Stock Quote Overload

I finally joined the ranks of people living in the 21st Century.  Yep, I bought a big ol' plasma TV.  Hey, it was on sale at Fry's.  Besides, these things have really come down in price.  So, I was shocked to turn on my TV, and find that CNBC broadcasts in high definition, and now looks like this:

As if we didn't have information overload to begin with.  Now, there's an extended ticker on the bottom, more index updates on the top, and random stock quotes and charts on the side!  Against my better judgment, I spent some time watching the new crystal clear CNBC HD.  The quotes on the side generally have nothing to do with what the reporters are talking about!

Does anyone remember when this is how you used to get your financial information:

Of course, even more egregious on the information overload front, The Internet:

This raises three questions:

1. Which was better, the old newspaper quotes, or the modern, "all you can eat" information at your fingertips?
2. Do we really need CNBC in High Definition?
3. How much is too much?

I'm actually going to attempt to answer these questions...

Which was better?

From a pure data perspective, there's no comparison.  You are talking about comparing waiting until the morning to find out the price that a stock closed at yesterday afternoon.  And then when the paper arrived, you were given the high, low and closing price.  Maybe the 52 week high and low, and perhaps the YTD return and P/E ratio.  Now?  Have you ever looked up a stock in Google Finance or Yahoo! Finance?  Have you ever read all of the information that is available on one single stock on a given day?  I have not.  Nor do I ever plan to.  I'm sure it would take hours.

Do we really need CNBC in High Definition?

In a word, no.  Let's be honest about why I bought a plasma TV.  Sports.  Football specifically, but sports in general are made to be watched on huge, crystal clear televisions.  The Olympics have been glorious on the new TV.  But I realize that it's not only made for sports.  If you want to watch Dancing with the Stars or American Idol on a big HD set, I won't fault you.  But CNBC replete with more data than ever?  We don't need it.

How much is too much?

As a general rule, I'm in favor of more information.  In a lot of ways, the internet democratized investing for the average investor.  In the old days, the industry was dominated by the behemoth, archaic investment banking/brokerage firms.  They controlled the information, thus they controlled the money.  Today, investors are better informed (or they're getting there).  As a result you see a decline in the amount of money that is invested in load funds, variable annuities, etc.  Instead, ETFs, no-load funds, and fee only advisors are the fastest growing segments of the industry.  I attribute that to information.  More (and better) information results in better decisions.

But it goes both ways.  Equipped with all this information, investors have to decide what information they should rely on to make decisions.  In many cases, the information is overwhelming.  In the old days, you walked into a broker's office and chose between load fund A and load fund B.  Either way, you got hosed, but at least your money was invested and probably stayed there for some time.  Today, the internet, CNBC and financial magazines give us so much information, that investors are always being told that there is something better, hotter, more profitable than whatever loser they are sitting in.

One of the biggest risks that our clients face is what we call "frame of reference risk", which is basically the risk that the nightly news, CNBC, Yahoo! Finance, and others shape our clients' frame of reference.  The danger is that well diversified portfolios, with proper exposure/tilts to small cap markets, value stocks, international stocks and emerging markets may not always look like the nightly news.  To the extent that this causes investors to act prematurely or irrationally, more data is a bad thing.

Often what is needed is a proper frame of reference to keep all of this information in perspective.  Something of a filter, but not a shield from different sources of information.  A sound underlying investment philosophy and financial plan goes a long way in helping any investor sift through the mounds of data that is available.

Comments

[Walt]

Do we really need CNBC in High Definition? Yes!!

Do we really need (any channel) in low definition? No!