Tag Archives: data

Are They Telling Us The Truth? – Maybe The Issue Of The Era (60 Minutes Reveals a Liar)

Who can we trust?  Who can we trust to tell us the truth?  Especially, when the truth really matters?

This is not a new concern.  And, the sense that more and more people seem to be so untrustworthy may be a false sense.  I suspect that if we picked any decade, from any century, thoughtful people would be writing that there seems to be an alarming and society-threatening erosion of ethical standards evident to all.

So, now it is our turn.  And, really, what do we do?

This blog post is prompted by the very disturbing exposé on 60 Minutes last night, Deception at Duke.

The story focused on the fraud perpetrated by Dr. Anil Potti at Duke University.  This fraud was pulled off right under the nose of “the renowned lab of Dr. Joseph Nevins,” and Dr. Nevins had selected Dr. Potti to mentor.

Dr. Nevins believed in Dr. Potti.  He clearly should not have been so trusting.

The story centered on a breakthrough discovery by Dr. Potti that would certainly bring healing to cancer patients.  “80%” was the promised rate of cure.  But it was all built on a  house of lies; outright fraud.  From the report;

Pelley: Is it a close call? Or is it abundantly clear that the data were fabricated?

Nevins: Abundantly clear.

But this brief blog post is about the deeper implications:  “Are they telling us the truth?”  From Enron, to BP, to mortgage lenders to borrowers to Wall Street Banks to big banks to politicians to…  we face an era in which the ability to discover whether or not they “are telling us the truth” is the most important skill to develop.

How can we tell if someone is lying to us?

And, there is something of a spectrum to this.  There is the outright lie, as in the case of Dr. Potti at the Duke lab.  And then there is the overabundance of sloppy reporting, sloppy research, inadequate diagnosis of problems and solutions that is rampant.  And some (most) of this is from well-meaning, “honest people” who simply think that know more than they actually do know or can know.  And, yet, they announce their findings with such certianty.

I could give a long ist of business studies and books to add to this, like:  Jim Collins  and his pronouncements in Good to Great.  Good to Great came out in 2001.  That is eleven short years ago.  Of the eleven “great’ exemplar companies, notice these three:

• Circuit City – now bankrupt

• Fannie Mae – now…  we’ll, you know their many failures

• Wells Fargo – which just settled as one of the big banks with illegal practices in the foreclosure aftermath of the great 2008 financial crisis

Please do not misunderstand.  I am not accusing Jim Collins of being in the same category of Dr. Potti.  Dr. Potti lied.  Jim Collins was wrong.  That is a big difference.

Mr. Collins would argue that, at the time, these were in fact “great” companies.  And his follow-up book, How the Mighty Fall, was an attempt to describe how companies can fall from greatness.  I like Jim Collins’ books.  But when a writer writes with his kind of certainty, and then has to explain where he missed it, maybe there should be a red flag waving saying “don’t trust what this guy says so quickly.”

(In Great by Choice, Apple is an example of a “failed company”; but, as he explains, he was describing the Apple in the years before their greatest triumphs.  Here’s the flaw in his reason – their “bad years” may have been so very important to set them up for their insanely great years.  So, were they truly a failure?  I suspect not).

Back to the Duke story.  There is no indication that Dr. Nevins in any way participated in, condoned, or ultimately excused the lies of Dr. Potti.  Dr. Nevins was as astonished as the rest of us.  In fact, he looked just a little shell-shocked to me in the interview.  But, if the man overseeing the work did not catch the fraud, because he wanted to believe the good news, then what chance do the rest of us have in catching the fraud?

This blog post is simply an “I’m thinking about all this” post.  Here is one of my thoughts;  we live in a data-rich era.  Every book, every study, has to have data.  Jim Collins is data driven.   But there is some indication that one can carefully select data to “agree with” an already reached conclusion.  And, when one presents “findings” in such a “this is right, and it can be trusted” format, then when things do not turn out that way…  well, trust becomes one of the casualties.

60 Minutes seemed to be asking”  “Who can we ask to find out if the data really is trustworthy?”  I would like to know the answer to that question.

A friend of mine, a good teacher in a very fine local MBA program, reminds me that this is not a new problem.  It has always been with us, it will not go away, and…though he does not say these words, he implies that there is not much we can do about it.  Ethical failure almost seems to be the human condition.

“There is not much we can do about it.”  Now, that is an observation that can lead to genuine despair.

