There is a lot of misinformation,
irrelevant data or useless noise in the market place. Thanks
to the popular media such as CNN, newspapers, radio, T.V.,
Internet, etc., investors are constantly bombarded by an
incessant stream of clatter, much of which is not germane to
effectual investment. Analogously speaking, this is similar
to the proverbial red herring which is laid out to set the
bloodhounds or in this particular case, investors, on a wild
goose chase.
The challenge to market participants,
I believe, is to block out all the non-essential information
and to focus on the relevant facts. Unfortunately, this task
is easier said than done since purveyors of information,
whether they be stockbrokers, T.V. or radio newsreaders,
presume that all knowledge is important. In reality, it is
not so.
As an investment manager I can attest
to the point of unnecessary noise. Like many portfolio
managers, I am constantly peppered with telephone callers
who claim to have some extraordinary spin or edge on a
particular investment; in the majority of cases they do not.
My incoming emails include at least 500-600 entries a day
and my inbox contains innumerable faxes and investment
analyst reports. But limited time and reducing the risk of
wandering on an irrelevant investment tangent force me to
diligently skim through this investment flow to separate the
inconsequential noise from that which is meaningful. One
must, however, be careful. In one’s haste to delete
unimportant emails or to toss out a pile of worthless faxes,
one may inadvertently throw out that one genuine piece of
information that may lead to a ”diamond in the rough.”
In a nutshell, the task of screening
and sorting out the good from the bad noise is quite
challenging and all-important. It requires focus,
perseverance and, at times, brutal frankness to those who
deliver the noise. However, in the end, I believe the final
result leads to effective, concentrated analysis and
superior, long term investment returns.
Irwin A. Michael, CFA
