Providing numerical solutions to business challenges
We especially like to take on work where we can see an opportunity to make an important contribution to a vital aspect of a client’s business.
Generating value from economic insights
One of us (Graham) was paid the following compliment by a deal-making executive quite early on in his career: “this must be the first time I’ve listened to an economist against my own better judgement and made money as a result”. Down the years he has heard a number of people variously complain that they have lost money by following the advice of economists. The thing is, economics is useful and applied correctly should be wealth and deal enhancing, but it has to be applied thoroughly and diligently drawing on the latest findings in the academic, and empirical, literature. Even economic theory is useful, but generally only if a grasp of reasonably advanced theoretical concepts is applied by the practitioner.
Going to unusual lengths in search of the best results
Many practitioners are not prepared to go to the lengths that producing the best results entails. Applying a more thorough approach often results in conclusions that are significantly at variance with what the crowd is saying. When we deliver a client report we avoid tailoring our efforts to a price as we want to be secure in the knowledge that what we are delivering has significant value in relation to the objectives of the recipient. Taking this approach is costly for us in the short-run, but we care about quality, and in the longer-run we care about our reputation and strive to grow our business through referrals and repeat business.
Where the models have real substance
At Lambda the modelling is a substantial part of the process of generating any numerical results or forecasts. Any modelling will never be done merely to put an empirical gloss on results which are in reality largely arrived at through judgement, with little grounding in rigorous analysis. Instead, the “fairy dust” of insight is sprinkled on top of the output of a robust modelling process, not the other way around. Moreover, in working with fully specified macroeconometric models, we previously noticed that the solution of the model for the nearest quarter tended to be closer to the mark as measured by later revised data than the initial estimate or “flash” number issued by the official statisticians.
We leave the big ideological debates to others
Much of the macroeconomics discussion at least as it is covered in the business media, is often more about furthering rival political ideologies than about advancing the scientific and empirical understanding of the economic worlds we inhabit. While we are as keen as anybody else to engage in debates of such matters under convivial circumstances, we do not regard participation in such discussions as part of our work.
We prefer to focus on sectors
We tend to find the greatest opportunities to provide useable and valuable results for clients arise through a focus on the business sector in which the client is engaged. To take an example from portfolio management, different relative sector performance is often a strong driver of stock market returns – just think of how returns enhancing spotting the divergent performances of the technology and commodity sectors over the past couple of years would have been for any portfolio.
GDP is not an overbearing influence on our sectoral work
For many businesses, the ebbs and flows of GDP are of only peripheral importance for their fortunes. Indeed, some are counter-cyclical in that they do better during overall downturns in business activity. GDP is also in many respects a less-than ideal measure of overall economic activity and welfare. Moreover, even businesses operating on a relatively moderate scale tend these days to have a global outlook, so the question arises as to which country’s GDP is the relevant driver. When we tackle a sector, our starting point is to view the sector through the same lens the business managers would do, focusing on the same dynamic interactions, and progressing from there. In some relatively unimportant and tautological sense the results across all sectors will add up to GDP, but achieving this coherence is not a major focus of our work.
Prices and values above volumes
Over the years, it has become more and more apparent to us that in terms of providing information that can enhance the profitability of an enterprise, information related to prices (inflation), valuations, and exchange and interest rates are the most valuable inputs. The volumes, what is measured by GDP, are what are transacted after the dust has settled as it were; it is relatively hard to make money out of fluctuations in volumes, although it is always handy to be forewarned of a forthcoming recession. However economics as it is practiced has not proven very good at identifying recessions in advance, although we do monitor market indicators that have displayed some predictive power in the past.
Economics and its Discontents
Participating in a recent BBC Radio 4 Panel Discussion, Baroness Jenny Jones of the Green Party remarked that often economics entails little more than holding a wet finger in the air to gauge the direction of the wind. The Archbishop of York, John Sentamu has spoken of economists as peddling dogma. There is an important strand of truth to both perspectives, in relation to economics as it is too-often practiced, but it does not have to be this way. There are also those who contend more broadly that economics is not a true science. To us, that is not a crucial point. The questions economics attempts to answer are undoubtedly important ones, and will continue to require answers whether or not economics can strictly be regarded as science. The existence and pressing nature of such questions means that it will remain important to think about them systematically and methodically and draw upon the best available statistical and empirical methodologies to derive answers. Over time we think it is clear that the proper application of economics has contributed a great deal to human progress. This is why we take our work as seriously as we do – we contend that economics as applied appropriately has been a powerful force for good, and we have the somewhat immodest aim to seek to further this through our endeavours.