25 July 2013

NAV Premiums of Certain Precious Metal Trusts and Funds - Diversity of Judgement

"A wise man proportions his belief to the evidence."

David Hume

And the pedestrian thinker confines themselves to following well worn paths where little that is new can be discovered.

There is a fascinating market structure in gold as you know if you frequent this café, that revolves around the COMEX.

Occasionally I get questions about what some other people are saying about this.  This is apart from what is said on the financial networks, which  far too often is an extended infomercial with the intent to persuade and mislead.

I generally don't like to comment on other people's work, especially when it is just about an opinion.  Opinions can differ greatly and most of the time it is not worth discussing.  I read a piece someone sent me on the COMEX that was filled with lots of facts, but few of them were relevant to the heart of the discussion about the structure of the gold market. 

This is thinking by the regurgitation method.  One learns it in school.  When asked a question, a load of facts are spewed forth on the paper, but there is little of substantial value in that particular collection as it has been arranged.  The facts are like ornaments on a tree, that contribute nothing to the structure that supports a conclusion.

When reading what someone says, one always tries to sort out what is factually based, and what is just opinion, a guess, or just rhetoric. You can evaluate the facts, and the rest is what it is. And yet we keep in mind that much discovery involves the marriage of art with science. It is critical that art does not overshadow reason and obtain sole custody of the children.

Facts matter, and opinions are sometimes what could be called judgement, which everyone exercises since the data does not often present itself so completely in the real world that things become simple and undeniable math.   Judgement is how one bridges the gaps in their data to reach conclusions, which naturally are of varying quality.  One calls them hypotheses until they are proven, or disproven.

Judgement comes with experience, but it is also subject to emotions and idiosyncrasies of the mind.  Managing one's judgement is one of the most critical tasks the advanced investor must endure, as in the case of any advanced thinker in any field.   People are not computers, but living breathing beings of a complex nature and it is rare to find someone who is completely objective, although many would fancy themselves to be. 

I recall reading a nice description of the gold forwards arrangement for example.  After a long exposition which was really quite good and complete, the author concluded by dismissing the entire area as silly and useless because the data was not available to him in exactly the way in which he wanted to have it when compared to other sets of data with which he was more familiar.

If only life were so simple, and so compliant.  Data differs in quality and quantity, always.  Because some data is more complete than other data does not make it superior to other data, especially when the quality of the data can be called into question, and the problem one is approaching is somewhat complex and parts of it are hidden.   Everyone is familiar with the old saying, 'garbage in and garbage out.' 

The sorting and evaluating of data from various sources is the basis of the scientific method, and one examines all the available data, not just that which pleases us the most because it looks nice on paper, but could in fact be wrong.  

And the great trap is to become too familiar with a problem over time, so that one obtains an emotional stake in a particular aspect of the problem.  Then it becomes MY data and approach, versus all others.  This is commonly called 'not invented here' and it is much more common than you might think.  And not just in others, but in ourselves.

Most of the time when people encounter something that differs or varies from what they believe to be true, rather than evaluate that persons facts and sort them, they begin by trying to prove them wrong with any and all means at their disposal, often relying on rhetorical tricks and device.  They are really fooling themselves.  That is why so many of these 'debates' that get staged are diverting, but useless.

At the end of the day, be your own best critic.  That is to say, before you find faults with others, look at yourself, and assess your own work to the highest standards you may obtain.  Look for any flaws in it, and try to knock it down with the same rigor and attention which you might apply to some imagined adversary.

And then you may look with a critical eye at what others present, and take what is solid and worthy, and consider the rest on its own merits, subjecting your own body of thought to the same rigorous scrutiny, always.

This is the answer to why I present my work in public, and take nothing for it.  People ask me about that all the time, why I take no advert money or ask for no donations.  Besides the fact that I do not need them, thanks be to God, the work itself is the reward.  And of course the people one meets when sifting through the stacks in search of hidden gems.  I was an antiquarian bookman for over twenty years as a hobby when traveled the world, and cultivated the habits, pre-Internet, of patient searching through nooks and piles of material, with a patient purposefulness.  Those were good days and charmingly eccentric places and people that seem to be gone forever.  But new days, new challenges, always come.

It is harder to fool yourself when you are forced to put your thoughts down on paper, and to present your reasoning.  It presents an impedance to one's thought that makes it stronger, more robust.   If you have an opinion, label it so.  If you have reached a conclusion, show the facts and your logic. 

And if you have a judgement, that is all well and good, but make sure you understand the risks in your own conclusions and adjust for them accordingly, and be honest in showing them to others.

It has often been shown that collective judgement can frequently be insightful because the idiosyncrasies of individuals are lost in the collation of perspectives.  One of my professors was a pioneer in that field, and his work influenced me greatly. 

That of course presumes that the judgements are all of a certain quality and not merely whimsical opinions.  One of the great faults is to presume that all judgements are of comparable quality.  They are obviously not, despite the notion that each person is entitled to their opinion.

Having said all that, there is certainly something odd going on the gold market.  That is undeniable, and when some dismiss this as conspiracy, well, that is because they have nothing better to say, but it makes them appear to be wise.

I wish I could tell you what will happen with certainty but I cannot.  But I can keep myself informed on the progress of an unusual condition, relying on all the metrics and data at our disposal.  Yes it does vary in completeness, and not all of it is equally relevant.  And as I put it down I look at it from a distance, and see what it has that is sound, and what is not.

And this endeavor is complicated greatly by the undeniable fact that our markets are subject to fraud, and even key metrics have been shown to have been rigged.

Anyone who does not take this into account, who denies this now known fact, which many have asserted for some time based on circumstantial evidence, is not worth the time it takes to read them. 

They are just ostriches with their heads in the sand because it comforts them.  And the best we can do is not join them in this, and to check carefully for the sand in our own eyes, before looking for the sand in the eyes of others.