Somerset

Free trading apps: Investment freedom or false economy? [Search result]FT

M&S cuts prices on 500 popular items in price war, but Lidl is still cheapest – ThisIsMoney

Ratesetter will pay you £100 [and me a cash bonus] if you invest £1,000 for a year – Ratesetter

Online platform connects the dots for aspiring landlords [Search result]FT

Portfolio Charts has beefed up its asset coverage, so go have a play – Portfolio Charts

Acorn Income Fund: Small caps with an income twist – IT Investor

Homes with stained glass windows [Gallery]Guardian

Comment and opinion

Retiring from retiring – YoungFIGuy

The unbearable lightness of money diaries – WireCutter

Consider doing what you really want to, especially when you’re young – Bone Fide Wealth

The real benefit of being rich – Mr Money Mustache

Larry Swedroe tracks and scores [typically woeful] economic ‘sure thing’ forecasts – ETF.com

Overcoming a reluctance to spend in retirement [Mini podcast]The Compound Show

10 behavioural advantages that amateur investors have over pros –  Behavioural Investing

Unloaded – Humble Dollar

How to value a pot stock – Bloomberg

Investing in a Danish alternative energy company – DIY Investor UK

Michael Mauboussin: Looking for easy games in bonds [PDF]Blue Mountain Capital

Warren Buffett’s Berkshire Hathaway as an alternative to multi-factor funds – Factor Research

Brexit

Jonathan Pie: The rise of the right [Video] – via YouTube

What it’s like to debate Brexit [Short silly video] – via Twitter

Amazon Kindle and Spring Sale bargains

How to Have A Good Day by Caroline Webb – £0.99 on Kindle

Eat Well for Less by Jo Scarratt-Jones- £1.99 on Kindle

Mortality by Christopher Hitchens – £1.39 on Kindle

What You See is What You Get by Alan Sugar – £0.99 on Kindle

Amazon’s Spring Sale touting TWO free audio books with its Audible trial – Amazon

Off our beat

A selection of ironic London ‘rental opportunities of the week’ – Vice

Let nature heal climate and biodiversity crises, say campaigners – Guardian

Why we’ll never all be happy again – A Wealth of Common Sense

New Ways of Seeing: Can John Berger’s classic help decode the digital age? – Guardian

Impermanence – Seth’s Blog

More Pie: On the Extinction Rebellion protests [Video] – via YouTube

Bedroom confidential: What sex therapists hear from the couch – Guardian

Dogs who chew holes through blankets – via Twitter

And finally…

“Sceptical investors make their money when the bookie is mispricing the horse’s chances. In other words, where the market gets the odds wrong.”
– John Stepek, The Sceptical Investor

Like these links? Subscribe to get them every Friday!

  1. Aside: Wow, how little of that paragraph would have made sense a decade okay? Tweets, retweets, public debates, Boeing having a safety problem, and – yikes – President Trump. []
  2. Note some articles can only be accessed through the search results if you’re using PC/desktop view (from mobile/tablet view they bring up the firewall/subscription page). To circumvent, switch your mobile browser to use the desktop view. On Chrome for Android: press the menu button followed by “Request Desktop Site”. []

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{ 30 comments… add one }
  • 1 dearieme April 19, 2019, 11:03 pm

    I thought the Behavioural Advantages piece good but noticed what’s almost a professional tic – an allusion to “specified long-term objective”. I’ve gone through life without ever having a specified long-term objective, and I have never mourned its absence. I certainly have a rough long-term objective, namely that I don’t want my widow to go short. But that is perhaps so obvious as to be scarcely worth saying.

    Years ago a friend and colleague appalled me by saying that of course we all have a long term objective. It turned out that his was to join the class of people who churn out managerialist rubbish and inflict it on inoffensive academics. Clearly having a specified long-term objective can be damaging both to self and to society.

