Information Overload. Less is More!
MAS Team | 30 April 2013
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One of the most important parts of the human body is the human brain. It is a complicated piece of organ capable of even the most advanced functions. It is what sets us apart from other living beings. While the brain can analyse complex variables, it has its limits. One of those limits is its ability to process vast information quickly and efficiently. In fact, information overload leads to decreased performance over time, and sometimes immediately even.
This is particularly important in the internet age, where information is cheap, abundant and there’s always something new every second. Hear what a successful value investor Vitaliy Katsenelson has to say on this issue: “Investing is not an idea-per-hour profession; it more likely results in a few ideas per year.” Instead of sitting in front of the idiot-box the whole day and consuming ‘noise’, it pays to focus on a few solid ideas than chase every idea out there.
Unfortunately, there’s a tendency of chasing too much information, most of it irrelevant. This leads to sub-optimal results. Moreover, our brains will have already been taxed then. This leads to impairment for further analysis which can lead to faulty decision making. According to Gerd Gigerenzer, author of Gut Feelings, “Extracting too much information can be harmful.” He adds further, “More knowledge may help to explain yesterday’s market by hindsight, but not to predict the market of tomorrow.”
According to Katsenelson, “Too much information shrinks one’s time horizon and turns a person into a trader.” Trading depends more on luck than on skill. This herding behaviour has reduced us into lemmings, doing the same thing and unable to distinguish between ‘noise’ and reality. So, what should investors do in a world full of ‘noise’?