By nature they’re sceptics, and at key junctures become contrarians. I show why they should disbelieve the orthodoxy – and why it matters.
The drumbeat has long been incessant, and lately it’s become deafening. For years, “the consensus” has decreed that “the science is settled.” And on 27 July, the UN’s Secretary General, António Guterres, proclaimed: “the era of global warming has ended. The era of global boiling has arrived” – and for good measure alleged that July was the hottest month of the past 120,000 years. The hyperbole extends to Australia. “Lethal humidity is already here,” said the mining magnate, Andrew Forrest, last week. “Millions of people will die. If you can’t get rid of that heat because of humidity,” The Australian (4 September) quoted him, “you cook yourself.”
Global investment institutions champion this dystopian consensus: the impact of climate change, they reckon, is massive, pervasive and permanent. GIC, the manager of Singapore’s sovereign wealth fund, reckons that it “is a systemic risk affecting all sectors and markets.” “Considering the direct threat it poses to global GDP and prosperity,” adds Bank of America Merrill Lynch, “climate change will likely become a more central feature of corporate decision-making in the years ahead …”
“For investors,” BAML concludes, “these trends suggest making environmental considerations a part of their long- and short-term portfolio strategies. Companies that embrace climate-friendly business models, operations, products and services are likely to experience the potential for sustained growth opportunities over the long term … Companies that fall behind, meanwhile, could risk greater costs due to regulation.”
The RBA, too, harbours no doubts. According to Michele Bullock, its incoming Governor, climate change will have “broad implications” for Australia’s economy and monetary policy (see “Climate Change and Central Banks,” Sir Leslie Melville Lecture, 29 August 2023). Finally, Jim Chalmers, the federal Treasurer, has boarded the bandwagon: “the Intergenerational Report made clear,” The Australian quoted him on 30 August, that “climate change and the energy transformation will be the biggest challenge and also the biggest opportunity for our country in the decades ahead.”
How seriously should investors – especially conservative value investors – regard such assertions? In particular, how should they consider claims such as “rising levels of CO2 in the atmosphere cause the climate to warm; therefore governments must combat climate change by slashing the level of CO2?”
Four Starting Points – and a Preview of My Conclusion
In this article, I answer these crucial questions. I proceed from four premises:
- Value investors are naturally sceptical, and always think for themselves.
- They don’t let conventional wisdom sway them – whether in the form of crowds, a “consensus” of academic and other “experts” or stampeding mobs led by jet-setting UN Secretaries General, Australian billionaires, etc.
- In key respects and at crucial junctures value investors are bold contrarians.
- They think independently, but they’re also humble. In particular, when necessary they heed competent external views and research.
Applying these principles to an assessment of “climate science,” it’s clear that climate change isn’t a systemic risk: it’s a mass hysteria. Like all manias, it will collapse when people – above all, energy consumers and taxpayers – recover their senses.
Value Investors’ Contrarian Mindset
Benjamin Graham is widely known – and has been fittingly recognised, not least by his most famous and successful student, Warren Buffett – as the “father of value investing.” At its core, this approach to and philosophy of investing entails the purchase of securities whose value (derived from analysis of their financial statements) exceeds their price. Among other things, Graham emphasised analysis, caution (buying with a margin of safety), stability (buy-and-hold) and a contrarian mindset.
What does this mindset entail? Investment is ultimately a matter of character, and Graham expressed value investors’ ethos – and the crux of science – in these words: “Have the courage of your knowledge and experience. If you have formed a conclusion from the facts and if you know your judgment is sound, act on it – even though others may hesitate or differ. You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right).”
Warren Buffett agrees – and also expresses the gist of science: “you will not be right simply because a large number of people momentarily agree with you. You will not be right simply because important people agree with you.” Equally, you won’t be wrong simply because a large number of influential and prominent people disagree. Instead, “you will be right … if your hypothesis is correct, your facts are correct, and your reasoning is correct.”
