Join Fund Library now and get free access to personalized features to help you manage your investments.
Something is broken with the flow of information today. Not everyone feels it. But the evidence is hard to miss. Financial market participants scramble to react to every twist and turn, every new data point and, lately, every declaration of trade war détente – not to mention living with the ambient terror of Donald Trump’s capricious Twitter feed. Global anxieties are high.
Yet, the most conspicuous part of all of this is the growing divergence of public opinion. Gaps in world views continue to widen.
This year, we began our annual Super Trends and Tactical Views 2020 – Around the World in 80 Minutes report (available in full on the Forstrong website blog) on a philosophical note: The world is splintering. On the surface, some of the causality should be well-known. Tensions over wealth inequality and stagnating median incomes have been building for decades and now dominate public discourse. Populism has reared its ugly head. The past year has seen uprisings in Paris, Hong Kong, Cairo, Beirut, Barcelona, and Santiago. Clearly, the roots of discontent are deeply entrenched. Yet until more inclusive economic growth emerges (don’t hold your breath), stresses will persist.
But it’s not just a growing gap between the haves and have-nots. Splintering is occurring right across the world. Deeper undercurrents are at work. For example, the online doomster community (for lack of a better term) has aggressively gained recruits since 2008’s global financial crisis. Schadenfreudian pundits are their leading prophets, stoking allegiances by warning about potentially overlooked looming disasters. Dozens of possible dystopian futures dominate their chat rooms. Most surprisingly, however, is not the extremism of their views, but the makeup of their membership: a wide variety of backgrounds – in race, culture, and socioeconomic status – firmly subscribe to this worldview. Something must be really wrong.
It is. Technology promised a richer future. People, capital, goods, services and, especially data, flow freely and frictionless in our modern age. We are more connected than ever. Many predicted that this ease of communication and travel would reduce biases and unfounded prejudices. People with very different experiences could no longer ignore each other’s views. And unlimited information should have led to a more informed and objective population. Instead, an unexpected outcome surfaced: Different investors are now drawing radically different conclusions from the same data.
In many ways, we are further from each other than ever before.
How did this happen? This author has pondered deeply on this and arrived at a simple conclusion: It may be as basic as the human desire to belong. Increasingly, people satisfy this third Maslowian need online, a substitute for disappearing forms of human contact and face-to-face interaction. Individuals can now seamlessly plug into a kind of virtual fellowship. Almost immediately, they feel part of something larger. (In a 1943 paper entitled “A Theory of Human Motivation” psychologist Abraham Maslow proposed a five-tier “hierarchy of needs,” the third of which is “love and belonging.”)
Yet serious problems can arise. Digital platforms often serve as echo chambers for already-held beliefs, enclosing members in an intellectually impenetrable layer of like-minded peers, biased blogs, and partisan views. The world can look completely different depending on the type of media consumed or the group that one identifies with.
Of course, it’s a trap. Never leaving one’s world presents a clear and present danger. New realities are not experienced. A potentially rich, textured subject stays one dimensional. And so, one’s world view remains one-sided with a cult-like focus on certain insider voices – deprived of any new evidence.
Behavioural scientists warned us about this. Humans are indeed wired for belonging. The pain of social exclusion is felt in the same place of your brain as physical pain. So exposure to contrary views is not only intellectually uncomfortable but is actually similar to having someone repeatedly bang your head against a wall (note: don’t try this at home).
No surprise, then, that individuals become part of social structures that systematically exclude sources of information, surviving on a steady drip-feed of confirming views and an exaggerated confidence in their beliefs.
On a broader level, the results are disastrous. Individuals are siloed into strictly-defined groups. Deep divisions are sowed within societies. Inequalities are even amplified between nations.
Crucially, tribal allegiances replace rational analysis. Looking ahead, arbitraging this will be the winning investment strategy.
Investment implications
To be sure, the spread of misinformation is nothing new. Basic truths have always been under assault by catchy conspiracy theories, extremist fundamentalism and, yes, that elusive description of modern media: fake news.
How to solve for all of this? Simple answers do not exist. Global travel can take us to the edge of places: the physical borders of unfamiliar destinations but also the margins of our own beliefs and understandings. This has been particularly stimulating over the last year as our investment team travelled to several continents, exploring the outer limits of international business, technology, science, and investing (and, okay, dabbled in some food and cultural sights along the way).
But travel is not enough. Increasingly, wide-angle global perspectives are essential to any investment process: They are fatal to localized biases and radically reduce the risk of falling victim to groupthink. Conversely, rigid ideology, accompanied by the usual investor overconfidence, are the twin enemies of outperformance.
We have been working on our global approach for several decades now (extending back to our founder’s tenure as CIO of Canada’s largest global investment group). By design, investing is an intellectual contact sport at Forstrong – a collegial intersection of ideas, spirited debate and, yes, wrestling with the probability that we have some things wrong. Actively seeking information or views that are different from our own – and updating our beliefs when the evidence suggests we should – is hardwired into our investment process. Neither task is easy. Clients can count on us that this will continue.
Next time: More from our Super Trends report – the long shadow of the 2008 financial crisis.
Tyler Mordy, CFA, is President and CIO for Forstrong Global Asset Management Inc., engaged in top-down strategy, investment policy, and securities selection. He specializes in global investment strategy and ETF trends. This article first appeared in Forstrong’s “Around the World in 80 Minutes – SuperTrends and Tactical Views 2020” available on Forstrong’s Global Thinking blog. Used with permission. You can reach Tyler by phone at Forstrong Global, toll-free 1-888-419-6715, or by email at tmordy@forstrong.com. Follow Tyler on Twitter at @TylerMordy and @ForstrongGlobal.
Notes and Disclaimers
© 2020 by Fund Library. All rights reserved. Reproduction in whole or in part by any means without prior written permission is prohibited.
The foregoing is for general information purposes only and is the opinion of the writer. The author and clients of Forstrong Global Asset Management may have positions in securities mentioned. Commissions and management fees may be associated with exchange-traded funds. Please read the prospectus before investing. Securities mentioned carry risk of loss, and no guarantee of performance is made or implied. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice.
Join Fund Library now and get free access to personalized features to help you manage your investments.
Fund Library