  • 2 Peter April 20, 2019, 2:48 am

    “Ratner jewelry debacle in the 1980s” – 23 April 1991 says Wikipedia

  • 3 JimJim April 20, 2019, 6:54 am

    At the risk of venturing into active investing, it was interesting to read the Orsted piece here.
    Living where I do, Dong, (now Orsted) put up the largest wind farm in the world here (when fully commissioned). This has had me following the companies fortunes for a while. (I am not invested) I know many employees of the company and few have gripes, all seem well paid and the opportunities for them seem to be growing. Here is an old article, before Dong floated that whet my appetite to follow them when they floated… https://stateofgreen.com/en/partners/state-of-green/news/china-welcomes-danish-wind-power-expertise/ and a more recent one…
    https://www.greentechmedia.com/articles/read/uk-set-to-lose-offshore-wind-crown-to-china-by-2021#gs.683v8x
    As I say, I am not invested, but I am following them.

  • 4 John April 20, 2019, 7:49 am

    No mention of Extinction Rebellion and climate change? Surely the single most important issue investors (and, umm, humans) currently face?

  • 5 John Curran April 20, 2019, 8:02 am

    Or at least no serious discussion of it.

  • 6 Steve21020 April 20, 2019, 8:46 am

    Love the examples of things people forget. I’m frequently amazed at how many have forgotten, or don’t even know about the financial crisis.
    One example you missed: Townsend Thoresen ferries. One capsizes? Simple. Just re-brand as P&O ferries.

  • 7 The Investor April 20, 2019, 9:01 am

    @Steve21020 — Ferry and cruise companies offer great examples, agreed. Anyone remember the Carnival “Poop Cruise” of a few years ago?

    @John — Extinction Rebellion is the subject of the Pie video in “Off Our Beat” (where I also link to the George Monbiot backed campaign to promote reforestation). I could opine in detail about ecological issues every week (I have done in the past and I’m sure I will again) but I think my Brexit intermissions are enough to be going on with on this financial blog for now. 😉

    My ‘big picture’ view: https://monevator.com/environmental-degradation-and-wealth/

    @Peter — Gosh, you’re right! 🙂 Well as I said they were pulled off my head. Odd though (and proving the point) I mis-filed it as happening as part of ‘Peak 80s’– a back story my brain has clearly constructed for itself over the years!

  • 8 The Investor April 20, 2019, 9:05 am

    @dearieme — I think most readers of this blog would have as you put it at least the rough long-term objective of getting on a firm financial footing and not losing it. And often that’s translated into (controversially) a specific ‘number’, or perhaps more fluffily a certain sort of house in a certain part of the country or children brought up a certain way. You might say that’s obvious except I’ve know people who clearly and explicitly were not operating with such a goal. They are now in their mid to late 40s with no money or assets to show for it. (Not a judgement in the context of this comment, just an observation.)

  • 9 Degsy67 April 20, 2019, 9:18 am

    You should go back to Morgan and tell him to check his facts. He was wrong about Arthur Anderson rebranding as Accenture due to Enron. Accenture existed as a separate legal entity in January 2001 prior to the Arthur Anderson collapse in August 2002. Accenture was created when Anderson Consulting split from the accounting firm Arthur Anderson and was forced to adopt a new name.

  • 10 Gentleman's Family Finances April 20, 2019, 9:23 am

    I worked for an oil company that in the few years before I joined had a massive scandal involving the leadership misstating oil reserves and getting big bonuses.
    The fallout was massive!
    The CEO fell on his greasy sword and resigned. An active investor had the hundred year structure reorganised.
    Hell we even had a part in killing some activists in west Africa- not proven.

    Fast forward to when i was an employee and nobody knew anything about any of that.

    People have memories but corporations don’t and for political purposes it can pay to forget.

  • 11 Steve21020 April 20, 2019, 10:24 am

    I enjoy the Jonathan Pie videos and he makes some good points, but why does he have to be so crude and swear so much? I have the feeling that he does it more now than in the earlier videos. I’d like to forward the links to certain relatives but the swearing puts me off doing so. Rather like a letter of complaint, swearing simply turns it from being taken seriously to just another rant, albeit quite funny.
    The graphs in ‘awealthofcommonsense’ were thought-provoking. Are kids really unhappier now than years ago?

