Whilst heading to the gym this morning I heard on the radio that police had seized 280 kilogram of methamphetamine with a street value of $205 million. Apart from thinking I was in the wrong business I thought bullshit.
The reason I said bullshit was simply the result of a quick bit of mental arithmetic, 280 kilograms with a value of $205 million means that methamphetamine is probably the most valuable substance on earth because a single kilogram is worth $732,142.00. Compare this with gold and platinum which are worth about $48,000 and $45,000 per kilo respectively. Even toner ink the worlds greatest rip off only comes in at about $5,000 per kilo.
The reason this entered my consciousness other than curiosity is that at present in the Mentor Program we have been looking at the fate of Long Term Capital Management. LTCM is instructive for two reasons. Firstly, the ability of leverage to make you a fortune when things are going right and its ability to bury you when it goes wrong. Secondly, the use of models, forecast or just general numbers to attract investors and bamboozle critics. Within financial markets this is a common trick/tool – mention a number/forecast with enough authority and it enters the popular consciousness and is very difficult to dislodge.
This means that for traders you simply trust nothing anyone says when it is a forecast since our ability to forecast is limited and people who make forecasts/pronouncements/predictions are generally compulsive bullshitters.
PS : I am a fan of what are known as zombie statistics, that is numbers that are in the public view which have no basis in fact whatsoever. I believe the term zombie statistics was popularised by the ever entertaining and informative Tim Harford whose podcast More Or Less is a short course in critical thinking.
PPS: My favourite zombie stats are those that revolve around sporting events such as the Olympics. I love hearing some peanut say that the opening ceremony is being watched by 12 billion people. Its even more interesting that nobody challenges this.