Value Investors Recognise That a Consensus Can Be Wildly Mistaken
“When everybody is on one side of a market,” reckons Jim Rogers, the consensus “has nearly always proven to be wrong. We human beings have not changed in hundreds of years, so we are still guided by the same fears and aspirations.” Howard Marks concurs: “What’s clear to the broad consensus of investors is almost always wrong.” Carl Icahn is less categorical: “The consensus … is generally wrong …”
Few investors will find these statements remarkable; even fewer with regard them objectionable. Many people, however, strictly limit the permissible scope of contrarian thinking. In Jim Rogers’ quote, replace “a market” with “an issue like climate change.” Why is the result so contentious – and, to many people, intolerable?
If the consensus can be and often is mistaken, what should investors do? “I would recommend that (they) tune out the prevailing views they hear on the radio, television and the internet,” counseled Irving Kahn. “Watch which asset classes they’re holding conferences for and how many people are attending,” adds Howard Marks. “Sold-out conferences are a danger sign. You want to participate in auctions where there are only one or two buyers, not hundreds or thousands.” I guess that means he’ll skip COP28 (the 2023 United Nations Climate Change Conference) in Dubai!
It’s Superficially about Being Different …
“Never follow the crowd,” advised Bernard Baruch. Jim Rogers agrees: “when everybody is on one side of the boat, you should go to the other side.” So did Phil Fisher: “Training oneself not to go with the crowd but to be able to zig when the crowd zags, in my opinion, is one of the most important fundamentals of investment success.”
Buffett has elaborated: “good investing is a minority sport, which means that in order to earn returns better than everyone else we need to be doing things different from the crowd.” Further, “most people get interested (in stocks) when everyone else is. The time to be interested is when no one else is. You can’t buy (or believe) what is popular and do well … That’s why Berkshire buys when the lemmings are heading the other way.” “An ability to detach yourself from the crowd” is “a quality you need.”
But It’s Fundamentally about Thinking for Yourself …
“The consensus is often wrong,” cautions Ray Dalio. “So I have to be an independent thinker (to ascertain when and why it’s wrong) … Look at the numbers and think for yourself. All the great investors do, and that’s what makes them great … In the top financial ranks are disproportionate numbers of contrarians.” (We’ll shortly see that great scientists dispassionately and rigorously analyse data and think for themselves, and that’s what makes them great. Disproportionate numbers of contrarians populate the top ranks of science.)
Buffett has also added a crucial caveat. Being contrarian merely for the sake of being stubbornly different “is just as foolish as a follow-the-crowd strategy. What’s required is thinking rather than polling. Unfortunately, Bertrand Russell’s observation about life in general applies with unusual force in the financial world: ‘Most men would rather die than think. Many do.’”
… Therefore Contrarianism Is NOT Mere Obstinacy
John Neff agreed: “do not bask in the warmth of just being different. There is a thin line between being contrarian and just being plain stubborn … I will also concede that at times the crowd is right …”
Howard Marks also concurs. “My good friend Joel Greenblatt, an exceptional equity investor, provided a very apt observation regarding knee-jerk contrarianism: “… just because no one else will jump in front of a Mack truck barreling down the highway doesn’t mean that you should.” In other words, the mass of investors aren’t wrong all the time, or wrong so dependably that it’s always right to do the opposite of what they do. Rather, to be an effective contrarian, you have to figure out what the herd is doing; why it’s doing it; what’s wrong, if anything, with what it’s doing; and what you should do about it” (italics in the original).
Ray Dalio concludes: “You have to be an independent thinker because you can’t make money agreeing with the consensus view, which is already embedded in the price. Yet whenever you’re betting against the consensus, there’s a significant probability you’re going to be wrong, so you have to be humble.”
But Beware: Defying the Herd Is Much Easier Said Than Done
“The intelligent investor is likely to need considerable willpower to keep from following the crowd,” said Graham. “Non-consensus ideas have to be lonely,” says Marks. “By definition, non-consensus ideas that are popular, widely held or intuitively obvious are an oxymoron.” Klarman adds: “It is always easiest to run with the herd; at times, it can take a deep reservoir of courage and conviction to stand apart from it.”
“The hardest trait for humans,” reckons Mohnish Pabrai, “is they are adverse from stepping away from the crowd. So having no concerns about how people think about you based on what actions you take is a very important trait. And having no stress about it.”
Why is ignoring and defying the crowd so hard? According to Morgan Housel, the author of The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness (2022), many people possess the potential to think for themselves, regularly ignore and sometimes defy the crowd, but few do “because they care what other people think of them, and taking the other side of a popular view doesn’t make you look smart. Your boss won’t like it. Your friends won’t like it.”
