An Election Driven by Data

I have written numerous times on this blog about the powerful impact that technology has had on the investing world.


The active use of "data mining" has extended to virtually every type of activity, and the sophistication of practitioners is growing expotentially.

I was struck by a couple of articles that appeared in the Washington Post recently discussing the differences in approach that the two candidates took in their use of data in the last presidential election.

President Obama made incredibly effective use of social media in his run for the White House in 2008.  While the traditional Democratic party bosses focused on the techniques that had worked in the past, the Obama team was able to communicate and execute its campaign in ways that had never been seen, with obvious success.

However, according to the yesterday's Washington Post article, the 2012 Obama campaign took a quantum lead in its use of technology, far surpassing what it had done in 2008.

Here's an excerpt:

The Obama campaign had the usual contingent of pollsters and ad makers and opposition researchers and, like all campaigns today, a digital director. But it also had a chief technology officer (who had never done politics before), a chief innovation officer and a director of analytics, which would become one of the most important additions and a likely fixture in campaigns of the future. 

The team hired software engineers and data experts and number-crunchers and digital designers and video producers by the score. They filled the back of a vast room resembling a brokerage house trading floor or tech start-up that occupied the sixth floor of One Prudential Plaza overlooking Millennium Park in Chicago.

No campaign had ever invested so heavily in technology and analytics, and no campaign had ever had such stated ambitions. “Technology was another big lesson learned from 2008, leap of faith and labor of love and angst-ridden entity and all the other things that you can imagine, because we were building things in-house mostly with people that had not done campaign work before,” {Deputy campaign manager Jen O'Malley} Dillon later told me. “The deadlines and breaking and testing — is it going to work, what do we do? . . . At the end of the day, it was certainly worth it, because you can’t customize our stuff, and so we just couldn’t buy off the shelf for anything and you know that, and fortunately we had enough time to kind of build the stuff. I don’t know who else will ever have the luxury of doing that again.”

http://www.washingtonpost.com/politics/how-the-obama-campaign-won-the-race-for-voter-data/2013/07/28/ad32c7b4-ee4e-11e2-a1f9-ea873b7e0424_story.html 

The rest of the article goes on to describe how the Obama campaign used its incredible investments in technology to develop a detailed campaign strategy, right down to telling its campaign volunteers which calls to make, and who would benefit from a visit to a voter's house.

Meanwhile, while the Romney campaign was not unaware of technology, it would seem that many of their decisions were based on well-honed instincts and experience.

The Post's reporter Dan Balz has written a book about the Romney run, and an excerpt was published in Sunday's paper.  

The excerpt describes the emotional swings that Romney and his family experienced during his campaign.  Initially he was reluctant to run after losing in 2008, but his family eventually convinced him that he was the best man for the job.  

At the end, on Election Day, Romney believed he had won.  However, unlike the hyper data-driven Obama campaign, much of his belief was based on the crowds he attracted, and the enthusiastic reception he was receiving:

Romney believed the debates produced a fundamental change in his relationship with the party’s rank and file. “What had begun as people watching me with an interested eye had become instead more of a movement with energy and passion,” he said. “The rallies we’d had with larger and larger numbers and people not just agreeing with me on issues, but passionate about the election and about our campaign — that was something that had become palpable.”

As a result, he woke up on Election Day thinking he would win. “I can’t say 90 percent confident or something like that, but I felt we were going to win. . . . The campaign had changed from being clinical to being emotional. And that was very promising.”

His last hours on the trail, especially the arrival at the Pittsburgh airport on the afternoon of the election, where he was greeted by a spontaneous crowd of supporters, gave him added confidence. “We were looking at our own poll numbers and there were two things that we believed,” he said. “We believed that some of the polls that showed me not winning were just simply wrong, because they showed there was going to be more turnout from African American voters, for instance, than had existed in 2008. We said no way, absolutely no way. That can’t be, because this was the first time an African American president had run. Two thousand eight — that had to be the high point. . . . We saw independent voters in Ohio breaking for me by double digits. And as a number said, you can’t lose Ohio if you win independent voters. You’re winning Republicans solidly, you’re winning independents, and enthusiasm is overwhelmingly on your side. . . . So those things said, okay, we have a real good chance of winning. Nothing’s certain. Don’t measure the drapes. But I had written an acceptance speech and spent some time on the acceptance speech. I had not written a concession speech.”

http://www.washingtonpost.com/sf/feature/wp/2013/07/27/from-doubts-to-confidence-to-defeat/

 Whether technology decided the last election or not, it seems clear that future national campaigns will no doubt look at the 2012 elections as confirmation of the importance of using big data to develop winning campaigns.

Focusing on Long-Term Returns

Depending on who you ask, the massive spending cuts that the looming federal government sequester will entail this Friday either spells economic disaster or be a non-event.

Judging from most polls, most people really aren't paying too much attention.  The constant partisan bickering in Washington has left most of us weary, and we have largely tuned out.

The stock market continues to climb, apparently sharing the public's general sense of ennui with the latest partisan bickering.

In previous Washington showdowns - such as the near-default on government obligations in the summer of 2011 - the market recoiled from the possible economic implications of a disfunctional government.

