We must be alive to how technology is fuelling the growing divergence of information, says Forstrong Global president
WP presents a weekly series with Forstrong Global president and CIO Tyler Mordy highlighting and analysing seven macro super trends. In part five, Mordy examines splintering world views and the impact of COVID-19. Don’t miss part 6 next Thursday when we’ll focus on the end of Team America’s unbreakable run. If you missed part 1 on the dawn of the fiscal stimulus era, part 2 on globalization in a post-virus world, part 3 on the rise of emerging Asia, or part 4 on inflation, click on the links.
Something is broken with the flow of information today. Not everyone feels it. But the evidence is hard to miss. Financial market participants scramble to react to every twist and turn and, lately, every new COVID-19 data point – not to mention every new tweet from Donald Trump’s capricious Twitter feed.
Global anxieties are high but Tyler Mordy, CIO and president of Forstrong Global Asset Manager, believes the most conspicuous part of all of this is the growing divergence of public opinion. Gaps in world views continue to widen and the world is splintering, he told WP.
Some of the causality is well-known. Tensions over wealth inequality and stagnating median incomes have been building for decades and now dominate public discourse. Prior to the pandemic, populism had already reared its ugly head; the past year saw uprisings in Paris, Hong Kong, Cairo, Beirut, Barcelona and Santiago.
Until more inclusive economic growth emerges, stresses will persist. However, it’s not just a growing gap between the haves and have-nots. Mordy said that this splintering is occurring right across the world and that deeper undercurrents are at work.
A prime example of this is the online “doomster community”, which has aggressively gained recruits since 2008’s global financial crisis. Mordy explained: “Schadenfreudian pundits are their leading prophets, stoking allegiances by warning about potentially overlooked looming disasters. Dozens of possible dystopian futures dominate their chat rooms.
“Most surprisingly, however, is not the extremism of their views, but the makeup of their membership: a wide variety of backgrounds — in race, culture and socioeconomic status — firmly subscribe to this worldview. Something must be really wrong.”
At the root of this problem is technology. People, capital, goods, services and, especially data, flow freely and frictionless in our modern age. We are more connected than ever. But while many predicted that this ease of communication and travel would reduce biases and unfounded prejudices and lead to a more informed and objective population, instead an unexpected outcome surfaced.
“Different investors are now drawing radically different conclusions from the same data,” Mordy said. “In many ways, we are further from each other than ever before.”
The situation has been reinforced by the global coronavirus crisis we’re all living through – and the money manager believes it has revived this doomster community’s ability to prey on people’s fears.
“This has fed perfectly into that doomster narrative,” he added. “While no one saw the virus coming, this community has claimed credit for predicting disaster. Yes, they have been somewhat right - but for the wrong reasons. These social structures are extremely good at producing data to support their own worldviews. That’s what they do.”
How did this rift in views happen? Mordy believes the answer may be as basic as the human desire to belong. Increasingly, people satisfy this third Maslowian need online, a substitute for disappearing forms of human contact and face-to-face interaction. Individuals can now seamlessly plug into a kind of “virtual fellowship”.
Yet this invites serious problems. Digital platforms often serve as echo chambers for already held beliefs, enclosing members in an intellectually impenetrable layer of like-minded peers, biased blogs and partisan views. Of course, it’s a trap. Never leaving one’s world presents a clear and present danger. New realities are not experienced. A potentially rich, textured subject stays one dimensional.
Behavioural scientists warned us about this - humans are indeed wired for belonging. No surprise then that individuals become part of social structures that systematically exclude sources of information, surviving on a steady drip-feed of confirming views and an exaggerated confidence in their beliefs.
Mordy said: “On a broader level, the results are disastrous. Individuals are siloed into strictly defined groups. Deep divisions are sowed within societies. Inequalities are even amplified between nations. Crucially, tribal allegiances replace rational analysis. Looking ahead, arbitraging this will be the winning investment strategy.”
The Forstrong investment team is only too aware of the pitfalls our biases can create. Behavioural psychologists have done a lot of work in this area and there is evidence of a strong dopamine hit when someone confirms your world view. It’s actually highly addictive.
Mordy tells his team to force themselves to read views that disagree with their own, and surround themselves with a community that encourages active debate. They also emulate a Harvard Business study where you individually look at the raw data and write down your conclusions before beginning a group discussion.
He said: “That is very effective at breaking up groupthink. Human beings are very good at creating stories and amassing evidence to support those narratives. It’s a cycle that's easy to fall into.”
Having a wide network of global contacts is also a must for the Forstrong team, so you hear different opinions and voices from other cultures and countries. This is especially useful right now, with different nations enforcing different COVID-19 lockdown protocol. Which one will work best? Only time will tell.
As investors, Mordy told WP that you must be hard on your opinions, which is not an easy task. The greatest investors, he added, do two things: actively seek different perspectives and update these when the evidence suggests they should.
“COVID-19 has really polarized opinion. You either believe it's a transitory shock, or you believe it's a longer lasting depression. We're squarely in the transitory shock camp, with the caveat that we're actively monitoring that.
“The folks that are suggesting a longer lasting depression are ignoring evidence. Number one, there's no evidence quite yet that this will feed into a vicious cycle. In fact, we have the opposite. To date, the Fed and policymakers around the world have been quite effective at fixing the plumbing of the financial system and dampening systemic risks.
“Number two is that we don't have an historical template for this; everyone’s throwing darts right now. Our base case is the one that seems the most probable right now, which is there's going to be a horrific recession but it's going to be short-lived.”
Crucially, Forstrong advocates testing its base case religiously while hunting for information that might counter that view. Part of this is accepting that simple answers do not exist, certainly not when wrapped in catchy conspiracy theories or “fake news”.
Global travel can take us all the edge of places: the physical borders of unfamiliar destinations but also the margins of our own beliefs and understandings. Mordy said this been a particularly stimulating aspect over the past year as his investment team travelled to several continents, exploring the outer limits of international business, technology, science and investing.
He believes that wide-angle global perspectives are essential to any investment process. Conversely, rigid ideology, accompanied by the usual investor overconfidence, are the twin enemies of outperformance.
“We have been working on our global approach for several decades now, extending back to our founder’s tenure as CIO of Canada’s largest global investment group,” he said. “By design, investing is an intellectual contact sport at Forstrong … a collegial intersection of ideas, spirited debate and, yes, wrestling with the probability that we have some things wrong.
“Actively seeking information or views that are different from our own — and updating our beliefs when the evidence suggests we should — is hardwired into our investment process. Neither task is easy.”