I’ve been thinking about numbers…

A book about Baseball -- and so much more!

Last night, I presented for the first time in about six years my synopsis of Moneyball:  The Art of Winning an Unfair Game, by Michael Lewis.  It is a book that chronicles how the Oakland A’s, under the philosophy of General Manager Billy Beane, was able to compete with the big boys on much less money.

Consider this:

2002:  New York Yankees – 103 wins — $126 million payroll
2002:  Oakland A’s – 103 wins — $41 million payroll

Or, consider this:   the worst team in major league baseball will win 49 games per year, with the “minimum” payroll.  (No, I do not understand how the numbers gurus arrive at such calculations).  So, the cost per win over 49 is another number worth crunching.  So, ponder this comparison from the same time period:

The Texas Rangers spent $3 million per win for every win over 49
The Oakland A’s spent $500,000 per win for every win over 49

So Moneyball tried to tell the story of how numbers changed the thinking regarding how a team with limited resources could compete in a very unfair game/league.  And, though it is disappointing that the story could not end with an A’s World Series win, it demonstrated that the A’s got really, really close – with far fewer dollars than the big spenders.

But this book is not about baseball (though it is entirely about baseball).  It is actually about our blind spots.  (Yes, Lewis wrote The Blind Side also).  It is about the fact that we make so many evaluations and judgments and decisions based on intuition, and a commitmnt to “the way we have always done things,” rather than on hard and reliable data.  And such a data-deprived approach to evaluation and decision making is flawed.  And we are blind to our blindness.

Here’s a key quote from the book:

By analyzing baseball statistics you could see through a lot of baseball nonsense.

In the updated edition of Moneyball, Lewis has an afterword entitled:  Inside Baseball’s Religious War.  His premise:  the way to evaluate talent in the old days (with a few checks, like running speed and batting average, and a whole lot of “gut”) is simply not as reliable as the new science of sabermetrics.  In other words, scouting baseball talent is built on a “religion,” not a science.  And Lewis chronicles how the insiders of baseball’s unofficial “Club, ” the followers of the old religion, utterly disdained Billy Beane and his ways.

But now, we are all learning to know better.  Bill James, the father of sabermetrics, the father of Billy Beane baseball, works for the Boston Red Sox, and his numbers helped break the Bambino’s curse.  (That really is the triumph of science over religion).

This is a book about baseball, about numbers, about blindness, about blindness to our blindness.  It is also a book about Wall Street and the crash without ever mentioning Wall Street.  It is about our unshakeable belief in our intuition, and our tendency to deny/ignore/stay purposefully blind to the numbers that could correct our thinking.

Michael Burry is one of the ones who saw the crash coming, and Michael Lewis tells his story in The Big Short.  Here are the first lines of Burry’s op-ed from last weekend’s New York Times:  I Saw the Crisis Coming. Why Didn’t the Fed?:

Alan Greenspan, the former chairman of the Federal Reserve, proclaimed last month that no one could have predicted the housing bubble. “Everybody missed it,” he said, “academia, the Federal Reserve, all regulators.”
But that is not how I remember it.

Whether the topic is baseball, Wall Street, investment strategies, or a multitude of business concerns, we have the same need – how can we learn to read the data, how can we understand which data is the important/most useful/most critical data, and how can we fight our tendency to go with our gut when the numbers are screaming at us something like this:

“What are you, some kind of idiot?!”

Michael Lewis, Jerry Brown, the Role of Personalities, and a cautionary tale

(note from Randy – this is one of my “I’ve been thinking” posts.)

Michael Lewis

It’s been hard to miss Michael Lewis lately.  I saw him on 60 Minutes, I heard him interviewed by Terry Gross on Fresh Air (By the way, I think Terry Gross may be the champion interviewer.  Listen to that interview here – you want the broadcast from March 16, 2010).   A friend caught him on CNBC.  I’m ordering The Big Short, and I’ve read the article from Portfolio from two years ago, The End:  The era that defined Wall Street is finally, officially over. Michael Lewis, who chronicled its excess in Liar’s Poker, returns to his old haunt to figure out what went wrong.  And I’ve read the book excerpt from The Big Short on Slate’s The Big Money:  Crapping Out at the Subprime Casino: An exclusive excerpt from Michael Lewis’ The Big Short.

The more I listen, the more I wonder – what are the lessons we will learn?

