Cutting out the noise
How information overload can overwhelm us and distort our view from the bigger picture
“The Nifty falls by a record breaking 1,000 points for its worst showing”
“The Dow falls by 2,000 points signaling its worst day since Black Friday”
“We are in for a deep long recession”
You probably read these headlines and thought that doom and gloom are on the horizon but the fact is that isolated events create a distorted view of the world and cause panic. It is called the isolation fallacy.
“Last year 4.2 million babies died”. This awful number seen in isolation creates consternation. 4.2 million babies dying is a catastrophe. But when seen in perspective, the number is less disheartening. In the 1950s this number was 14.4 million deaths, in the 80s around 10 million and 4.2 million in 2016. Today that figure stands at 2.4 million! Although even a single baby dying is a heartrending tragedy, the number is less bad when we see it from the viewpoint of how much we have been improving. It gives us reason to hope that we can look forward to a day when the number will be zero, which is as it should be.
In 2016 a total of 40 million commercial passenger flights landed safely at their destinations. Only ten ended in fatal accidents. Of course those are the ones that were covered on the front page because a safe landing is not worthy of the headline.
David Perell has highlighted this closed loop cycle through an excellent example in his video with the time and space bias.
Space Bias
A 100 years ago your ideas and thoughts would have been shaped based on the place you were living in. Moving media and information was a difficult and expensive task, therefore the information had to remain local.
Today things are radically different. We live in an age of abundance. One scroll of Twitter and I can know the latest information about events in New York, Paris, London, Cape Town, or Buenos Aires. This is usually information relating to the previous 24 hours. This puts us in a 24-hour closed loop. Social media highlights the ideas that are currently fashionable rather than the great time- tested ideas.
This is us vs the internet everyday
https://www.instagram.com/tv/CcVnHt3gWjF/?igshid=MDJmNzVkMjY=
Time Bias
The Space Bias leads to what is known as a “Time Bias” or “Recency Bias”. We are too focused on the last few days or few months and don’t pay any attention to the last 10 or 100 years.
Due to the attention deficiency that is the norm of the day, few people have the patience or capacity for concentration to read books. Think of a 300-page book as opposed to a 300-word news article. Every page in the book has been written with painstaking research and effort with the expectation that it will be relevant over an extended period of time. The news article, quite likely, breezily sets forth events which could be irrelevant in a few days. It is so much easier to read the news article.
Commercial newsletters started around 1450 after the invention of the printing press. They worked on a subscription basis and were tailored to an elite class of merchants and bankers. These newsletters reported on topics ranging from upheavals to harvest, domestic and international, listed arrival times of merchant trading ships, cargo and freight movement and provided other such highly specialized information.
The first newspaper was introduced in 1605, a weekly paper in Strasbourg, Relation aller Furnemmen und gedenckwurdign Historien. Newspaper mania moved from Germany to Amsterdam, then to London, and then spread all over Europe. The first daily newspaper appeared in 1650, the Einkommende Zeitungen in Leipzig. Fast forward a few decades, there were hundreds of dailies across Europe and then across the world. Anything that might pique readers’ interest and boost sales was considered newsworthy by the publishers, regardless of its importance.
There is a famous quote that goes “If you are reading and writing what everyone else is reading and writing, then you are thinking the same as everyone else.”
Books and long-form articles are like protein and fats: they are essential for maintaining and growing our body’s muscle mass and for regulating hormonal functions.
News are like carbohydrates, one has to be extremely selective in what one consumes and the quantity one consumes. The news that is relevant for us may not be relevant for someone else.
Here’s another great snippet from David Perell’s article on news and flows:
“The news is just like cereal.
Even though cereal is now viewed as over-processed and sugary, it was once viewed as a health food. Americans heard about the health benefits of cereal and ramped up their consumption. From the beginning, companies made heavy investments in advertising cereal because most people eat the same breakfast every day.
Thus, just as readers are loyal to news sources, consumers are loyal to their favorite breakfast cereals. And like news, consumers inhale cereal during the frantic rush before work. Even if they aren’t the healthiest options, they’re cheap and easy to consume”
Forming a view of the world by reading the news would be like forming a view about me by looking at a picture of my foot.
Filtering the Noise as a Public Markets Investors
Seth Godin explains how a novice sailor will focus on the winds and how they are constantly changing. But an experienced sailor will focus on the currents because even though the winds are always changing, the currents are persistent and even though they are invisible, a strong current can always overtake the winds. It is the same in investing. The stock price is clearly visible and a newbie investor tends to focus on only that without paying heed to the actual underlying business that is eventually going to be driving the stock price.
Here is an interesting take from his blog:
“The wind gets all the attention. The wind howls and the wind gusts… But the wind is light.
The current, on the other hand, is persistent and heavy.
On a river, it’s the current that will move the canoe far more than the wind will, but the wind grabs our attention.
The breaking news of the moment, the latest social media sensation, and the cacophonous hype that surround us are like the wind. They are engaging distractions. but our real work lies in understanding, mastering, and harnessing the underlying currents to our advantage.
