Plane truth – Those who focus only on life’s winners will miss out on some valuable lessons


Nick Kirrage

Nick Kirrage

Fund Manager, Equity Value

During the Second World War, the US Air Force asked statistician Abraham Wald for his thoughts on protecting their bombers from enemy fire. Weight considerations limited how much armoured plating could be used and the consensus view thus far was to reinforce the wings, central fuselage and tail – after all, the planes had been returning from missions with those areas riddled with bullet holes.

While that consensus seemed plausible enough, it was also – as Wald pointed out and as consensus so often is – wrong. The reality was that when the bombers were hit in the wings, central fuselage and tail, they could still make it home. Wald asked about the ones that were hit elsewhere and never returned before suggesting reinforcing wherever the surviving planes had been unscathed instead.

This anecdote was recounted in an excellent blog, Learn from the losers, written recently by ‘undercover economist’ Tim Harford. Looking at patterns of human behaviour and the way “the world is biased in systematic ways”, he takes as his starting point the crowdfunding platform Kickstarter and some of the high-profile projects successfully bankrolled through the site.

Here on The Value Perspective, we have been meaning to seek backing for our own pet project – a ground-breaking musical based on the life and work of value guru Benjamin Graham – ever since we read about Zack ‘Danger’ Brown, who this summer appealed for $10 (£6.40) from the Kickstarter community “so he could make some potato salad” – and ended up raising more than $55,000.

Back in the sane world, as Harford goes on to point out, only two-fifths of Kickstarter projects hit their funding targets while 10% – faithfully chronicled on the website – receive not a single penny or cent of backing. Yet we tend only ever to hear about the success stories – an early ‘smartwatch’, for example, or of course ‘the crazy potato salad guy’.

So it is all about perception and a natural human bias of focusing on life’s winners, which Harford neatly illustrates with a couple of everyday examples. “Most of the books people read are bestsellers – but most books are not bestsellers,” he points out. “And most book projects do not become books at all. There’s a similar story to tell about music, films and business ventures in general.”

Then there are London buses – not the age-old perception that ‘you wait ages and then three come along at once’ but that, when a bus does come, it is always full. In fact, the average London bus has 17 passengers riding on it – it just rarely feels that way because most people travel at rush hour. “Most people ride the trains when they are full and go to the shops when they are busy,” adds Harford.

And he concludes: “It’s natural to look at life’s winners – often they become winners in the first place because they’re interesting to look at. That’s why Kickended gives us an important lesson. If we don’t look at life’s losers too, we may end up putting our time, money, attention or even armour plating in entirely the wrong place.”

Presumably Harford did not set out to write his piece as an argument or advertisement for contrarianism – but that is precisely how it may be read.


Nick Kirrage

Nick Kirrage

Fund Manager, Equity Value

I joined Schroders in 2001, initially working as part of the Pan European research team providing insight and analysis on a broad range of sectors from Transport and Aerospace to Mining and Chemicals. In 2006, Kevin Murphy and I took over management of a fund that seeks to identify and exploit deeply out of favour investment opportunities. In 2010, Kevin and I also took over management of the team's flagship UK value fund seeking to offer income and capital growth.

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