It is the age of internet and social media. We are flooded with plenty of information for every second. Whether you are capable of consuming the same or practicing the INFORMATION DIET?
Take for an example of food and obesity. Both of them are interlinked. If you are not able to consume the food you intake, then it turns to be obesity. Hence, having the capacity to consume it or being conscious in what you intake is a must for a healthy lifestyle.
Same applies to the INFORMATION. With the advent of the internet and social media, every second we get new information. Some may be fake and some may be genuine. In our day to day life, do we have the time to cross check the authenticity of such information? For many of us NO.
But it does not mean that we must completely stay away from INFORMATION. It is very much important nowadays like food, air and water. Hence, being away from the information is not possible. Therefore, the only way left with us to follow the INFORMATION DIET.
Information Diet – How much is enough for your investment?
Now let us adapt the concept for the information we receive daily related to investment and finance.
There are categories of information based on which we can easily make sure how to follow the information diet.
# Useful but expiring information
Let us take an example of a company’s financial results. It may be useful for those who have invested in that company stock. However, the financial result of 2010 may not be relevant for 2019. Hence, such information may be useful for time being but not relevant much as such information have expiry for our investment journey.
# Useful and permanent
Some information is very useful and also we need them permanently throughout our life of the investment. Such information is like understanding volatility, how to mitigate the risk and what is the asset allocation and all. This information is relevant for our investment journey. Hence, we must grab them to be a matured investor.
# Useless but entertaining
99.99% of us concentrate on such topics. The information which gathers from the internet and social media may be like hype creating. Hence, even though it is useless for us, we try to concentrate too much on such information. Because tracking them bring us entertainment. It is always advisable to avoid such type of information.
# Useful but wrongly showcased
Take for example the data few advisers or companies showcase us. They wisely take the data point which will give them the story relevant to what they want to say. Many salespeople do this and showcase us the rosy picture about the economy and importance of equity in the long run. However, fail to make you understand that such a rosy picture also involves many many stock market crashes.
Hence, such information may be useful but wrongly showcased. You have to be cautious in dealing with such information. Never take your investment decisions based on such theories.
# Requires immediate action
Sadly such information may be around 0.0001% of what you daily consume. The rest of all is just a NOISE with one motive or another. The sad part is also that we fail to understand this 0.0001% of information and take hasty decisions.
Some live examples of how we consume BAD information
# we are long term investors in equity. We did proper asset allocation between debt and equity. However, we start worrying about day to day market up and downs. Cross check whether I did wrong or what.
# Checking on the theories which explain us which day of SIP is the best to accumulate higher returns. SIP is just a way of investment. How many times in the history of the stock market the market has fallen around 30% to 40% from the date of 1st to 30th in the same month? But we concentrate on digging deep to identify the BEST SIP DATE TO INVEST.
# Some bad news about debt fund market and suddenly we dig deep whether my fund is in that list or not. If YES, then suddenly we act as if the world is going to END TOMORROW. Come on…even if your fund is listed in that bad news, the % of the impact on the overall portfolio may be less than 1%. But still, we react in such a way that the world is going to end tomorrow. I am not saying that we must not consider such bad news. But I am pointing the reaction to the news.
# There is an increase in the expense ratio of my fund from 0.6% to 0.7%. There is an increase in 0.1% of the expense ratio. Suddenly we start to think about how much it impacts us. Am I did wrong by investing in such a fund which increased its TER to 0.1%?
# I am doing a lump sum investment in equity for my long term goals with proper asset allocation. When can I enter equity? Today the market is going to up and it may continue for another 10 days. Hence, should I wait for the crash?
# For rebalancing purpose, I am liquidating some portion of my equity portfolio. Can I do it today or after the upcoming 2019 Election results?
# I have completed the planning process. Now it is time for me to implement. However, the market is now at an all-time high. Hence, can I wait for the market to crash?
# My financial planner suggested the ABC fund and I read somewhere that ABC fund is not good. Instead many recommending PQR Fund or XYZ Fund. Which one to choose?
# I recently purchased a Term Life Insurance. But later I saw there are a lot of negative reviews about that product and company. What to do now?
# I have purchased the family floater health insurance. I am skeptical of whether they accept my claim or not.
I can list as much as you wish 🙂 That is the reason I used to say there is a lot of information with us but less of KNOWLEDGE. Investment is more about behavior and less of analytical and IQ.