When’s Too Much Information Too Much of a Good Thing?
For the past two centuries, ordinary investors have always struggled making their portfolios work, because they simply did not have access to as much information as big firms on Wall Street did. If time was money, then information was pure gold. Even as recently as year 2000, for weekend investing forums where information, strategies and investment advice were peddled by those who knew what they were talking about, just as they were by those who didn’t have a clue, tickets would still be sold within minutes.
Since then, things have changed dramatically. More specifically, the Internet has changed things dramatically. Suddenly, investors went from one outlier — information deprivation — to another — information overload. What is needed now is the way to process all that information, and, more importantly, the way to use that processed information to one’s advantage.
How troublesome are this new investing environment and the ever-changing rules of engagement to investors? Considerably. Some of the problems are the so-called fringe or peripheral views that can be found by simply googling something with your search engine (you see, we now even have the new verb, “to google”). Now, if these fringe views were to serve as premises for healthy debates, there would be no problem. But that is almost never the case. In fact, in most instances, a fringe view will be a vigorously defended opinion that joins hundreds of thousands of differing opinions on the same topic on the insane “information highway.” And driving on it has not only become perilous recently, but near darn impossible.
What are investors to do? Well, there is only thing left to do — and that is to pick sources they trust and stick by them. Otherwise, you will never invest a dime, yo-yoing from one source to another ad infinitum. Another important point is to choose a source that has no other agenda but to provide an honest, unbiased opinion. In that regard, information providers not paid by, for example, companies being analyzed, or not being invested in a stock promotion themselves, would be considered unbiased, potentially even solid sources of reliable information.
Furthermore, try to keep your own mind open and don’t look only for information you want to hear. That may involve finding a source that is providing you with honest information, even if it is not always to brag about a profit. In all likelihood, if your source of information is willing to tell you good news along with the bad, then it is the source worth holding onto. This is called removing oneself from the “confirmation bias” and getting a broader view on investment topics.
Finally, investors need to learn to develop a disciplined way of reviewing their portfolios in terms of how frequently they do so. Staring at stock prices every minute of every day is not a healthy way to lead a life. For example, research shows that investors feel about losses two times more intensely than they feel joy about gains. They often end up more deeply connected to their losses, which also makes them much more prone to stress and holding on to bad investments.
But detaching oneself from a loss in a cool and unemotional manner is anything but easy. For the most of last year, I have had to watch some of my favorite stories go down in flames just because I refused to admit that a company was going nowhere despite being a great story. If the crash of 2008 and the recession of 2009 have taught me anything, it was to stop obsessing about every single investment I have made, put my stop losses in place the minute I buy something, and let it ride its fortune in this unpredictable world.