Too Much Information?

Is information too accessible?

In light of recent volatility, some of the highest ever, I began thinking of our society’s reaction to this credit crisis. I started to question whether or not this credit fiasco is really as bad as everyone seems to think. My opinions came from the changes we’ve experienced as a society over the last 20 years. I began thinking about how much information we are exposed to today compared to even 10 years ago. Satellite TV with dozens of news channels, satellite radio, and the numerous blogs on the internet. These mediums seem to have a collective “mind” wherein everyday, the same news stories are repeated, analyzed and repeated over and over. With so much access how does one avoid listening? Its nearly impossible unless you live somewhere completely isolated.

So suppose we have this collective mind as a society that is currently being bombarded with our government’s decisions, the bank failures, the perma-bears and bulls, conference calls, the Jim Cramers of the world, and so on and so on. Not to mention the uncertainty inherent with a new administration. I sometimes doubt whether there is actually anyone currently not aware of these “dire” economic conditions, again, unless they live in complete isolation.

So, what is the result of this collective information processing?

For one, it is like a positive/negative feedback loop… society gets more and more anxious and more afraid, even though there may not really be significant reasons to be SO afraid and SO panicky with investing, lending and spending. Think about how rumors spread, it is human nature to embellish and exaggerate. Sometimes I think of the internet and media as one giant game of “Telephone” where in every repetition of information, said information becomes slightly more dire and slightly more inaccurate.

Second, it reminds of the “group think = group stink” paradigm, which I bring up from Bigg’s “Hedge Hogging”. The premise is that when people are asked to make decisions as a group, they tend to make very poor investment decisions, much poorer than if they simply choose a leader/dictator that made the decisions without question. The “group think” problem stems from too much information and bias inserted by all involved parties… If one thinks of the market at current levels (DOW 7350); is this market making some of the worst possible decisions? Given that the market is a collective group and is “always right”, does the current age of instant information and feedback produce possibly more irrational prices? As a collective society, has there ever been a time in history when so many of us are acting on the same information at the same time?

Third, people are claiming that this economy is worst than the great depression. That seems like a bold claim to me. What I see is a market that, in the process of reacting to information instantly, has dropped faster than ever. I think the quickness of the drop is what has everyone so afraid – but – I tend to think of this as healthy. I imagine a patient with food poisoning throwing up all the garbage that had no place being in there in the first place. The longer that crap remained in the system the more damage that would have potentially been done. Better to get rid of it quick and dirty so to speak than to prolong the inevitable.

As a trader, its tough not to worry about some of this stuff – partly because I am entrenched in information on a daily basis, but, I try to keep it in perspective. Right now however, it does seem like a lack of perspective has completely engrossed almost all media outlets. I’m hearing teenagers speak about credit and debt… since when did 16 year olds understand what a mortgage was? Since now I guess…

Personally, I think we’ve entered a new era of market dynamics. I want to call it the “No BS” era because of how much freely available information is constantly being dissected and processed by our collective society. These market reactions, while difficult to endure if you are a believer in the “Buy and Hope” mentality, are not only good, but also an excellent indication of what we are to expect in the future from our ever advancing economy, i.e. quick and efficient, if not irrational, price discovery. Isn’t that what a well functioning marketplace is supposed to do?

Mike

 

Is information too accessible?
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I've read a similiar rehash regarding the invention of the radio and the stock market. Nothing new under the sun.

 

What percentage of the world population was involved in the markets when the radio was invented as opposed to now?

 

Good question. I'd would probably like to know the amount of people and also the dollar value of people to the market.

"I want to call it the “No BS” era because of how much freely available information is constantly being dissected and processed by our collective society."

I'm not sure if having more people, having more information available will arrive at better conclusions than a smaller group with more concise information. There might be a few more zigs and zags to read about. I don't know.

 

The newspaper, the ticker tape, the radio and then the television all expedited the flow of information. But they were mere firecrackers compared to the megaton nuclear blast of the internet.

I've tried to get updates on many of the traders interviewed in the book Market Wizards by Jack Schwager, a book written back in the late 80's. Many of them have blown out or complained that market dynamics have drastically changed. Richard Dennis, arguabley the grand wizard of them all, has had to close his funds twice since he appeared in Market Wizards. His associate William Eckhardt has written that he thinks the markets are rapidly approaching complete randomness due to the information explosion.

For the last few years and for the next few years we will be in a transition period before we can safely go back to the nothing new under the sun paradigm.

 

To quote Jesse Livermore;

"Everything you need to know is right there in front of you ".

 

Truer words have never been spoken



You made me laugh today - Thank You

 

Okay – back to my paying it forward…for a moment


OP please allow me to ask you this one simple question….

If going into Monday’s open – you knew every piece of news in the entire universe (forget about the world for a minute)



How would you trade it

How would it make even one ounce of difference in what the market will do

How would it help you in determining what you NEED to know and do - in order to make money

How would it help you in determining what every other trader is going to do



Food for thought Sir

Redneck

 

Basic instinct in 'demanding' times is to overreact, so yes, in one sense it is not as bad as many think. On the other hand, it is worse because most people don't understand what has and is happening.

 

Maybe you've missed the point. My original post is an attempt to start a dialogue about the current market dynamic and how it represents the "(mis)informed" and "connected" collective. The fact that more people are acting on the same misinformation than ever before will, in my opinion, create more efficient *and* at the same time, more irrational markets. This is neither good nor bad from my perspective, but, it does raise the question of the market’s fundamental purpose – price discovery.

If the market does indeed act like a mirror that exaggerates society's fear and greed, then is it healthy to a world economy to have so many misinformed participants creating such drastic moves? Is the notion of a free market (in the sense that any Joe-SixPack can throw around a few thousand shares here and there, regardless of education and intent) flawed? This borders on elitism, but I believe the ratio of uninformed players to informed ones over the last decade had gotten skewed to the uninformed side causing the perceived increase in irrationality. It is true that the uniformed will be flushed out sooner rather than later, but, look at what was required for that to happen, i.e. a massive global crisis. The feedback loop has literally swung so far to one extreme *because* of all the participation. We’re talking about years of uninformed participation getting flushed down the toilet right now, no doubt a healthy thing, but, look at the consequences – failed companies, lost jobs, etc.

In reading your question about trading with all the available information I was at first contemplative, but shortly thereafter I realized you’re likely coming from a different perspective. Yes, we need to know if there is an upcoming news event, but the news itself is meaningless, the reaction is what matters.

While your question may be what someone without a quantitative background may ask, it is part of the issue at hand. In yours and the collective markets opinion, new information is a reason to do something *forward looking*, i.e. you will try to make an assessment of future prices based on the newly introduced information. While I’m sure many traders are profitable with this type of approach, I could care less about trying to price in new information. What I care about is the reaction - if the news is potent enough, the reaction will likely be irrational and hence eventually present a tremendous opportunity.

In short I would trade any information outside of current price the way I’ve always traded it, with complete disregard. Objective statistical/quantitative based trades only, regardless of news unless I believe an upcoming “event” will take place.