Robert Cialdini, the author of one of Charlie Munger’s favourite books (Influence: The Psychology of Persuasion (1984, new and expanded edition, 2021), adds two key results of his research. “We seem to assume that if a lot of people are doing the same thing, they must know something we don’t. Especially when we are uncertain, we are willing to place an enormous amount of trust in the collective knowledge of the crowd. Second, quite frequently the crowd is mistaken because they are not acting on the basis of any superior information but are reacting, themselves, to the principle of social proof.”
A consensus thereby comprises two groups: (1) a large majority which believes that others know better than they do, and has therefore abdicated critical and independent thinking; and (2) a small, overconfident minority which believes that they know better than anybody else – and therefore whose facts are often wrong and/or whose logic is invalid.
“The only way for investors to (succeed)” concludes Klarman, “is to periodically stand far apart from the crowd, something few are willing or able to do … We at Baupost march to our own drumbeat …”
Which Scientists to Take Seriously?
Value investors always think for themselves, and when necessary they defy the crowd, “experts” and baying mob. Equally, however, when necessary they seek and accept competent external advice and research. As Graham wrote:
“The intelligent investor will (heed competent) advice … especially those known by him to have an excellent reputation; but he will be sure to bring sound and independent judgment to bear upon these suggestions …”
There’s no question that William Happer (Ph.D., Columbia University, formerly Cyrus Fogg Brackett Professor of Physics and currently Professor of Physics, Emeritus, at Princeton University) and Richard Lindzen (Ph.D., Harvard University, formerly Alfred P. Sloan Professor of Meteorology and a lead author of the Third Assessment Report of the UN’s Intergovernmental Panel on Climate Change, and currently Professor of Earth, Atmospheric, and Planetary Sciences, Emeritus, at the Massachusetts Institute of Technology), are highly qualified and eminent scientists. They’ve trained, taught and researched at the world’s most prestigious academic institutions.
For that reason, what follows relies primarily upon their written submission dated 19 July 2023 to the U.S. Environmental Protection Agency; it’s the most recent and among the best (that is, most reputable and readable) one-stop shops of penetrating – indeed, I believe profound and fatal – criticism of “climate science.” (Unattributed quotes are mostly from this submission.)
If you want to learn about climate models, then my third source, Steven Koonin, is very well-placed to distinguish fact from fantasy. A theoretical physicist who holds a Ph.D. from MIT, for nearly 30 years he taught at the California Institute of Technology. He quite literally wrote the book on computational physics, and from 2009 to 2011 was Under Secretary for Science, Department of Energy, in the administration of Barack Obama. In his superb book Unsettled: What Climate Science Tells Us, What It Doesn’t, and Why It Matters (BenBella, 2021), particularly the chapter entitled “Many Muddled Models,” Koonin demonstrates that much of what the public has been led to believe about climate and “climate science” simply ain’t so.
My fourth major source, John Clauser, is a theoretical and experimental physicist who cheerfully calls himself a “climate change denialist.” A graduate of Cal Tech and Columbia University, in 2022 he received the Nobel Prize in Physics.
What Is Science?
In conversations over the years, I’ve come to realise that climate zealots, Net Zero nutters, etc. – including those who claim that they’re scientists – fundamentally misunderstand science. The tell-tale sign is their use of the phrase “the science” (note the insertion of the definite article). They falsely regard science as a body of knowledge at a given point in time. Furthermore, they arrogantly believe that today’s “climate science” is 100% correct – and therefore that it always will be.
History and logic escape them: science is the process of conjecture and refutation that, over time and in fits and starts, generates an increasingly accurate (in the sense that they withstand rigorous challenge) descriptions of reality.
This process comprises reliable observations (data), valid logic (theory), honest and rigorous testing of theories against data – and, above all, humility. Results which presently withstand challenge are contingent; scientists understand that they might subsequently be superseded or overturned.
The litmus test of a true scientist (and, although investing isn’t a science, of a competent investor) is that he openly acknowledges the possibility that he’s wrong – and encourages others to investigate this possibility. Open debate is to science what oxygen is to human life. Consequently, the scientist (and investor) worthy of the name rejects the dogmatism that certainty spawns, and embraces scepticism and humility.
