Thursday, March 11, 2010

Seatbelts, Safety, and Investing

In April of 2009 the NHTSA released the following:

"Lower fatalities and higher seat belt use are trends we want to see," said Secretary LaHood. "States like Michigan are raising the bar on seat belt use, making communities safer and keeping families intact." 

In Michigan, the belt use rate was 97.2 percent in 2008. By contrast, Massachusetts was 66.8 percent.

Massachusetts seat belt usage rate is basically terrible. The worst.

Separately, this December of 2009 Forbes article pointed out the following:

It turns out, however, that as much as these measures help, there isn't a correlation between more laws on the books and fewer accidents. Sometimes, it's the states with fewer rules--but more educational initiatives--that have safer roads. For example, New Hampshire joins Rhode Island and Vermont on our list of the safest states for drivers. But New Hampshire has enacted neither a primary nor secondary seatbelt law for adults.

Now, if you look at the NHSTA FARS reporting system, you will see that the most recent data shows that the safest U.S. states -- the only states with fewer than 1 death per 100 million vehicle miles traveled (VMT)* -- were as follows:

Safest States
1 Massachusetts (.79 per 100 million VMT)
2 Rhode Island (.80)
3 Vermont (.86)
4 Minnesota (.89)
5 Connecticut (.92)
6 New Jersey (.95)
7 New Hampshire (.96)
8 New York (.97)

25% of the states in the U.S.  have fatality rates that are more than 2x as high as the best on this list.

So strangely, some of the safest states have either terrible seatbelt usage habits and/or (I probably don't have to say it) a reputation for an impolite, aggressive driving style. Obviously, this is not meant to suggest seat belts need not be worn. The above places are safer despite the lack of seat belt usage.

Why bring this up in the context of investing? I think when facts/results are inconsistent with prevailing wisdom there's a better chance that a mispricing (or misjudgment) has occurred. Often those facts will, at least initially, be discounted or ignored because it contradicts a popular prevailing view. Because of that, I try to look for these kinds of inconsistencies. Most of the time it does not yield a useful investment thesis or insight (though it's still fun) but every now and then...it does.

Philip Morris International (PM)/Altria (MO) are examples I've used that fits into this category. The popular prevailing view of the tobacco (taxes and declining demand would crush margins, that they'd be sued out of existence..etc.) kept their stocks mispriced for decades. The reasons for it being a great investment over the past 5+ decades can be counterintuitive but...once understood...useful, insightful, and enlightening.

In this case, I have no explanation why these states have better safety records. I'm sure someone with the right background can figure it out. Some others may think they know why. Having consistently the lowest fatality rates with low seat belt usage rates and generally more aggressive drivers. Really? C'mon right? It's, at least, a bit surprising if not the basis of a new investment idea.

Adam

Long PM and MO

* The standard measure used by NHTSA.
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