Bragging Rights – Have You Considered the Context?

I often hear people bragging about personal or company accomplishments with data.  Data is truth, right?  Well, it depends on how it’s presented – what the context is.  Here are some examples:

• The CEO – I heard a CEO bragging on CNBC about a 60% return from the March lows so the company must be doing something right.  A 60% return is certainly impressive, right?  Well, actually it’s typical. The S&P500 is up something like 57% over the same time period.  Isn’t a 60% return in the context of a 57% return more like noise (standard deviation) in the context of overall market returns?  Is outperforming the market by a fraction over a cherry-picked period of time really meaningful?
• The 2-Bagger! – Here’s a hypothetical:  “We’ve double our share price in the past year!” Sounds like a company that’s doing something right.  Well, if it’s a financial that went from $100 per share before the financial crisis to $5 after, is moving the stock to $10 really something to brag about?  I mean, along the way, you’ve still lost 90% of the company’s value for shareholders while chopping the dividend along the way.  Bragging rights?
• My Investment Made 10% this month! – What did market do? And with how much risk? How much did it lose in a down month?  There’s such a thing as Beta.  If a stock has twice the Beta of the market at large, you should anticipate a 10% return in a month where the S&P500 moved 5%.  With a Beta of 2 and anything less than 10%, you’re looking at negative alpha (I know, alpha, beta – the subject of another post).  By owning a 3X leveraged ETF in an up market, it’s actually quite easy to make 10% in a month or even in a week for that matter.  However, it’s just as easy to lose the same amount – actually, with these monstrosities, you lose money even in a flat market and I’ve had spectacular results in shorting Leveraged ETF pairs due to value decay over time.
• Best Sales Performance in the Region! – Virtually everyone I know in sales is “the top Sales rep in the region”.  I don’t know how so many people can be “the top” unless there’s something else going on.  Well, in many cases, the sales folks get flown around on these trips for Top Sales Performance in the Region for the Quarter.  So, now you’re celebrating 4 times per year.  If there are only 4 or 5 sales reps in the region to begin with, on average, everyone’s going to be “Top Sales Rep in the Region” EVERY YEAR! Why do companies do this?  I don’t get it, I guess it makes them feel good, win a prize, or whatever.  In manufacturing, if I came up with a way to cut the budget by 20% or boost yields by 10% or whatever, there was never a trip.  Somehow sales groups feel the need for lavish rewards – for virtually everyone.
• I Grew Market Share by 15% in a Single Year! – What does this mean?  15% of total market share or 15% of existing company market share?  Here’s what I mean: If your company owned 10% of the total market and now commands 25%, that’s a sizable accomplishment.  However, if the 15% is on the initial company’s 10%, now your market share is 11.5%.  Is moving from 10% to 11.5% really that outstanding?  I mean, in a multi-billion dollar market for a huge industry like autos, financials, pharma, etc., great.  But if it’s selling a particular product in a niche industry, you might be talking about growing sales by $10,000 year over year.  Does that really justify bragging rights and a huge bonus?
• Infomercials – I hear some really deceiptful pitches on TV and radio, typically for “health” products since they get away with selling stuff with no efficacy at exhorbitant prices while people continue to buy it since not regulated by the FDA and the FTC is toothless.  They claim “Leading experts agree…” and other ambiguous claims that may sound impressive but have no actual meaning.  Meanwhile, a recent gold coin commercial said, “Many experts believe gold will rise to $2000 per ounce in the next decade”.  Who are these experts, and why do they matter?  For all I know, they’re completely fabricating these testimonials, or the “experts” are none other than themselves or their buddies that stand to profit from sale of the bogus good or service.  The best part is, a move to $2000 over ten years wouldn’t even be very impressive.  That’s less than a 2X return in a decade, which barring this past lost decade, stocks do virtually every other decade.

What’s the Point?

People routinely use statistics and wordsmithing to tell a story – one that is often inaccurate or misleading.  When you’re being sold a line, it’s good to know it, and if you are so inclined, to call someone out on it.  By not doing so, you run the risk of investing in crappy companies, hiring lousy employees and buying stuff that doesn’t work and may even harm you.

Any Other Examples Come to Mind?