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Use available info to your advantage

Use available info to your advantage
Highlights

We are now blessed or is it cursed with reams of data and raw information available almost everywhere about the listed companies.

We are now blessed or is it cursed with reams of data and raw information available almost everywhere about the listed companies.

Though, Warren Buffet prefers to go through the hard copies of annual results published by the companies which he was doing since a few decades back where they were mailed through post, we now have access to all this and much beyond at our fingertips through various apps and websites.

But, are all information relevant and useful. Are we being bombarded with unnecessary information?

As the general election results were being published, the equity markets started to react to the news.

One of my clients called me saying that many of his friends are taking positions and showing him the immediate gains being made in few minutes.

He asked me if we too could act on those lines so that we could participate in the available opportunity.

I told him he might need to square off his positions before the trade close as the phenomenon is temporary.

The opportunity is fleeting and not long lasting this is the kind of information which is useful but expiring.

I have reiterated my stance not to worry of the opportunity out of the volatility of that day and reminded him to look at his risk profile and the lack of time for him to time the market.

Accordingly, we have designed a portfolio which was working in an almost passive way but taking opportunities across periods of time.

As expected, the market opportunity more or less seized at the draw of the day and these kinds of event-based days would happen many times over in our investment period is an information which is useful and permanent.

As presented by Morgan Housel, its a smart idea to distinguish between signal and noise.

But as an advisor, the understanding of how and why someone considers as signal to what I perceive as a noise is important.

Though, I am not a trader or none of my clients are traders, the very request from my client that could we spot opportunities within a day is a thought to ponder.

What has he seen as a signal which I had ignored as noise? This kind of information is irrelevant to me but relevant to someone whose decisions are relevant to me.

Information is never wholesome at least the ones which are useful and relevant to our use. Information comes in bits and things evolve in pieces.

An event at one place might have no direct impact over me or my decisions but could have a ripple effect which could impact the parameters of my decision making.

This kind of information is irrelevant but a window in how other people think, which is relevant in itself.

For instance, information of an oil field collapse or disruption in oil supply eventually impact the price of crude and so have bearing on the stock movement.

Even in contrast where a battery storage is developed which is superior to the current technology would greatly impact how the Electric Vehicles (EVs) become mainstream of mobility would have impact on the demand part of the oil consumption.

Such information is useful only when combined with other information. To have the capability to view the larger horizon and to see the bigger picture this kind of information is useful.

Then there is information which are irrelevant all the times and some which require immediate action. The latter is a rarest of information that exists.

Its like the most opportunist times that markets present either to pull out or take exposures. Its very difficult to get on to such information and it could be pure chance happening or rigorous amounts of analysis done.

This is when the greatest of the traders or investors made huge arbitrary gains taking positions either betting for or against the market movements.

The former is what we call the noise which is created mostly by neighbors, friends, colleagues, relatives and media of all types.

This information is completely irrelevant to your investment styles or methodology and have no bearing at all on your portfolio.

So, its important to learn and distinguish the various forms of information to make a profitable investing experience.

(The author is a co-founder of "Wealocity", a wealth management firm and could be reached at [email protected])

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