Too Much Information Could Make You a Bad Investor

Steve McDonald By Steve McDonald
Bond Strategist

Slap In The Face Award

Transcript:

Here’s a wake-up slap for the small investor. And it’s all about our money and computers.

The advent of the personal computer – and now the smartphone – has revolutionized how we invest. The average investor now has a hundred times more information available to them than I had when I was working as a broker.

First, online trading allows us to trade for a fraction of what it used to cost. When I was entering stock trades for my clients, the average cost for 100 shares was around $120 per trade, both ways.

Crazy expensive, I know.

Second, we now have 24/7 access to our accounts. We can monitor them up to the second. And we can buy and sell in an instant.

Lastly, we have so much fundamental and technical data available, we border on overload. Just sorting through all that information is a chore.

But instant-access, low-cost trading and a mountain of stock data have been both a blessing and a curse. The fact is we have too much information available to us, and most of it is useless noise.

The screaming heads on TV; constant flashing of the Dow, S&P 500 and Nasdaq; one-day charts; instant analysis of insignificant events… it never stops!

And the focus on short-term, minute-by-minute updates has become a huge negative. It’s driving losses, not gains.

The losses from having too narrow of a focus even have a name: myopic loss aversion. That’s a fancy term for selling in a panic based on short-term trends.

Whenever Warren Buffett is asked why he chose or owns a stock, he always – without exception – talks about a 10- to 20-year time horizon and fundamental analysis.

There’s never a mention of a one-day (or even a quarterly or annual) trend. His focus is way out there.

And if the best stock investor of our time has only a long-term perspective, why don’t we?

For years I have been telling my readers to do anything but sit at home and constantly monitor their accounts.

This microscopic money management and short-term focus is costing us a fortune. The fear and uncertainty it produces only drives panic and emotional buying and selling.

It doesn’t work, and there are no winners here.

The only way to make money is with a long-term perspective. That’s it. Get sucked into the fairy tale of day trading or short-term trends and you’re done.

Am I confident in that prediction? Absolutely.

Turn off the TV and your computer, and go hit the ball. Your game will improve and research says you’ll make more money.

Good investing,

Steve