I found myself rather amused at the reaction on both my
Twitter feed and my Facebook feed regarding President Trump’s decision to pull
out of the Paris Climate Change Accord last week. I will be the first to admit that I am not
well versed on the science involved. I
neither subscribe wholeheartedly to the idea that climate change is real, nor
to the idea that it is a complete hoax.
If anything, I lean slightly to the idea that it is real. Yet I am not at all alarmed by the
President’s decision. I do not believe
for a second that our withdrawal is some sort of “murdering the earth” or
“flipping Mother Nature the middle finger” gesture. Why not? Simply put, I have seen this sort of thing before, and it does not end well for the experts.
In mulling this over, I recalled a terrific piece of advice
I received about investments that translates well to human reaction to
hysteria, a Bible verse, and my own experience with the wisdom of the
experts. The advice came from an old
boss, Howard Jacobson, as I started my job as an Equity Analyst at UMB. He told me to pay attention to the Wall
Street analysts who said “Sell” when all others said “Buy” and vice versa. In other words, do not follow the crowd,
because you are likely to get stampeded on the way in and again on the way out.
This does not mean to blindly follow a
contrarian viewpoint. Instead, it points
to the idea that we should use the brain God gave us to think things through. Do the work in order to reach your own
conclusions, instead of letting others do your thinking for you. The Bible verse is Isaiah 29:14 “…the wisdom
of the wise will perish, the intelligence of the intelligent will vanish.”
(NIV) This speaks to the idea that those
who possess great wisdom often possess great arrogance to go with it, and that
God will humble those who exalt themselves. Finally,
my own experience with experts is far less than stellar.
My favorite argument put forth by the pro-climate change
crowd is that “97% of the scientific community has concluded that climate
change is real.” No doubt that statement
is true. It is also true that I possess
a large dose of that “healthy Midwestern skepticism,” and based on my
experience, I have good reason to question the conclusions and recommendations of the scientists. I go back to the Internet stock bubble of the
late 1990’s for my guidance. The
internet stock bubble was one where 97% of the experts agreed that this was a
once in a lifetime opportunity, a window of opportunity never to be
repeated. In fact, it was a great
opportunity. The Internet has completely
changed the way we live our lives. But has it played out like we thought it
would back in 1998? I doubt it. For if we had followed the recommended advice
of the experts in 1998, chances are we would have all been broke by the end of
2001. And this is where my skepticism
comes full force.
The Internet stock bubble and climate change science seem
completely different, so why compare these two?
First, my vantage point. I was an
Equity Analyst at UMB Investment Advisors covering the technology sector at that time. I was talking to the experts and getting
first-hand knowledge. It was like
watching a sporting event live in the arena versus watching it on TV. You see things in the arena or stadium that
the TV camera does not necessarily capture.
It was an exciting time, change was rapid, and there were many great
leaps forward. I saw, and heard, tidbits
that were never meant for public consumption. I remember being in possession of insider information once.
I got to see the formation of the asset bubble up close and in
person. What I saw were the experts
proclaiming their infinite wisdom, and I saw their ridicule towards those who
did not accept their thinking without question. I saw first hand how people reacted to the hype and hysteria. I once got my head handed to me by a client who could not understand why I did not have his 70-year-old Mom 100% invested in technology stocks. No joke! This man bought into the hype, the experts and the hysteria hook, line and sinker. And the meeting date? March 9, 2000 - the very day the NASDAQ index peaked.
No doubt, those who work daily with the leading scientists and experts
in the field see a completely different game than those of us who watch it on
TV.
Second, similar methodologies. The internet stock analysts were considered
the best and the brightest, often quoted in the mainstream media regarding
their analysis and recommendations. They
used sophisticated computer models, updated as new information became
available. They combined regular
discussions with various company managements within the industry, discussions
with sophisticated institutional investment clients, and with other analysts to
supplement their models and make their recommendations. Today's climate scientists are also considered the best and the brightest in their chosen field. How do climate scientists make their
recommendations? Relying on
sophisticated computer models, updated as new information comes in, discussions
with other climate scientists, and various industry,
academic and government leaders. Very
similar indeed.
Despite the precise nature of computer models, they are far
from precise and definitely not perfect.
