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  • Navigate the Noise Investing in the New Age of Media and Hype


    内容提示: Navigate the Noise Navigate the NoiseInvesting in the New Age of Media and HypeRichard BernsteinJohn Wiley & SonsNew York • Chichester • Weinheim • Brisbane • Singapore • Toronto This book is printed on acid-free paper. Copyright © 2001 by Richard Bernstein. All rights reserved.Published by John Wiley & Sons, Inc.Published simultaneously in Canada.No part of this publication may be reproduced, stored in a retrieval system or transmittedin any form or by any means, electronic, mechanical, photocop...

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    Navigate the Noise Navigate the NoiseInvesting in the New Age of Media and HypeRichard BernsteinJohn Wiley & SonsNew York • Chichester • Weinheim • Brisbane • Singapore • Toronto This book is printed on acid-free paper. Copyright © 2001 by Richard Bernstein. All rights reserved.Published by John Wiley & Sons, Inc.Published simultaneously in Canada.No part of this publication may be reproduced, stored in a retrieval system or transmittedin any form or by any means, electronic, mechanical, photocopying, recording, scanningor otherwise, except as permitted under Sections 107 or 108 of the 1976 United StatesCopyright Act, without either the prior written permission of the Publisher, orauthorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 750-4744. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 605 Third Avenue, New York, NY 10158-0012, (212) 850-6011, fax (212) 850-6008, E-Mail: PERMREQ @ WILEY.COM.This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is notengaged in rendering professional services. If professional advice or other expert assistanceis required, the services of a competent professional person should be sought.Library of Congress Cataloging-in-Publication Data:Bernstein, Richard, 1958–Navigating the noise : investing in the new age of media and hype / Richard Bernstein.p.cm.Includes bibliographical references and index.ISBN 0-471-38871-8 (cloth : alk. paper)1. Investments.2. Investment analysis.I. Title.HG4521 .B445 2001332.6—dc212001017840Printed in the United States of America.10 9 8 7 6 5 4 3 2 1 To Chris and Sara ContentsAcknowledgmentsixIntroductionxiChapter 1What Is Noise?1Chapter 2The Risks of Do-It-Yourself Investing: What You Don’t Know Could Hurt Your Performance25Chapter 3Noise and Expectations: What Goes Around, Comes Around51Chapter 4Noise and Long-Term Investment Planning71Chapter 5Noise and Diversification91Chapter 6Noise, Risk, and Risk Assessment113Chapter 7Investment Losses, Time Horizon, and Risk133Chapter 8Don’t Search for Good Companies, Search for Good Stocks157Chapter 9What Makes a Good Analyst?183vii Chapter 10 Growth and Value and Noise205Chapter 11 A Preflight Checklist227Glossary of “Noisy” Terms235Notes239Index247viiiContents AcknowledgmentsIf I thank anyone for their help in producing this book, it must be my teamat Merrill Lynch: Kari Bayer, Lisa Kirschner, and Lynette Phillips. Theirefforts have been invaluable in making us the top-ranked quantitative strat-egy team in the United States for the past six years. Many of the graphs andtables produced in this book are the result of their tremendous researchefforts. The newest member of our group, Kevin Lui, should also be recog-nized for his recent contributions. Other members of the department whosethoughts are included in this book in various forms are Nigel Tupper, Car-rie Zhao, Satya Pradhuman, Markus Barth, Steve Kim, Diane Garnick, andthe late Kevin Augustine.To thank every colleague at Merrill Lynch who has somehow helpedwith this effort would require an entire separate book. There are some,however, who deserve special recognition for their help, support, and ideas:Jasper Boersma, Patrick Brady, Mallory Bradshaw, Don Bronstein, TrishBurger, Chris Burns, Bob Ciullo, George Clark, Gerald Cohen, ZeeCrocker, Tim Cross, Alastair Coutts, Dan Dolan, Bob Farrell, Sr., Bob Far-rell, Jr., Marty Fridson, Frank Gorke, Mike Heffner, Brian Hull, RichardKlein (you still have to pay for a copy though), Steve Lamon, James Lam-ont, Dick McCabe, Bill McIlroy, Marthe McLinden, Bob Malloy, AndyMelnick, Steve Milunovich, Peter Mitsakos, Jeff Peek, Stan Rubin, DeepakRaj, Jose Rasco, Mason Rees, Susan Riordan, Mike Rothman, William Rus-sell, Ron Santangelo, Stan Shipley, Steve Spence, Bruce Steinberg, Johnix Sullivan, John Svolos, Tom Truckenmiller, Paul Van Cura, Dave Webb,and Scott Weisenberger.Thanks also to the many clients who have taught me a great dealabout understanding the financial markets. I am particularly grateful toJohn Raphael and Joe Higgins at Swiss Re, Stan Dinsky and Eli Salzman atLord Abbett, Bahaa Fam at Fidelity, Bernie Tew at QED Investments, theentire crew at Alliance Capital Management in Minneapolis and Chicago,and Jean Ledford at Evergreen. The “Fun Bunch” deserves special mention:Bill Peterson, Bill Riegel, and Bob Nemeth. In addition, thanks to all myfriends and associates in the Chicago Quantitative Alliance and in the QGroup. Thank you to my colleagues on the Hamilton College EndowmentCommittee whose diverse opinions I always enjoy.Last, but proverbially not least, I sincerely thank Bill Falloon, JenniferMacDonald, and Alexia Meyers at John Wiley and Sons, and Bernice Pet-tinato at Beehive Production Services. Their prodding, patience, and guid-ance have been wonderful.I want to emphasize several things. First, the thoughts