Olivier de Berranger

A little measure in all things!

Placed under three glass bells in the Parc de Saint-Cloud, at the International Bureau of Weights and Measures, a small iridium platinum cylinder, scarcely larger than a plum, embodied the international definition of the kilogram until last spring.

Made in 1889, the International Prototype of the Kilogram (IPK) – dubbed “Big K” – was one of the last physical objects to define a unit of measure. On its very few outings (three since the 19th century), a slight variation in mass was observed compared with the six other standards assumed to be identical. Big K’s fate was sealed. Since last May, the international scientific community has adopted a definition of the kilogram based on the Planck constant (symbolised by a small “h”), a constant of quantum mechanics with diabolic precision.

While accuracy is a natural pillar of metrology and science, economic and financial data seldom reach such a stellar degree of precision. However, a few surprises in the publication of an economic statistic – on the upside or the downside – can be enough to cause wide swings in the financial markets capable of creating or destroying hundreds of billions of dollars.

The publication of a contraction of 0.1% in German GDP in the second quarter of 2019 has been taken as evidence that the German model has “run out of steam”. Granted, Germany, the world’s third-largest exporter, is an obvious victim of the US administration’s trade war. The fact remains that a further contraction in GDP for the third quarter would put Germany (with its unemployment rate of 5% and its budget surplus of €45 billion in the first half of 2019) technically in recession. At the same time, the upward revision of France’s second-quarter growth to 0.3% from the first estimate of 0.2% allowed commentators to hail a positive surprise…

While accounting and regulatory standards provide a secure framework for investors, reliance on statistics alone can be misleading. Without harking back to the accounting frauds that have punctuated financial history, the market’s focus on corporate earnings is sometimes excessive. The examples are numerous. Just a year ago, Sartorius AG, the parent company of Sartorius Stedim Biotech, specialising among other things in measurement and weighing equipment (how fitting!) for the pharmaceutical and biotech industry, issued a slight downward revision to its outlook for the remainder of the year. The sanction was immediate: Sartorius’s share price plunged by more than 30%, carrying its French subsidiary in its wake. Today, parent and child have seen their share prices increase by 60% year to date, correcting an excess of pessimism triggered by a few decimals.

Forgetting the numbers, in-depth knowledge of companies, their markets and their customers, together with meetings with their management, are essential parts of our management process and the construction of our portfolios. To paraphrase another famous quote, figures are great servants but can sometimes be bad masters.