7 reasons why too much data & information is harmful for your portfolio
It seems everybody around us is an investment expert or that’s the way they want you to feel. Everybody will tell you about a stock they invested and which doubled, a property they invested (or maybe not) and it grew 4 times in 5 years or a great life insurance policy which they bought. Information is good to have but it’s important to know what information you have versus what you require or what you can afford. Let’s look at some cons of having too much on your plate:-
- Data is a rear view mirror and although it can be used to decide your path, you have to basically concentrate on future projections and analysis and match with your goals. Although the argument in favor of data is that it is the only way to analyze an investment and somewhat that is true; but only relying upon the same is not the right approach. It can be used to compare two choices but not the strategy.
- Ratings in newspapers, television and all other media are based upon what the scheme or product did in the past; and is no guarantee of future performance. Mutual Funds, stocks, real estate and Bonds are all mentioned in these ratings. Avoid these ratings as they have been awarded for something done in the past and not in the future.
- Useless correlation of the data is used to lure investors and show the opportunity. Most of these correlations are baseless and a lot of correlations are just academic. For e.g. one can link the stock market and the road accidents daily in India and plot them on a graph. The two lines will definitely show some pattern and a correlation can be drawn.
- Reading data is also a science and measuring its impact on your decisions in also important. For e.g. the earnings growth is projected at 18% for next 5 years. How does one read this data and implement in the portfolio?
- A lot of people get stock tips from their friends and colleagues and invest into them, without even knowing what the company does. This can prove disastrous for the portfolio.
- Risk is always ignored in front of too much information availability. People always react impulsively when some information which they believe is first hand information, is shared. This results in disturbing the asset allocation and finally in bad experiences.
- Following the information punters: So many people & organizations float some information in the market so that people will react and they can make their positions profitable. I have seen so many people book properties in areas looking at what attractive returns (mostly ponzi schemes) these promise. Later these clients repent but then it becomes too late.
I think the priority should to first analyze your future requirements and then decide the strategy. After the strategy is decided you may use past data to compare options. The past data cannot be the basis of creating a strategy.