and ideasexpressed in the book are my own and not necessarily shared by the peopleI have mentioned or by my firm, Merrill Lynch. Second, a critic of my ear-lier book, Style Investing, pointed out that I spelled some of the names incor-rectly in the acknowledgement section of that book. That was particularlycareless on my part, and I hope I have given a better effort this time.Because of that experience, I specifically remind readers that any errors inthe book are mine.xAcknowledgments Introduction“Content is king” is a hackneyed phrase used by firms to rationalize theirinformation strategies. Some firms believe there is so much informationavailable today that only the most relevant or important information willattract viewers, listeners, or readers. Major corporate strategies have beenplanned and executed based on the “content is king” theory because manyfirms apparently believe only they offer important information. They takeextraordinary measures to get information users to notice and appreciatetheir superiority. However, have you ever heard a firm admit that theircontent is a waste of time?Equity investors today are on the receiving end of all this “content isking” craziness. There are probably too many investment magazines, toomany investment websites, too much stock research, and too many invest-ment-related television and radio shows. It is questionable whetherinvestors are getting better investment information today than ever beforeas many believe. However, regardless of whether or not the quality of infor-mation has improved, the price to receive information appears to be high.In exchange for a few bits of important facts, investors are being smotheredby useless information. Although some information may indeed rate “king”status, the vast majority of it probably ought to be classified as “junk.”Because of the overwhelming amount of information, “king” is notcontent but rather the ability to sift the overwhelming amount of data andinformation that bombards investors today to determine which data arexi actually relevant. Investors are showered with so much irrelevant informa-tion, or noise, that the truly relevant information gets quickly buried oroverlooked as being too obvious to be important. Investors probably need agreat deal less information than is available to make an informed invest-ment decision. More important, they need less information than they thinkthey need.Although there is clearly no way to prove this, I believe an increasednumber of bad investment decisions are being made because of theincreased availability of information. Every day I see investors make signif-icant decisions based purely on noise and not on good investment funda-mentals. Rumor, innuendo, chat rooms, whisper numbers, and stock pricemomentum have replaced strategic planning, fundamental research, disci-plined investment approaches, and risk analysis. So much informationseems to be moving so rapidly that many investors are afraid to be idlebecause they believe the opportunity cost of not reacting is exceptionallyhigh. Just as the drug addict believes life is impossible without a daily fix,today’s investors find it inconceivable that life might be better without somuch information. Investors find it hard to believe that ignoring the vastmajority of the investment noise might actually improve investment per-formance. The idea sounds too risky because it is so contrary to theiraccepted and reinforced actions. (Author’s note: As I was reviewing a ver-sion of this manuscript on a commuter train to work, I realized that anadvertisement for an online investment news service directly opposite mewas specifically targeted to reinforce that fear. Its tag line read, “Ignore usat your own risk.”)Sifting information for the few nuggets of gold is certainly important,but so is slowing down the entire investment process. Information seems notonly to be abundant, but its flow seems torrential. Investors sometimes seemto be fighting to keep up with the flow, forgetting to stop to understand whatis flowing by them. Events appear to happen so fast these days that investorsfeel the urge to act quickly and frequently. It may be impossible to find thegolden nuggets if you do not take the time to examine your sifter. When Iwas a child, my grandmother thought everyone drove too fast. “Slow down.I want to smell the flowers,” she would always say. I think that is good advicefor today’s investors as well: “Slow down and smell the flowers.”“You have to see the forest through the trees” is an old Wall Streetsaying. It refers to situations in which we are so bogged down in minutiae,that we do not see the obvious. Today, investors focus on the leaves, and doxiiIntroduction not even realize that there are branches, trees, and a forest. I see portfoliomanagers whose desks are covered with more and more quote machines andcomputer screens as they attempt to keep up with every bit of informationproduced that might even remotely affect their stocks. In my mind, themore they try to keep up with the flow of information, the further behindthey fall.Let’s take a noninvestment example from everyday life to demon-strate how we allow unimportant, trivial, and sometimes inaccurate infor-mation to control our lives, while we ignore information that has a highprobability of being correct because it seems obvious and unimportant. Ifind that weather forecasts have much in common with Wall Street fore-casts. Both sets of forecasters claim to have superior forecasting and timingskills and to utilize improved technology that makes today’s forecasts betterthan in the past.Every Monday night, a lot of people watch the five-day weather fore-cast to get a first glimpse of the upcoming weekend’s weather. We know theprobability is low that Monday’s forecast for Saturday will be correct, but westill want to know the forecast. We feel we need the information eventhough we basically know it is worthless. In fact, we consider those five-dayweather forecasts so important that television program directors like totease us with bits of them and hold the forecasts until the end of the show.