  • 12 The Investor April 20, 2019, 10:24 am

    @Degsy67 — Oh, that was my shorthand explanation for his citing Arthur Anderson, not Morgan’s. I didn’t know the precise history. I think we can all agree the split / brand shift was a result of Enron though?

  • 13 Steven Thomson April 20, 2019, 10:30 am

    Really interesting to see the examples of firms that have done wrong and then gone on to have bumper years.

    I would suggest that the Phat Bollard song (see youtube) “Give My Money to the Millionaires” sums up the situation rather well.

  • 14 The Details Man April 20, 2019, 11:13 am

    @TI @Degsy67 – Degsey is right. Accenture was born out of a split between Arthur Andersen and Andersen Consulting in the 90s. The relationship between AA and Andersen Consulting became quite terse. AC had to give a profit share to the AA global group and at the same time AA launched Andersen Business Consulting which competed with AC. At the end of the 90s the relationship completely broke down. The profit sharing agreement was canned but as a result AC had to drop the Andersen name – becoming Accenture. Just in time for Enron to go pop and AA to collapse. Following the Enron blow up, Andersen Business Consulting (now just Andersens) was sold-off. Principally to Deloitte.

  • 15 The Investor April 20, 2019, 11:40 am

    @TI @Degsy — Interesting. Well Morgan’s example was misplaced then but I can’t use it to salve my wounded pride at falling on my face in the Twitter popularity contest because I’d have given the same example! 😉

  • 16 dearieme April 20, 2019, 11:47 am

    Another class of things that everyone has forgotten has just occurred to me: predictions of Global Warming doom by such-and-such a deadline. This scam has been going on for so long now that several such deadlines have passed, and here we still all are.

  • 17 The Accumulator April 20, 2019, 1:23 pm

    Labour > New Labour > Labour again.
    Teflon Tony until he wasn’t.
    Saxe-Coburgs > Windsors
    Windscale > Sellafield
    British Leyland > Rover Group

    Interesting. Sometimes people forget. Sometimes they never will and names / reputations reach us from 2,000 years ago. Generally it’s too soon to tell.

    Did Chipotle move swiftly in the wake of the scandal to recover trust? Perhaps when the problem is a one-off and of your making it’s better to own it?
    Perhaps if you’re a serial offender / synonymous with failure it’s harder to recover i.e. British Leyland.
    With the Saxe-Coburgs it’s an association not of their making versus a scale of trauma that’s near insurmountable. Better to cut your losses.
    The banks – too big to fail, too big to reform, we end up having to move on.
    Wonder which way Facebook will go?

  • 18 The Accumulator April 20, 2019, 1:25 pm

    Actually with the Saxe-Coburg’s I guess it’s more signalling solidarity.

  • 19 Gaz April 20, 2019, 2:19 pm

    You’re right about Boeing, just look at the Dreamliner and the initial battery fire issues. When I went on holiday last year, I paid a tad more to go with an airline that I new used 787’s on the route rather than the cheapest airline as I didn’t fancy a transatlantic flight on a single asiled plane!

  • 20 Ric April 21, 2019, 12:52 am

    @TI, Maybe qualify “people forget” with “most”. Then I’d 100% agree with you. Do you remember the DC10s that were dropping from the skys way back when (not sure of the year, but about the time Ronald Reagan became president)? Or what about so called mad cow disease (I still can’t bring myself to eat beef, just in case)? Just two examples from many that illustrate my point, but I’d agree most people do forget.

  • 21 two shillings and sixpence April 21, 2019, 1:56 pm

    In the article Half of England is owned by less than 1% of the population i didn’t see framers mentioned in the % breakdown.

  • 22 Collreg April 21, 2019, 9:56 pm

    @two shillings and sixpence

    Is that not because many farmers don’t own their land but instead are tenants of the estates which own vast swathes of the country?

