Excess information? Think fast, react slow
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We wake up from bed. Pick up our smartphone, get onto social media and start reading posts on one platform after another. We could well be checking Twitter or WhatsApp countless times every hour. We keep looking for mention of our existing investment ideas, reinforcement of our beliefs and seek insights into peer ideas. Most investors now spend the mornings only on social media. It is almost an addictive habit. Most time seems to be spent observing what others are doing. Others are also happy to share information that lets us know what they are doing. They want us to know what they are thinking.
Imagine how different our current daily routine looks from what it was a decade ago. Earlier, we used to wake up, assemble the day’s business papers, read them one after another, make notes, decide action points and then go about the day’s routine. Often, we read an investment book, wrote notes on companies and worked on files. The annual reports would be piled up on one’s desk with notes scribbled all over and Post-it memos stuck on relevant pages. Investment diaries were written ritually and seriously. Mostly, the mornings were spent being alone. Now, investors seem to devote less and less time for such a routines of rigour. People quickly wrap up their daily social media engagement only to become completely absorbed in the business of investing. Welcome to investing in the WhatsApp era.
The WhatsApp era is a clean break from the past. It is truly an era of engagement. It brings along much more than mere curiosity and attention seeking. It is not just about watching what others are doing. A lot of good is happening out there. The ability to easily access information on almost anything dramatically increases one’s effectiveness in searching, finding, receiving, processing and interpreting information. Collaboration has grown like never before, breaking boundaries of nationality and markets. This is evidenced in the extensive interviews being done by India’s leading investment bloggers with global investment thinkers.
Connectivity and social media technology enable us to bridge the information gap more effectively now. We are far more effective in finding what we don’t know and in accessing information we don’t readily have.
Peers know how to synergize, collaborate and swiftly fill information gaps. Often, individual investors are the first to spot investment trends. Investors hailing from tier-2 and even tier-3 cities of India are clearly taking the lead. Many of the winning ideas in recent years have been regularly coming into Mumbai rather than coming out of Mumbai, as it earlier used to be. In fact, the investment ideation game is being rapidly taken out of Mumbai and deep into the hinterland.
De-institutionalization is an apt way to describe what’s going on. This phenomenon is clearly born out of the social media revolution.
But good things also have a flip side and the social media revolution in the investment world is no exception. While it has done a lot of good in creating a level playing field, it has also contributed a fair share of negatives. The speed with which we process information, respond to it and reach investment judgements is simply scary. The palpable sense of urgency created by information reaching too many people at the same time can be harmful. This causes us to rush to investment judgements. We run heightened risks of oversimplification.
In bull markets, or even during times when there is a scarcity of ideas in the much fancied sectors, we could easily end up being fed with wrong information, motivated research and views induced by investor-relation cells. We may unknowingly become victims of ‘pump and dump’ manipulators.
We presently have two main sets of opinion makers on social media—one set wants to influence our investment thinking; the other merely seeks to influence what we buy. The second set easily get captive mindshare of the majority, as they make far greater effort. Sheer presence and persuasion is helping them create a following and to influence investment choices of others.
Social media is easy to abuse and it is difficult even for seasoned participants to pick out wrong information in real time. How an investor deals with its flip side will influence her ability to manage serious potential downside risks.
We must now return to some good old investment habits we had in the past.
Judging the credibility of the source, verification of content, fact checking, logging of information and knowing the right go-to people for every situation, have become more important now than ever before. All this was done almost religiously in the times when there wasn’t any social media.
We need to deal with excessive information the same way we dealt with the lack of adequate information in the past. We must not allow complacency to set in simply because we have ample information.
There is a clear need to be anchored to a sound process that manages the speed and volume of information hitting us. We need to block unwanted information and stop information from leading to instant judgements.
One must learn to think fast and react slow but it is not as simple as it sounds.
Shyam Sekhar is chief ideator and founder of iThought