Avalanche effect Focus on information, action

Investors must sift from the info avalanche to home in on the right decision

We all have our personal finance and investments to manage, and with that at the back of our mind, we take in information that is relevant for our purposes, or we think is relevant.

Especially in today’s age, we receive a plethora of information. It comes through newspapers, television channels ‘breaking news,’ various apps on our mobile phones, social media, people we meet or talk to and the like. The fast pace of and multifarious sources of information available to us is a benefit bestowed by technology.

When a filter is key

However, the overdose also means that we have to apply a filter somewhere. Applying a filter does not mean we have to close ourselves to the benefit that technology is bringing to us; we have to keep our eyes and ears open. But, there is a limit to which we can retain data, process it and apply it usefully. Unless you are a fund manager, analyst or other professional associated with finance or investments, you have limited time and energy bandwidth for data relevant for your investments.

You have to decide which data points are relevant for you, and hence declutter your mind space. Data becomes useful information only when you put it to productive use. To make sense of the various financial data hitting us, let us bucket these into categories.

One is information that comes every day e.g. Nifty and Sensex movement, 10-year government security yields and oil price movement. Next, events that happen from time to time in the market, economy, governments and corporates. Then, there are views and opinions voiced by experts and sometimes, non-experts, in media. The other bucket of data is where you get to receive deeper or analytical pieces of information, such as company balance sheets, corporate earnings growth and the government’s fiscal situation. The other aspect to consider for bucketing data into relevant and not-so-relevant is your set of goals.

Assuming you are not a finance professional, it all comes down to (a) whether you are doing the analysis yourself (DIY) or have given it to a professional fund manager such as a mutual fund or PMS (b) whether you are taking inputs from a professional adviser (c) how much time and bandwidth you have for tracking and analysing the data and (d) to what extent or depth you want to analyse.

If your funds are managed by a professional or if you are or advised by one, you need to track only the broad developments just to be aware which way the economy and market is going and you are in a position to understand the background of the advice and ask the right questions of your adviser.

Next come data points. There are events that happen from time to time. These are not in your control; what is, is your portfolio. While you absorb all the news, your perspective should be whether it is so significant to warrant a change in your investments or does it serve as another point of awareness. It is not about the ‘headline’ which is designed to make it sound earth shattering, but about the real import.

Relevance to context

As an illustration of the data and discussion points mentioned above, till March 2020, the fashionable point of discussion was economic slowdown. In a simple and real sense, economic slowdown refers to the economy slowing down. Even then, GDP growth rate was positive, only that the growth rate was slower than earlier. In the quarter ended June 2020, GDP actually contracted significantly i.e. it was a slowdown in the real sense. It was not slower growth, it was a shrinkage of the actual economy. However, between April and June 2020, too few discussed the slowdown as the experts changed their priority to the medical emergency and how to manage the pandemic better.

Even if you had soaked in the intellectualisation of the ‘slowdown’ till March 2020, apart from engaging discussions and viewpoints, how did it impact your investment portfolio?

There would have been impact, but as an action point on your part, it would have been limited to minor tweaks in the portfolio. If your money is with mutual funds, or you are taking inputs from a professional adviser, they would be doing the tweaks anyway, based on their reading of the situation.

Net-net, when you come across the multiple data points, events and opinions, initially approach it with an open mind, but then apply filters. The first filter is, whether it is relevant or not. If not, do not burden your head with it. That is noise.

If relevant, question whether it only raises awareness or helps raise queries to your adviser. This is useful information. If there is some truly significant development, it may impact your investment portfolio and may be a call to action.

However, such developments do not occur so frequently that you have to tweak your portfolio every day. Your investments are for the long term and some event or the other will happen every day. For your daily purposes, you have to choose data points that will populate your indicator panel. While driving, you can only focus on so much and you change course when the event is a key one.

(The writer is a corporate trainer and author)

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