Most people would argue that living in a digital world, with instant access to an endless stream of information has made us smarter and more empowered than past generations. Investors believe that it has “leveled the playing field”, enabling them to make investment decisions based on the same information once only available to the investment professionals. The incessant quest for information has reached such a fever pitch that the media outlets, including the cable channels, print media, and now the blogosphere, are churning out content, and it still isn’t enough to satiate peoples’ ravenous appetite for information. So, is this helping the average investor? Probably not.
There is a much stronger argument that can be made that, in general and for investors especially, information overload makes it more difficult to make rational decisions. Further, it often leads to behavior that can be harmful, if not devastating to your financial well-being. While there has obviously been a marked increase in the quantity of information, the quality of the information will always be in question. Where you have quantity without quality, all you really have is “noise.” And for people who are looking for legitimate, independent financial advice and relevant information, it can be deafening.
Almost the entire U.S. population regularly accesses information on the Internet and increasingly using their mobile devices. Information has become so ubiquitous that it has become an entitlement for people who take its availability for granted. The media is taking full advantage of that entitlement attitude to layer on as much content as it thinks the public can consume. In order to attract the attention of a pre-occupied public, and therefore the advertising dollars its viewership generates, the information has to be entertaining, pithy, and compelling. To that end, the media has no fear or shame in hyping a story beyond a reasoned reality, in order to make its information appear more essential.
In the investment arena, stories can’t be compelling, or entertaining, for that matter, unless they are consequential in the short term. In other words, the Facebook initial public offering, even though it was of little actual consequence to most investors, is a much more compelling story than an essay on the argument for superior, long-term performance through index investing —- although the latter could benefit the vast majority of investors. The problem is that the information we, as investors, receive is filtered through an “excitability” gauge. Can you imagine an analyst or stock analyst spending 20 minutes on CNBC speaking about the the 5-year growth opportunities of a specific business and its current valuation? How about how a passive, diversified portfolio the most appropriate opportunity for you to pursue long term retirement goal? Three-quarters of the audience would switch over to the food channel where they could find much more “consequential” information.
Unfortunately, access to more information and technology has not improved investor performance over the last two decades. While we’re not suggesting that you should turn off cable news or refrain from surfing investment sites, you do need to remind yourself that these sources of information don’t necessarily share your agenda. Gathering information and educating yourself are essential parts of the process, but it should be done in the context of your clearly-defined objectives and a well-conceived financial plan.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.