It’d be amusing if the consequences weren’t so serious: “climate scientists” emphatically reject science in favour of advocacy and ideology!
So-called “climate science” rests not upon credible theories and valid and reliable data, “but rather political opinions and speculative models that have consistently proven to be wrong.” Moreover, “the Unscientific Method …, relying on consensus, peer review, government opinion, models that do not work, cherry-picking data and omitting voluminous contradictory data, is commonly employed in these studies.”
Happer and Lindzen therefore reject the assumption – which the mainstream media and politicians, spoon-fed by “climate scientists,” gullibly swallow – that “climate science” is genuine science.
“The popular narrative about climate change reflects a dangerous corruption of science that threatens the world’s economy and the well-being of billions of people. Misguided climate science has metastasized into massive shock-journalistic pseudoscience … (that) has been promoted and extended by similarly misguided business marketing agents, politicians, journalists, government agencies, and environmentalists. In my opinion, there is no real climate crisis. There is, however, a very real problem with providing a decent standard of living to the world’s large population and an associated energy crisis. The latter is being unnecessarily exacerbated by what, in my opinion, is incorrect climate science.”
Proponents of the global warming narrative insist – often stridently – that “the science is settled” (notice the definite article) and that nearly all scientists agree that climate change is the result of human activity. According to the U.S. National Aeronautics and Space Agency (undated), “the vast majority of actively publishing climate scientists – 97% – agree that humans are causing global warming and climate change. Most of the leading science organizations around the world have issued public statements expressing this, including international and U.S. science academies, the United Nations Intergovernmental Panel on Climate Change, and a whole host of reputable scientific bodies around the world.”
So what? As I’ve already shown, value investors never unthinkingly accept, always question – and, when necessary, reject – the consensus; moreover, they know that the more strident is a consensus, the greater is the likelihood that it’s mistaken. The bigger and faster is the bandwagon, the more likely – and severe – severe its eventual crash.
Additionally, and even more importantly, consensus isn’t science and science isn’t consensus. Richard Feynman (who in 1965 received the Nobel Prize in Physics) emphasised that scientists test theories’ observable implications (hypotheses) against observations. If the data don’t support the hypothesis, then the hypothesis is wrong. “In that simple statement,” Feynman concluded, “is the key to science.”
“Science has never been made by consensus,” Happer emphasises. “It doesn’t matter if there’s a consensus; if (a theory) disagrees with observations, it’s wrong. And that’s the situation with climate models. They are clearly wrong because they don’t agree with observations.”
As in financial markets, so too in science: “historically, the consensus … has often turned out to be wrong, and many of the greatest scientists in history are great precisely because they broke with consensus.”
Science advances not by the creation and enforcement of consensus but by a process of conjecture and refutation. Ten thousand studies, each agreeing with the rest, avail nothing – but one valid and reliable analysis that disproves them is invaluable. In science, what matters most is the ability of a theory to withstand rigorous attempts to demonstrate that it’s false. “Climate science” abjectly fails this test.
The Central Core of “Climate Science” Is Unambiguously False
The refrain of “climate scientists,” is relentless: a rise of the level of CO2 in the atmosphere causes the climate to warm; therefore governments must combat climate change by slashing emissions.
The claim is ubiquitous; but is it true? “600 million years of CO2 and temperature data contradict the theory that high levels of CO2 will cause catastrophic global warming” (see Figure 1, which appears on p. 23 of the submission).
These data (the blue line depicts levels of CO2; the red line shows temperature) demonstrate that over millennia both series have fluctuated greatly. By past standards, “the often highly emphasised 140ppm increase in CO2 since the beginning of the Industrial Age is trivial compared to … changes over the geological history of life on Earth.”
Figure 1: Level of CO2 (Blue) and Temperatures (Red) over 600 Million Years
Moreover, both series have been much higher in the past than they are today. Indeed, the current level of CO2 isn’t merely very low from a very long-term historical point of view: the extreme low of the mid-19th century – which forms the baseline from which the present is relentlessly and invariably negatively compared – approached the lower bound (ca. 150ppm) that can sustain plant (and thus human) life.
