Information is not Knowledge”  Albert Einstein

We live in an age where more and more information is available to us. Don’t get me wrong, I love having easy access to information. In Benjamin Graham’s day analysts would have to sift through annual accounts to painstakingly extract the information they needed. How much easier to get what you need from Bloomberg or Yahoo Finance at the touch of a button.

However with such a wealth of information and with such easy access to it there is a temptation to capture more information than we need. This can actually be dangerous. Why? Because we end up getting drowned in information – we lose sight of what is important and why we are looking at it.

Wall Street Loves Information

As investors and analysts we often feel empowered by more information. As we gather that information we erroneously believe that our understanding is growing. Nowhere is this more true than on Wall Street, where I have seen analysts create excel spreadsheets of obscene proportions, sometimes with over 50 tabs for a single company. These analysts are, for the most part, very intelligent individuals but they have lost sight of what truly drives the business (which in most cases can be captured in one page). When reality doesn’t match their models, these analysts have an anxiety attack and scurry back to their spreadsheet until they can make sense of the world again.

Shorter and Shorter

Tied up with the desire for more information is the increasing focus on short-term information. Data hungry analysts pour over each quarterly result dissecting them every way they can. Come the conference call, analysts then push for even more information – more granularity to feed their models. Small divergences from expectations take on disproportionate importance and analysts use their platform to yell about it aggressively.

Knowledge not Information

Don’t listen to Wall Street. Ask yourself in the first place if you understand what the business does and what the key drivers of its profits are. I am always astonished at how many analysts and investors have not thought about these basic questions. This is not information that you will get from Wall Street research (the topic is far too mundane for them) so you will probably need to do it yourself.  Warren Buffett wrote “The truly big investment idea can usually be explained in a short paragraph. We like a business with enduring competitive advantages that is run by able and owner-oriented people. When these attributes exist, and when we can make purchases at sensible prices, it is hard to go wrong”.

To bankrupt a fool, give him informationNassim Nicholas Taleb

We all need information to make decisions. By all means use the tools available to get data in an efficient way. But information for its own sake means nothing unless you are using it to further your own understanding.

Join the conversation! 10 Comments

  1. Hi Tom,
    I found your post by chance and decided to check it out due to the Einstein-caption which struck a cord with me. What you are saying here rings true and I think people, not only on Wall Street, are suffering from information-overload. It does not help us making better decisions, financially or otherwise, nor live more fulfilling lives.

    Your description of how this relates to StockView made me sign up to check it out. I think the idea is excellent, but it seems to me that it is impeded by only covering the North-American stock market. I just had a brief look and might be wrong here, but if that is the case I think the site plays with loaded dice. With regards to PE, many US stocks currently seem to be on the expensive side, whereas good buys seem to be found in markets elsewhere in the world. The greek stockmarket is currently trading at PE 4, Italy and Ireland at PE 9.

    Generally I think it is not information-overload to have a wider geographical perspective on stocks.

    Liked by 1 person

    Reply
  2. Many thanks for your kind words and I’m glad to hear you like the idea of StockViews. I completely agree that it would be desirable for us to cover stocks outside of the North American market and indeed we intend to do this in the near future. Because we’re a relatively new site (6 months out of Beta testing) we wanted to prove the concept in the US market before rolling out to other markets. From a commercial perspective, there is a cost in getting reliable pricing from a variety of markets so this is why we haven’t added these markets until now. I was actually a fund manager of European equities and I completely agree with you about the value found in these markets currently versus the US. We’re hoping to add European markets in the next couple of months, and then Asian markets shortly after.

    Like

    Reply
  3. Hi Tom,

    I completely agree with your point of view! What separates successful traders from the ones that loose none (90/90/90 rule) is the overload of information, and that is primarily the structure of the world of finance. It is made so that professional traders, like us, could get out of our position by providing the liquidity from the “Dumb” money. More o that I will be writing in my blog.

    I support your view on creating StockViews, I happen to create blog about the financial markets too. There I started to describe the differences between the professional traders and retail (day) traders. I would like you take a look at it, and give feedback if possible.

    Thanks

    Monkey In the Stock Market: http://monkeyinthemarket.wordpress.com

    Liked by 1 person

    Reply
  4. Many thanks for your feedback. I took a look at your site and I very much commend what you’re doing. As you point out, the big problem with web-based research at the moment is the lack of transparency. There are so many false claims on the web that serious investors and traders are not willing to use it as a source of opinion. I think over time this will change but new models need to be developed to deal with this problem. Good luck with it!

    Like

    Reply
    • Tom,

      Yes, there are a lot of false claims and tricks in order to create “Dumb” money in the market. I am glad that you like the blog! I am going to keep posting, as much, as possible over the time in order to give out more and more information out there, for the world to see. We need people to become profitable over the long term, the way that we will achieve that is stop being human, humans are bad traders 🙂

      Thanks

      Liked by 1 person

      Reply
      • Have you ever read “The Little Book of Behavioural Investing: How Not to be Your Own Worst Enemy”? If not I would recommend it highly and I’m sure you’ll find a lot of interesting material in there to get you thinking of topics for your blog!

        Like

      • Tom,

        I have never heard of it, but I sure will take your advise and see what this book is all about. I recently was told by many of people that I know that “Inteligent Investor” is a good book to read, the book that Warren Buffet read. I know this book, however I never even though of reading it. Have you read it? Would you recommend?

        Thanks

        Like

  5. Yes. The “Intelligent Investor” is one of the best books ever written on the subject – I’ve read it 3 times myself (you can see the book in my cover photo of this blog!). It really is an excellent book but can be heavy going at times. I would recommend starting with “The Essays of Warren Buffett” by Lawrence Cunningham – personally for me this was the best book I’ve ever read on investing and is hugely inspirational. I would read the intelligent investor after reading that one. By the way you may want to check out a YouTube video I did recommending 7 books on investing to read:

    I also produced another video on Warren Buffett’s philosophy which takes 10 min and will give you a good introduction before deciding whether you want to read the book above!

    Like

    Reply
    • Tom,

      Thank you for your feedback and I will take a look at those sources to support my blog wish some fresh information. I checked out your video, and bookmarked because you mentioned some of the great books that are out there for the finance.

      Thanks,
      Have a great weekend

      Like

      Reply
  6. I think, Your explanation is relates this to StockView. and made me sign up to check it out. I think the idea is great,

    Like

    Reply

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Category

Uncategorized

Tags

, , , , , ,