“60% of the time, it works every time.” – Brian Fantana
Every day in the markets there are investors that are right but for the wrong reasons or wrong but for the right reasons.
Every week investors are bombarded with hundreds of opinions about what they should be buying or selling right this minute.
Every month investors open up their account statements and try to decide whether it’s time to buy or sell stocks because they’re excited or nervous.
Every quarter investment committees evaluate the latest performance numbers of their fund managers to make short-term decisions with long-term capital in hopes of beating their peers or benchmarks.
Every year $32 trillion of securities, roughly double the size of the U.S. economy, are traded back and forth between investors.
Meanwhile, resulting costs from all of this activity and restlessness are paid for by investors in the form of bid/ask spreads, commissions, poor market timing decisions and market impact costs. It’s a virtuous cycle that will likely get worse as it becomes easier and easier to trade whatever you want, whenever you want. The temptation to do something, anything, at all times will always be lurking.
One of the biggest reasons I think the amount of investor activity will only continue to grow is because we have more access to data, opinions and information than every before. In 1987, people had to learn about the 20% Black Monday crash in the stock market on the radio on their drive home from work. Today you can trade anytime you want by hitting a button or two on a tiny computer that never leaves your hand.
As with most things, there are pros and cons with the information age. I love the fact that research and analysis has been democratized these days. In the past, the large investment banks and mutual fund firms could tout their well-staffed research teams as a competitive advantage to attract clients. Nowadays, there’s an expert in almost every market, sector or strategy imaginable who’s willing to offer their opinions for free on social media, in a blog post, during an interview or on any number of financial websites.
The thing most fail to realize is that all of this information, research, data and analysis is completely useless without the correct context to be able to put it all into perspective. It’s dangerous to take everything at face value. Becki Saltzman recently wrote a great post that relates to this idea about the 5 phrases that are killing curiosity:
1. According to experts…
2. Studies show…
3. Research indicates…
4. Science says…
5. It’s a known fact that…
This is one of the reasons people are often so wrong about the markets. They take a single study, research report or market data point and then immediately make their conclusions based on that information. But as my friend Michael Batnick wrote in a well-researched piece today, this is careless and even lazy:
What I’m always trying to do is dig a little deeper and challenge people who draw lazy conclusions using single data points.
Saltzman continued by challenging the curiosity killers by offering 5 easy questions to elevate your curiosity:
1. Compared to?
2. As measured by?
3. Conducted by?
4. Tested on?
5. Is this bogus to begin with?
Curiosity requires persistence to question in the face of comforting curiosity killers. It requires a certain comfort living in the murkiness of the grey area, but ultimately it can make smarter decisions much clearer. It is clear that if we are truly in the age of information and accessibility, to survive with our good decision-making, judgment and critical thinking skills intact, we must also usher and welcome in the Age of Curiosity.
Most people don’t like to think this way because, frankly, it’s hard. There’s something to be said for going a step further and staying curious.
Torturing Historical Market Data
Now here’s what I’ve been reading lately:
- Why even flat stock markets can be so frustrating (Fortune)
- Pick a valid strategy and stick with it (Aleph Blog) but also see why people have such a hard time sticking to one model (Alpha Architect)
- You really don’t need about 99% of all ETFs (ETF Reference)
- Top 10 list of when not to invest (Rick Ferri)
- Always take thing one bird at a time (Kirk Report)
- Stop thinking about the markets as if they were human (Bloomberg View)
- Seneca on the importance of performance reporting (Cordant)
- Diversification is a long game (AAII)
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My new book, A Wealth of Common Sense: Why Simplicity Trumps Complexity in Any Investment Plan, is out now.