It helps to see it first, and to ignore the wind when we can”
So is it in the equity markets. Alarming headlines on the financial pages cause fear and panic in the minds of investors and rightly so if the news outlets or social media are one’s only avenues for gauging the stock market’s performance. Here are some headlines relating to the Indian and global markets that you may or may have already come across:
“THE NIFTY50 HAS FALLEN BY 3%, THE LARGEST DECLINE IN THE LAST 20 YEARS”
“The S&P has lost 7.4 Trillion Dollars in this sell off”
The situation looks scary. But it should not be so when seen in the context of how much the value of the market has grown over the years. And this value will continue to increase on an absolute basis. As Morgan Housel states that the goal is to stop letting the goal post that we see from moving.
From 1990 to 2022, the Indian and world markets have gone through tumultuous periods triggered by scams, economic downturns, changes in governments, and numerous other negative events. However, investors who have been able to stick through thick and thin have been rewarded. Investors in the equity market should expect to sail on choppy seas, but can equally expect to be well-rewarded for their fortitude and patience.
Pessimism sells; the optimist is made to look like a fool during downturns and lull periods. However, history teaches us that the world has always managed to claw its way out of all forms of economic problems over the long run. When you are betting on the equity markets remember that you are betting on the long-term growth of the economy. If you are not confident about how your country is going to develop, do not bet on the equity markets. I, for one, am extremely bullish that the world will get out of this rut and that India is going to be one of the big winners over the next decade #LongIndia (Hashtag credit to Harsh Madhusudan)
The greatest investors in the Indian markets have sailed through the multiple periods of their portfolios being down 80-90% to achieve the highs that they sit on today. I am sure they were laser focused on the underlying businesses and not paying too much attention to what headlines were telling them during the dotcom bubble, 2008 crisis, 2020 COVID Crash to name a few events. In hindsight it is easy to see the wealth these investors have amassed over the long term but not many people know about the multiple periods of downturns that have tested these investor’s levels of conviction.
Warren Buffet and Charlie Munger have been prime examples of having conviction in their own research and not being swayed by what the world is trying to preach to them. Charlie Munger even states that if you are not willing to accept equanimity and accept rapid declines in the stock market which happen 2 or 3 times in a century, then you have to live with mediocre returns.
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We have been through some very rough times and eventually always come out on top. The journey is bound to be strewn with obstacles. But those who have the fortitude and resilience to persevere, can be sure that the journey will be immensely fruitful.
It has been so even with the S&P 500.
"At the moment of greatest pessimism, when 8 out of 10 investors would have sworn we were heading into the 1930s, the stock market rebounded with a vengeance, and suddenly all was right with the world."
"Remember, things are never clear until it’s too late."
(One Up On Wall Street)
Have a look at the picture below and let me know what you think about it. It will give a perspective on whether you are a glass half full or glass half empty kind of person.
Money managers, wealth managers and investment managers will attest to the fact that the phone rings most frequently from clients when the markets are down and barely when they are up. This is the “Loss Aversion” theory at play. According to this theory, people tend to value a dollar lost more than two dollars earned.
Information Overload
In 1993 the internet carried 1% of all communicable information but by 2007 it was carrying almost 97% of communicable information and today it carries virtually any and every piece of information.
Information overload is something that can get overwhelming and force us to do stupid things.
Health is an excellent metaphor. David Perell explains how obesity rates and the number of people in incredible shape are both rising!
Through this graph he explains that abundance of information is detrimental for the median set of consumers but extremely good for a small number of conscious consumers.
(Graph from the video)
Observe the black curve. In markets of scarcity, the median group does relatively better than when they have too much information, which is highlighted with the blue curve. Too much information actually shifts this graph to the left and causes more obese people.
Similarly, for conscious consumers the rise in more abundant information actually leads to more healthy people as opposed to periods of scarce information. These people are able to filter out the unnecessary information and focus on what is important.
Here is a great snippet from the book- Factfulness. Imagine that we have a shield, or attention filter, between the world and our brain. This attention filter protects us against the noise of the world: without it, we would constantly be bombarded with so much information we would be overloaded and paralyzed. Then imagine that the attention filter has ten instinct-shaped holes in it- gap, negativity, straight line, and so on. [The book sets out ten instincts that distort our perception of reality.] Most information doesn’t get through, but the holes do allow through information that appeals to our dramatic instincts. So we end up paying attention to information that fits our dramatic instincts and ignoring information that does not.
Conclusion
Be conscious about the news you consume and do not form opinions about matters in life by simply reading the headlines.
Today in the age of information overload and abundance of tools to research , the ability to filter noise in any field has become a serious competitive advantage.
I would like to leave you with this beautiful quote.
“As I came down from the mountain, I recalled how, not many years ago, it was access to information and movement that seemed our greatest luxury; nowadays it’s often freedom from information, the chance to sit still, that feels like the ultimate prize. Stillness is not just an indulgence for those with enough resources—it’s a necessity for anyone who wishes to gather less visible resources.”
— Pico Iyer in The Art of Stillness
Loved the comparison of long-form content to proteins and fats, and news being like carbohydrates! I believe one of the biggest challenges we face in the Information Age is going to be developing our personal systems of scrutiny, i.e. mental models to distinguish between fact and opinion. You've helped me clarify this thought even further by talking about the ways even presentation of facts can skew opinions - 4.2 million babies dying seems like a stat to be sad about but it completely ignores the progress that statistic conveys!