In engineering, noise is a disturbance around a signal and engineers have become good at extracting signals from the noise. In investing, noise comes in many forms and actions are determined by noise, signals or a combination of both. Some would argue that the vast majority of actions are the result of a response to noise and noise traders make it their job. But sometimes noise is difficult to disentangle from a third layer which doesn’t trouble the engineer, namely bullshit (or, more politely, BS) and BS can be a powerful driver of actions too. We all know it is out there but why is there so much of it around? Harry Frankfurt argues that:

“Bullshit is unavoidable whenever circumstances require someone to talk without knowing what he is talking about. Thus the production of bullshit is stimulated whenever a person’s obligations or opportunities to speak about some topic exceed his knowledge of that topic.” There is also “…a widespread conviction that it is the responsibility of a citizen in a democracy to have opinions about everything.”

Just as citizens feel that compulsion to have an opinion, the need for companies to have a house view on everything is, seemingly, overwhelming. Events force comment and “we need to say something because everyone else is” or “our clients want to know what the impact on x of y will be” can become justification enough to produce something, rather than “we have rare insight that should be shared, effectively communicated, understood and acted upon” or “we don’t know”. Over the last few weeks, inboxes across the world will have been quietly filled by those feeling the need, being asked or even told, to say something and it is tempting to think that some, or much of it is BS. How would we know if it was? Well, it turns out that people have had a go at answering this.

In her book “Your Call is Important to Us”, Laura Penny explains that back in 2003, Deloitte and Touche launched a software programme called “Bullfighter” and used it to search for BS in reports and corporate communication. The software was able to sift through a MS Word document and highlight words and phrases which might identify the bull: touch base, synergy, bandwidth, incentivise, even creating a “Bull Composite Index” from various factors found within the document. Deloitte and Touch shared the software for free but, sadly, it appears that it is no longer available. This is a shame as, once familiar with how it worked, you could feed in your own phrases for it to search for, e.g. prudent leverage or, conservative underwriting assumptions. Greater clarity in report writing and corporate communications is clearly desirable but the financial markets have their very own lexicon.

Enter Jason Zweig’s “The Devil’s Financial Dictionary”. Whilst this book is clearly designed to provoke a wry smile, like much humour there is more than a hint of reality in it. Here we get one step closer to commercial real estate and gain insight into alternative meanings of terms such as cyclical, diversify, and expected return, all familiar to the real estate investor. For instance;

• under cyclical he cites James Grant: “In markets all things are cyclical, even the idea that markets are not cyclical”,

• under diversify he writes “…most investors di-worse-ify…making their portfolios more dangerous by buying lots of whatever has been going up lately”, and

• under expected return we have “The anticipated growth rate of the value of an asset, typically set by the fevered imagination of investors at approximately twice what the actual return will turn out to be”.

There is no Bullfighter or Devil’s Dictionary for the commercial real estate markets though every day comment is produced that comprises not only signals and noise but BS too.  It is for real estate investors to become engineers, to try and extract the signal and produce some clarity.  Since very few real estate investors would claim to be motivated by noise or BS, it follows that they must think they are pretty good at finding the signals.