Filter Failure

“There is no such thing as information overload – only filter failure.”
– Clay Shirky


One critical challenge we face is choosing what to ignore. This is especially true when it comes to investing. 

I was reminded of this fact during the lead up to the recent U.S. election after having numerous conversations around what the stock market might do if Trump either lost or won. A number of  individuals I spoke with were adamant that they would not invest or add to their portfolio until the outcome was clear, even after I attempted to point out that, based on historical facts,  it actually did not matter! This was another example of how behaviour alone has a much greater impact on one’s lifetime investment returns than the combination of stock selection, asset allocation, fees, taxes, etc.

It is said a picture paints a thousand words. Nowhere is this more true than Carl Richard’s Behavior Gap sketch below. His accompanying words also contain much wisdom.

I’d like you to try a little experiment with me.

Think back over the last couple of years to a time when you read something about money in the news, you acted on it, and with the benefit of hindsight, you were glad you did.

This could include any number of things. IPOs, bear/bull markets, mergers, market collapses. 

Whatever.

Go ahead, I’ll wait. Close your eyes and think about it.
… 

I’ve done that experiment hundreds of times around the world, and in all those experiments, I’ve only had one person come up with a valid example. It was news about a change in the tax law.

That’s it.

Because most of what is out there in the financial news begging for your attention is … Just. Noise.

Now, that’s not to say all of what’s out there is noise. Of course not. Within that ocean of noise, there’s occasionally information. You know, facts, data, evidence. 

But most information is useless. It either doesn’t matter or it is beyond our control. 

What we’re looking for is the Stuff That Might Be Useful. You can also call it Wisdom.” 

– Carl Richards

I encourage you to keep Carl Richard’s picture and words in mind when you are critically deciding what is noise, information, or wisdom.


Keith N. Thomson

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