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The importance of listening

It is far more useful and important to listen and find out how other people arrived at their conclusion rather than block it out.

Boy on tin can phone listening to good news

Simon Martin


One of the advantages of working from home has been the ability to read more (the big downside has been the close proximity to a full biscuit tin) and one of the books that I have been reading is about listening which, unsurprisingly, provides a useful insight into why we should listen more and the advantages that this brings to decision making.

In the modern world that we inhabit, we receive a huge amount of news and information on a daily basis.  This is compounded by a never-ending quota of social media.  Therefore people can get their ‘opinion’ over far more forcefully and can consequently drive the narrative around which arguments are made.  This is then compounded by an ability to delete content or skew what we read to suit our own beliefs.

As a result we no longer really draw on all common sources of information, we are drawn to information that reinforces our views or beliefs.  Anyone or any algorithm can blast out opinion and critiques, these posts often only restricted by what can be crammed into a 140 character tweet.  These are then retweeted or liked without consideration of source, motivation or accuracy.  The result is an increasingly extreme political bias, more sensationalised news, increasingly volatile movements in share prices and a general lack of debate.  This, in turn, breeds a natural distrust in what is happening around us, creates huge amounts of fear and sadly more erratic behaviour.  As a consequence, we are seeing far more evidence of people believing that there is only one way to do things and increasing levels of vitriol and cancelling out of other people’s views that they don’t agree with.

One of the key themes in the book is that it is far more useful and important to listen and find out how other people arrived at their conclusion rather than block it out.  We can then learn and identify whether it changes or supports our own thinking.  In the past, there was obviously a far more balanced debate because there weren’t so many ‘opinions’ on issues and we didn’t have the ability to “google” the answer.  This meant that we often had to listen to experts to gain a more detailed understanding of an issue.

We appreciate that it is not always easy to listen and consider different opinions, especially if we don’t like the ‘celebrity’ or politician making the statement.  Never the less it is very important that we listen openly to all arguments otherwise how are we going to know whether we may be making a wrong judgement? 

In the book, I was fascinated by a story about the Apple co-founder, Steve Jobs, who famously hired people who weren’t afraid to push back on his ideas as hard as he pushed, often very aggressively, on theirs.  Apparently there was an award given out every year by Apple employees to whoever they believed did the best job in standing up to him.  In one instance an employee reportedly argued with Jobs but, exhausted by the fight, eventually backed down but still remained convinced that Jobs’ logic was flawed.  When it turned out the employee was right Jobs rebuked him publically saying “it was your job to convince me I was wrong and you failed!”

Questioning is inevitability hard; it is one of the hardest things we do and, as a result, sadly don’t do enough.  People don’t like questioning themselves, or experts, because they fear that they might discover that they are wrong, causing humiliation.  These instincts have obviously evolved over many millennia and are deeply imprinted within our psyche.  However, not challenging a view may be exactly the wrong thing to do when it comes to more modern problems like dealing with counter-intuitive financial markets.

It is often said that investing success is two-thirds avoiding mistakes and one third doing something right.  If you can just avoid mistakes you can lower your error rate and that alone should improve your results.  If you can avoid mistakes and do something right, you are likely to do far better than everyone else.   However avoiding mistakes is not easy, simply not making mistakes is impossible. 

Who sets out to make a mistake?  As investors, we don’t make mistakes because we know they are going to be mistakes, we make them despite thinking they were a smart decision.  Sometimes we make the wrong decision because we don’t often ask the right questions or openly listen to the wrong people.  After all, what sense does it make to question something that ‘everyone knows’ or something that is ‘common sense’ or something that you hear from someone who is allegedly smarter than you.

We mustn’t assume that other people are right, we must question everything – what is the worst thing that can happen.  We may discover that we were right all along which is good for the ego and no harm was done or we discover that we were wrong.  If we cannot learn from a mistake how can we continue to improve?  Discovering something that you previously thought to be true and is actually a myth could save you from making a potentially costly mistake again.  That is not humiliating, that’s learning and evolving and hopefully, over time we will make more and more correct decisions and minimise the number of poorly considered decisions.

Why is this so relevant?  The pandemic has required many people to make difficult judgements at very important stages.  Politicians have had to decide which restrictions to impose on us as citizens.  Individuals have been forced to access how much personal risk to take, managers were faced with tough calls on which parts of operations to close and heaven knows how many difficult decisions doctors and medical staff have had to make about treating people. 

