Information Overload and Market Noises
Information Overload: State of mind which impairs the decision making caused by the presence of too much of information.
Information have found more ways to reach us in the modern times than ever before thanks to social networking and connected applications of mobile and other gadgets. Instant information is the order of the day. It makes the information cheap.
When the information is cheap, attention becomes expensive – James Glieck
Above quote reflects the current state more precisely. Volume of market information is increasing exponentially and the reach is rising rapidly but the amount of useful information is not. So, the effective signal-to-noise ratio is going down placing the huge burden on the receiver to sift the good info and benefit from it. In the hyper-connected digital world we live in, the information explosion is reaching levels of being more hazardous.
Wise men of the investing world have distilled the wisdom of wealth creation predicating on below:
1. Wealth is created in waiting and not in buying or selling.
2. Discipline of staying the course is more important than the investment choice.
3. Inactivity is the most desirable attribute after the course is charted.
Market noise: Not all of the markets related information and news are useful and many often leaves you confused and befuddled. It rarely provides the complete or clarified information which is key for making the right decision. Anything that gets your attention and disturbs the mental make up in straying away from keeping one’s discipline and conviction is a noise.
Why information overload?
One constantly seeks information to keep updated and have the edge. Our attention is the prize catch for the information providers and multitude forms of media that exist today. Headlines are made more attractive to get all the attention they can get. With more and more information leading to the glut, one is attempting to ingest more than what the mind can handle and reason with. On the other hand, journalism/media/attention-seeking industries will make it as vibrant as they can, by using all the innovation and digital technologies one can think of. News will weave a story around an non-event to make it more interesting.
Prof. Bob Franklin, Journalism Studies at Hull, summarized it well:
“Entertainment has superseded the provision of information; human interest has supplanted the public interest; measured judgement has succumbed to sensationalism.”
People watch/read more news because it is more entertaining leading to more consumption. News is competing with other forms of entertainment and the drift is inevitable.
Huge Heclo, Professor of Public Affairs at George Mason, said
“the information glut driven by the technology shifts the comparative advantage to those with ordered knowledge who can explain what is worth knowing and why, rather than those who have access to vast amount of information”
In other words, Information Overload or Infobesity as it is referred in modern times, is a reality and an hazard we have to recognize. Researchers have been warning for long that cognitive over-stimulation hampers the thinking process. More is not merry when it comes to information consumption. Excess information adds no value or even sometimes leads to wrong decisions making people to act when they should not be. Huge Heclo is spot-on. Having access to vast amount of information alone provides no edge and knowing what you need to know is the real edge. One should be selective in reading/assimilating the right information and learn to separate the noise from the signal to have the edge to make good decisions.
Fidelity conducted a recent study to see which investment accounts did best in performance. Results showed it was the account of people who were dead or those who forgot they had an account. Telling! You can read more on that here. It is more revealing when one overlays the information overload scenario, and it becomes abundantly clear as to why the investors don’t make money when the investment performs and still makes money. Environment is creating enough excitement for the investors to constantly tinker with their investment plan and portfolio affecting the discipline despite having the perfect plan and the right investment vehicles. Once the plan is put in place and set in motion, one has to become completely immune to the news and market distraction for the investments to work and create wealth. No where else one can see the impact of ‘Do-nothing’ have as much impact as in the case of investment world.
Simple rules to prevent information overload and what to make of it:
- Define and rate-limit your time you are willing to spend on ‘free’ information – daily or weekly.
- Pick a single/select business daily/mag or blogs to read and be ultra selective.
- Believe that there is a sea of a difference between information and ‘validated’ information.
- Select information with proven and authentic sources can lead to a better decision.
- As always, choose quality over quantity.
Aside: While delving more on Information overload and the subject of news shaping the behavior, I came across a new word coining: Infoxication. It refers to the state where one acquires right-wing disposition watching and taking the Fox News seriously. An another interesting way to coin would be:
which looks more apt and relevant when too much information indeed becomes toxic at times.