Investing and The CIA

Things are not always as they seem.

James Bond is the best known spy. Shouldn’t that be a career ending defect? 

Other things are a bit counter-intuitive too.

Being underestimated is an advantage

The CIA is frequently portrayed as a collection of bumbling incompetents. If you headed a spy agency, would you have an entire department dedicated to creating the incompetent image?  I certainly would. Underestimating spies is a serious error.

What do spy agencies do?

Getting information is the easier part. Despite the problems, mystique and romance of James Bond, it is harder still to know what the information means. Analysts hold enormous quantities and information and must try to determine meaning. That aspect of intelligence gathering, and its eventual use, has issues.

Why good intelligence is hard to achieve

  1. Some of the data you have is wrong
  2. Some information becomes obsolete
  3. Some of the information is current and right, but misunderstood
  4. Some information only has value when combined with other information
  5. The combinatoric problem is near infinite if there is a lot of data
  6. Complex assessments are hard to communicate, especially when they are a best guess
  7. Sometimes the people who should act don’t believe it

Sounds a bit like finding a worthy stock to invest in

In the United States, there are about 4,500 publicly traded stocks you could buy.  Tens of thousands worldwide. We have seen over a long time about one in twenty five will make money and about one in a thousand will be a super-stock. But which?

The CIA may have a stock picking department, but they don’t publish if they do. They do however publish a book that is available as a free download. Psychology of Intelligence Analysis.

You can get it at Amazon if you would rather not connect to the CIA site. Not free though.

So James would have a template. 

The psychology of investment intelligence, if it is ever written, will follow the same pattern of thought. Gather, assess, combine, decide, test, reassess, recombine, revise. ACT. Check. Revise again. One fact won’t do it. 

It is hard to be right with one impression.  The CIA might notice tips from a barber or taxi driver, but they would do a lot of digging before they based a decision on it. 

Information is overwhelming

If you had twenty pieces of data and only five mattered, there are more than 15,000 ways to pick the five bits of data. Clearly there must be a way to think about the problem. Every investment has more than twenty factors. Some are hype, some misleading and some crucial.

A simplifying assumption.

Accountants do financial statements annually and quarterly. These time scales are artificial. Businesses are not so compact. To deal with that, there is a long series of assumptions. GAAP. Some make sense, and for a particular business some do not. 

No matter what though, cash and cash flow tend to be real.  Repeat, cash is real, everything else is assumption. Net income is not always helpful unless you know how the assumptions work.

Successful investors do it

Some without knowing. This article is worth a look, if only to motivate you to improve your investment selection process and methods.

Were Dalio, Munger, and Soros CIA Trained?

I suppose it is possible, but unlikely.

It is more likely that the process of thinking is similar and by using the intelligence analysis ideas to make better investment decisions, these managers have flourished.

We know they are organized, disciplined and curious. Having a method to combine those traits is to their advantage.

Recall an important point.

You don’t need many winners to build a huge portfolio. You do need to avoid big losers.

A method of gathering, and assessing information is important. A method of assigning meaning to it and keeping that meaning current is crucial.

Take a little course from the CIA and improve your technique.

Don Shaughnessy arranges life insurance for people who understand the value of a life insured estate. He can be reached at The Protectors Group, a large insurance, employee benefits, and investment agency in Peterborough, Ontario.  In previous careers, he has been a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business.

Please be in touch if I can help you.  866-285-7772



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