(Quite good for Nielson ratings but not for going to bed early.)In addition, most television stations now advertise the advanced tech-nology their weather forecasters use with the implication that better tech-nology leads to more accurate weather forecasts. If they wanted to trulyimpress viewers, they would show statistically how inaccurate their forecastswere before the new technology was installed and how much improved theforecasts are subsequent to the installation. I am all for technology, pleasedo not miss the point here, but useful technology should improve our lives.I still cannot set firm plans on Monday for the weekend, and weather-related delays still hamper my travel plans.There are other weather-related forecasts that are accurate 100% ofthe time, but we generally consider them worthless or obvious. For example,I can say with nearly 100% accuracy that sane people will not be outdoorswearing shorts, T-shirts, or bathing suits in Minneapolis in late January. Anobvious statement, but I bet my prediction is more likely to come true thanwill this Monday’s forecast for Saturday regardless of what new computer orDoppler technology the weatherperson uses.Introductionxiii There are basic conditions that have a very high probability of successin the stock market but are considered mundane or obvious, just as is myforecast for late January in Minneapolis. Instead of paying attention to theobvious routes to success, investors are chasing after every new bit of infor-mation produced by every new technology.This example characterizes the stock market more than most mightthink. Everyone wants to know how the stock market is going to performfor a finite and typically short period. Often, when I have been interviewedfor television, I am steered away from comments that are longer term andhave a higher probability of being correct and toward comments regardingwhat my view is on the stock market’s return for the next week or month.The probability of short-term market forecasts being consistently correct isprobably no higher than is that associated with Monday’s forecast for Sat-urday’s weather.Some television stations now post reporters on trading floors atexchanges, and they report investment information measured in minutes.Such reporting is very similar to the poor reporters who must give hurricanereports from the waterfront. In one case the reporter is being buffeted by100-mile-per-hour winds and by traders in the other. In both cases, thereporters tend to report eye-catching but probably worthless information.Yes, there are high winds and strong surf during a hurricane. Yes, stock trad-ing becomes more frantic when unexpected news is announced.Imagine if an analyst were interviewed on television and simply saida diversified portfolio of stocks outperforms over the long term. The inter-viewer would most likely comment that everyone knows that fact, but view-ers are interested in the analyst’s outlook for the market during the nextweek or subsequent to the 9:30 A.M. open. Whether it is weather (it will becold in Minneapolis in January) or the stock market (a diversified port-folio of stocks outperforms over the long term), the obvious is rarely goodentertainment.Go one step further with my analogy. Similar to all the new technol-ogy used to predict Saturday’s weather on Monday, think of all the newtechnologies being employed to predict superior stock returns: neural net-works, quantitative models, Brownian motion, oscillators, behavioralfinance, optimization algorithms, options theory, game theory, and on andon. Yet portfolio performance has generally been no better than beforethese investment technologies existed. Some would argue performancemight even be worse than before.xivIntroduction I am often asked what the key is to successful investing. Because I ama so-called quantitative analyst at a major Wall Street firm, people expectme to describe some technologically advanced method. However, myresponse is nearly always “buy low, sell high.” This response gets polite gig-gles, and people generally ask the question again reminding me that theirquestion was indeed a serious one. My response to their question is indeedsomewhat tongue in cheek, but, realistically, I have not met many investorswho can consistently buy low and sell high. I do know many whose com-puter and information budgets are growing exponentially.This book attempts to help both professional and individual investorssift through all the noise and hype to find true investment information.This is not a how-to book. It will not provide readers with the Holy Grailfor picking stocks. This is not a book for day traders who have becomeinformation junkies and are so addicted to Wall Street’s noise that theyhave quit their regular jobs. This book will, however, provide simple, and insome cases obvious, concepts of investing that will help investors determinethe difference