You know the litany of lessons that are trickling out:

Lesson # 1:  we need more regulation, to catch up with the changing times.
We basically never created the regulations needed for this modern complex financial market. I heard an interview on NPR that described how new regulations came about three years after the crash of 1929.  So, it takes a while for regulations to be decided upon and put in place.  But, as we know, regulations do a pretty good job with yesterday’s problems, but may not have the foresight to deal with tomorrow’s problems.

Here is a quote from This Time is Different:  Eight Centuries of Financial Folly by Carmen M. Reinhart & Kenneth S. Rogoff:
“it would be extremely desirable to create a new international financial institution to help develop and enforce international financial regulations.  Our argument rests not only on the need to better coordinate rules across countries but also on the need for regulators to be more independent of national political pressures.”

Lesson #2:  Beware of bubbles – they will repeat, and they are always trouble.

Again from This Time is Different:
The huge run-up in housing prices – over 100 percent nationally over five years – should have been an alarm, especially fueled as it was by rising leverage.

There are other culprits, including a little, or a lot of, greed and corruption.  But surely not everyone was a crook.

But the lessons and the growing list don’t quite feel adequate to the enormity of the problem.  And that’s where Michael Lewis comes in.  He tells the stories.  And the stories are about real people, who saw things differently, and acted differently

Jerry Brown, the once and hopes-to-be future Governor

I think that we are slowly learning that there is data, and there are stories, and the stories are about both data and the personalities of the people.  I read this quote about/from Jerry Brown, the once and hopes-to-be future Governor of California, in The Daily Beast’s The Madonna of Politics by Lloyd Grove:

How would Jerry Brown 2.0 be different from the original?

“I think the difference,” Brown answers, “is best encapsulated by something my chief of staff, B.T. Collins, the Green Beret who lost his arm and a leg in Vietnam [and died of a heart attack in 1993 at age 52], once said: ‘If you want to understand politics, it’s all personalities, it’s not ideas.’ Well, that was his point of view, and I do think ideas are very, very important. But this time around, I think the personality of every single legislator, all 120, is extremely important. Being able to get the requisite number of Republicans and Democrats to sign on to a budget that takes a two-thirds vote means a very serious engagement with the world view, the political life, of each of these legislators in a very extended set of meetings and exchanges, such that I can build camaraderie, mutual understanding and the kind of working together that existed to a much greater degree when I was governor and to even a far greater degree when my father was governor.”

One part of the excerpt from Lewis especially captivated me.  It’s about “Steve Eisman, the CEO of FrontPoint Partners, a hedge fund that detected the subprime mess before nearly everyone else – and the clueless masses.”

The Venetian hotel—Palazzo Ducale on the outside, Divine Comedy on the inside—was overrun by thousands of white men in business casual now earning their living, one way or another, off subprime mortgages.
“I’d been to equity conferences,” said Eisman. “This was totally different. At an equity conference you’re lucky if you get 500 people. There were 7,000 people at this thing. Just the fact that no one from the equity world was there told you that no one had figured it out. We knew no one. We still assumed we were the only ones who were short.”

Think about that.  7,000 people, many of them smart, well-educated, hard working.  All wrong.

Lewis tells the story of the meltdown through the stories of individuals who saw it coming, like Steve Eisman.  And it is through such stories that we learn the lessons.  Here’s one lesson – if the crowd is going one way, maybe we ought to stop, look, and listen.

This crisis is a crisis facilitated by, enabled by, a whole lot of people following the crowd.  It is groupthink at its worst.  The wisdom of crowds is a wonderful, powerful thing for the good.  The foolishness of crowds is a deadly, dangerous thing at its worst.  And we have definitely seen the foolishness of crowds in the midst of this crisis.

A piece that made the rounds a few years back was by Robert Fulghum’s All I Really Need To Know 
I Learned In Kindergarten.

It included this gem:

And then remember the Dick-and-Jane books and the first word you learned – the biggest word of all – LOOK.

It looks like we needed a whole lot of people to stop, and look, and ask, before they said “sign me up.”

Just because we hear it, or read it, even from trusted sources and authors and advisors, we may still need to exercise a little skeptical caution.  To quote from The Black Swan, maybe nobody knows anything.  Or, at least, very few know anything.

Look at the room in the Venetian.  7,000 were wrong. Steve Eisman was right.  One out of 7,000.  It truly is a cautionary tale.