‘Fooled you’

Several lifetimes ago, I was being interviewed for a study-abroad scholarship. I was looking forward to attending Shiraz University in Iran before the country was turned into a medieval theocracy.

One question asked was my opinion of the “Socratic method” of teaching, creating critical thinking by a “cooperative argumentative dialogue between individuals, based on asking and answering questions.” Unfortunately, I assumed my incredible good looks and winning attitude would overcome my lack of knowledge about Socrates. It did not.

However, that one question shaped both my lifelong managerial and parenting skills. I found through the decades that if people could overcome their fear and try to answer the questions that I asked them, they became better students, employees and even sons.

“If you can get through my questions, you can get through anything.” I also discovered another learning technique: “I fooled you once. Can I fool you twice?”

A legitimate survey conducted in 2017 found that 7 percent of American adults—roughly 16.4 million people—believe that chocolate-flavored milk comes from brown-colored cows. Sadly, 48 percent had no idea how chocolate milk was made, so that tells you something about the quality of American education. Also unfortunate is that an early 1990s survey conducted for the US Department of Agriculture showed that one in five Americans did not know that beef is the main ingredient of hamburgers.

There was a time when parents teased their children about the brown-cow idea. But that teasing did serve a valuable purpose to get children not to accept at face value either what may seem sort of reasonable or a “truth” that comes from an authority figure. They were taught to question to avoid “I fooled you once. Can I fool you twice?”

The mathematical equation “1+2=3” is clean, simple, obvious, and factual. That is because there is only one kind of “1”, “2” and “3”. There is no such thing—at least on this level of mathematics—such as a “Green 1” or a “Blue 1” that would change the “equals three” when added to “two.”

The experts in economics and the financial/asset markets would like us to believe that their ideas and conclusions are equally clean, simple, obvious and factual. For example, there is no such animal as “inflation.” There are multiple ways of calculating the increase in prices. All are different and all create different results.

The “fooled you once” idea comes from the fact that long-term interest rates in the US are lower than short-term rates. It is called an “inverse yield curve.” The so-called economic wisdom is that when this happens it is a prediction of an economic recession.

The “fool you twice” is that this inversion has happened several times in the past few years not only in the US but also in Australia, for example, without any recession hitting either economy. So the US stock market dropped 1.77 percent this past Friday and Japan was down around 3 percent on Monday.

Economies and the markets—and the factors that influence them—are extremely fluid, unlike the numbers in your math book. When it comes to the stock market, you can easily lose by assuming the investing equivalent that chocolate milk comes from brown cows.

Good earnings do not necessarily mean a higher stock price. One investor’s “too expensive” is another’s “undervalued.” All markets do not move together. All stocks do not move together. Each of those statements is as true as “chocolate milk is made from fresh milk and has cocoa powder and sugar added to it.”

Thanks! Got it. Got it, thanks!


E-mail me at mangun@gmail.com. Visit my web site at www.mangunonmarkets.com. Follow me on Twitter @mangunonmarkets. PSE stock-market information and technical analysis tools provided by the COL Financial Group Inc.


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