A Golden Age of BS Detection

We are living through a period of time that has experienced a number of significant BS detections—that is, situations where a previously sacred institution is called out as BS. Here are a few that I have been considering:

—Brand-name consumer staples: Ten years ago the consuming public had no doubt that name-brand consumer goods (everything from laundry detergent to toothpaste to toilet paper) were superior to generic-brand substitutes. And while I suspect that at some point in time this may have actually been true, there was eventually a period of time where it wasn’t but the public still believed that it was because of creative advertising and herd mentality. The data that I’ve seen, as well as my own anecdotal experience, indicates that the word is now out: you don’t need to pay more for a brand name in these commodity goods in order to get the same experience. But oddly enough, companies that own these brands (think Proctor & Gamble for Tide) continue to insist on charging 2-3x the generic cost for their product. My anecdotal and gut-level feelings appear to be borne out by the trajectory of the consumer-staples index over the last two years, which has diverged dramatically from the broader market (using VTI and VDC as a proxy):

VTI v. Vanguard Consumer Staples (VDC) over trailing two years

Obviously there’s a lot more moving VDC than just my general perceptions regarding consumer preferences, and obviously two years doesn’t really mean anything in the grand (long-term) scheme, but consumer staples are obviously a part of the total US market, and that broader market has clearly zigged while consumer staples have zagged (in a way that straight-up sucks if you were betting the farm on brand-name soap and laundry detergent).

—Investment management: Ten-plus years ago the public generally operated under the impression that there were people out there that could predict the future of individual stock prices with regularity, just by reading a balance sheet (or more likely by listening to the “hot stock tip” that they got at a cocktail party). We paid these people (previously called “stock brokers”) handsome amounts, often in the form of commissions that we pretended didn’t come out of our pockets, to place us in expensive investments that would fleece us a second time in the form of expenses in the range of 1-3% of assets invested (maybe even in addition to a front-end “load” on the amount invested). (Note here: I’m being sloppy and taking a short-cut by lumping together both the “broker” that placed our money in a fund as well as the active fund manager that charged high fees to pick stocks, but you get the point). Then at some point the investing public started paying attention to data published by people like Jack Bogle, founder of Vanguard and creator of the modern-day index fund, and started wondering whether their stock-broker “Barry” (that sure talked a great game) and the funds he was putting them in were actually in that vanishingly small group of asset managers and funds that delivered on promises of market-beating performance. Those who were paying attention realized the answer was usually “no,” called BS, and moved their assets to index funds that promised to give them the return of the market less a marginal cost that was only a fraction of what Barry and crew demanded for their under-performance. 

—Venture capital funding: These days I read a bit about the venture-capital space, but mostly from the perspective of the start-up businesses that are often told that they simply must seek outside investment if they want to survive and grow. What I’ve learned, thanks in large part to some of the venture-capital industry’s insiders that are willing to be honest—is that more often than not, a founder raises VC capital in return for giving away the bulk of his equity just so he/she can then be placed under unreasonable short-term growth demands from the new owners, all while hiring a bunch of people that he/she probably doesn’t need and burning cash in the name of paper “growth” long before earning a profit (which may never occur). For a closer look at this perspective (and some hilariously snarky commentary to boot), check out the folks at Indie vc and their Twitter stuff (@indievc). The call of “bullsh*t!” in this space hasn’t yet reached the mountain-top, but I think it will eventually get there. But as with any arena where there are huge amounts of money at stake for existing status quo stakeholders, it takes time. (Exhibit A: big tobacco. Exhibit B: requiring stock-brokers like Barry to act as a fiduciary for their clients.) 

—Mass-produced beer: It took way too long, and I’ll admit that I’m as much to blame as anyone (or at least I was 15 years ago), but we finally realized that Bud Light and all the other macro beers of its ilk taste like piss mixed in with water (John Oliver agrees, and it’s hilarious). The unfortunate side-effect of this BS-unmasking is that once I found out what really good craft beer tastes like, I drink a lot more of it. It’s so good, in fact, that I was moved to start producing it in my basement. Maybe we were all better off when beer was just something that you drank because the situation demanded an adult beverage, and the yellow fizzy stuff was just the least-offensive option. 

