Newsletter – May / June 2011 – Simple Logic

Simple Logic

Why is the United States so low on the list of life expectancy of its citizens? Everyone knows the USA ranks very high on the lists of wealth per capita, income per capita and other standard of living statistics. Why are they ranked fiftieth on the list life expectancy. (There are a number of different life expectancy lists on the internet: the USA consistently ranks fortieth to fiftieth.) Canada consistently ranks in the top 9 to 12. Those of political persuasion may argue it’s about the comparative healthcare systems. Health and fitness enthusiasts will site statistics on how over-weight the average American is. But, whatever type of person you are, America’s low ranking is a logic-defying bell ringer. It just doesn’t make sense.

It does make sense that the poorest African countries are at the bottom of these lists. We can imagine the triple ravages of poverty, crime and AIDS shortening people’s lives. But how do we explain the fact that an African country is also at the top of the list? Morocco is far and away the leader: the average Moroccan will out live the average Canadian by eight years!

Logic is strange stuff. Because of these life expectancy statistics, it makes sense for Americans to move to Canada when they retire. But the opposite is what usually happens. And the reason retiring Canadians move south is something to do with winter weather. Sometimes logic makes us weigh one set of logical reasoning against another. Weather or longevity: which is more important?

In the investment business we are used to quirky logic. Investors have been trained to think blue chip is better than small. But it’s not true. The giant General Motors kept getting less and less effective as the once smaller Toyota kept growing. The price of the giant Microsoft’s stock is about the same today as it was ten years ago: the smaller Apple Computer has gone up a multiple of 35X. Big and Blue Chip is not a good rule of thumb: it’s faulty logic.