I remember reading a research report in 1999 which argued the case that
one of those internet stocks (I don’t remember which one) was a screaming buy,
not just because of its potential growth, but also because it was a great
value. The stock, according to the
analyst, was selling at 6x estimated 2010 cash flow. It was all I could do to keep from falling
out of my chair laughing. Nobody can
predict ten years into the future what a company’s cash flow will be with any
kind of accuracy. Today, I doubt the
stock is even around. I cannot imagine
the analyst is still plying his trade either.
Climate scientists also use computer modeling, and even with the latest
information, it still does not have perfect information to predict the future
with certainty.
These models have many different moving parts, whether it is
the stock analyst with his earnings estimates or the climate scientist with his
climate temperature estimate. In both
cases, even a miniscule deviation in the input data can create a large variance
in the actual outcome versus the modeled estimate. And no one can ever predict the future with
100% certainty.
Another reason I am skeptical of their conclusions centers
on the dire consequences they predict without implementing their
solutions. The predictions of dire
consequences are intended to create hysteria, and as I pointed out earlier,
hysteria is something wise and thoughtful people avoid. Unfortunately, those leading the hysteria are
the politicians, who should be the voice of reason and prudence instead.
If climate change is a real problem, who will solve
it, the capitalist or the socialist? My
money is on the capitalist. Why? The
motivation behind it. The capitalist has
an incentive to solve it – profit. The
socialist’s incentive? To maintain government funding. Solve the problem and the funding goes
away. This gets to the heart of why I am
skeptical of their conclusions. This problem
will be solved in bits and pieces, not as part of one gigantic collective
effort. What if we invest in one
gigantic, collective effort, and it does not work? There won’t be enough money for a second
chance. Money will be allocated much
more efficiently by the capitalists. By
solving it in smaller chunks, there will be more room for error.
I am excited about the potential for the future of energy. Fossil fuels are a sunset industry as we move
towards cleaner, and ultimately, cheaper fuels.
I think solar has tremendous potential, especially as we harness more of
its energy in each panel. The idea of
powering homes with solar energy, and getting houses off the grid is amazing to
me. I would love to get neighborhood
power lines taken down. I also know that
is still off in the future. I am also
very interested in what a company like Tesla is doing with cars. I can see a day in the not too distant future
where all new cars will be built without a combustible engine. But it will come in bits and pieces.
So I come back around to the advice I received, the Bible
verse, and my own perspective. What this
has all taught me is never take the conclusions of the experts at face value. They have been wrong plenty of times. Eight months ago today, 97% of the experts
assured us that Hillary Clinton would be our President today. We saw the reaction when the certainty of that event did not happen. The Wall Street analysts promised us unending prosperity with their Internet stock recommendations. The result to those who followed the experts was broken dreams, more than a few broken families, and a very healthy business for bankruptcy attorneys.
If you believe wholeheartedly in climate science, I have to
conclude that this belief comes one of three ways: 1) you are intimately
acquainted with the science through having worked in the industry, and
performed extensive research yourself, perhaps in conjunction with other
scientists in the field. You have
perused the academic journals and trade publications, gaining knowledge and
even better understanding of the subject at hand. Perhaps you have conducted original research
that has been published. If so, congratulations. The second
way is: 2) you are not employed in the industry or even within the scientific
field, but you are a thoughtful person who will take the time to read
extensively on the subject before forming a carefully considered opinion. You will immerse yourself in the science, and
you will happily read dissenting opinions to gain perspective and further
inform your thinking. You educate
yourself and think for yourself. You
will always remain skeptical of prevailing opinion until you are comfortable
with your own conclusions. You will not
take the pontifications of commentators, newspapers and definitely not
politicians at face value. I will
certainly respect your opinion. The
third way you have come to believe in the climate science argument: 3) you have
swallowed someone else’s political agenda hook, line, and sinker. You have gladly accepted at face value the
conclusions without understanding the methodologies behind it, simply because
they hold themselves out as “experts”.
You receive your knowledge exclusively from mainstream newspapers and
popular talk shows on TV. You never bother to ask yourself critical questions,
nor do you conduct any of your own research.
You do not acquaint yourself with the science. Your thoughts are someone else’s, and your
opinion is not carefully formed. I
sincerely hope you are not Number 3.
