Analysis/paralysis
Many of the gyrations,
both up and down, in the financial markets are driven both by data and emotion.
To varying degrees, most of what you see in
the daily price movements of the stock averages are responses to people's
perception about what they see and hear, as well as good old-fashioned laws of
supply and demand affecting rising or falling securities' prices. Last week's vigor focused around the
possibility of energy and commodity price inflation, global tariffs and trade
wars, earnings dissipation, and wage disparities...as well as massive price
fluctuation in particular stocks and global bourses.
We all use data to
optimize our performance expectations.
As a measure against mythical or actual benchmarks, data is the most
efficient way to provide comparisons to various peer groups and to set in
motion a process of measuring future targets.
The internet has only
widened our hunger for creating, activating, and implementing information
through its immediate access to statistics of all kinds. The general public might admit that data
makes them feel more intelligent!
However, despite the
proliferation of services and providers created during the internet era, one of
the first drawbacks to assessing the value of that access is whether all that
"noise" actually performs for us and makes us feel as if it is helping the
cause. In other words, does data make us
wealthier (or feel wealthier) or does it sometimes, or mostly, clog the wheels
of forward momentum?
Think about it. You have at your disposal a multiplicity of
things that either make your life easier or more complicated, successful or
less so.
We certainly are better
off when the information at our finger tips gives us the answers and results we
seek. But if you have ever experienced
"information overload", or been inundated with information that had very
little to do with your desired outcome, then not only does the solution come
less quickly, but possibly not at all.
It is very possible that our tools are
outpacing our ability to leverage them.
Good
decisions
I would argue that
being data rich but results poor is a commonplace occurrence in financial
modeling today, and that product originators sometimes use the luster of
"new and improved" to fool purchasers into making choices that don't
need to be made.
That view is influenced
by the fact that the culture of the financial markets is oriented around sales,
profit margins (theirs, not yours), and building infrastructure....not always
upon placing a premium upon your asset preservation and capital gains. Data capacity has given Wall Street an
ability to take their eyes off of your prize: making and preserving wealth.
Of course, there are
particular instances one might cite to refute my thesis, and we can
respectfully agree to disagree. In many cases your perspective might positively
have been influenced by a successful transaction you undertook. Heck, I can offer substantive evidence in
favor of "data" myself, as my entire four-decades long career has
been predicated upon a proprietary construction
(ArlingtonEconometrics) of quantitative statistics, algorithms, stochastic
integers, and ranking systems which made forecasting more efficient long before
it became popular in today's financial vernacular. (Note:
read the first paragraph in the footnote/disclaimer under every week's
commentary relating the objectives of my research).
The larger issue,
though, is that not everyone is well served by the cacophony of noise that
information pollution proffers. Think instead about those who, unfortunately, have
gotten snookered by their own greed and that of the institution that played
them. As I wrote a few weeks ago, both
clients and their representatives sometimes get seduced by the latest, the
shiniest, and the most dynamic of product offerings on their menu, sometimes to
the exclusion of asset allocation, time-tested fundamentals, and a healthy dose
of patience and long-term perspective.
At its core, successful
information gathering should be a vertically integrated, upward spiral that
makes for positive performance.
At its worst, it
becomes a vortex of profound proportions from which portfolio imbalance,
indecision, and lack of success is more probable.
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