9 x 7 = 76

In any event, this was what the first chairman of France’s audit court, Didier Migaud, stated during a television interview (1). More than the mistake in mental calculation by a prominent personality responsible for scrutinising state expenses in detail and assessing the financial efficiency of public policies, the extent to which figures and calculations have become important is what is so fascinating. Indeed, no press article, report or political speech now comes without a battery of statistics aimed at quantifying a reality and thereby make it more palpable.

The economy and finance sectors consume huge quantities of figures and are fed by monthly statistics on changes in consumer spending, output or price indices. At a time when everyone is seeking reassurance, numbers and soothing decimal points seem to provide a promise of exactness. However, a closer look suggests that they are far from being as explicit as they intend. Is a figure really better than a long speech?

The latest G20 meeting in Paris provided few conclusions, apart from establishing a series of statistics and indicators aimed at assessing global misbalances, first and foremost of which, the enormous Chinese trade surplus. Economist Christian Parisot (2) took an interest in the studies making up the value chain for the famous iPhone. Made in China, the iPhone is exported throughout the world, particularly in the US where the Apple best-seller apparently alone accounts for almost 1% of the US trade deficit in favour of China. However, out of the $179 in end-value for an iPhone booked in US customs statistics, only $6.5 actually stems from China. Indeed, the Chinese assembler of the telephone imports components from Japan, Korea, Germany and even the US. In the globalised G20 indicators, buying an iPhone in Manhatten therefore helps reduce the Japanese trade deficit relative to its Chinese neighbour.

Although their significance may not always be clear, publications of economic figures dictate trends and the markets fluctuate in line with them daily. These figures are regularly revised, like US Gross National Product, for which the Bureau of Analysis (BEA) provides no less than three estimates before giving a definitive figure. In July 2009, the very same BEA did not hesitate in revising all of the US growth statistics published since 1929!

Economic figures and financial multiples of companies are therefore not always perfect and yet they are at the heart of our investments. Luckily, alongside digital data, we add qualitative criteria. Visiting the company and exchanging views with the managers to whom we entrust our capital is just as important as discounting cash flows or analysing balance sheets. Since 2007, we have also assessed companies on non-financial criteria and we would probably not have invested in AP MOLLER MAERSK, EUROFINS or SEB based on quantitative criteria alone.

Irrespective of the field, figures should clearly not be the only decision-making criteria. After all, how many children were forced to eat spinach after a famous calculation error? (3)

(1)          BFM TV, interview on 7/10/10
(2)          Head economist at Aurel BGC, La Tribune, 16/02/11
(3)          The iron content of spinach is 2.7mg/100g and not 27mg as mistakenly writren in the XIXème century