Information Bias
In the series of 21 behavioural biases we will discuss the 16th
bias “Information Bias”
We are living in world of information & Technology!!
Cutting edge technology is been able to dish out information real time. Below
are some statistics taken from Internet.
1)
Total world population is roughly 7.7 Billion of
which 26% are below age of 15 yrs and 9% above 65. Currently there are 4.33
Billion i.e. 56% active Internet users in the world. India is among top 3
countries of Internet users.
2)
500 Million Tweets per day
3)
95 million photos are uploaded on Instagram
daily
Can you imagine how staggering these numbers are!! Growth of
internet use is going to grow rapidly in times to come. Extrapolate the amount
of information overload we are expected to experience😢.
Earlier Information was conceived to be boon in decision making but not
anymore. Our decision making is becoming ineffective with information overdose.
We often confuse information with Knowledge.
Information is good only when it’s required and also from
reliable and trust worthy source.
Would you like information about a product or services which
you are not considering at all? Certainly NO. But still if that hits you again
and again, you will, sub consciously, start to form an opinion about it!!
Information factories are manufacturing bad and useless
information more than genuine/ true information. Needless to mention about hoax
msg of death, natural disasters, beliefs and announcements etc that keep doing
rounds on social media. In financial world too there are many hoax and scary
msgs/ articles keep surfacing from time to time. That keeps investors in
jitter.
In investing, our mind attracts sensational and
contradicting information more than relevant.
Media houses are thriving on the same. They are not wrong at
all. 90% + trade in exchanges are from traders and rest are from Investors. How
good will it be for media house to not serve the 90% plus audience??
Investors are
consuming news made for traders😉 Investors and Traders
are different mind sets and thought process. You can’t consume their food, as
investor.
As an investor, you
must watch the personal finance shows rather than daily morning market shows.
Investors tend to become pundit
with these news and override the advisor’s recommendation. If you have
faith in your advisor, you must discuss your concerns with him and follow
advisor!! Investor overriding advisor shows low confidence in relationship. Now
a days Doctors are avoiding patients who are Google- educated as they find such
patient are firm in their mind about their illness and prescription of
medicine. Doctors feel helpless
When you tend to believe you are more aware and informed
about Investing, you are victim of Information Bias. Not saying advisor
will get his investment calls right every time, but his hit rate is likely to
be more than your’s.
I too receive diverse views from variety of AMCs (Asset
Management Companies) about their market views and product positioning. All
diverse views will have their own valid rationale. After all they are paid for
promoting their own company!! I have frizzed upon the AMCs I would like to work
with and products I would like to distribute. We believe in dialog with the
fund management team, their thought process, product attributes and consistency
of performance. Among others, these are the check points we follow before we
take AMC or product to our clients. This has given us good results since 10 yrs
of existence of Wealthcare Investments.
What should you as Investor
1)
Do not pay attention to news and stories which
can have impact on short term because you are long term investor. It will
hardly matter to you in long run.
2)
Follow 1-2 expert (only) you like. Examine his/her
past forecasts carefully before you select an expert.
3)
Recognise that information is not equal to
Knowledge. Information may be true but the interpretation is perspective of the
author.
4)
Find out facts from information and apply the
fact on some models to conclude investing decision. Fact will have to be
examined in conjunction with other factors at the same time.
5)
Have wise advisor and discuss various concerns
you may have from time to time.
6)
Never think to outsmart the market. That’s job
of traders. You are Investor!
7)
Social media is great platform for quick
publicity. Be wary of such author/writer/promoters.
8) In Investing less information is more
knowledge. Less is more.
MF Trivia: Sterling long term wealth is created by Equity
markets. Most of the Mutual funds have outperformed benchmark returns also.
Chose equity as long term asset class and not as quick money making machine in
short term.
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This article
is written by Bhavesh D Damania founder of Wealthcare Investments.
"Risk comes until you know what, where and why you are
Investing"
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