  • 23 Mu April 22, 2019, 7:57 am

    @dearime – “predictions of Global Warming doom by such-and-such a deadline. This scam has been going on for so long now that several such deadlines have passed, and here we still all are.”
    I assume this is a joke. You’re not seriously denying climate change are you? But what you have *forgotten* is that no-one ever claimed Global Warming doom by 2019. Forecasts for catastrophic climate change have always been in the second /third quarter of the century. Predictions to date of increased temperature and weather volatility have been highly accurate. If a fund manager could predict the stock market with the same accuracy I would become an active investor!

  • 24 HariSeldon April 22, 2019, 11:40 pm

    It’s interesting that when we talk about people forgetting previous serious incidents, the 737 had problems with uncommanded extreme rudder movements, that caused fatal crashes in the 1990’s as a result of a defective hydraulics power control unit. ( It was too sensitive to very minute mechanical system errors)

    I worked in the industry as a supplier to a major hydraulics corporation, fortunately it was not the culprit, Parker Hannafin. I have been surprised that no article has picked this up… most people do forget !

  • 25 dearieme April 23, 2019, 1:48 am

    ” Forecasts for catastrophic climate change have always been in the second /third quarter of the century. ”

    And yet today’s market Ticker blog reminds us that:

    “in 1989 it was said….

    UNITED NATIONS (AP) _ A senior U.N. environmental official says entire nations could be wiped off the face of the Earth by rising sea levels if the global warming trend is not reversed by the year 2000.

    Coastal flooding and crop failures would create an exodus of ″eco- refugees,′ ′ threatening political chaos, said Noel Brown, director of the New York office of the U.N. Environment Program, or UNEP.

    He said governments have a 10-year window of opportunity to solve the greenhouse effect before it goes beyond human control.”

  • 26 Keith April 23, 2019, 9:38 am

    Sometimes all the public scrutiny triggers regulatory intervention to an extent that reassures. We didn’t forget about the salmonella and CJD scares when we regularly started eating eggs and beef again; we did this because we were confident that the issues had been addressed root and branch (or yolk and rump). My hunch is that once the various civil aviation authorities declare themselves satisfied that Boeing has comprehensively dealt with the 737 MAX’s problems the brand will not only be rescued but enhanced.

  • 27 Mr Blue Shoes April 23, 2019, 10:28 am

    That vice article about London Rental opportunities really scared me. Not for me but for my children, who may need to work in the SE after university. I don’t know how anybody can afford to live there on an average salary or in their first job.I know London is expensive but that is really eye opening. I’ve never really understood the animosity towards landlords but I live in the South West having grown up in the North West. The annual rent on some of those would buy you a house where I come from, yes really -type BB9 into rightmove. I have both rented and now rent out my old house after becoming an accidental landlord. FWIIW I rent out a 3 bed detatched house for £800/month, less that those grotty sh1tholes. The “market rate” is apparently a little more than this but I couldn’t charge more than this without feeling bad for the tenants.

    PS – thanks for the weekly links, I really appreciate them and enjoy the discussion that they generate, sometimes more than the articles themselves.

  • 28 Mr Blue Shoes April 23, 2019, 10:32 am

    PPS I meant to say, if life is working a minimum wage job to see the majority of it get swallowed in rent for a sh1thole like this then maybe gang membership could look quite attractive. Or am I reading too much into it?

  • 29 Ben April 24, 2019, 5:33 pm

    Well I’m extremely late to the party but theres:

    Windscale -> Sellafield
    News of the world -> Sun on Sunday.

    Although to somewhat support your argument, everyone forgot why Opel Fruits are now Starburst, and Jif is now Cif, Marathons are now Snickers, and who now remembers why Oil of Ulay became Oil of Olay (or is that the other way round)?

    And Nestle clearly forgot about the late great Graham, and renamed his eponymous cereal Curiously Cinnamon!

  • 30 JimJim April 28, 2019, 7:05 am

    Perhaps Trump just wants re-election… If I were to fly a 737 Max, I should read this article… https://medium.com/@gregoryreedtravis/the-case-of-the-737-max-b6b1869839b6

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