Old, Bold Pilots
‘Keep It Real’ - A Gryphon Op-Ed Series: Part 5 of 5
“There are old pilots, and there are bold pilots, but there are no old, bold pilots.” ~ E. Hamilton Lee, 1949
It’s hard to believe that commercial flight is an industry that’s just over a 100 years old. From Orville and Wilbur Wright’s “Wright Flyer” a host of airline and aviation-related industries have been spawned and today form an integral part of our lives.
We travel with a nonchalant certainty, disgruntled when flights are delayed or landings are a bit rough. A flight landing at the wrong airport is the treated with disparagement and disbelief. But we always embark on any aeronautical journey with utter confidence that we will arrive vaguely dishevelled but safely, and within broadly acceptable timing parameters.
How did flying become this efficient? What has driven the relentless progress that has enabled us to come this far, this fast? While advances in technology have undoubtedly been a major contributing factor, it goes without saying that because human lives are at stake, safety and preservation of life have been at the forefront of these developments.
Obviously, flying was not always this safe. Test-pilots in the early days of the aviation industry were not expected to attain maximum life-expectancy. Flying was pretty much a “seat of the pants” affair. However, with time and experience, causes of pilot error and related aircraft disasters were increasingly identified as being those of ignorance as opposed to those of ineptitude. In the early days of flying, pilots were often faced with circumstances not previously encountered and, as such, their failure to contend with these factors could be attributed to ignorance. However, as pilots became more experienced and proficient, pilot error became less about ignorance and more about ineptitude, i.e. the knowledge to address the problem existed, but was not correctly applied, which led to pilot error.
This distinction between errors of ignorance and errors of ineptitude was highlighted in a paper by Gorovitz and McIntyre in the early 1970’s. This paper identified errors of ignorance as those that arise because the situation in question had not been faced before and hence there was no repository of information which could be relied upon to address the problem. However, errors of ineptitude were those where sufficient information existed to resolve a problem, but the information was not applied, or was not correctly applied.
In industries where lives are at stake, professionals have slowly but surely adopted control procedures to prevent fatal errors. This is because those providing services to a consumer are held responsible and need to account for any unsatisfactory outcome – if a patient unexpectedly dies or an aeroplane crashes there is an expectation of accountability!
The medical industry is an example of just such a profession - lives of patients are at stake. In 2001, a critical care specialist at John Hopkins Hospital by the name of Peter Pronovost was concerned at the high level of infection rates during the procedure in which a central line was inserted. He developed a checklist, starting with the washing of hands, to prevent the onset of infection. Once the checklist was implemented, infection rates dropped from 11% to zero!
This and other examples are included in a fascinating book published by Atul Gawande, a surgeon at Boston Hospital in the USA and an associate professor at Harvard Medical School. His book is titled, The Checklist Manifesto.
The book describes how, when industries and professions mature, the need for checklists increases. While almost counterintuitive, it then goes on to explain how, when the amount of data and information available increases, the need for checklists increases. And so, our original example of the aviation industry as a mature industry now has checklists for virtually any event (planned or unplanned) which could be faced by a pilot. These checklists are updated and revised and adapted to the various model aircraft in use.
So, if checklists are considered an essential tool to prevent errors of ignorance occurring in mature industries, how does that relate to this article, the final part of our 5 part series ‘Keep it Real’.
We would contend that the investment industry fits the bill as a mature industry. However, we still see frequent failures that can no longer be attributed to ignorance. Investors are being left with shattered dreams, austere retirements and a bleak old age despite their best efforts to make provision during their working life. We have more data and knowledge at our disposal than ever before. And so, this begs the question: is this the result of ignorance or is it ineptitude?
While airline passengers expecting to arrive in New York would never accept arriving in London, we hear of many occasions where financial plans and products marketed to investors deliver unfortunate or bewildering outcomes.
As the medical profession may have been slow to adapt checklists, perhaps the problem in the investment industry is that investment professionals do not go down with their passengers in the same way as pilots do.
The rationale behind proposing a checklist when investing is to be able identify and quantify the options and steps to be taken in order to achieve a pre-determined outcome. As discussed in Part 1 (Keep It Real) it is imperative that an investor establishes clear and realistic expectations of their investment and does so with full knowledge of themselves, their own quirks and traits and the impact these have on their own behaviour. In Part 2 (Indexation with Purpose) we unpacked the benefits of indexation – the reduced costs and the consistency of performance, both of which contribute significantly to improved returns. Part 3 (Pop Goes the Weasel) focused on how various layers of cost erode the returns of your investment and the devastating impact this has on your investment over time. Part 4 (Myths, Mists and Mysteries) demystifies asset allocation and our belief that this is what adds much more value to an investment than the underlying stock selection. Each of these elements should be taken into consideration when compiling a checklist – keeping this list simple and measurable will enable you to easily exercise greater control over your own financial destiny. But be aware: simple isn’t always easy…words of wisdom from the ancient and the contemporary:
‘I have just three things to teach: simplicity, patience, compassion. These three are your greatest treasures.’ ~ Lao Tzu
‘That's been one of my mantras - focus and simplicity. Simple can be harder than complex: You have to work hard to get your thinking clean to make it simple. But it's worth it in the end because once you get there, you can move mountains.’ ~ Steve Jobs
In conclusion, an extract from Atul Gawande’s book, The Checklist Manifesto:
‘Here, then, is our situation at the start of the 21st century: We have accumulated stupendous know-how. This has been put in the hands of highly trained, highly skilled people who have accomplished extraordinary things. Nonetheless, that know-how is often unmanageable. Avoidable failures are common and persistent across many fields, from medicine to finance, business to government. The reason is increasingly evident; the volume and complexity of what we know has exceeded our individual ability to deliver its benefits correctly, safely or reliably. Knowledge has both saved us and burdened us. We need a different strategy for overcoming failure, one that makes up for our inevitable human inadequacies. There is a such a strategy, though it seems almost ridiculous in its simplicity – it’s a checklist.’
Gryphon has pioneered new territory with its approach to rules-based investing. Our methodology has been called anything from radical to unique depending on the speaker’s perspective. Our approach was established in 1998 and we have thus been in practice for a good number of years. Taking these factors into account, I would audaciously describe us as Old, Bold Pilots and we look forward to many more years of protected, dependable travels…and we invite you to journey with us.
If you missed part 1, 2, 3 or 4 of this 5-part series, click on the images below...