From these data emerge two very inconvenient (for the consensus) facts. First, it’s indisputable that levels of atmospheric CO2 were much greater in the distant past than they are today. Second, it’s also unquestionable: human activity couldn’t have caused these past high levels of carbon dioxide in the atmosphere.
What, then, explains the comparatively trivial increase since the 19th century? Manmade emissions have certainly risen since then; hence it’s one candidate. Yet given the much larger degree of past variability, which is incontrovertibly natural, it’s a much stronger candidate than human activity.
Most damning for the consensus, the two series of data are inversely correlated. Figure 1 “shows an inverse relationship between CO2 and climate temperatures during much of Earth’s history over the last 600 million years. Higher levels of CO2 correlated with lower temperatures and vice versa.” Happer and Lindzen conclude:
“Although the data are based on various proxies, with the attendant uncertainties, they are good enough to demolish the argument that atmospheric CO2 concentrations control Earth’s climate and the theory that fossil fuels and CO2 will cause catastrophic global warming. They will not” (see also the additional discussion and graphics on pp. 23-26 of their submission).
Finally, “increased levels of carbon dioxide in the atmosphere create more food for people worldwide, including more food for people in drought-stricken areas … (These) increases … over the past two centuries since the Industrial Revolution, from about 280 parts per million to about 420 ppm, caused an approximate 20% increase in the food available to people worldwide, as well as increased greening of the planet and a benign warming in temperature.”
Rising levels of atmospheric carbon dioxide aren’t a threat to humanity. Quite the contrary: they’re a boon. The core conjecture of “climate science” isn’t just incorrect: it’s diametrically wrong.
A Second Key Hypothesis’ Implications Have Been Grossly Exaggerated
Both Happer and Lindzen “have special expertise in radiation transfer, the prime mover of the greenhouse effect.” Radiation physics explains the effect of adding CO2 to the atmosphere. “Radiation in the atmosphere is my specialty,” Happer says, “and I know more about it than, I would guess, any climate scientist.” His expertise “involves much of the same physics that’s involved in climate, and none of it is very alarming.”
The global warming narrative asserts that as humanity burns fossil fuels they emit higher concentrations of carbon dioxide into the atmosphere. These emissions, in turn, absorb sunlight and create a “greenhouse effect” which traps the sun’s radiation and warms the earth. Eventually, emissions allegedly reach a “tipping point” that produces “runaway climate change.”
Does the “greenhouse effect” exist? Yes. Is it a problem? No. Why not? CO2 becomes a less effective greenhouse gas at higher concentrations because of what physicists call “saturation.” Each additional 50 ppm increase of CO2 in the atmosphere causes a smaller and smaller change of temperature (Figure 2, which appears on p. 27 of the submission).
Figure 2: The Greenhouse Effect Doesn’t Increase in Proportion to Rises of CO2
“This means that from now on, our emissions from burning fossil fuels will have little impact on global warming. We could double atmospheric CO2 to 840 ppm and have little warming effect. Saturation also explains why temperatures were not catastrophically high over the hundreds of millions of years when CO2 levels were 10-20 times higher than they are today.”
Climate Models Are Rubbish
Climate models assume that increases of atmospheric CO2 cause temperatures to rise. But that’s clearly false; not surprisingly, given that they rest upon false premises, for decades and considered as a whole, climate models have consistently been wildly inaccurate. Specifically, they’ve predicted FAR more warming than has actually occurred. John Christy, Ph.D., Professor of Atmospheric Science at the University of Alabama, has analysed climate models from 32 institutions from the fifth phase of the “Coupled Model 18 Intercomparison Project” (“CMIP5”). Figure 3, which appears on p. 19 of the submission, summarises Christy’s results.
The blue, purple and green lines show the temperature observations against which the models’ predictions have been tested. The dotted lines are 102 temperature predictions made by the models for the period 1979–2016. The red line is the “consensus” (average prediction) of the models.
“In our (Happer’s and Lindzen’s) opinion and his (Christy’s), the graph clearly shows 101 of the 102 predictions by the models (dotted lines) and their consensus average (red line) fail miserably to predict reality.”
Figure 3: Climate Models’ Predictions (Red Line Shows Average) versus Actual Observations