Good judgement is a quality everyone would like to have and in an article in the Economist this week, there was a very well written piece about judgement.  We all know that expertise can be useful when making judgements and whilst good judgement is important in order to succeed, success is not necessarily a signal that there has been good judgement.   It may simply be a question of luck.  I am sure the world is full of people whose lack of judgement caused them to make mistakes and many made the common mistake of assuming that everything was fine.   Don’t forget allegedly Edison made 10000 mistakes before he succeeded!   There are equally a lot of people who were lucky or in the right place at the right time and as a result, were very successful.

We must therefore not ignore the obvious and consider all issues.  This year’s remarkable moves across financial markets and across technology stocks within equity markets have left many investors concerned about a bubble appearing in certain parts of the equity markets. 

As we have previously discussed, equity bubbles tend to form against a backdrop of excess growth and excess liquidity.  We see key preconditions for an equity bubble over the coming months: caused by central bank and government activity to prop up the global economy, resulting in excess liquidity and elevated firepower on the side-lines. 

We have also seen an unusual trend emerge which should make us all sit up and think!  During the recent rally we saw the emergence of a new phenomenon, companies called tera-caps, i.e. companies with a market capitalisation over $1 trillion.  There are now 3 trillion dollar market cap stocks (Apple, Microsoft, Amazon.) They have a collective market capitalisation of cUS$5 trillion; almost as large as the world’s 2nd largest equity market (Japan). Alphabet is close to making it a 4th tera-cap; then the group would be bigger than Japan in market cap terms.

Think about that for a moment - 4 companies are worth more than the whole of the second-largest stock market.  Never mind Europe and the UK.  On a slight aside, Jeff Bezos enjoyed the largest daily jump in wealth on Monday, when his fortune leapt by £13 billion.  The Amazon founder’s wealth now outstrips the value of blue-chip giants such as Nike, Exxon and McDonald’s.   While much of the global economy has been ravaged by the coronavirus pandemic, Mr Bezos’s 11 per cent stake in the online retailer has surged.  His fortune has risen by $74 billion since the start of the year to $189.3 billion, meaning that his net worth exceeds that of Qatar, which has a nominal GDP of $183 billion.  These are staggering facts and highlight what has driven the market recovery in America.

So do we believe that the markets are now in a bubble that could burst again?  If so, do we reduce risk in portfolios?  Or are these conditions going to persist for as long as there is central bank support for markets and this enables economic activity to be restored?  This could be the right thing to do and just as equally, we could be witnessing the biggest sell signal we have ever seen!

So who do we listen to?  The pessimist or the eternal optimists.  We need to make a judgement call based on what we believe is the right thing to do.

We must, therefore, avoid making decisions based on biased information, rushing to action without fully reflecting on what conditions we are facing.  Unfortunately, the worst thing we can do is nothing and therefore miss an opportunity. 

In a world where investment decisions are being made based on shorter and shorter time horizons, we have to juggle a very difficult balancing act.  Investing is inherently requires a long term perspective but the markets that we are involved in have forced it to become a shorter and shorter-term endeavour.  We are measured on quarterly performance but know that in many cases client money is invested for many years or even decades. 

We are very often judged on our investments by performance alone and in some ways this is flawed.  In markets where there can be profound randomness in outcomes, it is crucial to be able to make proper decisions based on a proper understanding of the circumstances in which they evolve.  The desire to adjust risk accordingly and manage money based on hindsight is almost impossible.   

Performance outcomes vary and there will inevitably be periods where skilful or sensible decisions will appear inept and the lucky decisions will be the most profitable.  Judging the quality of a decision in financial markets is fraught with difficulty.  It is far easier to use the shorthand of relative performance and replace a difficult question with an easy one. 

But one thing we have learned is you have to adapt and stick with the process.  We have mentioned this on numerous occasions in the past 3 to 4 months as we have tried to navigate our way through what are incredibly difficult markets.   Hence the reason why we keep talking about longer-term themes.   As we have pointed out on numerous occasions, we know that governments will force more people to use more fuel-efficient modes of transport over the next 12~15 years and beyond.  We know that more and more people are being born every year in Asia and Africa and that these people will mature and enter the working environment.  They, in turn, will earn more money and boost economic growth in those parts of the world.  We know that people are living longer and therefore want to be well for longer and demand more spending on health care and we know that more and more people are moving into cities, especially in Asia.  These are trends that we can accurately forecast and therefore why we believe these are so important.

