MacroscopeOpen your eyes to see that the world is booming — we just can’t measure it properly

I remember going to visit a company in which we had an investment interest. It boasted a grand headquarters with a path, indeed a bridge, that bisected two lakes that led to the main door. In one lake there were black swans and in another white swans. We didn’t invest.

It did not seem right for a company to be so needlessly profligate with investor’s money, even if it were successful. It indicated that the managers were more interested in the managers, than the shareholders. Another investment mantra was never to buy the stock of a company who gave you a free logo pen that immediately stopped working. Attention to detail means buying a good pen – especially if it is going to bear your company’s name.

That may seem an idiosyncratic way of choosing one’s investments but it is still a better way of running money than never leaving the office. These days we drown in data, which is an opiate, dulling the senses of the digital-age investors. If you have the numbers you can manage any asset from anywhere.

At no other time in human existence have we been able to analyse big data so bigly. Hard-crunching machines work out relationships between two, three, four, five financial, economic, performance or industrial indicators – and then scientifically invest. It nearly always relies on the assumption that there is an inherent stability in the world; that things will move back to their long-term norms. So he who has the biggest machine, wins.

The collapse of the big quantitative hedge fund LTCM in 1988 was one of the more high-profile cases of data-led value destruction if only because they had two Nobel Prize winners in economics on their board – showing that even the smartest people in the world can get it wrong. Simplistically, their strategy was to bet on the distance between two flies crawling up a wall. When one of the flies, call it a Russian domestic currency bond, fell off the wall, they went bust.