Wednesday, December 17, 2008

I've been lucky...

This is a time of year to count blessings, and it turns out most of us in industrial agriculture probably don't make our list long enough.  If you have the privilege of farming today, you've almost certainly achieved much of what you have by being lucky.

This also applies to every other profession.  One of the curious side-effects of the incredible Madoff Swindle (or CDS's, CDO's, or similar derivatives) is how so many rich people could have been so completely duped.  
Even if you tried, it might seem that Madoff would have been impossible to catch. But at least two warning signals flashed for anyone to see.
First, Madoff’s accounting firm, Friehling & Horowitz in New City, New York, was a rinky-dink shop, as a simple Google search shows. The firm doesn’t have a Web page. I found it on a junky site that lists local businesses by type and address, along with the boilerplate comment, “rated as good by a New City citizen.” That’s an unlikely auditor for the $17 billion that Madoff claimed to have under management. When the fraud came to light, F&H turned out to be a tiny office which, neighbors said, wasn’t even open all the time. (The office didn’t answer its phone.)
Second, Madoff held your securities (or what he claimed were your securities) in his own advisory firm. That’s not the way reliable advisers handle publicly traded investments. The custodian should always be a large, independent financial institution that reports cash flows and trading activity to you directly. When you invest new money, you should make out the check to that account. [More]

Being rich/successful is not an infallible indicator of intelligence, skills, or judgment.  And we've developed some data to back up skepicism that is does.
I think these are fine points, but they also reflect precisely the sort of misconceptions that books like Outliers and Fooled By Randomness are aimed at clearing up. We look at successful people and see that they share certain common elements. From that, it’s easy to infer that the successful succeeded because of these characteristics in a way that’s unduly strong. We forget to look at all the other people who also share those characteristics.
To get rich in the United States you pretty much have to work hard. But the idea that success is due to hard work ignores the fact that there are all these other people working hard and not succeeding. Hard work is much more common than success. And advantages of birth and dumb luck are making the difference — separating the hard-working partner at the corporate law firm from the hard-working guy who moved the furniture into the law firm’s office. Similarly, if you only look at the successful traders on Wall Street you’ll probably decide they got rich because they’re smart — these firms usually try to hire smart guys who went to good schools. But if you look at the failures, you’ll see that they’re smart guys who went to good schools, too. The difference between the two groups is luck. [More]

Yglesias is commenting on Malcolm Gladwell's new book "Outliers"*, and the reactions to it, but to me the empirical evidence is clear:  There but for the Grace of God...  For the intelligentsia, this admission would be tough to make, as it undermines their status, I would think, and hence the many negative reviews.

We are, of course, reluctant to ascribe achievements we have struggled for to "accumulation of advantage".  In fact, our belief in people with superior ability to accomplish consistently superior success is so strong many slavishly copy the success story of the month.

One long-running disagreement I have had with the editorial policy at Top Producer centers on this idea of allocating success disporportionately to people and not circumstance.  Indeed, my former editor, Marcia Taylor, considered the "profile" or personal success story to be the epitome of professional advice.  (I rarely read them through).

In my occasional moments of fairness, I wrote this response off to simple jealousy. What did those guys have I didn't? Answer: some great breaks at crucial moments.  This is patently false, of course, but as the economy crumbles around us, it is revealing feet of clay in wingtips and workshoes alike. Rich people didn't suddenly turn dumb, often their luck just ran out.

As Iglesias points out, we in the media repeatedly fall under the influence of a type of survivor bias.  And all around us in farm country are wannabe farmers every bit as good as current producers who simply were not in the optimal places at the optimal times.

What the evidence also suggests is that old disclaimer for market advisors is likely true for producers as well: past performance is no indicator of future results.

Still, the accumulation of cultural advantage does offer some cushion from the random outcomes to our plans.  So counting your blessings may be a better indicator of what 2009 holds for your farm than your painfully wrought business plan.

* Haven't read it yet - waiting for paperback or Kindle.

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