The intellectual elite told us the housing market was contained just moments before the biggest housing crisis in U.S. history. They told us the stock market had reached a permanently high plateau weeks before the biggest stock market crash in U.S. history. They told us the world was running out of natural resources just prior to an epoch productivity surge in the production of natural resources. They told us inflation was transitory while it took root in the U.S. economy.
Who the heck are these people?
As investors, we need to proactively identify members of the intellectual elite. Only then can we totally ignore what they say.
A tip of the hat to the economist Thomas Sowell, who taught us about the intellectual elite through his writings. Much of what follows are either his ideas outright or were inspired by his writings.
According to Sowell, the intellectual elite are people that specialize in the packaging of ideas, not in the quality of the idea itself.
The most basic element of effective packaging is what Sowell calls articulation. Articulation is the way in which the message is actually delivered: the choice of word, the organization of materials, the adherence to scholarly form. The intellectual elite are pros at articulation. They are proficient with the turn of phrase, the one-liners. Soundbites roll off their tongues like Fords off the assembly line.
Evangelists come to mind. All evangelists are not members of the intellectual elite and certainly not all members of the intellectual elite are evangelists, but most evangelists have a talent for communication that is common with members of the intellectual elite. They know how to connect with people. They know how to convincingly deliver a message.
A second element of effective packaging is what we call the platform. The platform consists of all the trappings that accompany the message, particularly the resume and pedigree of the one delivering it.
Ben Bernanke, for instance, has two degrees from Harvard, one from MIT, and was a tenured professor at Princeton prior to becoming the 14th Chairman of the U.S. Federal Reserve in February of 2006. He became a Nobel Laureate in 2022. Nice resume. For an economist, it doesn’t get any better.
When somebody of Bernanke’s stature speaks, we tend to listen. Who are we to question the Chairman of the Federal Reserve with all those medals and distinctions hanging around his neck?
Ben Bernanke’s resume, in short, makes him uniquely qualified to be the expert in macroeconomics. Not many can top his credentials. That is why when he says the U.S. housing crisis is likely contained, we believe him without question. The trappings that surround the message – the resume and pedigree of the person giving it, the institution that he or she represents, the nature of the people genuflecting before him – are so impeccable and creditworthy that no one feels the need to verify the actual idea behind the message. We just accept it and assume it has been thoroughly vetted. Big mistake.
Irving Fisher was a Yale graduate and had tenure as a Yale professor when he said that the stock market had reached a permanently high plateau.
The professors that gathered in Rome in 1968 and told us we were running out of natural resources all represented famous prestigious institutions from around the world.
Colin Powell’s reputation was beyond reproach when he warned us of Iraq’s weapons of mass destruction.
Like Bernanke’s comments about U.S. housing, each of these ideas was flawed, yet the pedigree of the person delivering the message made the idea itself more believable. Colin Powell, in fact, was chosen to deliver the message on weapons of mass destruction for exactly that reason: he had a stellar reputation and his poll numbers were high. He was believable. No one would challenge him.
The market is sometimes slow to respond to incoming data that doesn’t fit neatly into an existing narrative. A bridge built with planks consisting of better theories than those that exist in the market is a well-built bridge.
A well-built plank does not always have immediate utility. It is time well spent, in our view, to nevertheless build those planks with no immediate utility but with enormous long-term potential. Those types of planks are the homeruns of the future.
Planks should be firmly secured to the bridge for future use. A well-written document are the nails and glue that secures the plank to the bridge. The act of writing not only focuses the mind, but creates a document that preserves the moment for a lifetime of use.
The best investment managers with great track records almost always surround themselves with like-minded plank builders. Networking with like-minded plank builders is a wonderful way to extend your bridge further than you could ever build it on your own. You build your planks. They build theirs. You then exchange planks.
A final way to accelerate bridge building is to train others in the art of building planks. Proteges once enlightened in the art of plank building sometimes build better planks than the mentor. Mentoring pays big dividends.
