Cheap and cheerful: why value investors can look forward with optimism
Value equities remain extremely cheap, and several catalysts that could drive a value rally are lining up.
Oct 15, 2021
The famed psychoanalyst Carl Gustav Jung developed the concept of ‘shadow’ to refer to those parts of our characters that both as individuals and as a society we try to hide from public view. There is a large body of psychological work showing that Jung’s shadow framework is useful in addressing mental suffering, but here we will simply note that usually ‘shadows’ relate to past individual or societal experiences that are too difficult to deal with because they are painful or shameful. They are therefore ignored, suppressed and never frankly addressed. If anything threatens to expose them, we clam up. You can generally tell when you’ve stumbled upon someone’s shadow because they will lose composure and become defensive, a reaction that is wholly natural. The question we want to ask is: could there be a similar reason to explain the world’s hatred of ‘Big Tech’, and in particular social-media businesses like Facebook and Twitter? From an environmental, social & governance (ESG) perspective, it is a question that needs to be asked if one is interested in this space.
The rise of social media has forced a change in how communication takes place, and change is always unsettling and rough. Then again, if the records are to be believed, the same thing happened with the spread of the written word throughout Ancient Greece, and with the invention of the printing press in the sixteenth century, and with the birth of jazz, hip-hop, rock and heavy metal in the twentieth century, and with television and violent computer games. All of these were, at one time or other, considered (more or less) instruments of the devil and subversive threats to society. Yet, all have instead proven to be not only innocuous, but actually enjoyable, interesting and fun; so we perhaps shouldn’t accept the prevailing narrative about social-media companies quite so easily.
For those who aren’t sure about what that narrative sounds like, have a look at The Social Dilemma on Netflix, in which social media executives are depicted as a working group of Doctor Evils, skilfully pulling the strings of our subconscious to manipulate us into acting according to their will. All of it appeals to our instincts. Yet precisely because of this, none of it feels the need to back up its claims with so much as a shred of scientific evidence or an ounce of countervailing argument. It is the universal acceptance of these negatives that could be tricking us into seeing an enemy where there is none and, perhaps even worse, distracting us from the real problem.
It is easy to forget, for example, just how amazing a product Facebook felt 10 years ago when we first discovered it, or how useful Google was. From a basic practical standpoint, today it’s hard to imagine life without Google Search and Google Maps. And interestingly, despite the prevailing narrative, the evidence that social media harms us or makes us worse human beings is spurious. There is plenty of scientific research about social media’s impact on adults, children and mental health, and on how it influences politics, mood and general happiness. The results are surprising: when trying to isolate the effects on mental health, the studies only manage to prove correlation, not causation (see Footnote 1). In other words, all we can tell is that people who suffer from some mental illnesses are more addicted to Facebook than others, but there is no evidence that Facebook causes the illness.
And when is the last time that you heard about all the studies showing that social media is actually good for you? They do exist, and they come to surprising findings, like that posting status updates on Facebook decreases loneliness and that activity on Twitter potentially increases happiness (Footnote 2). Many of these studies are proper longitudinal studies designed specifically to identify causation. They take time to run, but they are much more reliable than the easier ones only designed to identify only correlation.
Then there is political polarisation, which social media is accused of exacerbating. Once again, when we look at the evidence, it’s hard to make a guilty case. For example, studies show that polarisation is greatest among older generations, which use social media the least. Others show that some countries are actually becoming less polarised, as opposed to the what we seem to be experiencing in the US and the UK. And of course there is the problem that political polarisation began before the birth of social-media companies, back in the 1970s, consistent with other research showing that most ‘fake news’ originates on TV rather than social media, and that before that it used to be printed (all of which you can find in Footnote 3), as neatly captured in this quote we have previously published in one of our monthly commentaries, from an anonymous banker of the 1920s:
“I listen to a hundred confidences a day and recently the exaggerations I have heard from men in all walks of life are appalling. I have even kept still when men whispered reports on things of which they knew nothing, obviously wicked reports which were entirely incorrect. Bad news may travel fast but fake news has the wings of Mercury, that I know, and out of a possible 100 reports of disaster and tribulation I listen to weekly, perhaps one has an iota of truth in it and that one is never as black as it seems.”
Besides, there are plenty of alternative explanations for political polarisation: rising inequality, both in income and education; growing multi-culturalism; globalisation … none of these require social media, and form pretty convincing reasons for our current societal tensions. But they’re also hard to fix, so we might as well blame Zuckerberg. In any case, hauling Big Tech executives in front of Congress/Parliament gives the impression that politicians are ‘doing something about it’.
Is all the hate therefore unjustified? To be clear, we don’t think all social media is great. Yes, it has some useful applications, and some of us in the team are addicted to Twitter*. But it is also a time-sponge capable of making hours disappear. It has an opportunity cost, in other words, but then so do magazines and TV and Fifty Shades of Gray (or so we’re told). There’s nothing wrong with that per se, but it is another easily available distraction that needs to be managed. Perhaps more worryingly, social media does make it easier to lose ourselves and stay in our own echo chambers, a feature made significantly worse by the fact that social-media companies have been known to sell ad space to pretty much anyone who will ask for it (although this is improving).
It also makes it easier for lunatics to propagate their beliefs, however badly founded. Philosopher Bertrand Russell famously lamented that “the whole problem with the world is that fools and fanatics are always so certain of themselves, and wiser people so full of doubts”. And indeed, statistics show that a small minority of creators generate the vast majority of social-media content, while most users are simply passive observers and occasional posters (Footnote 4). That’s a good thing, because it confirms that most of us have a life outside of Instagram. But it also means that what you see on there does not reflect the whole of reality; it doesn’t even approximate it. The point is that social media is uniquely good at spreading the false certainties and psychological deformities of society – amplifying and exaggerating them – and at making us believe that that’s all there is; that the world is perennially on the brink of social Armageddon. That, plus some videos of cats.
However, just as after three decades of research there is still no scientific evidence showing that video games incite violence, there is increasing evidence that most of us can tell the difference between online reality and actual reality. It’s just that social media functions as a constant reminder of the less gracious parts of our society: a loudspeaker for people with an agenda who know that in a world where the supply of content is much greater than its demand, it pays to optimise for controversy than for consensus.
But that just shows us who we are. We like controversy and easy distraction and believing stuff without thinking too much about it. Social media just does a better job than any other medium (so far) at reminding us that, despite our aspirations to integrity and wisdom, we are always one step away from falling back into tribalism and ignorance and gullibility and callousness. Blaming social media for holding up this mirror misses the point; but that’s something most of us find hard to accept.
*Twitter is held in Value portfolios. We saw it as an interesting investment opportunity because we believed the market was underestimating its potential to overdeliver on its targets, the longevity of its growth, and the new initiatives taking place at the company to monetise content and attract advertisers.
No representation is being made that any investment will or is likely to achieve profits or losses similar to those achieved in the past, or that significant losses will be avoided.
This is not a buy, sell or hold recommendation for any particular security.