between noise and true investment information.The book begins by giving the reader some basic background. Chap-ter 1 defines investment noise and demonstrates how ubiquitous and insid-ious it is. Chapter 2 discusses noise and the do-it-yourself syndrome that isinvading investing. Not everyone will agree with the term syndrome, but,regardless, the do-it-yourself mentality is changing the industry. I will statethe following right up front: In my opinion, investing by yourself andattempting to decipher and digest all the investment noise and hype is aplan for failure or at least for subpar results. Certainly, you can invest byyourself. However, I would suggest that individuals wishing to do so take aboring route with a proven track record: index funds. Chapter 3 outlineshow expectations change and, more important, how noise influences in-vestors’ expectations.Chapters 4 through 7 discuss planning, diversification, risk, and riskperception. Investors tend to recklessly bandy these terms with little under-standing. Therefore, this group of chapters is as appropriate for professionalinvestors as it is for individual investors. One of the main points of thesechapters is that it is virtually impossible to assess your own risk tolerance.Very few people can objectively critique themselves, and the psychologicalaspect to investing should never be ignored. For example, when askedwhether you like to take risk in your investment portfolio, you mightrespond differently depending on who asked the question. You might notIntroductionxv want to appear too wimpy if you had already portrayed yourself as an expertor appear too aggressive if you don’t fully trust the person who asked. Also,risk is a relative term. What you might consider extremely risky, someoneelse might consider very conservative.Investors’ risk tolerances tend to change according to their time hori-zons. Strategic plans should consider both the time horizon and the timingof future liabilities. If you are saving for a child’s college education, yourattitude toward risk might be completely different when the child is 3 thanwhen the child is 18 and entering college in several months. Similarly, apension fund for a very young workforce should be managed quite differ-ently, in my view, from one that has a steady stream of retirees.Most investors think of diversification as a tool to enhance returns.They are shown charts that imply that mixing assets not only produceshigher returns but also helps us sleep at night. One rule that is nearly alwaystrue when investing is that there is no “free lunch.” Those charts that seemto offer higher returns with less risk generally are based on very long timeperiods and fail to outline how consistent the returns are year by year. Overa 20- or 30-year period, the combination of assets might indeed yield higherreturns with less risk, but that says nothing about shorter-term results. Thus,people diversify and often quickly become disenchanted with the strategy.“If I had only left all my money in XYZ stock, I would have made more thanif I had split my investment into three different companies’ stocks,” theymight say. Diversification is a risk-reduction tool, not a return-enhance-ment tool. If you want to sleep at night, then you diversify. If you wanthigher returns, then strap on your seatbelt. History has shown that it isextremely rare to achieve very high returns and sleep at night. Perhaps moreimportant, I have never seen a study that indicates you can achieve higherreturns with less risk by listening to noise and trading more frequently.Noise traders can indeed achieve higher returns but typically must do sowhile incurring higher risks.Here is a quick check to see if you have assessed your own risk toler-ance correctly. Have you ever been very worried or not been able to sleepwhen the stock market tumbled on a particular day or when a stock’s pricewas cut in half before you blinked? Do you worry so much that you cannotdecide whether to sell the stock because it is going down or to hang onbecause you think it will rebound? (Be honest!) If you even consideranswering these questions affirmatively, then you should familiarize yourselfwith the risk assessment chapters of this book because the odds are you havexviIntroduction incorrectly assessed your own risk tolerance. If you had assessed it properly,then the day-to-day gyrations of the stock market or of a particular stockshould have no impact on your ability to sleep at night.Different investors actually have different concepts of risk. Some con-sider risk to be the uncertainty of an outcome. Traditional academic stud-ies use this definition and base risk on a statistical measure called standarddeviation. Others simply define risk as the probability of losing money or theprobability of the investment falling short of some goal. Most risk/returnstudies incorporate the academic definition of risk. However, I have testedmany investors to uncover their definitions of risk and more than 95% ofthem more closely associate risk with the probability of losing money. Laterin the book, you can take some simple tests to determine how you define risk.In addition, we examine time horizons. One of the simplest methodsfor filtering noise is to extend your time horizon. This technique is proba-bly appropriate for many individual investors, but they tend to ignore it.Individual investors are increasingly saving for their future retirement andshould be significantly extending their time horizons unless they