The real stories behind the data

In today’s Exponential Investor…

  • What the headlines aren’t telling you
  • Why keeping an ear to the ground can help you invest
  • What alternative data can help us make decisions?

It seems that the divergence between the stories we hear from our friends and the headlines we see in the paper has never been wider.

Our friends are only talking of difficult selling their property, or filling a vacant room, but the headlines say house prices are surging across the UK. (I wrote about this particular theme before, you can read more here.)

But since writing that piece, it’s a theme I’ve noticed more and more.

An Instagram post prompted this article, unusually.

Not a pal, foodie influencer or professional skier though (my carefully crafted content), but from an account called Chartr Daily, which does neat data presentations. This time, on the box office.

Source: Chartr Daily, on Instagram

I looked at this chart and one simple thought struck me.

Belief in the recovery is overstated.

Clearly, people are nervous about sitting in poorly ventilated cinemas watching a stressful film (lots of panicked breathing!). Or perhaps, finances are tight enough for many that spending £15 to see a film seems excessive. For whatever reasons, the blockbuster film which hoped to bring people back to cinemas in the same way as EOTHO did for restaurants has not worked.

We Brits at least cannot turn down half-price munch, and I for one respect that.

But full-price cinema, indoors, for three hours? Not such an appealing prospect.

And so I formed my opinion, which spelled out in full looks like this:

Based on my peripheral reading of headlines, commentaries, articles, and reports, there seems to be a consensus view, lazily accepted, that a steady recovery is underway and things are moving back to normal. The data from the film Tenet, showing much lower attendance than for similar films in previous years, suggests that this view is overstated.

But this leads to a big question: what is “consensus”?

Trying to figure out what consensus is forms a key part of the investment process. Challenging assumptions has the greatest chance of gain. When everyone is certain of something and wrong, you stand to make a lot of money, or save yourself from losing plenty.

However, the internet and social media seem to have made it even easier to cocoon ourselves into our own echo chambers, reading and listening to views which predominantly match our own. Now obviously I’m right about everything all the time, so for me that’s okay, but it’s important to look beyond one’s own bubble whenever possible, in order to try and gauge “consensus”.

Investing is about finding and beating consensus, so it’s surprising how lazy people are about thinking about what consensus is.

Which papers should you read, which comments matter and do asset prices tell the truth or reveal madness?

Anyway, I skipped all of these minor complications in that moment, and thought to myself, “belief in the recovery is overstated”.

The Tenet data added to a growing sense in my mind that we are all being lied to. It was the second of three main parts of this argument.

Dramatic, right?

Well that’s because I’m writing about anecdotal evidence which might challenge the mainstream economic narrative… Got to spice it up somehow!

Anyway, the first part of this argument regarded property.

I’ve already written about the anecdotal evidence from the property market which suggests the surge in prices may be short-lived and full of regret, because I’m mainly hearing people say that they can’t sell or can’t find tenants. For a long time. Since that article, my landlord just had to cut the asking rental price by 10%, for the second time. Not for me, sadly…

Well the third bit of anecdotal evidence which challenged consensus came in a conversation with Sam Volkering last week, our own tech investing expert.

To be clear, this one goes against what I think (which is that things are worse than the consensus believes).

Sam was telling me about the new Sony PlayStation 5, how amazing it is and how he’d spent 48 hours trying site after site trying to lock-in a pre-order, which went live this week.

Now these games consoles are going to set you back £450 or something like that. A fair bit more than a cinema ticket, that’s for sure.

And so I was very interested to hear that Sam had really struggled to even pre-order one, because on the first day they sold out on Amazon, Game, everywhere.

I’m aware that Sony has been a resurgent force in recent years, from a technological standpoint as well as an investment one, so I wasn’t surprised to hear Sam’s excitement about the console itself.

But I was surprised to hear that it was selling out so fast. 

If the first part of this article was giving anecdotal evidence that the recovery wasn’t quite so well formed as people want to think, this suggests the opposite.

What conclusions can we draw from these contrasting stories and datasets?

For me, it’s adding to a growing sense of a “K-shaped” recovery, where economies and societies are splitting up in the aftermath of the first pandemic and lockdown.

Some things really are recovering well, and some are falling behind terribly.

Employment will continue to deteriorate, but those who’ve kept their jobs have been essentially unaffected. Maybe that’s how there aren’t enough people to fill a cinema, but there are enough to buy out the new PS5.

Recessions don’t happen in a month though, and the stories of sectors under duress – cinemas, and property in this instance, will slowly filter through the economy.

After all, one person’s spending is another person’s income.

If cinema chains can’t come back from this, jobs will be lost and the situation for property companies will worsen, as mortgage payments are missed with increasing regularity. 

I think it’s very useful to try and find anecdotal evidence from your own life and network, to see what the real story is.

The headline data – GDP, CPI inflation, house prices – they just tell big, nominal figures, which are of very limited help, I would say. Anecdotal evidence helps to understand which way the data might go next, because it might take a while before the impact of such things is felt in a GDP figure or inflation data.

To add colour to our understanding of how the UK economy is shaping up, hearing about people’s experience of selling a house or of the small business they run will give a much better picture of the state of play.

So keep an ear to the ground, and let me know if you hear anything interesting!

Here is where you can email me, if such things are ever worth sharing.

For now, with all markets and assets tanking at the start of the week, after the Nasdaq broke down last Friday to continue its journey 20,000 leagues under the sea, all I would say is that the anecdotal evidence says we shouldn’t place too much faith in the recovery, or a rally in stocks.

As has been true all year, caution and patience remain the watchwords.

Best wishes everyone,

Kit Winder
Editor, Southbank Investment Research

PS Gold is the ultimate safe haven, and with a little dip today and turmoil in the rest of the market, this could be a ripe moment to look at the best ways to get in. Read more here…

Category: Commodities

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