Measures as Targets

Not everything can be measured and not every measure counts.

Hello and welcome to another issue of my newsletter. It is nice to have you here again.

Before I get into it, I want to say a big thank everyone who has at any point read and shared my writing.

And as always, don’t forget to share.

Also, shout out to Micheal for reaching out to me via email. Welcome, Micheal.

Micheal writes about the overlap between your money and your world. Money, Business, Personal Finance, Investing at MoneyLemma. Check him out.

---

Goodhart’s Law is interesting. It almost always happens, but if you don’t know it, you can’t see it. However, once you know it, you begin to see it everywhere.

Let say Mr M and Mrs M want to get healthy because they are getting old, and all the unhealthy choices they’ve made is catching up with them. What do they do?

Like most people, putting on weight is usually the first indicator that their health is good in a not so good direction. So they address the weight problem.

But getting healthy and losing weight aren’t the same.

Mrs A reduces her food intake while Mr A starts to incorporate physical activities like playing football, using the staircase instead of the lift and reduces the processed foods he eats.

After the first week, Mrs A loses more weight than Mr A. It looks like Mrs A is doing the right thing.

However, after a few more weeks, Mrs A begins to experience low energy, feeling tired all the time and poor concentration.

Mr A has reduced a little more weight but not as much as Mrs A but is doing fine.

So what would have caused this to happen?

Mrs A chose to work on her weight alone, it worked for some time, but then it stopped working. Why??

When a measure becomes a target, it ceases to be a good measure.

When you single out a property and decide to judge a system with only that property, you choose to see only a part of the system.

Usually, a system is more than the sum of its individual parts. That’s Gestalt.

Like in business, investing(stocks), and in life generally, you should not focus on only one metric.

Say, for example, the dividends¹ paid out by a company.

When you decide to focus on only that to influence your choice in buying a stock, you are putting yourself up at risk. At the very least, you lose on growth stocks² and also the risk of volatility if you aren’t properly diversified.

Now, look at what this has done; when you measure your target, that target ceases to be a good measure because everyone strives to achieve the target while missing the whole point.

For example, exams in school are used to measure “intelligence”. Students do whatever it takes-good or bad to pass those exams, which negates the whole point of writing exams.

Same for startups, if raising funds becomes a target or an indicator of success, we begin to appease our investors instead of our consumers. The problem therein is that the investors’ money is going to stop at a point, and we then have to deal with the reality- close shop or pivot.

The above example of Mr A and Mr B is what happens in the health fit fam. We choose to use one metric; weight, muscle size, instead of health as a wholesome.

You might ask, what then is a measure?

A measure is always a proxy. It is a form of compression that loses some of its original fidelity. 

And I ask what if we can measure something?

How do you measure your relationship? By the number of dates or vacation? Or by the amount of love? But how o you measure love?

These questions are just an indication that not everything can be measure, and not every measure is meaningful.

That wraps it up for this week. See you next Sunday.

1. A dividend is the distribution of profits by a company to its shareholders. When a corporation earns a profit or surplus, it can pay a proportion of the profit as a dividend to shareholders. Most dividends are cash dividends, which are cash payments made on a per-share basis to investors. The number of shares a shareholder has multiplied by the dividend per share.

2. Growth stocks are stocks that offer a substantially higher growth rate than the mean growth rate prevailing in the market. It means that a growth stock grows faster than the average stock in the market and consequently generates earnings more rapidly. To know more about stocks, check out Stocks Basics