Links for March 2017

Scott Alexander points to this blog post discussing how the venerable NYTimes massages plots to tell the story they want to tell. The NY Times is far from alone in doing this, of course. The depressing part is that if even they are doing it, who isn’t? Now’s as good a time as ever to reiterate that the Times explicitly condones narration and eschews neutrality. In the words of their ombudsman:

I often hear from readers that they would prefer a straight, neutral treatment — just the facts. But The Times has moved away from that, reflecting editors’ reasonable belief that the basics can be found in many news outlets, every minute of the day. They want to provide “value-added” coverage.

Also from Scott: Heritability and stability of intelligence vs. personality:

Results: Both cognition and personality are moderately heritable and exhibit large increases in stability with age; however, marked differences are evident. First, the heritability of cognition increases substantially with child age, while the heritability of personality decreases modestly with age. Second, increasing stability of cognition with age is overwhelmingly mediated by genetic factors, whereas increasing stability of personality with age is entirely mediated by environmental factors. Third, the maturational time-course of stability differs: Stability of cognition nears its asymptote by the end of the first decade of life, whereas stability of personality takes three decades to near its asymptote.

KOLHATKAR:…So if you’re a hedge fund trader or an analyst, you might come into work one morning and your boss, the powerful, you know, portfolio manager at your hedge fund might say, hey, I want you look at, you know, XYZ’s stock. They make microchips. Figure out if we should buy some.

OK, well, you don’t know much about microchip manufacturing. This is a new subject for you. So you’ve got to figure it out really quickly. You’ve got to do a little bit of what a journalist might do. You’ve got to start calling people and reading things to educate yourself about this business and to try and figure out if this particular company is healthy, is going to do well, if you should risk some of your investor’s money buying shares of this company.

So expert network firms rose up to kind of meet this demand. They realized that these hedge fund traders had a lot of money to spend on research and they had a constant, rapacious need for information and intelligence about all sorts of different companies in different industries. A lot of them tended to be in the medical pharmaceutical field and also in technology because both of those area’s stocks tend to move very dramatically based on the news and the earnings. The – you know, the businesses themselves are very complicated. The products are complicated. It’s hard to understand if you’re not an expertise, you’re not a medical doctor.

So these expert network firms rose up and they kind of peddled themselves to hedge funds and they said, listen, for $1,000 an hour, we will connect you with a middle manager at Caterpillar who can talk to you about, you know, how they manufacture their big farm machines and, you know, how things are going and what kind of parts they need and where they buy them. And so you could call these experts and, you know, quite legitimately just educate yourself about these different industries and companies.

DAVIES: You’re getting people who are players in the business world and they’re on the phone getting $1,000 an hour and, in theory, not divulging insider information. But as relationships develop given the amount of money they’re being paid, this seems to invite insider trading, doesn’t it? I couldn’t believe it when I read about this years ago.

KOLHATKAR: A number of people have said to me, how is that possibly legal? And, you know, from the outside, of course, it sounds like it’s going to lead to a lot of illegality. And in fact, that is what the FBI thought when they first learned about this as well. BJ Kang, who was one of the star FBI agents who worked on this case, you know, he kind of said to himself at one point, how is it possible that hedge funds are going to spend all this money on these experts and these consultants if they’re not getting anything valuable?

My calculation, admittedly very rough, is that the search by the elite for superior investment advice has caused it, in aggregate, to waste more than $100 billion over the past decade.