are closeto retirement. Ironically, their time horizons are getting shorter and shorter.A short time horizon for a long-duration liability does not make a lot ofsense. I rarely monitor the performance of the mutual fund in which I investmy IRA. I know they are good managers, so why worry about every gain orloss for an investment I cannot touch for nearly 20 years? This chapter alsoshows why day trading is a sure route to investment failure.Next, chapters 8, 9, and 10 examine how to actually filter noise toadvantage. These chapters examine what makes a good analyst, outline thedifferences between a good company and a good stock, and define whatmakes a good investor. You can filter much noise simply by better under-standing the adjective “good.”Truly insightful analysts are rarer than most think. There is a thin linebetween analysis and reporting, and many analysts simply report. Analystsand portfolio managers tout stocks on television or expertly assert a stock’s“story” in the printed financial media. Putting it simply, the story is typi-cally noise. It helps the successful investor very little. You might hear thesame story from every analyst who follows the stock, and some might evenjust parrot a story that the company wants Wall Street to believe. However,research has shown that truly insightful analysts can add tremendous valueto the investment process. I outline in Chapter 9 several methods to objec-tively search for such true insight.Introductionxvii Investors often talk about “good” companies with good management,good products, and good growth prospects. However, believe it or not,“bad” companies significantly outperform “good” companies over the longterm. Your focus, then, should probably be on “good” stocks rather than“good” companies. After all, if you know it is a good company, and I knowit is a good company, most other investors probably know as well. The oddsare the current stock price already reflects the company’s quality. Contraryto popular belief, bad companies actually make good stocks. Investors are soafraid of bad companies that they tend to ignore those companies’ improv-ing fundamentals. Investors generally become interested only after the con-sensus asserts that a bad company has turned into a good company.Chapter 10 examines style investing and what truly drives style rota-tion. Growth managers tell you growth outperforms over the long term.Value managers tell you value outperforms over the long term. My researchsuggests that they basically perform the same over the long term, but thereare tremendous cycles of style investing that can be used to advantage.Finally, Chapter 11 is a summary that offers a simple checklist for fil-tering noise based on the 10 previous chapters.I try to recognize my potential biases. Some will criticize my viewsexpressed in this book as biased because I work for a major brokerage firm.They might claim I have a vested interest in people believing the playingfield cannot be leveled, and there is too much information for individualsto digest. First, I make no assumption that professionals can decipherinvestment information from noise and hype any more successfully thancan individual investors. Even Chapter 2 on do-it-yourself investing isgeared toward plan sponsors, portfolio managers, and trust officers as muchas toward individual investors. Second, my opinions about investing werewhat originally led me to work for a major brokerage firm. My firm has notmolded my opinions regarding investment strategies and investors’ abilitiesto implement them. Rather, my beliefs have molded my career. The signif-icant changes to our industry during the past five years or so have had noimpact on my views regarding what makes an investor successful.The bull market of the 1990s made many investors feel smart, but itwas a false sense of security. Few investors I have met, whether professionalor individual, understand the difference between noise and true investmentinformation. Those who do understand the differences are generally quiteboring. They are not day traders who overreact to every tiny bit of infor-mation, and they don’t get their investment ideas from interviews on tele-xviiiIntroduction vision. They realize true investment information does not come in two-minute sound bites or tips in a chat room. Rather, they understand that trueinvestment information is relatively rare, but when discovered leads toyears, not minutes or days, of outperformance. They would rather sleep atnight than trade after hours. They would rather spend time with their chil-dren or grandchildren than update price charts every minute. They wouldrather fish in a stream than watch streaming quotes. They realize that ifthey have invested intelligently, today’s news will probably have littleimpact on their retirement account or portfolio performance. They gener-ally have a strategic plan, and they stick to it.I do expect investors to enjoy reading this book, but my guess is fewwill ultimately follow its guidance. The ever-present noise in the financialmarkets is very powerful and insidious. There are too many entities sellingnoise for an investor not to eventually succumb. If readers remember onlyone thing from this book on navigating noise, I would hope it would be thefollowing: The more investment information there is, the less of it oneneeds to listen to.Introductionxix Chapter 1What Is Noise?Noise (physics): A usually persistent disturbance that obscuresor reduces the clarity of a signal.