FOOL'S EYE VIEW
Information Overload

By Stephen Bland (TMFPyad)
March 19, 2001

There is too much financial information around as far as share investing is concerned. Clearly, the Internet is the medium that has given rise to this phenomenon. There are now any number of sites where I can get a load of information on any share, and many of them in addition have message boards where people, largely having little or no investment sense it seems to me from a cursory glance at some of them, discuss their pet shares.

When I first started value investing, long ago in the days when the entire universe was but a singularity of near infinite density, the ultimate and only black hole, all I had was the FT, the Investors Chronicle and access to two sets of card index information sources available in a city library. One of these indexes gave a quick fundamental look at any company and the other was a news cuttings service.

The FT or IC gave me the lead. The fundamentals service gave me the full figures, or as much as I  needed to know. The press cuttings service gave me the psychological edge I sought. Sometimes even that was overanalysing and I might invest solely on the IC report. I hardly cared then or now what the company actually did. But that's me, I am not advising that anyone follow what I do.

Critically there were no bulletin boards, so I was acting alone. I still do, I have no interest in what others think, but I know that this does not apply to a lot of small investors who seek safety in numbers. Unfortunately they seek it on bulletin boards populated by those possibly knowledgeable about a company's business but often totally dumb when it comes to judging  a share as an investment. The two are not the same thing and in my view are possibly negatively correlated. Knowing a great deal about a company may actually make you a worse investor. A generality and hence not always true, but often enough so as to make it food for thought I think.

Why the paradox? Why should having too much information be negative? Logic suggests that the opposite ought to be the case.

People  are not logical, of course, and there lies the explanation.

I believe that cutting out a large amount of extraneous data -- noise, if you like -- will improve your success. Worst of all are the macroeconomic factors. You know the kind of thing:

"People have to eat, therefore supermarkets, food manufacturers and so on must be a good investment."

Most of us will have heard this kind of rubbish from time to time used to justify a share. It is complete nonsense, pure mugpunter. Not that people have to eat -- there may be some truth to that -- but the idea that because they do then it follows that any food share must be a good investment. The flaw, of course, is competition.

So first of all, cut out most macro factors and focus on the share itself, whatever style of investor you are. That still leaves though an enormous amount of useless material around to be drilled through before you get to the motherlode of what really matters in share picking decisions.

Next we come to experts. People who know intimately every nuance of the company's products, convinced as to their quality, their world beating innovation, failing to understand why the market does not agree with them and so on. TMF company boards, I mean the very popular ones, are actually inundated with messages from these guys. You have to admire their knowledge, rich with the alphabet soup particularly on techs used to define acronymically the products of the object of their affection. There is nothing these guys don't know. Except what matters. How to make money in shares.

The last people in the world to whom any heed should be given when considering a share in which to invest are those who know the company inside out. Why? Because they have fallen in love, a serious crime with share buying. Love is indeed blind in these cases. It follows that for a non-expert, making yourself into one is likely to lead to a worsening of your investment performance. I generalise again, but that is my view.

So if we cut out macro factors and expert opinion what is left? A few simple tools is all you need whether you are a fundamental player, or a technical player, or that strange hybrid that seems to have appeared a lot around here in recent times, the guy who feels that a bit of both is the way to go. Can't understand that at all myself and suspect it is detrimental. Like those weirdos that drink wine with curry. Both tastes are somewhat messed up by the other.

Focus on your share. From the enormous amount of data out there, try to learn what matters to the share as an investment and what does not. The great majority will not. Especially avoid vague macro factors about the economy and also, industry expert opinion on the share. Try to narrow down your selection tools to something simple that suits your financial personality. Overanalysing and information overload is bad for your wealth.

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