—And of course, the most important of the BS-detection “eurekas!”: the traditional work-and-consume complex. When I graduated college in the late 90s I think it’s fair to say that there weren’t many of us that were thinking that it was possible to work for 10-15 years and then declare ourselves free. Sure, books like The Millionaire Next Door and Your Money or Your Life had been published and had achieved some wide-spread commercial success, but the FI community that we all participate in today didn’t exist. At least not in a connected way that allowed for the ideas to spread so quickly and effectively. That wouldn’t come along for a few years until the Internet became the more ubiquitous and all-encompassing source of information and data that it is today. I read TMND back in 1997 right around the time I was graduating from college, but I certainly didn’t come away with the understanding that if I saved like hell, and didn’t ratchet up my lifestyle to wastefully luxurious levels that my fancy-pants attorney salary would one day support, that I would be able to stop and do whatever the hell I wanted after 10-15 years of indentured servitude. (The information was there, I just wasn’t smart enough to see it on my own.) I wouldn’t get to that point for many years until I discovered that there were real people applying the 4% rule in real life and doing quite well. (Thanks MMM.) 

But what we now know as a community—and what the rest of the world is slowly being introduced to as a result of sporadic publicity being directed our way—is that the herd-mentality view that if you want to live a good life you must work like a dog until you’re 65 (at least), earning and spending, earning and spending, earning and spending the whole way, is total BS. Sure, if you define your self-worth and level of success by the make and model-year of the car you drive, then the work-and-consume complex isn’t BS. It’s mandatory. Same thing if you derive ultimate satisfaction from posting pictures on Facenotes of your family on a boat in the Caribbean enjoying a vacation (that you paid for by carrying a credit card balance). Not BS; mandatory. But if you’ve come to the realization that some of the best things in life really are free—things like being at home with the kids on a Tuesday afternoon at 3 pm to take a stroll through a swath of freshly-cut (dog-squeeze-free) green grass comes to mind—then it doesn’t take long to reach the conclusion that you may not need to spend four decades commuting to an office that sucks just to buy cars that make your neighbors think you’re a cool guy.  

If I had known about all this back in 1997, I am certain that my entrapment period would have been significantly shorter.

The Future of BS-Spotting

Why all of this BS-spotting now? And why did it take us so long to get here? Have we become expert at spotting bullsh*t such that we are now immune to scams that could lead us to act irrationally in the future?

Efficient and wide-spread information distribution is at play for sure. This information dissemination has achieved a synergy with the reality that we are more comfortable moving in groups. This is different than herd mentality, which I usually deride in my rantings here. Sometimes all that we need is a few mates to stray from the herd in order to give us the confidence that we’re not necessarily going to be immediately devoured by a lion if we veer off in a different direction. I think that many FI-types tend to be independent-thinking individuals, but there is still comfort in knowing that others have done it and haven’t died a horrible death. 

So I believe that BS-spotting will continue to pick up speed, and that more emporer-has-no-clothes institutions will eventually be called out and toppled. One that is close to having its day is hyper-expensive college education. There is a good amount of “chatter” (even from academics themselves) arguing that a high-priced education from a brand-name university is nothing more than signaling: that is, sending a message that you are able to conform, jump through hoops, and play the game, and therefore that you are worthy of hiring on this basis alone, rather than on the basis of your skills or knowledge. Consider this thought experiment presented in the book linked above: if you were given the choice of receiving a degree from MIT (just the piece of paper) or the education—but not both—which would you choose? (Most economically rational individuals will choose the paper because in our culture today it plainly has more immediate and liquid value.) As a group we are slowly but surely figuring out that spending vast fortunes on this type of signaling is dumb, and now we need a market solution for an alternative. As soon as we have one this BS-institution will falter. 

But before we get carried away patting ourselves on the back for our newly mastered BS-detection skills, we have to consider that new sacred institutions built on irrationality are being built to staggering heights today. Militant closed-minded political correctness is Exhibit A, and has the potential to corrode our society from within. As we tear down some BS institutions, we continue to build new ones. 

So my suggestion is: Think for yourself. Consult with other individuals that you trust are also able to think for themselves. Then make decisions that are “right” in the grand scheme of things (whether that means cosmic, spiritual, moral, or otherwise for you), and right for you based on your unique situation. Don’t be afraid to call “BS” when you see it. Many of the things that the herd blindly accept as rock-solid truisms today may eventually be exposed as a fraud.