2014/01/21

False advertising

I recently ventured into a bit of consumer activism and want to relate the experience – not to blow my own trumpet, but to encourage others to be more vigilant. I was looking at the webpage of a well-respected investment house in South Africa last year and read about their investment approach. Buried in this “investment philosophy” was the following sentence:

The word “pragmatic” refers to the Charles Peirce School of investment philosophy, which advocates taking a practical approach to matters with reference to historical events.

I found this rather interesting – I had never heard of the “Charles Peirce School” and I immediately googled it. Nothing. I could find not a single reference to any school, movement, or theory of investment associated with Charles Peirce. The man, Charles Peirce, however, did exist. He was a very influential philosopher, founder of a movement called “pragmatism”, which, as far as I could tell, had absolutely nothing to say about investments.
I sent the investment house an email querying their use of the term, asking they either provide a valid explanation of the term or remove it from their marketing material. Here is the full message I sent (square brackets included ex-post):

Dear Sir/Madam
I am hoping to get some clarification regarding ideas expressed on your website. 
On this [link removed] page describing your investment philosophy you use the following words "the Charles Peirce School of investment philosophy, which advocates taking a practical approach to matters with reference to historical events." 
Would you please clarify your justifications for using this particular terminology, providing supporting documentation. My own cursory search has revealed 
1. Charles Peirce was a philosopher, not an investment theorist
2. Though he found [sic] a school of philosophy called pragmatism this does not appear to have anything to do with investing and the use of the word pragmatism in this context is very specialised and not the same as the everyday use of the word
3. no evidence for a recognised school of thought termed the "Charles Peirce School of investment philosophy" and thus no evidence that they espouse "a practical approach to matters with reference to historical events" 
Please let me know if any of the above points are incorrect. For instance, if there are a group of investment practitioners or theorists that identify themselves as the Charles Peirce School, please point them out to me. 
If, however, my points are correct then you must either remove the reference to Charles Peirce or make it very clear that you are reinterpreting his ideas (this probably cannot be done without a publication with proper citations justifying this reinterpretation).

I received the following reply (which I have censored somewhat):
Thank you for your email. Our investment CIO and strategist have considered your questions and have the following response: 
You are correct in saying thaCharles Peirce was a philosopher and not investment theorist and that there is no official Charles Peirce school of investment philosophy. 
The explanation on the website was intended to refer back to his philosophy to convey the fact that we apply pragmatism to investments.  So instead of applying the theory of value investing dogmatically [explanation removed] 
We plan to adjust the wording of the website copy to address your concerns and thank you for kindly taking the time to give us your feedback.

To the company’s credit, they did remove the reference to the Charles Peirce School and the current version is better. I should also make it clear that this investment company is well-respected for a reason. I think this was a glitch in their marketing machine, no more.

As such my little quest to remove just a few sentences from the company’s electronic marketing material may seem a little quaint – was there really any harm? I believe there was. Essentially, the reference to the Charles Peirce School was a lie. It created the false impression that the company was associated with some well-researched and respected group of investment theorists, whereas in fact this group did not exist. It would have been far wiser simply to explain the idea behind their investment philosophy (which is what they now do), rather than inventing fancy references to make their approach seem sophisticated.

The financial markets are extremely hard for consumers to grapple with. The environment is complex enough without companies trying to baffle consumers with misleading marketing. There is a large degree of mysticism in active investment – the investment manager is a kind of black box: money goes in, magic happens, huge returns come out. This is a false impression, especially as the work done by many fundamental managers is really just a combination of a simple philosophy, common sense and experience. We cannot allow consumers to be taken advantage of in this manner. The only way this will stop is if educated consumers take the time to respond to misleading practices where they find them.

[To avoid potential problems, I have decided not to mention the name of the investment house in this post. I am not, however, under the illusion that I have guaranteed their anonymity.]

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