Too Much Information
A wealth of information creates a poverty of attention.
With greater access to technology and increased digital innovation throughout the world, everyone can have access to breaking news and financial information 24/7. A few apps, real-time news, and data feeds can make people feel like a pro-trader. You may think that keeping up to date with everything that’s happening around the world can give you an edge in investing, but does it really help?
In today's environment of information (over)flow, response-speed is barely an issue any more. In the past, professionals with state-of-the-art systems had priority access to breaking news, but over time this advantage has progressively gradually eroded. For instance, today's $200 budget smartphone is more than 32,600 times faster and has more than 1,000,000 times the memory capacity than the Apollo guidance computer from 50 years ago that sent astronauts to the moon.
The downside of these developments is that we are bombarded with huge volumes of information, financial or otherwise — more information at our finger tips than we can digest. How do we sift through this deluge of data? How do companies compete in this sea of information? In order to get readers to get hooked onto an article, information providers know that they have to entice readers with "clickbait headlines". Therefore, amidst the noise, the most important question for investors is not about how we can access the best real-time information, but rather, to ask ourselves whether we actually need to be so plugged in to have a successful investment experience.
Answering this question starts with understanding that you won’t get much of an edge over other investors by having access to information that is so freely available. The other part is knowing which bits of information you should actually act upon, out of whatever you have read from your news feed. There is no shortage of conflicting articles trying to explain why something went up or down in price. In the following example, the media reported that China’s tech crackdown and fines resulted in the collapse of many technology linked shares, posting an article titled: China tech crackdown turns to food delivery giant Meituan as $38.96 billion is wiped off value. A few months later the same media agency linked the aforementioned fine as a reason for the recovery of the shares: China tech stocks surge despite $534 million antitrust fine slapped on food delivery giant Meituan.
Feeling confused yet? Instead of trying to decipher why assets went up or down in price, understand that asset prices are set by the millions of trades done by investors around the world who all have different goals, risks, strategies, needs, and holding periods.
For example, investor A in Singapore may feel that Keppel Corp’s recent surge in price to over $6.50 is overdone. After all, she bought in below $5 just over two years ago. She places a sell order at $6.50 and is happy to sell at a 30% total return. Investor B in US thinks that the oil and gas sector is the place to be in right now. He wants to buy all oil related companies around the world for his portfolio. He is happy to buy the companies at their current market prices because he thinks the entire sector could double in ten years. His buy order is matched to investor A and he picks up shares of Keppel Corp at $6.50.
Returning to the point of whether you need so much information at your fingertips, you need to ask yourself, honestly: are you trying to beat the market by finding a mistake in the prices, hopefully profiting from information which nobody has seen yet, and timing your entry and exit points? If so, you should know that high-frequency trading institutions spend enormous amounts of money on advanced communications networks, computing power, and coding algorithms to take advantage of split second changes in information, news flow and stock prices. That’s some really tough competition to go up against.
For the majority of investors, investing is a means to an end. We want to save for a house, or put our children through school, look after our ageing parents, or give ourselves a chance at a comfortable retirement. In this context, is the most relevant information what market will do today or tomorrow? The answer is ‘No’.
The most relevant information is about our own lives and circumstances, i.e. How much can I spend now? How much do I need to save? For how long? What kind of return can I get given my risk tolerance? What about inflation and cash in the bank? What loopholes I might have missed?
This is the value that an independent fiduciary advisor brings to the table — not to give you the best investment picks, stock market hot buys, or trending asset classes, but to understand your life situation and what each person ultimately needs to do in order to fulfil their own individual goals. What all of us need is to ensure that our investment plans match our goals and we are using the most efficient strategy to execute that plan. There’s no need to waste time analysing the news or reacting to it.
For a second opinion on how to construct a robust plan that caters specifically to you, come and have a chat with us.
