Friday, November 20, 2015

Garbage In, Garbage Out. How to Be. S.U.R.E.?

Unless you are a unicorn that can turn everything that you eat into magical rainbow ice-cream, I think it is important to know that in most cases, what you put in is what you get.

Why is this important? Well, your analysis of data can only be as good as the integrity of the source data.

Let's say you are analyzing a company's financial statements. You pull out all the relevant numbers. You generate all your flows and discounts and ratios and what-nots. Viola, a perfect data analysis! But oh wait. The year was wrong? And the currency rate too? Not very useful to make a decision now then...

While a lot of people are great at coming up with their own conclusion after looking at data, I think people are not good at analyzing the usefulness of the data. Here are 2 examples.

Recently, there was news that Putin is so #badass because of a kickass quote that he said. I thought the quote was awesome too, but tracing back all the sources, I only found that it led back to the RT anchor and she didn't have any sources to that. It smelt fishy from the start, and it was fishy in the end. Turns out that Putin didn't actually say it. It's okay though, he still is legit #badass.

I also wrote a post about IREIT and analyzed it largely with NAV. In the comments, Kyith rightly pointed out that NAV is only useful if it is accurate and if we can trust it. There is a possibility that they have valued their properties higher than they are actually worth, giving the illusion of being a "value buy" with "margin of safety" since they are trading at a discount to their book value. I think that this is a fantastic point to bring up.

I've done accounting and I can tell you that pretty much any number can be fudged, especially if you know the mind of an auditor and know where to lay the bait and set up fake "oops you caught me traps". Let them be happy that they caught you for minor mistakes and it'll throw them off scent from finding the major ones. So while book value could be inaccurate, pretty much everything else can be inaccurate as well.

(Smartlocal are your eyes playing tricks on you?)

So, if that's the case, then how do you go about figuring out what you can trust, and what you can't?

The NLB has a campaign asking people to be S.U.R.E., and while it isn't very scientifically comprehensive, I think that it can be applied a lot to everyday fact-checking.

Source - Is its origins trustworthy?
Understand - Are you clear about what you have seen?
Research - Dig deeper. What else do you know beyond the initial source?
Evaluate - Find the counter-argument, then exercise fair judgement.

Honestly, I wish things were that simple in life, but many things can get a lot more complex and paths we follow in search for the truth might be dead-ends.

How can we know that the auditors aren't being bribed and misrepresenting data? Or aren't stupid and incapable of their jobs? We can never really know. The best we can do is to look at the data being presented to us and to know what can be realistically accepted, and what else should be conservatively discounted.

Don't just do this when you read financial statements. Do it when you hear juicy gossip. Do it when you pick which sources of news you read (traditional sources, MSM, online, twitter). Do it when you browse through your social media newsfeed. Especially so when you read "popular opinions" from websites like ThoughtCatalog (where the authors are mostly mid-20s hipsters doling out life advice.... really now? oh wait, that sounds like me, SHIT).

If you know how to exercise this "Are you fucking kidding me?" muscle, you will find that your skills on seeing through the haze of bullshit increases.

Once you can discern between "interesting opinions" and "actual facts", you'll find that your ability to slice through bullshit and look at the core of situations to be much better. And hopefully that will be useful and relevant in your life.

Last thing guys. This is the godamn internet. Please don't believe everything you read here, that's for sure.


  1. Hi GMGH,

    I think everything is opinion masquerading as facts. Some opinions don't even pretend it's a fact lol Whatever scientific principles we had are just opinions accepted until it's proven wrong. A few had already been proven wrong, the most famous of which is the earth centric vs helio centric viewpoint. Who knows what else we thought we know but we don't?

    1. Hi LP,

      I see the point you're trying to make. I think it can be alluded to the "Brain in a Vat" philosophical thinking. How can we know that we are not brains in vats, plugged into the Matrix? How do we know that we really know anything?

      But that's way too far down the rabbit hole for me, haha. If nothing can ever be proven, we can never have anything to work it. I guess I'm just trying to differentiate the more obviously subjective bits from the commonly accepted objective bits.


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