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GUY: Data is everywhere (and not worth it)

October 24, 2015

John GuyWe are drowning in data.

 In sports, at the Indiana Department of Education, and in election polling and commercial surveys, data is so addictive to managers that, when information is not naturally available, vice presidents of this and that move to create it. When data does not produce a desired result, the goal or the data calculation is changed.

Sports data entertains. A baseball broadcast might sound like this: “Joe Standard is up to bat. His average is .290, having been .270 last year, for an improvement of 20 points, and this is the first time a 24-year-old player weighing 190 pounds has batted three times on a Tuesday and grounded out to left each time.”

But standardized testing of public school students is neither entertaining nor useful. My 1950s high school tested, then counseled each student about results, aptitudes and how to improve. Today, test scores are used to grade schools and to affect teacher compensation, practical effects based on manufactured data.

Unlike data about natural forces—such as wind and weather, inertia, weight, gravity and magnetism—data about educational results is manmade. Each question is created by man, each test graded according to artificial standards, each school measured according to whims of the day.

For example, until this year, Indiana schools were rated A-F largely on test scores, but this summer test scores were demoted to 50 percent of the grade. Other arbitrary standards were given more weight. The change was not easy. Hours and hours of debate, teacher protests, expressions of parental dissatisfaction, and refusal to take tests played a role. Data not accumulated was the amount of energy diverted from less important efforts, such as designing curricula and talking to students.

If you do not like results, change the standards. This happens in institutional investing. Real rates of return are compared to a standard, to an index or average, to an arbitrary creation of a news source, or to an investment banking firm.

An example is the Standard & Poor’s Index of 500 stocks. Why 500? Why not 250, or 2,500? At the time, 500 had a ring to it, two convenient zeros. Earlier this year, a consultant to an endowment was not happy that real results did not match the selected index. What did it propose? Of course, change the index or, better, create a brand-new index “more suitable” to the account.

Don’t you love those calls asking for your political opinion or favorite candidate? I do not. A poll is not a reality. A poll might find that, if an election were held today, so-and-so would win (within a certain margin of error). What is the point? The only important matter is who wins on Election Day.

Data is so inexpensive that every seller has surveys. Consumers may not leave the cash register without answering questions, may not hang up on a service call without being prompted to answer a “short” questionnaire, may not order online without a follow-up survey.

Here is my hyperbolic conclusion: Never before in recorded history has so much energy been committed to information and to data instead of to production and service.•

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John Guy is an investment manager and financial planner. He is author of “Middle Man, A Broker’s Tale.”

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