This time, however, investors are more focused on corporate fundamentals (which continue to slowly improve) rather than political battles.

As a good article in Saturday's New York Times suggests that the market may have it right.  Investors who have sold over the past few years in anticipation of economic downturns have largely regretted those decisions, as the market as continued to grind higher.

In fact, as the article pointed out, there have been 78 different occasions (as compiled by the investment management firm of Bel Air Investment Advisors) when the consensus opinion was that stocks were not advisable investments - yet selling stocks, or avoiding new investments, was not the correct decision.

Here's an excerpt:

THERE are always reasons not to buy stocks. Investors may think the Dow Jones industrial average is too high, as was the case in 1954 when the index topped 360. In 1941, there was Pearl Harbor. In 1962, the Cuban missile crisis. In 1997, the Asian financial crisis.

The list, adding up to 78 for each of the years from 1934 to 2012, was compiled by Bel Air Investment Advisors. 

But the punch line to this list was that stocks went up by an annual compounded rate of 10.59 percent over those 78 years, with occasional plateaus, and that $1 million invested in 1934 was worth $2.4 billion in 2012. 

 http://www.nytimes.com/2013/02/23/your-money/reasons-to-avoid-buying-stocks-and-why-you-should-ignore-them.html?smid=tw-share

In 1951, after graduating from Columbia Business School, Warren Buffett asked his professor Benjamin Graham if he could join him in his investment management business.

The story goes that not only did Graham turn Buffett down, but he also advised him to not get into the investment business at all.  

Graham pointed out to his former student that the Dow Jones Average - which had just broken the 200 mark - was due for a tumble, since it was far ahead of the fundamentals, according to Graham.

Interestingly, Buffett's father Howard - who was a stockbroker back in Omaha - agreed with Graham, and suggested that his son purse another line of work, since the market was doubtlessly poised for a "correction".

Buffett later would cite this advice as perhaps the worst advice he ever received, and subsequent history would of course confirm this assessment.

Here's an excerpt from a Fortune article written about Buffett's start reprinted in the book Tap-Dancing to Work: Warren Buffett on Practically Everything 1966-2012 written by Carol Loomis:

 

I had two mentors: my dad, Howard Buffett, and Ben Graham. Here were these two guys who I revered and who over the years gave me tons of good advice. But when I think about what they said to me, the truth is, the first thing that comes to mind is bad advice.

I was not quite 21 when this happened, in 1951, and just getting out of business school at Columbia. I had just taken Ben’s class there — and I was the most interested student you ever saw. I wanted to work for Ben at Graham-Newman Corp., and I had famously gone to him and offered to work for nothing. He said no.

But I still was determined to go into the securities business, and that’s where Ben and my dad gave me the bad advice. They both thought it was a bad time to start. One thing on their minds was that the Dow Jones industrials had been above 200 all year, and yet there had never been a year when it didn’t sell below 200. So they both said, “You’ll do fine, but this is not a good time to start.”

Now there’s one thing that may have influenced my dad, and maybe Ben too. I was so immature. I was not only young-looking, I was young-acting. I was skinny. My hair looked awful. Maybe their advice was their polite way of saying that before I started selling stocks, I needed to mature a little, or I wasn’t going to be successful. But they didn’t say that to me; they said the other. Anyway, I didn’t pay any attention. I went back to Omaha and started selling securities at my dad’s firm, Buffett Falk.

http://www.avilashaniruth.com/warren-buffett-the-best-of-our-best-advice/

A Tale of Sound and Fury

Cartoon courtesy of Salon.com

For now, at least, it appears that a deal has been reached, and the United States will be able to honor its obligations.

I don't know where you stand on recent events in Washington, but I am relieved that we seem to have reached a resolution. However, I must confess that when I read some of the details of the accord I thought: Was this what all the drama was about?

According to Wikipedia, the total size of the federal budget for fiscal 2011 (which ends on September 30) is expected to be $3.8 trillion, and a deficit of $1.3 trillion. The total size of the spending cuts is supposed to be about $913 billion - but spread over the next decade.

In other words, it took the collective wisdom of all of our elected officials in Washington to agree to cut, on average, $91 billion this year - or about 2% of the total budget.

And there's more: Writing in this morning's Washington Post, Ezra Klein notes that most of the expected cuts are due to come from the defense department - Social Security, Medicare and Medicaid are totally off the table, despite the undeniable truth that these three areas are the major causes of the federal budget deficits:

And that gets to the truth of this deal, and perhaps of Washington in this age: it’s all about lowest-common denominator lawmaking. There are no taxes. No entitlement cuts. No stimulus. No infrastructure. Less in actual, specific deficit reduction than there was in the Simpson-Bowles, Ryan, or Obama plans, and even than there was in the Biden/Cantor or Obama/Boehner talks. The two sides didn’t concede more in order to get more. They conceded almost nothing in order to get a trigger and a process, not to mention avoid a financial catastrophe.

http://www.washingtonpost.com/blogs/ezra-klein/post/a-deal-that-found-the-lowest-common-denominator/2011/07/11/gIQAde9TmI_blog.html?hpid=z1