Quantum Wealth Summary
- What you need to know: This Australian power generator was punished for four years, with its stock price suffering a drop of over 80%. But it is currently experiencing an astonishing resurrection.
- Why it matters: The Company’s stock price is up over 115% since bouncing back from the bottom, outperforming the ASX 200 index.
- Here’s the state of play: In a world hungry for energy, does this Company represent true value?
You already know this: World War II was the most destructive conflict that mankind has ever seen.
It was a total war. Fought on land, sea, and air. Turning many parts of the globe into rubble and ruin.
The scale of the destruction was only made possible through the sheer power of mass industrialisation. Because of this, up to 85 million people are estimated to have died during World War II. By comparison, *only* up to 22 million people died during World War I.
Now, if you’re a pessimist, you may see this as a sad indictment on the savagery of human nature.
However, despite the tragedy, you shouldn’t overlook the fact that World War II was also a laboratory for human resilience and innovation. Positive breakthroughs did happen as a result of this conflict.
For example, let’s look at the curious theory known as ‘survivorship bias’.
Survivorship bias became especially relevant during World War II. Here’s why:
- The US military wanted to improve the survival rates of their aircraft and protect pilots from enemy fire.
- To achieve this, they examined the damage patterns sustained by planes returning from combat missions.
- Then, logically enough, they concluded that they needed to reinforce the areas that had suffered the most damage. These appeared to be the most vulnerable spots on the aircraft.
However, statistician Abraham Wald at Columbia University looked again at the data. He started to question the original methodology. He felt that the analysis might be flawed:
- This was because the military were only looking at the aircraft that had made it back safely home. They didn’t take notice of the unfortunate planes that had been shot down in combat and never returned.
- In fact, Wald believed that the damaged patterns on the surviving planes were not the most critical areas to reinforce. Instead, Wald made a bold counter-argument: they should be focusing on the areas that *were not* damaged. After all, these were actually the vulnerable spots that were causing planes to be lost and pilots to be killed.
- Of course, this was a stroke of brilliance. It happened because Wald was astute enough to understand that correlation and causation were two different things.
- He recognised that the original data being studied only represented a subset of the planes — those that had survived. However, the planes that didn’t return were just as important, even if they were missing from the initial analysis.
Wald’s insights were profound. This led to a fundamental shift in how combat aircraft were protected during World War II, saving many lives:
- More importantly, Wald’s idea has now spread beyond the military.
- It has paved the way for a deeper understanding of how survivorship bias can affect decision-making in many different areas today — like politics, economics, and sports.
- Chances are, you’ve experienced the impact of this in your own life — even if you have never actually stopped to think about it.
Now, this brings us to an Australian company that may be the perfect candidate for survivorship bias:
- It was unloved, unpopular, ostracised. Most investors shunned this power generator, punishing it for four years. Its stock price experiencing a drop of over 80%. Understandably, few people wanted to invest in this Company while it was going down.
- However, since hitting rock bottom, the Company has experienced an astonishing resurrection. Its stock price is now up over 115%, outperforming the ASX 200 index.
- In a world hungry for energy, does this Company represent true value?
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