“Since we cannot change reality, let us change the eyes which see reality.”
Nikos Kazantzakis, Greek writer and philosopher (1883-1957)
“Reality is merely an illusion, albeit a very persistent one.”
Albert Einstein, physicist (1879-1955)
“You should never, never doubt something that no one is sure of.”
Willy Wonka in Charlie and the Chocolate Factory (by Roald Dahl, 1964)
Perception is reality, as they say. We’re all a product of our own unique past. That makes our individual opinions and judgements highly subjective. But when it comes to the world of investment there’s real money at stake. So we’d better make sure we know what’s going on. How do we do that? A look at eccentric confectioner Willy Wonka provides some clues.
Most of you have probably heard of Willy Wonka. He’s the fictional, top-hatted maker of sweets and treats at the centre “Charlie and the Chocolate Factory”, Roald Dahl’s 1964 book for children. (There are also two film adaptations and a stage show.)
You may ask, why on Earth am I talking about this quirky figment of Roald Dahl’s imagination in an article about investment? Well, let me put it this way. Never let it be said that OfWealth doesn’t take its inspiration from a wide range of sources.
An old university friend, with a bias to the centre right of politics, made a provocative political comment on Facebook this week. He was hoping to get a reaction from his more left leaning friends, but by way of some light hearted banter.
One of them duly hit the keyboard and posted a photo of Willy Wonka, with a (misspelt) caption that made a dig at his country’s current government, which leans slightly to the right (or wildly to the right, depending on your viewpoint).
Aside from anything else it struck me as odd that an offbeat, fictional factory owner – a “capitalist pig dog” in the eyes of hard core socialists – was being used as a spokesperson for socialism. It got me thinking…
For those who don’t know the story of Charlie and the Chocolate Factory, a boy (Charlie) from a dirt poor family wins one of just five golden tickets. These have been hidden in millions of Wonka brand chocolate bars on sale around the world. The finders of these tickets get to visit a mysterious sweet factory, where no one is usually seen entering or leaving. The factory is owned by Willy Wonka, an eccentric but secretive genius of the confectionary business.
The workers in the factory are all a type of diminutive people called Oompa Loompas. They like to sing a lot. Four of the children that won golden tickets are obnoxious kids that all meet with various sticky ends through the day. At the end of the day Wonka tells Charlie, the last remaining child, that he is giving him the factory to own and run in the future, because he doesn’t trust adults.
So let’s work out Wonka’s scorecard. Is he a capitalist pig or a socialist visionary? And what does that tell us about the world of investment?
In the capitalism corner: Wonka owns the factory and everything in it. His product targets innocent children. His golden ticket marketing ploy led to a media frenzy and a massive lift in sales. Inside the factory he exploits short people, who never see daylight, and are kept prisoner deep inside the compound along with all their families. They sing to relieve the oppression of their slavery. Wonka is obsessively secretive about his delicious recipes to ensure massive market share and maximisation of profits. Never mind if there are health concerns, or if millions of children end up with tooth decay.
In the socialist corner: Wonka is uninterested in profit. He just wants to create tasty treats to alleviate the humdrum lives of the oppressed masses. He has rescued the Oompa Loompas from a far worse life in Loompaland and provided them with jobs for life and secure accommodation. They have wonderful working conditions where they are allowed to burst into song at will, and with no repercussions. It’s a sort of co-operative workers’ paradise. They operate a unionised “closed shop” system, where no one is allowed to work at the factory unless they are also an Oompa Loompa. They even wear identical clothes, since all workers are equal. When Wonka wants to retire, he doesn’t sell his business for a fortune, but instead gives it for free to an extremely poor boy. As a further extension of his charity, the entire boy’s family is invited to come and live at the factory.
So which is it? Is Willy Wonka a capitalist or a socialist?
We tend to make decisions based on arguments that are a product of our own biases. Often that’s a good thing. But just as often it can lead to poor decisions.
Maybe he’s a bit of both…or neither. It just depends on your perspective. I’m just using this illustration to show that it can be argued either way. We tend to make decisions based on arguments that are a product of our own biases. Often that’s a good thing. But just as often it can lead to poor decisions.
Far away from everlasting gobstoppers and edible grass, where does this kind of ambiguity of interpretation leave us when applied to the real world?
In practical terms, in the here and now, we find that we have money to invest. And we have lots of potential places to invest it. But it turns out we can’t possibly understand any of them accurately. Sometimes we’re victims of our internal biases, our emotions, our beliefs.
How do we decide what to do? Whose opinions and recommendations should we believe and act on? Is there a solution to our in-built weakness?
By way of illustration, let’s consider a few questions, all of them directly relevant to the investment world.
Is quantitative easing, or QE (money printing), a good or a bad thing?
Is China a communist or capitalist country?
Does the latest bailout of Greece leave the country in a better or worse position?
Is Russia a failed country run by a despot, or fast growing but still in transition from its communist past?
Is gold an ancient relic or a useful store of wealth?
Is the USA a free market democracy or a centrally planned oligopoly?
Is the oil price collapse a bad or good sign for the economy?
Is the European Union a good or a bad idea?
Are US government bonds attractive investments or not?
Irrespective of what I believe, I know I could make a strong argument for either answer to all of those questions. And I know people who strongly believe one thing or the other in each case. The truth is almost always somewhere in between. The hard part is working out which answer it’s closer to.
Everything is subjective. Our unique perception is our own reality. But investment is meant to be an objective exercise. It’s supposed to be cold, hard decision making.
This ambiguity makes the investor’s life somewhat harder, to say the least. But at least if we acknowledge that we are prone to it then we’re on the right track.
How can we overcome our subjectivity and bias? The truth is it’s difficult. But you can start by reading widely. Move away from the usual mainstream media sources and their comfortable sound bites. Switch off the talking heads on TV. Seek out alternative opinions that may conflict with your own. Keep an open, but critical, mind at all times.
Ask them questions about what’s going on, and their lives. You may be surprised what you find out about the situation in their country or business sector.
Travel the world. Meet people both in powerful positions if you can, but chat to ordinary folk as well. Ask them questions about what’s going on, and their lives. You may be surprised what you find out about the situation in their country or business sector.
But ultimately, however much you think you know, just remember that your interpretation of it is always subjective. Others may “know” the exact same things as you and yet have completely different interpretations. So what’s a poor investor to do?
How about this? Make sure that each time you make an investment decision you remind yourself of Willy Wonka. Ask yourself whether he should be seen as a capitalist or a socialist. And then remember that no one knows for sure.
Then ask yourself whether what you’re planning to buy is currently cheap. No one knows that for certain either. But it’s a good place to start.
Stay tuned OfWealthers,