The Flesh-Eating Bananas
Do you remember the story of the flesh-eating bananas?
I had completely forgotten about it until I read the book “The Intelligence Trap”. The Author David Robson wrote, “In late 1999, a chain email began to spread across the internet, reporting that fruit imported from Central America could infect people with ‘necrotising fasciitis’ – a rare disease in which the skin erupts into livid purple boils before disintegrating and peeling away from muscle and bone.”
The email stated that: Recently this disease has decimated the monkey population in Costa Rica…It is advised not to purchase bananas for the next three weeks as this is the period of time for which the bananas that have been shipped to the US with the possibility of carrying this disease. If you have eaten a banana in the last 2-3 days and come down with a fever followed by a skin infection, seek MEDICAL ATTENTION!!!
The skin infection is very painful and eats two to three centimetres of flesh per hour. Amputation is likely, death is possible…And the email continued with its request of asking you to forward this to as many people as possible.
By 28 January 2000, public concern was great enough for the US Centre for Disease Control and Prevention (CDC) to issue a statement denying the risks. But their response only poured fuel on the flames, as people forgot the correction, but remembered the scary, vivid idea of the flesh-eating bananas.
Within weeks, the CDC was hearing from so many distressed callers that it was forced to set up a banana hotline, and it was only by the end of the year that the panic burned itself out as the feared epidemic failed to materialize.
As the eighteenth-century writer Jonathan Swift wrote “Falsehood flies and the truth comes limping after it.”
And this quote is truer today than at any point of time in history thanks to social media.
We live in an era of fake news. This is also the era of outright lies (aka bullshit) and more importantly believable bullshit. I had written about the dangers of believable bullshit, and how it pervades every part of the investment industry. We see so much of this believable bullshit every day. I am sure you do too. And it’s virtually everywhere.
Instead of building real businesses, many start-up founders become Chief Hype Officers of their firms. Venture Capitalists then coat the founders bullshit with loads of capital and continue the hype train. These products are then sold to institutional investors and family offices around the globe.
One of the big lies (aka believable bullshit) we are made to believe is that venture capital funds, private equity funds, hedge funds and banks somehow know the future, and can spot the right opportunities. However, nothing could be further from the truth. These people are as clueless about believable bullshit as everyone else.
Alfred Lin, the Sequoia partner who led the $214 million investment in FTX said “It’s not that we made the investment. It’s been a year and a half working relationship afterward and I still didn’t see it.”
What about their skills? Aren’t these guys more skilled?
Well, I will let you decide that.
In her book “Non-Consensus Investing” Author Rupal J Bhansali wrote about an interesting example. “In 2007, a consortium led by Kohlberg, Kravis and Roberts & CO.(KKR), Texas Pacific Group, and Goldman Sachs acquired the largest electricity utility in Texas, then known as TXU, for $48 billion. Then they loaded it with about $40 billion of debt. A short seven years later, in its new incarnation as Energy Future Holdings, the company filed for Chapter 11 bankruptcy – one of the ten biggest non-financial bankruptcies in history. While the private equity managers managed to earn more than $560 million in fees from the transaction, many investors lost billions of dollars on the deal.”
Can you believe a utility which is actually a low-risk business was blown by these financial alchemists? What kind of skill does this require?
A special one indeed.
In fact, there is a predictable pattern of false promises that we come across all the time. Nick Murray in his book “Around the Year with Nick Murray” wrote – “The blogger Ben Carlson has written that the essential lie changes it’s narrative:
• Alpha: stock selection and/or market timing that outperforms a relevant benchmark. When that fails:
• Equity-like returns with bond-like volatility. When that fails:
• Absolute Returns. In effect, using a mix of strategies so varied and complex as to render any benchmark irrelevant. When that fails:
• Lower Volatility as somehow an end in itself. When that fails:
• Uncorrelated returns. Diversifying wildly among strategies and assets which are held to be uncorrelated as somehow an end in itself. Then a great panic comes along, and we figure everything is correlated.”
Where am I going with all of this?
The point here is that we need to protect ourselves against these lies. To do that, we need a believable bullshit detection kit. And the second most important thing to have a detection kit in place is to be armed with the right questions. What’s the first important thing then?
The care and guidance of a real financial professional who can tell you the unvarnished truth as it is. More often than not, this person plays the role of a Chief Bullshit Detection Officer in your life. Provided you allow him/her to play the role. If you don’t, the flesh-eating bananas are waiting for you on the other side.