We just don’t know when/if the market bubble will burst, when it is right to sell equities and hold cash or even how Brexit will evolve or the result of the American elections.  Trying to second guess this short term market noise will lead us to make more mistakes as we have no idea how these will evolve. 

Inherently we are now facing a situation where markets are very different to the ones we have experienced in the past.  Levels of income have fallen, interest rates are practically zero and will not rise for many years.  So yes there are concerns that they have risen too far too quickly and therefore we have to make decision, do we continue with our long term themes and our belief that the situation will eventually right itself, or do we de-risk portfolios potentially move too early and risk underperformance?  We are therefore risking being damned if we take no action and the market pulls back and again damned if we take our foot off the accelerator and markets keep going and we miss out on some performance. 

As I have mentioned on numerous occasions before we are tasked with managing other people’s money and make decisions on behalf of other people’s to allow them to achieve their long term expectations and aspirations.  We inherently have to be more cautious than we may wish to be certain times and risk that people believe that we are being far too reckless if we fail to see a significant correction.  We all wish that we could invest with the benefit of hindsight but that is not an option.

We are starting to address risk in portfolios.  Over the past few months, we have reduced our UK exposure and we are also building up exposure to short-duration fixed-income investments and to inflation-linked bonds.  Although inflation is not a problem at the moment, we think that it will become a bigger issue as we move towards the end of the year and the cost of living starts to creep up once again.  You will, therefore, see a number of deals going through.  We are also continuing the general transition towards Asia and Emerging markets as again we feel that those economies represent the best long-term growth prospects.

I have no doubt that over the next few months, we will see some form of correction.  The notion of a second wave of coronavirus will probably cause a spike in market volatility.  I hope that the vaccine that has been announced this week, will be the saviour that it allows economic activity to move back to normal, but when you also read that people’s perceptions of the safety of a vaccine have already been distorted by social media and therefore potentially 25% of people could refuse to take a vaccine, negates the benefits of the hard work that has been put in place by scientists.   This makes a decision even more difficult.

It brings us back to the original point - we have to listen to advice.  This will enable us to make an informed decision on what and why we are doing things.  Not everyone will always agree with what is being written or said but if we ignore this advice then we run the risk of making a bigger mistake.

Following on from the comments last week about carbon emission, I have received some lovely emails pointing out a few errors in my statistics, namely the size of ships when measured in football field length and the fact that ships have now moved to slightly more environmentally friendly fuels.  I have also had a lot agreeing how important it is to consider other issues and appreciate that what is acceptable to one person may be completely unacceptable to another. 

Another colleague also pointed out some useful data which I thought was even more staggering than the data we shared last week.  Therefore to pass on even more information, we are going to start a feature in the market commentaries providing “useful” data to improve our understanding and increase our perspective when we read the media.  The attached data was found by my colleague, Martin, who in turn found it on the Robeco website and it is about cryptocurrencies and in particular bitcoins.

Spending 1 bitcoin consumes 654 kilowatt-hours of electricity wish is equivalent to 776,000 transactions made on the visa card payment system. 

The energy needed to process the immensely complex blockchain algorithm for one single transaction would power 22 US households for 1 day. 

In 2019 the total energy consumption of the entire bitcoin network (including the “mining” cost of making units of cryptocurrency) was calculated to be 52.1 terawatt-hours per a year or higher than the entire annual electricity consumption of Romania.  Put it another way, that amounts to 35.1 million tons of CO2 equivalent to the amount of 4 million petrol engine cars produce a year. 

It is another example of where huge amounts of computer power and therefore air conditioning is required to run a process that some people argue could make our lives more efficient.

Anyway, I hope you are well, please take care and as per usual, if you have any comments or wish to discuss anything in more details then please don’t hesitate to contact me.

If you are interested, the book is called “You’re not listening. What you’re missing and why it matters” by Kate Murphy.


Nothing in this article should be construed as personal advice based on your circumstances.  No news or research item is a personal recommendation to deal.

The value of investments can fall as well as rise. Investors may get back less than invested.

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