—American Heritage DictionaryWe can make more intelligent and informed decisions in today’s media,Internet, and information age than we ever could before. For example, wecan shop more effectively and efficiently by using the Internet because itprovides us with the potential savings of buying an item at lower cost, andallows us to avoid the time, frustration, and fuel costs of comparison shop-ping in person. If you are buying a CD by a specific performer on the Inter-net, the facts are pretty clear. You want the specific CD by the specificartist. It is easy to decipher the information. There are no intangible issues.The CD is identical regardless of where you buy it. One online store mightcharge $15 with free shipping, whereas another might charge $14 for thesame CD, but charge $5 for the same shipping. The choice is obvious: $15is cheaper than $19. This discussion would be the same whether it con-cerned a CD, a car, a TV, or groceries. The goods under consideration areessentially commodities and are identical regardless of where purchased.The prices paid, and perhaps follow-up service received, are the primarydiscriminating characteristics. Multiply this analogy by the number ofcatalogue stores and physical stores, and it is no wonder why Americanshave become so price conscious.1 It is arguable, however, whether today’s tremendous amount of infor-mation regarding investments is similarly beneficial. Most would say it isindeed beneficial because the abundance of information levels the playingfield between professional investors and individuals. No longer do selectgroups benefit from information others do not have. The barriers have beenbroken down. By using the information on the Internet, in financial maga-zines and newsletters, and on television and radio, most individual and pro-fessional investors now have equal access to investment information.FORGET “LEVELING THE PLAYING FIELD”—ARE INVESTORSACTUALLY PROFITING FROM THIS STUFF?Contrary to what most people believe and many advertisements claim, therehave never been barriers that prevented individual investors from obtain-ing the same information to which professionals had access. Everyone hasalways had equal access to investment information. Of course, I am refer-ring to legal information. Inside information, stock manipulation, selectivedisclosure and the like are illegal because they specifically hinder a fair andopen market. Legal information has always been available to both the pro-fessional and individual investor. Admittedly, it was not necessarily easy toobtain, but it was always available to the investor who wanted to spend thetime acquiring the information. Even professional investors had to workharder to obtain information before the invention of computers, financialdatabases, stock quote machines, and financial television channels (althoughsome would loathe the inclusion of the latter!). The media and informationage and the Internet have not broken down some romantic David andGoliath notion of a barrier between individual and professional investors.They have simply made it easier for everyone to obtain information.The point is not whether the playing field has been leveled and whetherindividual investors have the same tools as professionals. Rather, it is whetherall this information is actually helping people invest more profitably regard-less of whether they are professionals or individuals. In other words, is anyoneactually making money from all this stuff? Some investors might indeed bebenefiting, but my guess is the vast majority of investors’ portfolios are notperforming better because of the increased availability of information.Investment information is easier to obtain, and there certainly aremany more sources of investment information than there were only a shorttime ago. That, in and of itself, is actually a problem in my view. The more2Navigate the Noise information available to us, the more we must necessarily understand tomake the information worthwhile, to extract useful information from thenoise. The more numerous the sources of information, the longer we mustsearch for one having the best answer to our inquiry. There is a tradeoffbetween the time needed to understand and digest information and theincremental benefit derived from it. Thus, the spreading abundance ofinformation means the marginal benefit of additional information may benegative. It is not a problem that people have greater access to information.The problem is the greater availability of information may be hurting theinvestment process instead of helping it. We no longer have to search forinformation, but we now must spend more time assessing its relevance andhoping we have analyzed the important issue correctly.Information is increasingly easier to obtain regardless of an investor’slevel of sophistication. Everyone has greater access to information. The advan-tages that exist for professional investors, and will always exist if you ask me,are attributable to the simple fact that they are professionals and not becausethey have privileged access to information. The professional’s advantage didnot disappear as news dissemination evolved from the town crier to the nightlynews, yet it is curious that everyone now thinks the playing field has miracu-lously been leveled. Personally, I think it is impossible to completely level theplaying field. We might be smarter investors to admit it. People do not attemptto remove their own gall bladders. F...


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