Information overload?

Jayant Pai |

Don’t get confused. Create a reading list of your favourite newspaper, website, research house to take informed decisions

This article was published in Business Standard newspaper dated September 2, 2012

Buy ‘X’ share, sell ‘Y’. Stay invested in mutual funds… exit some schemes. Outlook for gold is good…sell gold…

Different channels, newspapers, websites, blogs, research reports… sure, there isn’t dearth of information. While business channels and magazines were anyways into an overdrive, many general news channels have also jumped into the fray. The worry: Much of that viewership is only for the daily stock market related programmes and not for other personal finance programmes. And even among personal finance programmes, many question sonly pertain to stocks, with other aspects (such as insurance and mutual funds) taking the back seat.

It is, therefore, surprising that despite our seemingly avid interest in the stock market, every day we hear that retail investors are exiting the market or stopping systematic plans and so on. In fact, the quantum of wealth actually invested in stocks is barely 4 per cent. Even mutual fund distributors have actually come down, and not gone up. Though many blame it on the entry load ban, the jury is still out.

Obviously, this overload of information and the so-called keenness to know about stocks and their future has not translated into much real money coming into the markets or for that matter, mutual funds. Why is this so? Some of the reasons could be:

Too many advisors but no accountability

This is paradoxical but true. Rather than increasing the number of investors, the rate of rise in the advisors hasn’t really helped them. Though there is no data to back this up, one can clearly see it from the absence from retail participation in the market.

Many complain that they are confused by diverse views. The fact is that it does not take much to be a stock market pundit. Spout a few words of jargon, pop-up on a couple of business channels and voila… you have a fan following. Follow this up with a website dedicated to proffering “advice” for a subscription fee and you are ready to go. However, when it comes to accountability for the advice, these people turn coy, blaming everything (even acts of God), except themselves when stocks do not perform the way they say they will. There is also no rating system of how many ‘hits’ or ‘flops’, these so-called advisors have.

But if any retail investor has burnt his/her fingers by putting their money on their advice, the financial loss is good enough to put them, perhaps, even their near and dear ones off. In other words, the absence of accountability hurts the overall sentiment towards stock markets very badly, as many stop investing after being saddled with a few dud recommendations.

Too much data but little explanation

Till recently, research agencies would criticise companies but not give a ‘sell’ because the banking or broking or other arms of the group would lose business. While much of that has changed because of overall bad market conditions, investors are often confused that even after reams of data pointing against a company, why seldom there is a ‘sell’ recommendation.

In other words, there is a “Tyranny of Choice” when it comes to market information. The ticker rules our lives (thankfully, we are spared on weekends), we are bombarded with statistics of all hues, be it the cash segment, F&O segment, institutional activity, quarterly results, etc. Unfortunately, just as a glass can hold only so much water, our brain ceases to process information beyond a point.

Feeding it with more makes it freeze into inaction. Many are in that state nowadays, overawed and overwhelmed by the deluge of information, but there is seldom concrete solution or recommendations.

Few can stomach volatility

We are spoilt. In the good old US-64 days, we were promised 18-20 per cent without any labour. Despite the realisation that the scheme had to be stopped because it promised too much without the fundamentals supporting it, we still want to live in those good old days.

Often people inquire with me as to which stock is a good investment. While I do not have an idea a day, I do name a few good stocks once in a while. However, after a few days or weeks when I ask them whether they have invested, most of them say they have not done so, because the market is too volatile right now and they are waiting for it to stabilise. Well, I often joke that markets are stable only over the weekend and that too because they are closed. Volatility is part and parcel of any market. If you cannot stomach it, you should not be inquiring about stocks in the first place. Also, the media, instead of assuaging the viewers actually feeds on such volatility and makes mountains out of molehills making remarks like “Market crash reduces investor wealth by thousands of crores”. Extreme statements like these, scare off several potential investors who are sitting on the fence.

I think the best way to deal with this situation is to cut ourselves off from the clutter. Mentally, we can create our own list of favourites such as one favourite TV channel, one favourite website, one favourite magazine, etc. and stick only to those. They usually talk about the same developments anyway. With regard to self-styled advisors, zero may be a good number… After all, often their guess is as as good as ours.

Also, it would help if we changed our mental model of investing from one of action to one of inaction. Every source mentioned above (stockbrokers included) want you to do something. The shorter your horizon the better for them as they generate more income off you. Well, frustrate them by holding on to good investments for long periods of time. Stop being the sacrificial lamb at the altar of their greed.

Finally, treat volatility as a good friend who actually helps you buy good stocks at reasonable prices during panics.