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Things aren’t always what they seem

In January 2015, Hans Rosling – an adviser to the World Health Organisation and UNICEF, as well as co-author of the book Factfulness, delivered a keynote speech on socioeconomic and sustainable development to attendees of the World Economic Forum in Davos. He shared the platform with Bill and Melinda Gates and in the audience were several heads of state, a former Secretary General of the UN, high profile CEOs, a raft of senior officials from NGOs and numerous journalists. At the beginning of his speech he asked the audience to answer three questions. Rosling was nervous, the success of what he planned to say relied on the audience answering incorrectly.

So what questions were posed?

1.In the last 20 years, the proportion of the world population living in extreme poverty has...

a. almost doubled

b. remained more or less the same

c. almost halved

2.How many of the world’s one year old children today have been vaccinated against some disease?

a. 20 percent

b. 50 percent

c. 80 percent

3.The UN predicts by 2100 the world population will have increased by another 4 billion people. What is the main reason?

a. There will be more children (age below 15)

b. There will be more adults (age 15-74)

c. There will be more old people (age 75 and older)

In his book Rosling recounts he need not have worried. The majority of the audience did indeed get the answers wrong as would many of us. To satisfy your curiosity, the correct answers are 1:c, 2:c and 3:b.

These questions have been posed of audiences around the world and irrespective of educational background, gender, race, income levels or any other barometer, the same pattern emerges. There is a systematic ignorance of what are, in the case of the first two questions, examples of tremendous progress by humanity. For many millions around the world, these are very good news stories.

Why so many people get these answers wrong is best addressed by the book. Without wanting to steal Rosling’s thunder, the key reason he cites is the propensity of most people to carry an overdramatic view of the world. This leads us to remember bad news stories to a much greater extent than good.

How stories are communicated and the language used to describe them, significantly influences the emotions we attach. This issue was explored in an interesting article recently published by the M&G Episode team. In it they illustrated how the media use language to create a sense of urgency and how rarely used words in day to day language become media clichés. With reference to financial markets, commentaries create images of deliberate action to describe rising asset prices, for example, jump, soar and leapt. However, more passive action is used when they fall – slip, plummeted, plunge. Apparently humans tend to subconsciously interpret the former as implying the trend is likely to continue, whereas the language used in the latter suggests something more temporary.

The way information is presented to us shapes how we interpret it. Whatever sources we use for our news, they tend to emphasise the negative, feeding our overdramatic view of the world, as described by Hans Rosling. Again, this is particularly true for financial media. We are regularly told about job redundancies, disappointing economic indicators and significantly weaker currencies. Yet headlines are much less frequent in bringing our attention to the mundane, which, in aggregate present a more realistic view of markets. Stories only gain coverage if they are extreme, or – more commonly – the message being conveyed is purposely much more dramatic than it actually is.

For example, take a look at the chart below. It provides a visual representation of the relative volatility of the US dollar versus sterling, the euro and renminbi. As we know, the former is universally accepted as the global reserve currency and store of value, whereas the latter is a currency commonly reported as significantly manipulated or unstable in value. Over the time period, the renminbi has clearly been the least volatile versus the dollar. Yet, constant negative headlines about the Chinese currency cause many to question its potential to be a global reserve currency. Compared to the weaker fundamentals behind the dollar – i.e. a rising budget deficit, massive structural debt and huge underfinanced social contracts – this argument seems inconsistent. It does, however, provide the necessary ‘drama’ to shape views in line with the message the western financial media would like us to have.

Staying with the subject of information flow around financial markets, another trend which can unnecessarily stoke heightened emotions is the quarterly performance reporting for investments with very long term horizons. Metrics published four times a year for private market assets, which have a return profile better measured over seven years or more, in our view is nonsensical.

Bringing all this to a close, our August editions of VFTD usually take a more light hearted approach. Thinking about communication and market news flow we are reminded of our April 2014 VFTD - Instead of Language We Have Jargon. Our industry is guiltier than most in using terminology to cover up, confuse and generally keep the user in the dark. In their blog the M&G team make reference to a programme made by the BBC broadcaster Jonathan Meades, which contrasts jargon with the world of slang. He contends slang actually gets to the heart of whatever is being discussed or explained, even if it does offend along the way. In Factfulness, Hans Rosling does not resort to slang, but the statistic that only c.7% of people correctly answer the question relating to global poverty halving, clearly leaves him exasperated. He argues this is a pretty basic fact about life on Earth. To reinforce the point, and at the risk of offending, he discusses how Chimpanzees, statistically perform much better in answering the question. Please be assured, in our quest to remove jargon from communications, we would at no time monkey around with our reporting, but we do promise to remain primates with a penchant for the provocative.

Julia Warrander and Russell Waite

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