Michael J. Boskin’s recent article in the WSJ, Don’t Like The Numbers? Change ‘Em, is highly disturbing, yet I’m am guessing that it no longer will strike too many as shocking.
Politicians and scientists who don’t like what their data show lately have simply taken to changing the numbers. They believe that their end—socialism, global climate regulation, health-care legislation, repudiating debt commitments, la gloire française—justifies throwing out even minimum standards of accuracy. It appears that no numbers are immune: not GDP, not inflation, not budget, not job or cost estimates, and certainly not temperature. A CEO or CFO issuing such massaged numbers would land in jail.
Yet, surely many a CEO or CFO is taking as much liberty with the numbers as are many of the corrupt politicians. Furthermore, you don’t need to agree with all of his politics to agree with the dangerous implications of dealing with manufactured numbers:
As a society and as individuals, we need to make difficult, even wrenching choices, often with grave consequences. To base those decisions on highly misleading, biased, and even manufactured numbers is not just wrong, but dangerous.
What can be trusted? How certain can one be of the financial data generated by a firm when trying to determine valuation?
One thing that can’t be fudged is the price of a security. Supply and demand for the security determine its price and that price movement is ultimately all that matters to the bottom line of the investor. We take comfort in the fact that price is the single input into our relative strength models; this helps us avoid the “garbage in, garbage out” problem.
