Sunday, September 21, 2014

The Best Thing I Have Ever Read on Conflicts of Interest and "Full Disclosure" Policy

Comes from the The Zero Hedge Conflicts/"Full Disclosure" Policy:

In the last many years, it has become fashionable in journalistic circles, as one comes to the end of a piece, to make a substantial to-do of disclosing a long slew of:
  • Holdings in various marketable securities
  • Holdings in various unmarketable securities
  • Financial interests in various entities
  • Non-financial interests in various entities
  • Loan arrangements with various entities
  • Loan arrangements with various employees or executives of various entities
  • Financial relationships with various employees or executives of various entities
  • Financial relationships with various entities
  • Sexual relationships with various employees or executives of various entities
  • Sexual relationships with relations of various employees or executives of various entities
  • Sexual relationships with various entities, and;
  • Sexual relationships with affiliates of various entities order to avoid being guilty of a conflict of interest.
We think this no more than a shameful charade.  You should too.
In the first instance, one is not "guilty of a conflict of interest."  A conflict of interest, in and of itself, is not a crime.  There is only theappearance of a conflict of interest.  Why, exactly, are appearances so important?  We think it reflects a particular attitude about public discourse.  A particularly disturbing attitude.
The only fashion in which such "conflicts" could in some way mislead or deceive the reader is with the reader's tacit or criminally negligent acquiescence.  Specifically, where the reader is unwilling or unable to distinguish facts presented by the writer from opinions expressed by the writer or somehow likely to substitute the latter for the former.  In the absence of this basic error, the farce of "full disclosure" is totally unnecessary.  Substituting appearances (or "optics" in the deception-laden parlance of our times) for skepticism only makes sense if you concede the argument that opinion ought to be actionable and that appearances can color facts.  That is, that the act of telling you we think crude is [cheap/dear] and that going [long/short] seems to make sense, somehow makes us responsible if you, without taking the time to avail yourself of any other data, lose your ass on crude.  It is that kind of thinking that makes people sue because, though they spent less time on their investments than buying a widescreen TV, they didn't get 8% returns last year.
Zero Hedge is about many things.  One is certainly the connection between skepticism and personal responsibility in matters financial.  We have no intention of enabling the sort of thinking process that facilitates the widespread fleecing of the country by ratings agencies.  ("Gee George, Moodys says its AAA-OK!").  In other words, we have no intention of treating you like "dumb money."  Skeptical market participants have no need of unfortunately named "full disclosure" disclosures that purport to purge a writer of some sort of original sin and leave behind a pure, unadulterated intellect.  In the first place, by definition, no disclosure is ever "full."  Secondly, one does not suddenly acquire the literary prowess of Hemingway or the logical mastery of Aristotle of Thrace simply by revealing that some time in the last three years one may or may not have slept with the dentist of the Chief Executive Officer of XYZ, Corporation (it was dark and we were drunk- so we still aren't sure).
One of the other factors that seems to encourage such nonsense is the increasing emphasis on personality over proof.  More and more news is about the newscaster.  Obviously, this subjects the messenger to scrutiny and perpetuates the illusion that Becky Quick's holdings in IBM are even remotely relevant.  Perhaps they are relevant so Becky Quick can show off how market wise she is.  Or so when someone convinced that Becky Quick is a shortcut to riches loses the college fund and sues, she can defend herself.  What a crock.  Becky owns IBM?  We could care less.  Entertainment is great.  Keep it out of our financial news please.
The most concerning aspect of this trend to us is the degree to which it is apologetic.  The very act of holding a certain property somehow requires a contrite and cleansing allocution, as if one has suddenly become a defendant in the midst of pleading guilty.  How did we get to this point?  Since when is an act at the very core of capitalism a shameful one?
Like David Einhorn, we think that talking about investing and investments is, in every case, a good thing™ and should be encouraged at every turn.  Even idiots should talk about investments.  It makes it much easier to identify and deal with them (and it keeps us writing about financial idiots).  As to writing about investments, we plan to do a lot of it.  So how do we plan to handle conflicts?
We don't.
You should assume that at all times we are so totally just talking our book it would shock and awe you like the unexpected, early-morning arrival of a cluster of BGM-109C Tomahawks (were you a believer in the importance of "optics" that is).
we make a off-hand remark about New Zealand sheep herders it's because
we are long New Zealand West Island Cold Kut (NZ-WICK) Wool futures and
Kiwi brand Condoms ("For it's pleasure").  If we are joking around
about Cliff Asness, it's because we have developed a synthetic short of
ARQ.  If we jest about Joe Sixpack, it's because we are trying to hype
our cheap-American-beer holdings so we can exit quickly.  Basically, we are telling you about a position we believe in strongly enough to invest in.
We've always wondered this: Why would you want to read about a position so uncompelling that the author doesn't have the stones to put their money where their keyboard is?  Even if you elected to read such material for entertainment value (what else is there anymore?) why on earth would you ever consider it "more credible."
The reality is, critical readers should read analytic posts and the rest of
Zero Hedge with the blanket assumption that the author is totally
"conflicted."  (Phrased more logically, that the author stands to benefit from being right- imagine that).  This turns the conversation to the content, and away from
the author, the author's biography and the contents of their IRA
account / blind trust.  This (the content) is, of course, where the focus should be.  If you think otherwise you might be one of those people who thinks it was a good idea for a news program hosted by Dan Rather, and where viewers spend 66% of the non-commercial time watching his mug, to be in HDTV.  If you still get something out of our writing
with the assumption that we are invested in our position and stand to gain personally from you believing us, well, we've done our job.  If not, then our being
"unconflicted" isn't going to change the fact that we have a weak
argument or poorly reasoned prose.  At least, if you're not one of the "optics" idiots.
People, you don't test a safe under
ideal conditions for the safe and call it good.  You test it with all
the advantages to the burglar.  And then you let the burglar cheat.  If it still remains closed after that, then it's
Plus, we just aren't going to spend the time checking to see if the third largest vendor of XYZ, Corporation might employ someone we once had martinis with.  (Again: Full disclosure... isn't).  We are effectively guaranteed to have missed something else even if we discover such a relationship and, frankly, we've had far too many martinis over the years for this kind of search to be non-trivial.

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