Too Much Information: 5 tests to filter the good, the bad and the outright dangerous to make the right investment decisions
Now more than ever it is important to filter the vast flow of information we have all around us to be able to make good decisions regarding our investments. Traditional news channels like newspapers, television and radio compete with podcasts, YouTube clips, and social media to get our attention and influence our decisions.
In times like this, some sources will try to steal our attention with hyperbole and unsubstantiated or unqualified bold statements. We offer here some ideas and tests for how to filter through this information and make sure you are making decisions that are best for you.
1. If it feels too good to be true it probably is
There are always people that will promise extraordinary returns or conditions for a supposed investment. Being mindful of this comment can help you to protect your hard-earned money. Challenge the offer by asking does this seem too good to be true. Ask what is the incentive behind the message you are receiving. Are they pushing a particular option for your benefit or for their own advantage?
2. There are no shortcuts
The lure of a quick gain is always attractive but it is important to check independently audited track records of performance. It is always wise to check the validity of statements of performance and take some time to investigate qualifications of the firm, governance (who is controlling the decision process?), regulations they should be adhering to, and the fine print of any offers. Challenge the offer by asking yourself if they are playing on the human bias of being driven by greed and fear. In this case fear of missing out by not participating and greed of circumventing the normal system by getting a quick win might motivate you towards an unwise decision.
3. The market is efficient
Investment management follows the efficient market hypothesis. This proposes that there is no one person that holds all the secrets, and that whilst there are inefficiencies in the market that can sometimes be used to enhance returns, all information is available in the market at all times. No one has access to market secrets that can beat the market all the time. Ask this: if they did, why would they share it with you? Surely, they could just employ that knowledge for their own benefit and wouldn’t need your money?
4.Markets inevitably trend upwards, just not in a straight line
We have spent a lot of time this year talking about this fact. When the economy and the markets are as volatile as they have been so far in 2020, it can give real and good reason for panic. It is a good time to remember that this is a more extreme example of normal. Markets will always go up and down cyclically and trend up over time.
5. “This time it’s different”
When you hear this it’s time to step back and employ critical analysis of what you are hearing. We often speak about the bias of momentum investing and this is an example of that. As we said in point 4, market are cyclical- they go down and they go up and over time trend up- but they do not go in one direction forever.
If you hear “this time it’s different” as a reason to invest or to get out of an investment, it may well be a good time to do the opposite.
Most of all, as we are bombarded with too much information and often conflicting ideas, the best thing to do is to make you are sticking to your goals. When looking at markets and investments ask yourself that core question: “will my existing investment structure help me to get to my goals or not?” If you have any doubts, speak with a qualified and independent professional. Feel free to contact us atinfo@blackswancapital.eu and we can help you navigate through the data and noise to make good decisions and stay on track.
If you don’t have an investment but are considering starting one, but are overwhelmed by the volume of inconsistent information, start with the end goal in mind. You need to clarify what you want. If you don’t know where you want to go you won’t know when you get there. Focus on what you want to achieve and then work back from there. This is what we do, so feel free to speak with us for a complementary initial discussion and we can help you build the right strategies and structures for you.
