Spreadsheet Certainty

When Precision Is Only 92.11567% Accurate - WSJ.com:

"...decimal places lend the aura of authority and the veneer of verisimilitude. So the modern world is awash in squishy numbers wearing the many-figured garb of faux precision."

One would believe this does not really apply to investment performance measurement, but one would be incorrect. Think about what goes into the valuation of the numerous asset-backed securities and real estate.

Infrequent sales, illiquid markets, mark-to-model....All lay at the foundation of the values used to calculate security returns, which role-up into composite returns which are presented to the nearest basis point and provide a potential investor with "an aura of authority".

Interestingly, there was a book review in yesterday's WSJ that tapped into a similar vein. Philip Delves Broughton reviewed Matthew Stewart's polemic against management consulting "The Management Myth". According to Broughton, "Mr. Stewart argues that the profession is built on a science of management that is both narrow-minded and ­intellectually bogus....The business world...has become so obsessed with its own perverse value ­system and view of human nature that it is ­undermining the “commons” of society."

"Narrow-minded and intellectually bogus" are ways of describing foundational assumptions the author disagrees with. In the current environment of anger and disillusionment with Wall Street, the analogy to the assumptions underlying asset-backed securities could be described similarly.

Agree or disagree, and I am prone towards just the philosophical curiousity of the argument, what both do have in common is a foundation rooted in the "aura of authority and the veneer of verisimilitude" provided by the easy-to-read spreadsheet result.