16 April 2019

John Barton

Director & CEO

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In the past, lack of reliable information was traditionally the main challenge when it came to making decisions. This was true in most areas of life – especially with personal finance and investing. But we’ve come a long way in the last 20 years. Now, our challenge is reversed - we have too much information.

A new term has emerged to describe this condition – infobesity.

In today’s world, the internet enables us to access far more information than we could ever hope to read, hear or watch in a lifetime, let alone on a quiet Sunday morning or Tuesday evening.

To illustrate the sheer volume of information available to us, consider the following:

• There are estimated to be roughly 200 million active web pages on the internet.
• The Google Search index contains hundreds of billions of web pages and is more than 100 million gigabytes in size (these are therefore readily accessible from the average user’s web browser).
• 571 new websites are created every minute of the day (here’s a real-time view of websites online right now!)
• 300 hours of video are uploaded to YouTube every minute! You may be surprised to know that a significant percentage of this content is accurate, informative and genuinely useful.
• Almost 5 billion videos are watched on YouTube alone every day.
• The first email was sent in 1971. Today, roughly 200 billion emails are now being sent and received each day. The average office worker spends 31% of their time reading their (roughly) 121 emails each day.

Clearly, there is an overwhelming volume of content at our fingertips. Although a good portion of this can be classified as ‘junk’, even if you could find the ‘good’ content that you were actually interested in, you couldn’t possibly hope to consume more than a tiny fraction of it. It would be like drinking from a fire hose – not very pleasant and not very effective.

When this volume of information is combined with some of our basic human responses, the impacts can be significant. The best way to guard against these impacts is to understand the risks.

When it comes to personal finances and investing, most of us have a desire to stay informed, to keep up-to-date and to have an understanding of what is going on in markets and in economies. If we consume high-quality market and economic commentary that doesn’t offer certainty in an uncertain world, then this can be a very useful course of action. It helps us to understand market conditions and returns. However, when so much of the available content is actively competing for our attention, it is too easy for dispassionate commentary to drift into crystal-ball gazing and fortune telling.

Unfortunately there is a very strong human tendency to give credence to the most recent information we have heard. This is called recency bias. When recency bias is combined with another strong human tendency – action bias – the results can be disastrous. Action bias is the tendency, in many circumstances, to take action because taking action feels safer to us than not taking any action at all. The classic case of action bias in investing is selling shares just after the market has fallen 10%. Most of us know that selling low and buying high is a recipe for a sub-par investment experience, yet every time the market experiences a correction, a large number of investors rush for the door, sell their investments and lock in their losses. Of course, history has shown again and again that market corrections are much more likely to provide an opportunity to profit by buying, than an opportunity to protect oneself from future losses by selling.

Likewise, when we read opinions, particularly well-articulated opinions arguing passionately that we must ‘buy this’ or ‘sell that’, there can be a very strong tendency to take action based on these views. After all, “what if he’s right and there is a bubble about to burst?” There are more investment opinions, forecasts, prognostications and the like available to each of us today than at any time in history. Of course, many of them disagree on what is coming and what the latest data from the US actually means. While some of the opinions offered are clearly highly questionable, many are intelligent, based on detailed research and delivered with compelling professionalism. The problem is that for every set of facts, there are multiple, mutually exclusive conclusions being offered by equally qualified commentators.

So what are we to do?

Consider this three-step plan for dealing with infobesity (whether it be with regards to your personal finances or another subject altogether):

 

1. Have a plan

The most effective inoculation you can have against being swayed to action is having a clear plan in place and underway.

 

2. Develop a small number of trusted sources

Limit the number of voices you are listening to and remember that none of them can predict the future.

 

3. Limit your decisions

Although you should regularly review your plan and be open to adjusting it as new information comes to hand, it is vital to remember that changing course has costs and second guessing with the benefit of hindsight is rarely profitable.

 

By following these three steps, you should find that you can effectively cut through and eliminate the vast amount of information excess and the accompanying temptation to react to the latest data. Instead, you are more likely to remain focused on the plan you have put in place to reach your end goal – whatever that may be.

With the Federal Election taking place in just over a month, we can expect a great deal of speculation and commentary to come from all directions. Now is a good opportunity to put the three-step plan into action to avoid getting bogged down in information and news.

Disclaimer: This article contains general information only and is not intended to constitute financial product advice. Any information provided or conclusions made, whether express or implied, do not take into account the investment objectives, financial situation and particular needs of an investor. It should not be relied upon as a substitute for professional advice.