On Trump, Brexit and Predictions;

There, got your attention.

If you think I can actually provide any insights on those topics, stop reading now. This post is about everything you and I collectively don’t know. And a thought or two on how to deal with it.

Six months ago, I sat in on an industry leader round-table discussion about the state of America and where things were headed. Among other takeaways, the leaders agreed on the following:

  • Trump would never win the Republican nomination for the presidency.
  • Interest rates would definitely rise in 2016 — twice.
  • The United Kingdom was the least likely country to leave the European Union. Further, the UK wouldn’t experience growth issues and would not enter an economic recession.

We all know how things turned out.

The Role of Perspective

Seth Klarman, the founder of Baupost Group who’s arguably one of the world’s smartest value investors, tells the following joke:

A physicist, a biologist, and an economist were sitting at a café across from an apparently empty building. They watched two people enter. Later, three people left. The physicist says, “Apparently there was some error with our measurements.” The biologist says, “Obviously, they reproduced while in the building.” The economist observes, “If another person were to enter the building, it would once again be empty.”

In spite of the data revolution and the ease with which we can access unlimited amounts of information, there seems to be a growing amount of uncertainty and a dwindling ability to predict the future. I have my own thoughts on why that is, but for our purposes, let’s focus on how we can deal with this increasing ambiguity.

When You Don’t Know What You Don’t Know

Harry S. Truman once said, “The only thing new in this world is the history you don’t know”

People expect things to be similar to what they’ve experienced so far in life. While you can learn from experience, it’s important to not walk into the future looking backwards.

But when you don’t know what you don’t know, you have to focus on asking the right questions. To be smarter about any issue, ask the right questions.

How many people voted for the UK referendum? Did voter turnout exceed expectation? How many people vote in the US election? What kind of voters respond to polls? Have you been polled?

What is the reason for the appreciating stock market or the drive up in commercial real estate prices in spite of a debatable economic recovery? Are there external economic factors driving this?

Do asset prices really move in direct correlation with interest rates? When we say interest rates will rise because we are in a “Historically low interest rate environment” — do we really have that much history we can rely on?

If you find yourself puzzled about the asymmetrical relationship between the tools and data at our fingertips and our growing inability to foresee or predict events around us- consider changing your frame of mind and asking yourself the right questions.

Know What You Don’t Know: The Iceberg Theory

Just because you saw someone’s 140-character tweet or read an article’s headline in a Facebook post, doesn’t mean you’re an expert on an issue. Do you really believe watching a 30 second video on your news feed while commuting to work entitles you to an opinion? I beg to differ.

The world is increasingly complex. While access to information has given us confidence, it hasn’t really given us knowledge.

We focus on the noise, but we don’t hear the signal.

To get ahead in today’s world, you need to know that you primarily don’t know, and work your way backwards. Approach every subject with the iceberg theory: You only see what’s peaking above water. There’s a lot we can’t see. So start off believing that everything is more complex than it appears and work backwards to disprove that assumption.

Numbers, Predictability and Silent Evidence?

From the U.S. presidential primaries, to the U.K. referendum, it hasn’t been a good year for pollsters. Now, because of these results, you can confidently argue that poll numbers are misleading, skewed, or even altogether meaningless.

Nate Silver gave Trump a two percent chance of winning the GOP nomination last August. One day ahead of the Brexit vote, pollsters gave the “Stay” camp a 76 percent chance of coming out on top.

Popularized by Mark Twain, Benjamin Disraeli was quoted saying “There are three kinds of lies: lies, damned lies, and statistics”. According to the New York Times, Hillary Clinton has a 87 percent chance of becoming the country’s 45th president in November. But how much confidence should we actually put in that number?

Silent Evidence

During World War II, Abraham Wald — a Hungarian statistician who worked for the Allies — tried to apply statistics to minimize bomber losses to the enemy. Researchers conducted studies of aircraft that returned from missions and proceeded to modify their armor, gun positioning, and technique.

Wald noted, however, that his study only considered the bombers that had survived. Those that were shot down could not be surveyed. In his book “The Black Swan: The Impact of the Highly Improbable,” Nassim Taleb calls this silent evidence.

So do numbers tell the story? Yes — assuming you have all the information at your disposal but how do you know you do?

When making decisions, you need to pay attention to what is not included in the numbers and ask the right questions. Seek out the silent evidence, give it a voice, or at the very least, take it into consideration so you are not blindsided.

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